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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10/A
(AMENDMENT NO. 1 TO FORM 10)
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12(g) OF
THE SECURITIES EXCHANGE ACT OF 1934
QUESTAR MARKET RESOURCES, INC.
(Exact name of registrant as specified in its charter)
UTAH
(State or other jurisdiction of
incorporation or organization)
180 East 100 South
P.O. Box 45601
Salt Lake City, Utah 84145-0601 (Zip Code)
(Address of principal executive offices)
87-0287750
(I.R.S. Employer Identification No.)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (801) 324-5202
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS TO BE SO REGISTERED
NONE
NAME OF EACH EXCHANGE ON WHICH EACH CLASS IS TO BE REGISTERED
NONE
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $1.00 PAR VALUE
(Title of class)
REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTIONS I1(a)
AND (b) OF FORM 10-K AND IS THEREFORE FILING THIS FORM WITH THE
REDUCED DISCLOSURE FORMAT.
TABLE OF CONTENTS
Page
Item 1. Business.................................................4
Item 2. Financial Information...................................12
Item 3. Properties..............................................19
Item 4. Security Ownership of Certain Beneficial Owners
and Management.......................................27
Item 5. Directors and Executive Officers........................27
Item 6. Executive Compensation..................................28
Item 7. Certain Relationships and Related Transactions..........28
Item 8. Legal Proceedings.......................................28
Item 9. Market Price of and Dividends on the Registrant's
Common Equity and Related Stockholder Matters........30
Item 10. Recent Sales of Unregistered Securities.................30
Item 11. Description of Registrant's Securities to be Registered.30
Item 12. Indemnification of Officers and Directors...............30
Item 13. Financial Statements and Supplementary Data.............31
Item 14. Changes in and Disagreements with Accountants and
Financial Disclosure.................................60
Item 15. Financial Statements and Exhibits.......................60
GLOSSARY OF COMMONLY USED OIL AND GAS TERMS
"Bbl" means barrel. One barrel is the equivalent of 42 standard U.S.
gallons.
"Bcf" means billion cubic feet, a common unit of measurement of
natural gas.
"Bcfe" means billion cubic feet of natural gas equivalents. Oil
volumes are converted to natural gas equivalents using the ratio of
one barrel of crude oil to six million cubic feet of natural gas.
"Btu" means British thermal unit, measured as the amount of energy
required to raise the temperature of one pound of water one degree
Fahrenheit.
"Completion" means the installation of permanent equipment for the
production of oil or natural gas, or in the case of a dry hole, the
reporting of abandonment to the appropriate agency.
"Development well" means a well drilled into a known producing
formation in a previously discovered field.
"Dry hole" means a well found to be incapable of producing
hydrocarbons in sufficient quantities such that proceeds from the sale
of such production exceed production expenses and taxes.
"Dth" means decatherms or ten therms. One decatherm equals one
million Btu.
"Exploratory well" means a well drilled into a previously untested
geologic structure to determine the presence of oil or gas.
"Gross" natural gas and oil wells or "gross" acres equals the number
of wells or acres in which we have an interest.
"MBbls" means thousand barrels.
"Mcf" means thousand cubic feet.
"Mcfe" means thousand cubic feet of natural gas equivalents.
"MDths" means thousand decatherms.
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"MMBbls" means million barrels.
"MMBtu" means million British thermal units.
"MMcf" means million cubic feet.
"MMDth" means million decatherms.
"Net" gas and oil wells or "net" acres are determined by multiplying
gross wells or acres by our working interest in those wells or acres.
"NGL" means natural gas liquids.
"Proved reserves" means those quantities of natural gas and crude oil,
condensate, and natural gas liquids on a net revenue interest basis,
which geological and engineering data demonstrate with reasonable
certainty to be recoverable under existing economic and operating
conditions. "Proved developed reserves" include proved developed
producing reserves and proved developed behind-pipe reserves. "Proved
developed producing reserves" include only those reserves expected to
be recovered from existing completion intervals in existing wells.
"Proved undeveloped reserves" include those reserves expected to be
recovered from new wells on proved undrilled acreage or from existing
wells where a relatively major expenditure is required for
recompletion.
"Reservoir" means a porous and permeable underground formation
containing a natural accumulation of producible natural gas and/or oil
that is confined by impermeable rock or water barriers and is separate
from other reservoirs.
"Working interest" means an interest that gives the owner the right to
drill, produce, and conduct operating activities on a property and
receive a share of any production.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Form includes "forward-looking statements" within the meaning of
Section 27(a) of the Securities Act of 1933, as amended, and Section
21(e) of the Securities Exchange Act of 1934, as amended. All
statements other than statements of historical facts included or
incorporated by reference in this Form, including, without limitation,
statements regarding the Company's future financial position, business
strategy, budgets, projected costs and plans and objectives of
management for future operations, are forward-looking statements. In
addition, forward-looking statements generally can be identified by
the use of forward-looking terminology such as "may", "will", "could",
"expect", "intend", "project", "estimate", "anticipate", "believe",
"forecast", or "continue" or the negative thereof or variations
thereon or similar terminology. Although these statements are made in
good faith and are reasonable representations of the Company's
expected performance at the time, actual results may vary from
management's stated expectations and projections due to a variety of
factors.
Important assumptions and other significant factors that could cause
actual results to differ materially from those expressed or implied
in forward-looking statements include changes in general economic
conditions, gas and oil prices and supplies, competition, regulation
of the Wexpro settlement agreement, availability of gas and oil
properties for sale or for exploration and other factors beyond the
control of the Company. These other factors include the rate of
inflation, the weather and other natural phenomena, the effect of
accounting policies issued periodically by accounting standard-setting
bodies, and adverse changes in the business or financial condition of
the Company.
The Company does not undertake an obligation to update forward-looking
information contained herein or elsewhere to reflect actual results,
changes in assumptions or changes in other factors affecting such
forward-looking information.
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ITEM 1. BUSINESS
General
Questar Market Resources Inc. (the "Company" or "QMR", which reference
shall include the Company's wholly-owned subsidiaries) is a
wholly-owned subsidiary of Questar Corporation. Questar Corporation
("Questar") is a publicly traded (NYSE: STR) diversified natural gas
company with two principal business units - Market Resources and
Regulated Services.
QMR and its subsidiaries comprise the Market Resources unit of Questar
and as such engage in oil and gas exploration, development and
production; gas gathering and processing; wholesale gas, electricity,
and hydrocarbon liquids trading; and the acquisition of producing oil
and gas properties. As noted in the following Questar organization
chart, QMR is a subholding company of Questar that conducts its
activities through Questar Exploration and Production Company
("Questar E&P") and its Canadian subsidiaries Celsius Energy Resources
Ltd. ("Celsius Ltd.") and Canor Energy Ltd. ("Canor"); Wexpro Company
("Wexpro"); Questar Gas Management Company ("Questar Gas Management");
and Questar Energy Trading Company ("Questar Energy Trading").
Questar Corporation
Questar InfoComm, Inc. (Information Services)
Questar Market Resources, Inc. (Subholding Company)
Wexpro Company (Manages and develops cost of service properties for
Questar Gas)
Questar Exploration and Production Company (Exploration
and Production)
Celsius Energy Resources Ltd. and Canor Energy Ltd.
(Exploration & Production - Canada)
Questar Energy Trading Company (Wholesale Energy Marketing)
Questar Gas Management Company (Gathering and Processing)
Questar Regulated Services Company (Subholding Company)
Questar Gas Company (Retail Distribution)
Questar Pipeline Company (Transportation and Storage)
Management of Questar has identified QMR as the primary growth area
within Questar's business strategy. Questar expects to spend 70% of
its capital budget funds over the next five years on non-regulated
activities, primarily within QMR, to expand reserves through drilling
and acquisitions and to enlarge its infrastructure of gathering
systems, processing plants, header facilities, and nonregulated
storage facilities. Management of QMR believes that the diversity of
the activities pursued by QMR enhances its basic strategy to pursue
complementary growth. As the exploration and production companies
find or acquire new reserves, Questar Gas Management should have more
opportunities to expand gathering and processing activities, and
Questar Energy Trading should have more physical production to support
its marketing programs.
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Business Strategy
QMR believes it can best meet and balance the expectations of its
parent and fixed income investors by pursuing the following strategies
in its business:
* achieve a prudent, disciplined program to grow reserves
* provide stakeholder value performance in both the short and long term
* employ hedging and other risk management tools to manage cyclicality
* maintain a strong balance sheet that permits prudent growth
opportunities
* maintain a portfolio of quality drilling prospects
* identify and divest non-core and marginal assets and activities
* proactively avoid litigation risks
* employ technology and proven innovations to reduce costs
Oil and Gas Exploration and Production - Questar E&P, Celsius Ltd.,
and Canor
Together, QMR's exploration and production ("E&P") subsidiaries form a
unique E&P group that conducts a blended program of low-cost
development drilling, low-risk reserve acquisition, and high-quality
exploration. A low-risk oil and gas reserve acquisition is considered
by QMR to be one where (i) existing proved developed producing
reserves make up a substantial percentage (75%+) of the overall value
of the transaction with the remaining value supported by proved
undeveloped reserves recognized by the seller or developed by QMR;
(ii) cash flow from the properties, and/or borrowing capacity
associated with the properties, is sufficient to support development
of the acquisition properties; and (iii) the geographic location of
the properties and the technology required to develop the underlying
reserves are within our known areas of expertise. The E&P group also
maintains a geographical balance and diversity, while concentrating
its activities in core areas in which it has accumulated geologic
knowledge and developed significant management expertise. Core areas
of activity include the Rocky Mountain Region of Wyoming and Colorado;
the Mid-Continent Region of Oklahoma, the Texas Panhandle, East Texas,
and the Upper Gulf Coast; the Southwest Region of northwest New Mexico
and southwest Colorado; and the Western Canada Sedimentary Basin
located primarily in the Canadian province of Alberta.
At December 31, 1999, the Company had proved reserves of 597.6 Bcfe
of natural gas, crude oil and natural gas liquids associated with its
oil and gas exploration and development activities. On an energy
equivalent basis ratio of six Mcf of natural gas to one Bbl of crude
oil or natural gas liquids, natural gas comprised 86% of total proved
reserves. Proved developed reserves comprised 84% of the total proved
reserves on an energy equivalent basis.
A detailed description of the Company's proved reserves and their
geographic diversity can be found under "Item 3. Properties." These
proved reserve volumes do not include the cost of service reserves
managed and developed by Wexpro for Questar Gas Company, an affiliate
of the Company ("Questar Gas"). See "Development and Production -
Wexpro" below.
Development and Production - Wexpro
QMR conducts development drilling and provides production services to
Questar Gas through Wexpro. Wexpro was incorporated in 1976 as a
subsidiary of Questar Gas. Questar Gas' efforts to transfer producing
properties and leasehold acreage to Wexpro resulted in protracted
regulatory proceedings and legal adjudications that ended with a
court-approved settlement agreement that was effective August 1, 1981.
A summary of the Wexpro settlement agreement is contained in Note 10
of the Notes to Consolidated Financial Statements under Item 13 of
this Form 10. Ownership of Wexpro was moved from Questar Gas to QMR
in 1982.
Wexpro manages and develops cost of service properties for which the
operations and return on investment are regulated by the Wexpro
settlement agreement. Cost of service reserves are derived from
properties that primarily produce oil ("productive oil reservoirs") as
well as properties that primarily produce gas ("productive gas
reservoirs"). Pursuant
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to the terms of the settlement agreement, all hydrocarbon reserves
(oil, natural gas liquids and natural gas) in productive oil
reservoirs are owned by Wexpro. All hydrocarbon reserves associated
with productive gas reservoirs are owned by Questar Gas. Wexpro
manages and develops all cost of service reserves, in accordance with
the provisions of the settlement agreement, regardless of reserve
ownership.
Wexpro, unlike QMR's other E&P companies, generally does not conduct
exploratory operations and does not acquire leasehold acreage for
exploration activities. It conducts oil and gas development and
production activities on certain producing properties located in the
Rocky Mountain region under the terms of the settlement agreement.
Wexpro produces gas from specified properties for Questar Gas and is
reimbursed for its costs plus a return on its investment. In
connection with its operations under the settlement agreement, Wexpro
charges Questar Gas for its cost plus a specified rate of return
(18.9% after tax at the end of 1999 and adjusted annually based on a
specified formula) on its net investment in such properties adjusted
for working capital and deferred taxes. Under the terms of the
settlement agreement, Wexpro bears all dry hole costs. The settlement
agreement is monitored by the Utah Division of Public Utilities, the
staff of the Public Service Commission of Wyoming ("PSCW"), and
experts retained by those agencies.
The gas volumes produced by Wexpro for Questar Gas are reflected in
the latter's rates at cost of service. Cost of service gas produced
by Wexpro satisfied approximately 49% of Questar Gas' system
requirements during 1999. Questar Gas relies upon Wexpro's drilling
program to develop the properties from which the cost of service gas
is produced. During 1999, the average wellhead cost of cost of
service gas was $1.50 per Dth, which is lower than Questar Gas'
average price for field-purchased gas. To fulfill its obligations to
Questar Gas under the settlement agreement, Wexpro must continue to be
a prudent operator.
Wexpro participates in drilling activities in response to the demands
of other working interest owners, to protect its rights, and to meet
the needs of Questar Gas. Wexpro, in 1999, produced 38.9 Bcf of
natural gas from cost of service properties and added cost of service
reserves of 52.4 Bcf through drilling activities and reserve estimate
revisions.
Wexpro has an ownership interest in the wells and appurtenant
facilities related to its oil properties and in the wells and
facilities that have been installed to develop and produce gas
properties described above since August 1, 1981.
Gathering, Processing and Marketing - Questar Gas Management and
Questar Energy Trading
Questar Gas Management conducts gathering and processing activities in
the Rocky Mountain and Mid-Continent areas. Its activities are not
subject to regulation by the Federal Energy Regulatory Commission
("FERC"), because it is not engaged in transporting gas or selling gas
for resale in interstate commerce. The Natural Gas Act of 1938
specifically provides that the FERC's jurisdiction does not extend to
facilities involved in the production or gathering of natural gas.
Questar Gas Management was formed in 1993, as a wholly-owned
subsidiary of Questar Pipeline Company, an affiliate of the Company
("Questar Pipeline"), to construct and operate the Blacks Fork
Processing Plant in southwestern Wyoming. It expanded in 1996 when
Questar Pipeline transferred its gathering assets and activities to
Questar Gas Management. In mid-1996, ownership of Questar Gas
Management was moved from Questar Pipeline to QMR and Questar Gas
Management acquired the processing plants that formerly belonged to
Questar E&P.
Questar Gas Management's gathering system, which consists of 1,400
miles of gathering lines, compressor stations, field dehydration
plants, and measuring stations, was largely built to gather production
from Questar Gas' cost of service properties. Under the terms of a
contract that was assigned with the gathering assets from Questar
Pipeline, Questar Gas Management is obligated to gather Questar Gas'
cost of service production for the life of the properties. During
1999, Questar Gas Management gathered 32.1 MMDth of natural gas for
Questar Gas, compared to 29.9 MMDth in 1998, for which it received
$4.7 million and $5.0 million in demand charges in 1999 and 1998,
respectively, from Questar Gas. Questar Gas Management's total gas
gathering volumes were 136.7 MMDth in 1999 compared to 120.5 MMDth in
1998.
Questar Gas Management's gathering system was originally built as part
of a regulated company. Questar Gas Management now must operate in a
different competitive environment. Often, new wells will have
connections with more than one gathering system, and producers insist
that gathering systems be tied to more than one pipeline.
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In addition to gathering activities, Questar Gas Management is also
engaged in processing activities. It owns a 50% interest in the
Blacks Fork Processing Plant, which has a daily capacity of 84 MMcf
and may be expanded during 2000. This plant, which is located in
southwestern Wyoming, strips liquids (e.g., ethane, butane) from
natural gas volumes. Questar Gas Management and Wexpro jointly own a
new processing facility located in the Canyon Creek area of
southwestern Wyoming that has an operating capacity of 45 MMcf per
day. Questar Gas Management also owns interests in other processing
plants in the Rocky Mountain and Mid-Continent areas.
Questar Energy Trading conducts energy marketing activities. It
combines gas volumes purchased from third parties and equity
production (production that is produced by other QMR subsidiaries) to
build a flexible and reliable portfolio. Questar Energy Trading
aggregates supplies of natural gas for delivery to large customers,
including industrial users, and other marketing entities. During
1999, Questar Energy Trading marketed a total of 101.1 MMDth of
natural gas, 2.0 MMBbls of liquids, and 10,000 megawatt-hours of
electricity and earned a gross profit margin of $4.1 million.
Questar Energy Trading uses derivatives as a risk management tool to
provide price protection for physical transactions involving equity
production and marketing transactions. Questar Energy Trading
executes hedges for equity production on behalf of Questar E&P and
does so with a variety of contracts for different periods of time.
See "Item 2. Financial Information - Market Risk."
As a wholesale marketing entity, Questar Energy Trading concentrates
on markets in the Pacific Northwest, Rocky Mountains, Midwest,
Southwest, California, and western Canada that are close to reserves
owned by affiliates or accessible by major pipelines.
To sustain its activities in an increasingly competitive environment
in which sellers and purchasers are becoming more sophisticated,
Questar Energy Trading needs to expand its capabilities. Through a
new limited liability company, it has filed an application with the
FERC and obtained authorization to construct and operate a private
storage reservoir in southwestern Wyoming adjacent to several
interstate pipelines and is negotiating partnerships with electricity
providers and others to obtain additional capability, expertise, and
access to sophisticated information technology.
Relationship with Questar
QMR and Questar are parties to several agreements which govern
different aspects of the QMR - Questar relationship. The more
significant of these agreements are described below. Also see Note 9
of the Notes to Consolidated Financial Statements under Item 13 of
this Form 10.
Tax Sharing Arrangement with Questar -- QMR accounts for income tax
expense on a separate return basis. Pursuant to Internal Revenue Code
regulations, the Company's operations are consolidated with those of
Questar and its subsidiaries for income tax purposes. The income tax
arrangement between QMR and Questar provides that the tax liability of
the group shall be allocated to the several members of the group on
the basis of the percentage of the total tax which the tax of such
member if computed on a separate return would bear to the total amount
of the taxes for all members of the group so computed. The Company
also receives payment for tax benefits used in the consolidated tax
return even if such benefits would not have been useable had the
Company filed a separate return.
Wexpro Settlement Agreement with Questar Gas -- Wexpro and Questar Gas
are parties to the Wexpro Settlement Agreement. Wexpro's operations
are subject to the terms of this agreement. The agreement became
effective August 1, 1981, and sets forth the rights of Questar Gas'
utility operations to share in the results of Wexpro's operations.
The agreement was approved by the Public Service Commission of Utah
("PSCU") and PSCW in 1981 and affirmed by the Supreme Court of Utah in
1983. Major provisions of the settlement agreement are as follows:
a. Wexpro continues to hold and operate all oil-producing
properties (productive oil reservoirs) previously transferred
from Questar Gas' nonutility accounts. The oil production from
these properties is sold at market prices, with the revenues
used to recover operating expenses and to give Wexpro a return
on its investment. The after tax rate of return is adjusted
annually and is
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approximately 13.7%. Any net income remaining after recovery
of expenses and Wexpro's return on investment is divided
between Wexpro and Questar Gas, with Wexpro retaining 46%.
b. Wexpro conducts developmental oil drilling on productive oil
reservoirs and bears any costs of dry holes. Oil discovered
from these properties is sold at market prices, with the
revenues used to recover operating expenses and to give Wexpro
a return on its investment in successful wells. The after tax
rate of return is adjusted annually and is approximately
18.7%. Any net income remaining after recovery of expenses
and Wexpro's return on investment is divided between Wexpro
and Questar Gas, with Wexpro retaining 46%.
c. Amounts received by Questar Gas from the sharing of Wexpro's
oil income are used to reduce natural gas costs to utility
customers.
d. Wexpro conducts developmental gas drilling on productive gas
properties (productive gas reservoirs) and bears any costs of
dry holes. Natural gas produced from successful drilling is
owned by Questar Gas. Wexpro is reimbursed for the costs of
producing the gas plus a return on its investment in
successful wells. The after tax return allowed Wexpro is
approximately 21.7%.
e. Wexpro operates natural gas properties owned by Questar Gas.
Wexpro is reimbursed for its costs of operating these
properties, including a rate of return on any investment it
makes. This after tax rate of return is approximately 13.7%.
Transportation Agreements with Affiliates -- As an affiliate of QMR,
Questar Pipeline transports natural gas produced from properties
operated by Wexpro. Questar Pipeline also transports volumes of
natural gas marketed by Questar Energy Trading, another QMR
subsidiary.
Transfer of Gas Gathering Assets -- In 1996, Questar Pipeline
transferred approximately $55 million of gas-gathering assets to its
subsidiary Questar Gas Management. Questar Gas Management was
subsequently transferred to QMR on July 1, 1996. The transaction was
in the form of a stock dividend payable to Questar, which stock
Questar then contributed to QMR.
Government Regulation
QMR's operations are subject to various levels of government controls
and regulation in the United States and Canada.
United States Regulation. In the United States, legislation
affecting the oil and gas industry has been pervasive and is
subject to continuing review for amendment or expansion. Pursuant
to such legislation, numerous federal, state and local
departments and agencies have issued extensive rules and
regulations binding on the oil and gas industry and its
individual members, some of which carry substantial penalties for
the failure to comply. Such laws and regulations have a
significant impact on oil and gas drilling and production
activities, increase the cost of doing business and,
consequently, affect profitability. Inasmuch as new legislation
affecting the oil and gas industry is commonplace and existing
laws and regulations are frequently amended or reinterpreted, QMR
is unable to predict the future cost or impact of complying with
such laws and regulations.
Exploration and Production. QMR's United States operations are
subject to various types of regulation at the federal, state and
local levels. Such regulation includes requiring permits for the
drilling of wells; maintaining bonding requirements in order to
drill or operate wells; submitting and implementing spill
prevention plans; submitting notification relating to the
presence, use and release of certain contaminants incidental to
oil and gas operations; and regulating the location of wells, the
method of drilling and casing wells, the use, transportation,
storage and disposal of fluids and materials used in connection
with drilling and production activities, surface usage and the
restoration
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of properties upon which wells have been drilled, the plugging
and abandoning of wells and the transporting of production. QMR's
operations are also subject to various conservation matters,
including the regulation of the size of drilling and spacing
units or proration units, the number of wells which may be
drilled in a unit, and the unitization or pooling of oil and gas
properties. In this regard, some states allow the forced pooling
or integration of tracts to facilitate exploration while other
states rely on voluntary pooling of lands and leases, which may
make it more difficult to develop oil and gas properties. In
addition, state conservation laws establish maximum rates of
production from oil and gas wells, generally prohibit the venting
or flaring of gas, and impose certain requirements regarding the
ratable purchase of production. The effect of these regulations
is to limit the amounts of oil and gas QMR can produce from its
wells and to limit the number of wells or the locations at which
QMR can drill.
Certain of QMR's oil and gas leases, including most of its leases
in the San Juan Basin and many of the Company's leases in
southeast New Mexico and Wyoming, are granted by the federal
government and administered by various federal agencies. Such
leases require compliance with detailed federal regulations and
orders which regulate, among other matters, drilling and
operations on lands covered by these leases, and calculation and
disbursement of royalty payments to the federal government.
Environmental and Occupational Regulations. Various federal,
state and local laws and regulations concerning the discharge of
contaminants into the environment, the generation, storage,
transportation and disposal of contaminants or otherwise relating
to the protection of public health, natural resources, wildlife
and the environment may affect the Company's operations and
costs. In particular, the Company's oil and gas exploration,
development and production operations, its activities in
connection with storage and transportation of liquid
hydrocarbons, and its use of facilities for treating, processing,
recovering or otherwise handling hydrocarbons and wastes
therefrom are subject to environmental regulation by governmental
authorities. Such regulation has increased the cost of planning,
designing, drilling, installing, operating and abandoning the
Company's oil and gas wells and other facilities. Additionally,
these laws and regulations may impose substantial liabilities for
the Company's failure to comply with them or for any
contamination resulting from the Company's operations.
QMR takes the issue of environmental stewardship very seriously
and works diligently to comply with applicable environmental
rules and regulations. Compliance with such laws and regulations
has not had a material effect on the Company's operations or
financial condition in the past. However, because environmental
laws and regulations are becoming increasingly more stringent,
there can be no assurances that such laws and regulations or any
environmental law or regulation enacted in the future will not
have a material effect on the Company's operations or financial
condition. QMR is not aware of any currently pending
environmental legislation or regulation in the United States that
would have a material adverse effect on the Company if enacted.
QMR is also subject to laws and regulations concerning
occupational safety and health. Due to the continued changes in
these laws and regulations, and their judicial construction, QMR
is unable to predict with any reasonable degree of certainty its
future costs of complying with these laws and regulations.
Canadian Regulation. The oil and gas industry in Canada is
subject to extensive controls and regulations imposed by various
levels of government. It is not expected that any of these
controls or regulation will materially affect QMR's Canadian
operations, nor is it expected that the application of these
controls and regulations would be any more burdensome to QMR than
to other companies involved in oil and gas exploration and
production activities in Canada. The following are the most
important areas of control and regulation.
- -9-
The North American Free Trade Agreement. The North American Free
Trade Agreement ("NAFTA") which became effective on January 1,
1994, carries forward most of the material energy terms contained
in the Canada-U.S. Free Trade Agreement. In the context of energy
resources, Canada continues to remain free to determine whether
exports to the U.S. or Mexico will be allowed, provided that any
export restrictions do not: (i) reduce the proportion of energy
exported relative to the supply of the energy resource; (ii)
impose an export price higher than the domestic price; or (iii)
disrupt normal channels of supply. All parties to NAFTA are also
prohibited from imposing minimum export or import price
requirements.
Royalties and Incentives. Each province and the federal
government of Canada have legislation and regulations governing
land tenure, royalties, production rates and taxes, environmental
protection and other matters under their respective
jurisdictions. The royalty regime is a significant factor in the
profitability of oil and natural gas production. Royalties
payable on production from lands other than Crown lands are
determined by negotiations between the parties. Crown royalties
are determined by government regulation and are generally
calculated as a percentage of the value of the gross production
with the royalty rate dependent in part upon prescribed reference
prices, well productivity, geographical location, field discovery
date and the type and quality of the petroleum product produced.
From time to time, the governments of Canada, Alberta and British
Columbia have also established incentive programs such as royalty
rate reductions, royalty holidays and tax credits for the purpose
of encouraging oil and natural gas exploration or enhanced
recovery projects. These incentives generally have the effect of
increasing the cash flow to the producer.
Pricing and Marketing. The price received by the Company for its
oil and natural gas is generally determined by market factors,
most of which are beyond the Company's control. An order from
the National Energy Board ("NEB") is required for oil exports
from Canada. Any oil export to be made pursuant to an export
contract of longer than one year, in the case of light crude, and
two years, in the case of heavy crude, duration (up to 25 years)
requires an exporter to obtain an export license from the NEB.
The issue of such a license requires the approval of the Governor
in Council. Natural gas exported from Canada is also subject to
similar regulation by the NEB. Exporters are free to negotiate
prices and other terms with purchasers, provided that the export
contracts in excess of two years must continue to meet certain
criteria prescribed by the NEB. The governments of Alberta and
British Columbia also regulate the volume of natural gas which
may be removed from those provinces for consumption elsewhere
based on such factors as reserve availability, transportation
arrangements and market considerations.
Environmental Regulation. The oil and natural gas industry is
subject to environmental regulation pursuant to local, provincial
and federal legislation. Environmental legislation provides for
restrictions and prohibitions on releases or emissions of various
substances produced or utilized in association with certain oil
and gas industry operations. In addition, legislation requires
that well and facility sites be abandoned and reclaimed to the
satisfaction of provincial authorities. A breach of such
legislation may result in the imposition of fines and penalties.
QMR is committed to meeting its responsibilities to protect the
environment wherever it operates and anticipates making increased
expenditures of both a capital and expense nature as a result of
the increasingly stringent laws relating to the protection of the
environment. QMR's unreimbursed expenditures in 1999 concerning
such matters were immaterial, but QMR cannot predict with any
reasonable degree of certainty its future exposure concerning
such matters. QMR is not aware of any currently pending
environmental legislation or regulation in Canada that would have
a material adverse effect on the Company if enacted.
Investment Canada Act. The Investment Canada Act requires
Government of Canada approval, in certain cases, of the
acquisition of control of a Canadian business by an entity that
is not controlled by Canadians. In certain circumstances, the
acquisition of natural resource properties may be considered to
be a transaction requiring such approval.
- -10-
Insurance Coverage Maintained with Respect to Operations
Principally through shared arrangements with Questar, the Company
maintains insurance policies covering its operations in amounts and
areas of coverage normal for a company of its size in the oil and gas
exploration and production industry. These include, but are not
limited to, worker's compensation, employers' liability, automotive
liability, certain environmental claims and general liability. In
addition, umbrella liability and operator's extra expense policies are
maintained. All such insurance is subject to normal deductible
levels.
Competition
The oil and gas business is highly competitive. The Company faces
competition in all aspects of its business, including, but not limited
to acquiring reserves, leases, licenses and concessions; obtaining
goods, services and labor needed to conduct its operations and manage
the Company; and marketing its oil and gas. Intense competition
occurs with respect to marketing, particularly of natural gas. The
Company's competitors include multinational energy companies, other
independent producers and individual producers and operators. Many
competitors have greater financial and other resources than the
Company.
Seasonal Nature of Business
Generally, but not always, the demand for natural gas decreases during
the summer months and increases during the winter months. Seasonal
anomalies such as mild winters sometimes lessen this fluctuation. In
addition, pipelines, utilities, local distribution companies and
industrial users utilize natural gas storage facilities and purchase
some of their anticipated winter requirements during the summer. This
can also lessen seasonal demand fluctuations.
Natural Gas and Oil Marketing
The Company markets substantially all of its own natural gas and oil
production. The revenues generated by the Company's operations are
highly dependent upon the prices of, and demand for, oil and gas. The
price received by the Company for its crude oil and natural gas
depends upon numerous market factors, the majority of which are beyond
the Company's control, including economic conditions in the United
States and elsewhere, the world political situation, OPEC actions, and
governmental regulation. The fluctuation in world oil prices
continues to reflect market uncertainty regarding the balance of world
demand for and supply of oil and gas. The fluctuation of natural gas
prices reflects the seasonal swings of storage inventory, weather
conditions, and increasing utilization of natural gas for electric
generation as it affects overall demand. Decreases in the prices of
oil and gas have had, and could have in the future, an adverse effect
on the Company's development and exploration programs, proved
reserves, revenues, profitability and cash flow. See "Item 2.
Financial Information - Market Risk."
Customers
QMR sells its gas production to a variety of customers including
pipelines, gas marketing firms, industrial users and local
distribution companies. Existing gathering systems and interstate and
intrastate pipelines are used to consummate gas sales and deliveries.
The principal customers for QMR's crude oil production are refiners,
remarketers and other companies, some of which have pipeline
facilities near the producing properties. In the event pipeline
facilities are not conveniently available, crude oil is trucked to
storage, refining or pipeline facilities.
- -11-
Employees and Offices
As of October 1, 2000, the Company had 423 full-time employees. None
of the Company's employees are represented by organized labor unions.
The Company also engages independent consulting petroleum engineers,
environmental professionals, geologists, geophysicists, landmen and
attorneys on a fee basis.
The Company's executive offices are located at 180 East 100 South, P.
O. Box 45601, Salt Lake City, Utah 84145-0601, and its telephone
number is (801) 324-2600. Regional operating offices are also
maintained in Denver, Colorado; Oklahoma City, Oklahoma; Tulsa,
Oklahoma; Rock Springs, Wyoming; and Calgary, Alberta.
ITEM 2. FINANCIAL INFORMATION
Selected Financial Data
The following tables sets forth certain selected financial data of the
Company. This information should be read in conjunction with the
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" included in this item, and the Consolidated
Financial Statements and the notes thereto included in "Item 13.
Financial Statements and Supplementary Data." The annual financial
statements of QMR included in Item 13 of this Form 10 have been
audited by Ernst & Young LLP, independent auditors, as experts in
accounting and auditing. Information disclosed in the following table
for the three months ended March 31, 2000 and 1999, and for the years
ended December 31, 1996 and 1995 has not been audited.
For the Three Months
Ended March 31, For the Year Ended December 31,
2000 1999 1999 1998 1997 1996 1995
(In Thousands)
Revenues $141,761 $115,846 $498,311 $458,272 $523,640 $484,080 $309,466
Write-down of full cost
oil and gas properties 31,000 6,000
Write-down of gas gathering
properties 3,000
Operating income 25,675 14,343 76,778 25,629 54,837 64,688 43,853
Debt Expense 5,370 4,263 17,363 12,631 10,882 8,699 6,323
Income from continuing
operations 15,049 8,253 45,866 16,725 39,111 42,447 31,654
Loss from discontinued
operations (563) (1,021) (322)
Net Income 15,049 8,253 45,866 16,162 38,090 42,125 31,654
Net Cash provided from
operating activities 31,132 36,971 140,857 127,513 136,935 83,309 79,596
Net cash used in investing
activities 80,027 12,789 94,426 246,689 81,292 184,453 17,606
Net cash provided from (used
in) financing activities 51,448 (21,510) (48,281) 120,060 (54,615) 97,508 (63,200)
Cash dividends paid to
Questar 4,325 4,150 16,600 15,900 16,325 14,500 13,000
At March 31, At December 31,
2000 1999 1999 1998 1997 1996 1995
(In Thousands)
Total assets $918,334 $804,227 $847,891 $815,153 $696,675 $696,754 $457,620
Short-term debt 49,700 111,400 24,500 121,800 44,300 78,000 14,000
Long-term debt 293,074 186,008 264,894 181,624 133,387 120,000 53,000
Common equity 399,555 365,715 387,834 359,638 359,283 337,666 282,144
- -12-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis addresses changes in the
Company's financial condition and results of operations.
Results of Operations -
Three Months Ended
March 31, Year Ended December 31,
2000 1999 1999 1998 1997
(In Thousands)
Operating Income -
Revenues
Natural gas sales $36,772 $28,011 $125,245 $98,767 $89,489
Oil and natural gas
liquids sales 15,198 7,959 41,521 36,722 53,722
Cost of service gas
operations 17,730 15,658 61,705 61,448 52,950
Energy marketing 63,760 58,004 243,296 234,565 297,413
Gas gathering and 7,099 4,924 22,341 21,954 25,998
processing
Other 1,202 1,290 4,203 4,816 4,068
Total revenues 141,761 115,846 498,311 458,272 523,640
Operating expenses
Energy purchases 63,893 56,392 239,201 230,462 291,851
Operating and
maintenance 22,918 20,169 79,916 73,763 72,958
Depreciation and
amortization 20,977 19,605 78,608 71,377 67,078
Write-down of full
cost oil and gas
properties 31,000 6,000
Write-down of gas
gathering properties 3,000
Other taxes 7,314 5,128 21,516 24,988 25,569
Wexpro settlement
agreement -
Oil income sharing 984 209 2,292 1,053 2,347
Total operating
expenses 116,086 101,503 421,533 432,643 468,803
Operating income $ 25,675 $ 14,343 $ 76,778 $ 25,629 $ 54,837
Operating Statistics -
Production volumes
(excluding cost of
service activities)
Natural gas (MMcf) 16,950 15,048 62,712 51,309 47,442
Oil and NGL (MBbl) 554 606 2,311 2,340 2,377
Production revenue
(excluding cost of
service activities)
Natural gas (per Mcf) $ 2.17 $ 1.86 $ 2.00 $ 1.92 $ 1.89
Oil and NGL (per Bbl) $ 21.64 $ 10.65 $ 13.92 $ 12.70 $ 17.77
Wexpro investment base,
net of deferred income
taxes (in thousands) $109,690 $ 98,343 $108,890 $ 97,594 $ 72,867
Energy-marketing volumes
(in thousands of
equivalent Dth) 27,025 34,159 112,982 113,513 142,601
Natural gas-gathering
volumes (MDth)
For unaffiliated
customers 21,778 20,291 84,961 72,908 57,586
For Questar Gas 9,853 8,237 32,050 29,893 28,506
For other affiliated
customers 5,164 4,559 19,659 17,720 17,679
Total gathering 36,795 33,087 136,670 120,521 103,771
Gathering revenue (per Dth) $0.14 $0.16 $0.15 $0.16 $0.21
- -13-
Revenues
Revenues from natural gas sales were 27% higher in 1999 compared with
1998. Gas production rose 22% and selling prices were 4% higher.
First quarter revenues from selling natural gas increased $8.8 million
as a result of a 17% increase in price and a 13% increase in volumes
of gas produced. Production benefitted from a successful development
drilling program and acquisition of Canadian producing properties in
the first quarter of 2000. First quarter Canadian gas production grew
94% to 1.6 Bcf , while U.S. production increased 8% to 15.4 Bcf.
Revenues from selling oil and natural gas liquids, excluding cost of
service activities, climbed 8% in 1999 due to a 10% increase in
average selling prices. A 103% increase in the average price of oil
and NGL more than offset the effect of lower production to result in a
86% increase in first quarter revenues. Production of oil and NGL
decreased in the first quarter as a result of selling nonstrategic
properties in the fourth-quarter of 1999. Higher prices also
benefitted the operations of liquids-extraction plants that
experienced improved results for the first quarter of 2000.
Revenues and product purchases for marketing activities both increased
4% in 1999 compared with 1998 resulting in no change in the margin
year to year. In 1999, the Company received refunds from pipelines as
a result of orders issued by FERC. Marketing volumes were unchanged
year to year. While commodity prices increased during the first
quarter of 2000, marketing volumes declined 21% due to decreased oil
trading activity and the impact of unfavorable fixed transportation
rates for natural gas.
Revenues from gas gathering and processing grew 2% in 1999. Gathering
volumes increased 13% because of increased drilling and gas production
in the Rocky Mountain region. A change in the terms of the gathering
contract with Questar Gas reduced the gathering rate from $.21 in 1997
to $.16 per Dth in 1998 and also resulted in a $3 million write-down
of gathering assets in 1997 due to the projected reduction of
gathering revenues. Volumes of gas gathered increased 11% in the
first quarter of 2000, reflecting more production in the areas served
by the Company.
During 1999, QMR had forward sale contracts in place on approximately
59% of its gas production at an average price of $2.03 per Mcf, net
back to the well. Approximately 56% of oil production, excluding cost
of service oil production, was hedged at an average price of $15.02
per barrel, net back to the well, which was equivalent to $16.33 per
barrel using the West Texas Intermediate benchmark. At December 31,
1999, approximately 52% of Company owned gas production in 2000 and
2001 was under hedging contracts with prices, net back to the well,
between $2.15 and $2.23 per Mcf. Oil production in 2000 and 2001 is
hedged at $17.22 to $17.67 per barrel, net back to the well, on
approximately 84% of production, excluding cost of service production.
As of the end of the first quarter 2000, about 40% of natural gas
production through the end of 2001 is hedged at an average price of
$2.15 per Mcf, net back to the well. Approximately 80% of oil
production, excluding cost of service production, is hedged at an
average price of $17.22 per barrel, net back to the well through the
end of 2001.
Expenses
A 31% drop in the average selling price of oil and NGL caused a $31
million write-down of oil and gas properties in the fourth quarter of
1998 under full cost accounting rules. The write-down reduced income
by $18.5 million after taxes. Revenues for QMR decreased 12% in 1998
compared with 1997, due primarily to lower marketing revenues and
lower selling prices for oil and NGL. Natural gas production
increased 8% primarily as a result of producing properties acquired in
September 1998. Lower commodity prices in Canada caused a $6 million
full cost write-down in 1997.
Operating and maintenance expenses were higher in the three-month
period of 2000 when compared with the 1999 period primarily because of
increased investment in producing properties. The Company added
approximately 61.1 Bcfe of reserves and 800 wells with the first
quarter 2000 acquisition of Canor. Operating and maintenance expenses
increased 8% in 1999 primarily due to an increase in the number of
gas and oil properties. Production costs in aggregate increased 10%
in 1999 compared with 1998, but were 6% lower on an equivalent Mcf
basis.
The combined U.S. and Canadian full cost amortization rate was $.80
per Mcfe for the first quarter of 2000 compared with $.83 for the
comparable 1999 quarter. The lower rate was due to successfully
adding reserves through drilling and
- -14-
selling nonstrategic properties. Higher production volumes more than
offset the lower amortization rates and resulted in increased
amortization expense in the first quarter of 2000 when compared with
the corresponding 1999 period. The full cost amortization rate
decreased to $.80 per Mcfe for 1999, down from $.85 in 1998.
However, depreciation and amortization expense increased 10% in 1999
because of higher gas production.
QMR achieved a five-year average full cost finding and acquisition
cost of $.90 per Mcfe in 1999 compared with $.95 per Mcfe in 1998.
With respect to Wexpro's cost of service activities, the five-year
finding cost was $.64 per Mcfe and $.80 per Mcfe in 1999 and 1998,
respectively.
Debt expense was $10.9 million, $12.6 million, and $17.4 million in
1997, 1998, and 1999, respectively. Debt expense was higher in 1999
and 1998 when compared with the corresponding prior year because of
higher levels of borrowings used to finance capital expansion. Debt
expense was higher in the first quarter of 2000 compared to the 1999
period primarily because of increased borrowing for capital
expenditures.
Effective income tax rates are below the combined federal, state and
foreign statutory rate of about 40% primarily due to a portion of the
Company's gas production qualifying for nonconventional fuel tax
credits, which reduced income tax expense by $5.3 million in 1999,
$5.7 million in 1998, and $6.6 million in 1997. The effective income
tax rate for the first quarter was 32.8% in 2000 and 24.3% in 1999.
The Company recognized $1.1 million of production-related tax credits
in the first quarter of 2000 and $1.3 million in the first quarter of
1999.
Operating Income and Net Income
QMR's operating income and net income increased 36% and 32%,
respectively, in 1999 compared with 1998, excluding a 1998 full cost
write-down. Primary factors were an increase in gas production,
higher commodity prices and an increase in the Wexpro investment base.
QMR's operating income and net income rose 79% and 82%, respectively,
in the first quarter of 2000 when compared with the first quarter of
1999, due primarily to increased production of natural gas and higher
prices received for gas, oil and NGL. Other factors include higher
earnings from Wexpro and gas gathering and processing operations.
Wexpro's net income increased $.7 million to $5.8 million in the first
quarter of 2000. Wexpro expanded its investment in development
drilling prospects in response to higher regional demand. Wexpro's
investment base, net of deferred income taxes, grew 12% to $108.9
million as of December 31, 1999, through its successful development
drilling program. Wexpro's investment base represents the unamortized
portion of the dollars invested in those assets that are regulated by
the Wexpro settlement agreement. Wexpro's effective after-tax return
on investment in those properties was 18.9% at the end of the year. A
summary of the Wexpro settlement agreement is provided in Note 10 of
the Notes to Consolidated Financial Statements under Item 13 of this
Form 10.
Gas gathering and processing and energy-marketing operations reported
$.9 million in combined earnings for the first quarter of 2000 versus
$.8 million a year ago. Volumes of gas gathered increased 11% in the
first three months of 2000, reflecting more production in the areas
served. Higher prices benefitted the operations of gas processing
plants which experienced improved results for the first quarter of
2000. The plants extract and sell liquids from the natural gas
stream. Increased commodity prices caused revenues from
energy-marketing activities to be higher, but the impact of
unfavorable fixed transportation rates and the settlement of gas
imbalances resulted in an $841,000 after-tax loss for energy-marketing
activities in the first quarter of 2000.
Reserves
Excluding activities with respect to cost of service related reserves,
QMR achieved a 131% reserve replacement ratio in 1999. The reserve
replacement ratio measures the extent to which annual oil and gas
production volumes are replaced in the current year through
acquisitions, discoveries, development drilling, and revisions of
prior estimates, less any sales of reserves that may have occurred.
In 1999, reserve additions, revisions, and purchases amounted to 134
Bcfe with 108% of the reserve replacement ratio coming from drilling
results and 23% from purchases. In 1999, QMR sold 34 Bcfe
- -15-
of nonstrategic reserves mostly in the Permian Basin and Kansas with
combined daily production of 4.3 MMcf of gas and 1,100 barrels of oil.
The sale proceeds helped reduce the full cost amortization rate in the
fourth quarter of 1999. Reserve replacement in 1998 was 260% and 170
Bcfe, primarily the result of acquiring an estimated 150 Bcfe of
proved oil and gas reserves, primarily in Oklahoma, as well as in
Texas, Arkansas and Louisiana. The proved reserves associated with
properties qualifying for nonconventional fuel credits are not
dependent upon the existence of the income tax credits to be
economically producible and are not a significant part of QMR's proved
reserves. The expiration of these credits on December 31, 2002 is not
expected to have a significant impact on future operations or proved
reserves.
Liquidity and Capital Resources -
Operating Activities: Net cash provided from operating activities was
derived from the following:
For the Three Months
Ended March 31, For the Year Ended December 31,
2000 1999 1999 1998 1997
(In Thousands)
Net Income $15,049 $ 8,253 $ 45,866 $ 16,162 $ 38,090
Non-cash transactions 20,581 20,053 90,077 100,106 77,132
Changes in working capital (4,498) 8,665 4,914 11,245 21,713
Net cash provided from
operating activities $31,132 $36,971 $140,857 $127,513 $136,935
Net cash provided from operating activities in the first quarter of
2000 was $5.8 million less than was generated in the first quarter of
1999. A decrease in cash flow from changes in operating assets and
liabilities as a result of payments made on hedging account margin
calls and timing differences in payments of general accounts payable
more than offset the effects of higher net income.
Net cash provided from operating activities increased 10% in 1999
primarily due to higher net income. Cash flows from accounts
receivable declined, representing increases in balances in 1999, due
to higher commodity prices. The write-downs of oil and gas properties
in both 1998 and 1997 and their effect on deferred income taxes were
noncash transactions.
Investing Activities: Capital expenditures and other investing
activities amounted to $134.3 million in 1999, $254.5 million in 1998,
and $92.3 million in 1997. Capital expenditures were $80.3 million in
the first quarter of 2000, which includes approximately $61 million
plus the assumption of $5.4 million in short-term debt for the
purchase of Canor. In the first quarter of 1999, capital expenditures
totaled $14.1 million. Following is a summary of capital expenditures
for 1999 and 1998, and a forecast for 2000:
- -16-
Year Ended December 31,
2000 1999 1998
Forecast
(In Thousands)
Capital expenditures and other
investing activities
Exploratory drilling $ 3,100 $ 1,538 $ 5,898
Development drilling 83,400 64,642 60,402
Other exploration 4,100 19,464 6,789
Reserve acquisitions 61,500 3,704 158,000
Production 13,500 12,856 8,434
Gathering and processing 4,800 12,703 11,046
General and other 300 19,362 3,977
$175,700 $134,269 $254,546
Capital expenditures in 1999 were primarily comprised of exploration
and development of gas and oil reserves and a $9.1 million equity
contribution in a partnership that operates a liquids processing
plant. QMR participated in drilling 235 wells (93 net wells) in 1999
that resulted in 167 gas wells, 10 oil wells, 19 dry holes and 39
wells in progress at year end. The 1999 drilling success rate was
90%.
Financing Activities: Net cash flow provided from operating
activities was sufficient to fund 1999 capital expenditures. The
Company used the proceeds of long-term debt and collection of notes
receivable to reduce short-term borrowings and refinance
reserved-based, long-term debt used to acquire gas and oil reserves in
1998. Proceeds from a sale of nonstrategic gas and oil properties
were placed in an escrow account pending a reinvestment in
strategic-producing properties.
In 1999, QMR entered into a long-term senior-revolving-credit facility
with a syndication of banks. The credit facility currently has a $300
million capacity. QMR had outstanding $293.1 million and $264.9
million as of March 31, 2000 and December 31, 1999, respectively,
under this arrangement. Net working capital was negative at March 31,
2000 and December 31, 1999, because of short-term borrowings. These
borrowings are typical of a company expanding operations.
In the first quarter of 2000, QMR financed capital expenditures,
including the acquisition of Canor, through borrowings from Questar,
from an existing long-term debt arrangement, and from net cash
provided from operating activities. Debt balances owed to Questar as
of March 31, amounted to $49.7 million in 2000 and $75.7 million in
1999, net of notes receivable from Questar. QMR intends to finance
2000 capital expenditures through net cash provided from operations,
borrowings from Questar, and borrowings under QMR's existing long term
credit facility.
QMR's consolidated capital structure consisted of 41% long-term debt
and 59% common shareholder's equity at December 31, 1999, and 42%
long-term debt and 58% common shareholder's equity at March 31, 2000.
Market Risk -
QMR's primary market-risk exposures arise from commodity-price changes
for natural gas, oil and other hydrocarbons and changes in long-term
interest rates. The Company has an investment in a Canadian operation
that subjects it to exchange-rate risk. QMR also has reserved certain
volumes of pipeline capacity for which it is obligated to pay $3
million annually for the next seven years, whether or not it is able
to market the capacity to others.
Energy Price Risk Management: Energy-price risk is a function of
changes in commodity prices as supply and demand fluctuate. QMR bears
a majority of the risk associated with changes in commodity prices. A
primary objective of
- -17-
energy-price hedging is to protect product sales from adverse changes
in energy prices. The Company does not enter into hedging contracts
for speculative purposes.
At March 31, 2000, hedge contracts held by QMR covered price exposure
for about 58.6 million Dth and 2.1 MMBbl of oil. QMR held hedge
contracts covering the price exposure for about 72.1 million Dth of
gas and 2.4 MMBbl of oil at December 31, 1999. A year earlier the
contracts covered 45.3 million Dth of natural gas and 464,000 barrels
of oil. The hedging contracts exist for a significant share of QMR
owned gas and oil production and for a portion of gas-marketing
transactions. Hedge contracts at March 31, 2000 and December 31,
1999, had terms extending through December 2001, with about 53% and
65%, respectively, expiring by the end of 2000.
The mark-to-market adjustment of gas and oil price-hedging contracts
at March 31, 2000, was a negative $31.5 million. A 10% decline in gas
and oil prices would cause a positive $18.0 million mark-to-market
adjustment resulting in a negative $13.5 million balance on that date.
Conversely, a 10% increase in prices results in a $18.6 million
negative mark-to-market adjustment resulting in a negative $50.2
million balance as of March 31, 2000. Comparatively, the
mark-to-market adjustment of gas and oil price-hedging contracts at
December 31, 1999, was a negative $6.2 million. A 10% decline in gas
and oil prices would cause a positive $16.7 million mark-to-market
adjustment resulting in a $10.5 million balance. A 10% increase in
prices results in a $16.3 million negative mark-to-market adjustment
resulting in a negative $22.5 million balance. The fair value of
hedging contracts at December 31, 1998, was $6 million. A 10% decline
in gas and oil prices would cause the fair value of the contracts to
increase by $3.9 million. A 10% increase in prices results in a $4.1
million lower fair value calculation. The mark-to-market calculations
used energy prices posted on the NYMEX for the indicated measurement
dates. These sensitivity calculations do not consider the effect of
gains or losses recognized on the underlying physical side of these
transactions, which should largely offset the change in value.
Interest Rate Risk Management: The Company owed $293.1 million of
variable-rate long term debt at March 31, 2000, $264.9 million at
December 31, 1999, and $181.6 million at December 31, 1998. The book
value of variable rate debt approximates its fair value. If interest
rates change by 10%, interest costs would increase or decrease about
$1.7 million in 1999 and $1.1 million in 1998, correspondingly. This
sensitivity calculation does not represent the cost to retire the debt
securities.
Securities Available for Sale: Securities available for sale represent
equity instruments traded on national exchanges. The value of these
investments is subject to day to day market volatility. A 10% change
in prices would either increase or decrease the value by $1.0 million
at December 31, 1999 and $1.3 million at March 31, 2000.
Foreign Currency Risk Management: The Company does not hedge the
Canadian currency exposure of its Canadian operation's net assets.
The net assets of the foreign operation were negative at December 31,
1999 and March 31, 2000. Long-term debt held by the foreign
operation, amounting to $59.9 million (U.S.) at December 31, 1999 and
$66.6 million (U.S.) at March 31, 2000, is expected to be repaid from
future operations of the foreign company. As more fully described
under "Item 3. Properties - Recent Developments" herein, QMR expanded
its foreign operations during January 2000 when it purchased 100% of
the outstanding common stock of Canor for approximately $61 million
(U.S.) plus the assumption of $5.4 million (U.S.) of short-term debt.
Litigation -
QMR, or one of its subsidiaries, is a party to various legal actions
arising in the normal course of business. QMR and Questar are also
among the named defendants in a class action lawsuit (Bridenstine vs.
Kaiser-Francis Oil Company) that claims damages that have at times
been estimated in excess of $80 million, plus punitive damages. See
"Item 8. Legal Proceedings." The Company regularly reviews potential
liabilities related to legal proceedings and records appropriate
accruals after considering estimates of the outcome of such matters
and the Company's experience in contesting, litigating, and settling
similar matters. While it is not currently possible to predict or
determine the outcome of the various legal actions, it is the opinion
of management that the outcomes will not have a material adverse
effect on the Company's future results of operations, financial
position, or liquidity.
- -18-
Year 2000 Issues -
Questar established a team to address the issue of computer programs
and embedded computer chips being unable to distinguish between the
year 1900 and the year 2000 ("Y2K"). The team identified 55 projects
among Questar and its affiliated companies that were assessed,
remediated, tested, and determined to be completed. In the process,
Questar employees contacted more than 8,000 vendors and suppliers to
assess their readiness to meet obligations to Questar. The cost of
the Y2K project was approximately $5.1 million and QMR's share of
those costs was $.4 million.
The Company did not experience a disruption of operations because of
Y2K. Preparation for Y2K provided several benefits. The Company
completed an inventory of its primary systems and a testing
laboratory. Systems were tested and remediated where necessary. The
testing laboratory will become an important part of the
information-technology management. In response to the Y2K challenge,
business contingency plans were revised and successfully tested.
ITEM 3. PROPERTIES
Reserves
The following table sets forth the Company's estimated proved
reserves, the 10% present value of the estimated future net revenues
therefrom and the standardized measure of discounted net cash flows as
of December 31, 1999. QMR's reserves were estimated by Ryder Scott
Company, H. J. Gruy and Associates, Inc., Netherland, Sewell &
Associates, Inc., Malkewicz Hueni Associates, Inc., and Gilbert
Laustsen Jung Associates Ltd., independent petroleum engineers. The
Company does not have any long-term supply contracts with foreign
governments or reserves of equity investees or of subsidiaries with a
significant minority interest. These proved reserve volumes do not
include cost of service reserves managed and developed by Wexpro for
Questar Gas.
December 31, 1999
United States Canada Total
Estimated proved reserves
Natural gas (Bcf) 493.8 20.7 514.5
Oil and NGL (MMBbls) 11.1 2.8 13.9
Proved developed reserves (Bcfe) 471.4 32.5 503.9
Present value of estimated future net
revenues before future income taxes
discounted at 10% (in thousands) (1) $509,522 $48,568 $558,090
Standardized measure of discounted net
cash flows (in thousands)(2) $402,771 $41,663 $444,434
_______
(1)Estimated future net revenue represents estimated future gross
revenue to be generated from the production of proved reserves, net
of estimated production and development costs (but excluding the
effects of general and administrative expenses; debt service;
depreciation, depletion and amortization; and income tax expense).
(2)The standardized measure of discounted net cash flows prepared by
the Company represent the present value of estimated future net
revenues after income taxes, discounted at 10%.
Estimates of the Company's proved reserves and future net revenues are
made using sales prices estimated to be in effect as of the date of
such reserve estimates and are held constant throughout the life of
the properties (except to the extent a contract specifically provides
for escalation). Estimated quantities of proved reserves and future
net revenues therefrom are affected by natural gas and oil prices,
which have fluctuated widely in recent years. There are numerous
uncertainties
- -19-
inherent in estimating natural gas and oil reserves and their
estimated values, including many factors beyond the control of the
producer. The reserve data set forth in this document represents only
estimates. Reservoir engineering is a subjective process of
estimating underground accumulations of natural gas and oil that
cannot be measured in an exact manner. The accuracy of any reserve
estimate is a function of the quality of available data and of
engineering and geological interpretation and judgement. As a result,
estimates of different engineers, including those used by the Company,
may vary. In addition, estimates of reserves are subject to revision
based upon actual production, results of future development and
exploration activities, prevailing natural gas and oil prices,
operating costs and other factors, which revisions may be material.
Accordingly, reserve estimates are often different from the quantities
of natural gas and oil that are ultimately recovered and are highly
dependent upon the accuracy of the assumptions upon which they are
based.
Reference should be made to Note 13 of the Notes to Consolidated
Financial Statements included in Item 13 of this document for
additional information pertaining to the Company's proved natural gas
and oil reserves as of the end of each of the last three years.
During 2000, the Company filed estimates of oil and gas reserves as of
December 31, 1999, with the U. S. Department of Energy's Energy
Information Administration ("EIA") on Form EIA-23. Reserve estimates
filed on Form EIA-23 are based upon the same underlying technical and
economic assumptions as the estimates of the Company's reserves
included herein. However, the EIA requires reports to include the
interests of all owners in wells that the Company operates and to
exclude all interests in wells that the Company does not operate.
The following charts illustrate QMR's reserve statistics for the years
ended December 31, 1995 through 1999:
Oil and Gas Reserves (Bcfe)*
Year Year-End Reserves Annual Production Reserve Life (Years)
1995 311.3 42.5 7.3
1996 493.6 51.5 9.6
1997 469.3 61.7 7.6
1998 574.1 65.3 8.8
1999 597.6 76.6 7.8
* Does not include cost of service reserves managed and developed
by Wexpro for Questar Gas.
Proportion of Proved Developed to Proved Reserves
and Proportion of Gas Reserves (Bcfe)*
Year Total Proved Proved Developed Developed Natural Gas Percentage of
Reserves Reserves Percent of Total Proved Reserves
1995 311.3 293.8 94% 83%
1996 493.6 410.1 83% 78%
1997 469.3 392.9 84% 81%
1998 574.1 506.0 88% 85%
1999 597.6 503.9 84% 86%
* Does not include cost of service reserves managed and developed by Wexpro
for Questar Gas.
- -20-
Geographic Diversity of Producing Properties
The following table summarizes proved reserves by the Company's major
operating areas at December 31, 1999:
Proved Reserves* % of Total
(Bcfe)
Mid-Continent 335.1 56.1%
Rocky Mountain Region
(exclusive of Pinedale) 139.7 23.3%
Pinedale Anticline 54.7 9.2%
Western Canada Sedimentary Basin 37.4 6.3%
San Juan Basin 30.7 5.1%
597.6 100.0%
* Does not include cost of service reserves managed and developed by Wexpro
for Questar Gas.
Production
The following table sets forth the Company's net production volumes,
the average sales prices per Mcf of gas, Bbl of oil and Bbl of natural
gas liquids produced, and the production cost per Mcfe for the three
months ended March 31, 2000 and 1999 and for the years ended December 31,
1999, 1998, and 1997, respectively:
Three Months Ended
March 31, Year Ended December 31,
2000 1999 1999 1998 1997
United States (excluding
cost of service activities)
Volumes produced and sold
Gas (Bcf) 15.4 14.2 59.8 48.6 44.3
Oil and NGL (MMBbls) .4 .5 1.9 1.9 2.1
Sales Prices:
Gas (per Mcf) $ 2.20 $ 1.88 $ 2.02 $ 1.95 $ 1.92
Oil and NGL (per Bbl) $21.66 $10.70 $13.31 $12.41 $17.90
Production costs per Mcfe $ .62 $ .60 $ .59 $ .64 $ .65
Canada
Volumes produced and sold
Gas (Bcf) 1.6 .8 2.9 2.7 3.1
Oil and NGL (MMBbls) 0.2 0.1 0.4 0.4 0.3
Sales Prices:
Gas (per Mcf) $ 1.90 $ 1.48 $ 1.61 $ 1.40 $ 1.35
Oil and NGL (per Bbl) $21.58 $10.47 $16.56 $14.09 $16.80
Production costs per Mcfe $ .72 $ .61 $ .67 $ .58 $ .52
- -21-
Productive Wells
The following table summarizes the Company's productive wells,
including productive cost of service wells included in Wexpro's
investment base, as of December 31, 1999:
Productive Wells (1) (2) (3)
Gas Wells Oil Wells Total Wells
Gross Net Gross Net Gross Net
United States 3,228 1,220.1 1,249 484.5 4,477 1,704.6
Canada 82 22.3 92 27.2 174 49.5
Total: 3,310 1,242.4 1,341 511.7 4,651 1,754.1
____________
(1) Although many of the Company's wells produce both oil and
gas, a well is categorized as either an oil well or a gas
well based upon the ratio of oil to gas production.
(2) Each well completed to more than one producing zone is
counted as a single well. There were 134 gross wells with
multiple completions.
(3) Wexpro's investment base represents the dollars invested in
development drilling on cost of service properties that are
regulated by the Wexpro settlement agreement. A summary of
the Wexpro settlement agreement is provided in Note 10 of the
Notes to Consolidated Financial Statements under Item 13
herein.
The Company also held numerous overriding royalty interests in gas and
oil wells, a portion of which are convertible to working interests
after recovery of certain costs by third parties. After converting to
working interests, these overriding royalty interests will be included
in the Company's gross and net well count.
Leasehold Acreage
The following table summarizes developed and undeveloped leasehold
acreage in which the Company owns a working interest as of December
31, 1999. "Undeveloped Acreage" includes (i) leasehold interests that
already may have been classified as containing proved undeveloped
reserves; and (ii) unleased mineral interest acreage owned by the
Company. Excluded from the table is acreage in which the Company's
interest is limited to royalty, overriding royalty, and other similar
interests.
- -22-
Leasehold Acreage - December 31, 1999
Developed (1) Undeveloped (2) Total
Gross Net Gross Net Gross Net
United States
Arizona - - 480 450 480 450
Arkansas 37,729 16,569 8,984 4,478 46,713 21,047
California 80 28 35,011 15,322 35,091 15,350
Colorado 176,604 123,974 207,853 105,449 384,457 229,423
Idaho - - 44,175 10,643 44,175 10,643
Illinois 172 39 14,307 3,997 14,479 4,036
Indiana - - 1,621 467 1,621 467
Kansas 134 134 7,761 2,471 7,895 2,605
Kentucky - - 14,461 5,468 14,461 5,468
Louisiana 15,246 9,992 251 251 15,497 10,243
Michigan - - 6,200 1,266 6,200 1,266
Minnesota - - 313 104 313 104
Mississippi 25,706 21,408 - - 25,706 21,408
Montana 25,445 10,707 319,588 58,438 345,033 69,145
Nevada 320 280 680 543 1,000 823
New Mexico 92,497 68,188 31,765 9,313 124,262 77,501
North Dakota 1,333 375 145,841 21,580 147,174 21,955
Ohio - - 202 43 202 43
Oklahoma 1,570,227 294,207 52,736 33,296 1,622,963 327,503
Oregon - - 43,869 7,671 43,869 7,671
South Dakota - - 204,558 107,988 204,558 107,988
Texas 167,690 60,170 50,571 39,515 218,261 99,685
Utah 45,712 35,001 109,180 43,818 154,892 78,819
Washington - - 26,631 10,149 26,631 10,149
West Virginia 969 115 - - 969 115
Wyoming 216,991 138,681 445,315 271,418 662,306 410,099
Total U.S. 2,376,855 779,868 1,772,353 754,138 4,149,208 1,534,006
Canada
Alberta 42,080 11,910 61,760 18,541 103,840 30,451
British Columbia 34,259 8,855 39,169 22,977 73,428 31,832
Total Canada 76,339 20,765 100,929 41,518 177,268 62,283
Total Acreage 2,453,194 800,633 1,873,282 795,656 4,326,476 1,596,289
(1) Developed acres are acres spaced or assignable to productive
wells.
(2) Undeveloped acreage is leased acreage on which wells have not
been drilled or completed to a point that would permit the
production of commercial quantities of natural gas and oil
regardless of whether such acreage contains proved reserves.
Of the aggregate 1,873,282 gross and 795,656 net undeveloped
acres, 123,501 gross and 36,105 net acres are held by
production from other leasehold acreage.
- -23-
Substantially all the leases summarized in the preceding table will
expire at the end of their respective primary terms unless the
existing leases are renewed or production has been obtained from the
acreage subject to the lease prior to that date, in which event the
lease will remain in effect until the cessation of production. The
following table sets forth the gross and net acres subject to leases
summarized in the preceding table that will expire during the periods
indicated:
Acres Expiring
Gross Net
Twelve Months Ending:
December 31, 2000 91,504 39,918
December 31, 2001 96,177 31,322
December 31, 2002 39,971 13,082
December 31, 2003 95,043 52,366
December 31, 2004 and later 1,550,587 658,968
Drilling Activity
The following table summarizes the number of development and
exploratory wells drilled by the Company, including cost of service
development drilling conducted by Wexpro, during the years indicated.
Year Ended December 31,
1999 1998 1997
Gross Net Gross Net Gross Net
Development Wells
United States:
Completed as natural gas wells 159 78.4 105 54.6 82 27.4
Completed as oil wells 5 2.4 29 1.0 64 6.6
Dry holes 15 6.1 12 3.7 18 5.7
Waiting on completion 29 - 13 - 26 -
Drilling 6 - 9 - 15 -
Canada:
Completed as natural gas wells 7 1.2 4 0.9 4 0.9
Completed as oil wells 5 1.9 12 4.0 4 1.3
Dry holes 2 1.3 4 1.2 3 0.9
Waiting on completion 2 - 2 - 6 -
Drilling - - 1 - 2 -
Total Development Wells 230 91.3 191 65.4 224 42.8
- -24-
Exploratory Wells
United States:
Completed as natural gas wells 1 0.2 5 1.6 4 1.6
Completed as oil wells - - 1 .6 - -
Dry holes 2 1.1 4 1.4 1 0.3
Waiting on completion 1 - - - 2 -
Drilling 1 - - - - -
Canada:
Completed as natural gas wells - - - - 1 -
Completed as oil wells - - 1 .3 2 0.1
Dry holes - - 3 1.4 - 0.7
Waiting on completion - - - - 1 -
Total Exploratory Wells 5 1.3 14 5.3 11 2.7
Total Wells 235 92.6 205 70.7 235 45.5
Operation of Properties
The day-to-day operations of oil and gas properties are the
responsibility of an operator designated under pooling or operating
agreements. The operator supervises production, maintains production
records, employs field personnel and performs other functions. The
charges under operating agreements customarily vary with the depth and
location of the well being operated.
QMR is the operator of approximately 50% of its wells. As operator,
QMR receives reimbursement for direct expenses incurred in the
performance of its duties as well as monthly per-well producing and
drilling overhead reimbursement at rates customarily charged in the
area to or by unaffiliated third parties. In presenting its financial
data, QMR records the monthly overhead reimbursement as a reduction of
general and administrative expense, which is a common industry
practice.
Title to Properties
Title to properties is subject to royalty, overriding royalty,
carried, net profits, working and other similar interests and
contractual arrangements customary in the oil and gas industry, liens
for current taxes not yet due and, in some instances, to other
encumbrances. The Company believes that such burdens do not
materially detract from the value of such properties or from the
respective interests therein or materially interfere with their use in
the operation of the business.
As is customary in the industry in the case of undeveloped properties,
little investigation of record title is made at the time of
acquisition (other than a preliminary review of local records).
Investigations, generally including a title opinion of outside
counsel, are made prior to the consummation of an acquisition of
producing properties and before commencement of drilling operations on
undeveloped properties.
Recent Developments
Canadian Acquisition - On January 26, 2000, the Company completed the
acquisition of all of the outstanding shares of Canor Energy Ltd., an
oil and gas exploration company based in Calgary, Alberta, Canada.
Canor owns and/or
- -25-
operates more than 800 wells located primarily in the province of
Alberta, as well as in the provinces of British Columbia and
Saskatchewan. The combination of Canor with Celsius Ltd. will expand
the Company's reported proved reserves by approximately 61.1 Bcfe, or
10%, and add about 150,000 net acres to the Company's Canadian
undeveloped leasehold inventory, principally in the province of
Alberta. The purchase price for the cash transaction was
approximately $61 million (U.S.) plus the assumption of $5.4 million
(U.S.) of short-term debt.
The Canor acquisition will provide a broader operating and financial
base for the Company's Canadian activities, particularly in the areas
of exploration and exploitation opportunities. It is anticipated that
Celsius Ltd. and Canor will be amalgamated into a single entity at
some point in the future.
Pinedale Project - In January 2000, Questar E&P and Wexpro completed a
high-volume producing well in the Company's Pinedale Anticline
development in Sublette County, Wyoming. The Mesa Unit No. 3 produced
11.4 MMCF of natural gas into a pipeline and 113 barrels of oil from
the Lance Formation during the initial 24-hour period. The Lance
Formation in the Pinedale Anticline area is a geologic structure
comprised of many discrete sandstone intervals found at depths between
8,500 and 13,500 feet. The Mesa Unit No. 3 was drilled to a total
measured depth of 13,055 feet and was fracture-stimulated (a
production enhancement technique) in 11 individual sandstone
intervals. Questar E&P and Wexpro have a combined 93.8% working
interest in the well. While this is not a new discovery -- the first
test well into the Pinedale Anticline was drilled in 1939 and Questar
drilled its first acreage holding well in this area in 1963 - it has
only been recently that improvements in well completion and production
enhancement technology has provided the means to attain higher
production rates from multiple sand intervals such as the Lance
Formation at a reasonable cost. The Company has completed a second
Mesa Unit well - No. 6 - located about one-half mile south of the Mesa
Unit No. 3. The second well encountered a similar number of
potentially productive sandstone intervals, and initial test results
are comparable to the Mesa Unit No. 3. A third well failed to produce
economic quantities of gas because of lower-quality reservoir rock.
The unsuccessful well does not diminish the Company's expectations for
the development potential of its 14,800 gross acres in the Mesa area
of the Pinedale Anticline where QMR subsidiaries own a combined
average 60% working interest.
As of June 30, 2000, there were eight proved developed producing wells
on the Company's acreage in the Pinedale area. Malkewicz Hueni
Associates, Inc., independent petroleum engineers, have identified an
additional 28 proved undeveloped locations, based on SEC definitions
and guidelines, on the Company's acreage. The gross reserve range for
the proved developed wells was 3.1 to 7.5 Bcfe and the gross reserve
range for the proved undeveloped locations was 3.1 to 6.4 Bcfe. An
average completed well cost of $2,350,000 was assumed for the proved
undeveloped locations. Based on 80-acre spacing, which is less dense
than the 40-acre spacing currently permitted by the State of Wyoming,
the Company estimates the potential for 130 or more drilling locations
within the Company's acreage in the Pinedale Anticline.
On July 27, 2000, the Wyoming State Office of the Bureau of Land
Management ("BLM") issued its Record of Decision ("ROD") approving the
Pinedale Anticline natural gas project under the Resource Protection
Alternative of its Environmental Impact Statement, as modified. The
ROD allows 700 producing well pads in the area, which encompasses
approximately 197,000 acres, including the Company's acreage, and does
not restrict the number of drilling rigs to be employed. The Company
is currently employing five contract drilling rigs to drill the first
five wells of an 8 to 10 well program planned for the remainder of
2000. The accelerated rate of drilling activity is necessary in order
to complete the drilling program prior to November 15, the required
date to cease drilling activity due to winter wildlife habitat
restrictions.
Office Leases
Questar E&P and Wexpro lease office space under a sublease from
Questar for its corporate headquarters at 180 East 100 South, Salt
Lake City, Utah 84145. The Company also leases regional office space
at various locations in the United States and Canada. For information
concerning the Company's lease obligations, see Note 7 of the Notes to
Consolidated Financial Statements appearing elsewhere in this Form 10.
- -26-
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
All of the outstanding shares of common stock ($1.00 par value per
share) of QMR are owned by Questar, whose principal executive offices
are located at 180 East 100 South, Salt Lake City, Utah 84111.
Questar possesses sole voting and investment power with respect to
such shares of common stock.
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS
The executive officers and directors of the Company are set forth in
the following table:
Name Position Age
R. D. Cash Chairman 58
G. L. Nordloh Presient, CEO and Director 53
S. E. Parks Vice President, Treasurer & CFO 49
M. B. McGinley Vice President 51
M. L. Owen Vice President, Administrative Services 49
C. C. Holbrook Secretary 54
Teresa Beck Director 46
P. J. Early Director 67
C. M. Heiner Director 62
W. N. Jones Director 74
R. D. Cash, 58, Chairman of the Board of Directors, Questar (May
1985); President and Chief Executive Officer and Director, Questar
(since 1977); Chairman of the Boards of Directors, all Questar
affiliates (other than Questar Energy Trading); President and Chief
Executive Officer, QMR (from April 1982 to August 1998). Mr. Cash
also serves as a Director of Zions Bancorporation and Associated
Electric and Gas Insurance Services Limited. He is a member of the
Board of Directors of the Federal Reserve Bank (Salt Lake City Branch)
of San Francisco and is a Trustee of the Salt Lake Organizing
Committee for the Olympic Winter Games of 2002.
Gary L. Nordloh, 53, President and Chief Executive Officer, QMR
(August 1998) and all subsidiaries (commencing at various times
beginning in March 1991); Vice President, QMR (May 1996 to August
1998); Executive Vice President, Questar (February 1996); Senior Vice
President, Questar (March 1991 to February 1996); Director, Questar
(October 1996); Director, QMR (May 1991), and all QMR subsidiaries
(various times beginning in June 1989). Prior to joining the Questar
organization in 1984, Mr. Nordloh was Vice President of Engineering
and Operations for Hamilton Brothers Petroleum for three years and
Division Engineering Manager (and various other assignments) for Amoco
Production Company for nine years. Mr. Nordloh received a bachelor's
degree in Petroleum Engineering from the Colorado School of Mines. He
serves on the Board of Directors of Mountain States Legal Foundation;
is Past-President of Rocky Mountain Oil and Gas Association
(1995-1997); a member of the Society of Petroleum Engineers since
1974; is Past-President of the Society of Petroleum Engineers (Denver
Section); and served as a Regional Vice President of the Independent
Petroleum Association of America from 1989 to 1995.
S. E. Parks, 49, Vice President, Treasurer and Chief Financial
Officer, Questar and all affiliates except Questar Energy Trading
(February 1996); Treasurer, Questar and affiliates (at various dates
beginning in May 1984); Director, Questar E&P (May 1996). Mr. Parks
received a B.A. degree in Accounting and a M.B.A. degree in Finance
from the University of Utah. Since joining Questar in 1974, he has
held a variety of management positions in the auditing, accounting and
financial areas. Prior to joining Questar, Mr. Parks was with the
Academic and Financial Planning Department of the University of Utah.
- -27-
M. B. McGinley, 51, Vice President, QMR (August 1998) and all
subsidiaries (various dates beginning in February 1990); General
Manager, Questar Energy Trading (October 1995) and Questar Gas
Management (July 2000); Director, Questar Energy Trading (August
1998). Mr. McGinley has worked for various Questar affiliates for 31
years in a variety of engineering and marketing assignments. He holds
a Bachelor of Science Degree in Chemical Engineering and a Master of
Science Degree in Mechanical Engineering from the University of Utah.
He is a registered professional engineer in Utah and Colorado and a
member of the Independent Petroleum Association of America, and Rocky
Mountain Oil and Gas Association and the Pacific Coast Gas
Association.
M. L. Owen, 49, Vice President, Administrative Services, QMR (August
1998) and all subsidiaries (various dates beginning in April 1989);
Director, Questar Energy Trading (August 1998). Mr. Owen has been
associated with QMR since its acquisition of Universal Resources
Corporation in 1987. From 1982 to 1989, he served as Treasurer of
Universal Resources. Prior to joining Universal Resources, Mr. Owen
was employed with Arthur Andersen & Co. for eight years with various
duties, including Audit Manager. He is a Certified Public Accountant,
receiving his Accounting degree from Texas Tech University. Mr. Owen
is a member of the Independent Petroleum Association of America and
the Utah Association of Certified Public Accountants.
C. C. Holbrook, 54, General Counsel, Questar (March 1999); Vice
President Questar (October 1984); Corporate Secretary, Questar and all
affiliates except Questar Energy Trading (various dates beginning in
March 1982); Director, Questar E&P and Questar Gas Management (various
dates beginning in May 1985).
Teresa Beck, 46, Director, Questar (October 1999); Director, QMR
(October 1999). Ms. Beck was President of American Stores from 1998
to 1999. She also served as American Stores' Chief Financial Officer
from 1993 to 1998. She serves as a Director of Textron, Inc. and
Albertson's Inc. and is a Trustee of Intermountain Health Care, Inc.,
The Children's Center, and the Salt Lake Organizing Committee for the
Olympic Winter Games of 2002.
P. J. Early, 67, Director, QMR (August 1995); Director, Questar
(August 1995). Mr. Early served as Vice Chairman of Amoco Corporation
from July of 1992 until his retirement in April 1995. He was also a
Director of Amoco Corporation from 1989 to his retirement. He is a
member of the Board of Trustees of the Museum of Science and Industry
in Chicago.
Clyde M. Heiner, 62, Chief Operating Officer, Consonus, Inc., a
Questar affiliate (August 2000); Senior Vice President, Questar (May
1984 to June 2000); President and Chief Executive Officer, Questar
InfoComm (February 1993 to June 2000); Director, QMR (May 1984).
W. N. Jones, 74, Director, QMR (May 1989); Senior Director, Questar
(May 1998); Director, Questar (May 1981 to May 1998). Mr. Jones is
Chairman of the Board, Lite Touch Inc., and a Trustee of Intermountain
Health Care, Inc.
ITEM 6. EXECUTIVE COMPENSATION
Omitted.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Omitted.
ITEM 8. LEGAL PROCEEDINGS
Questar E&P, as well as other QMR affiliates and Questar, are among
the named defendants in a class action lawsuit commenced in 1995
involving royalty payments in Oklahoma state court for Texas County,
Oklahoma. In Bridenstine vs. Kaiser-Francis Oil Company, the
plaintiffs alleged various fraud and contract claims against all
defendants for a 17-year period. While this litigation does not
specify the amount of damages being claimed, estimates have at times
been in excess of $80 million, plus punitive damages. The
plaintiffs' primary claim alleges that a transportation fee charged
- -28-
against royalty payments was improper or excessive. The claims
involve wells connected to an intrastate pipeline system that Questar
Gas Management presently owns and operates. The suit also alleges
claims for mismeasurement of gas and failure to market the gas for the
"best available price." Kaiser-Francis and Questar E&P are the major
working interest owners and operators of a majority of the wells
connected to this pipeline system. QMR disputes plaintiffs' claims
and will continue to vigorously defend against such litigation. QMR
cannot predict the outcome of the lawsuit, which will be tried before
a jury beginning in February 2001 and which may result in a material
adverse judgment.
At year end, Questar E&P was a defendant in a case styled Greghol
Limited Partnership vs. Universal Resources Corporation, filed in
Oklahoma state court, which was originally asserted as a statewide
class action raising issues relative to calculation of royalties, and
whether such calculations should reflect deductions for certain
post-production costs. Relief sought by the plaintiff was
unspecified. The Court has sustained Questar E&P's motion to
de-certify the class. Questar E&P disputes these claims. In August
2000, plaintiff voluntarily dismissed the case without prejudice.
In United States ex rel. Grynberg v. Questar Corp., et al., each of
Questar Gas Management, Wexpro and Universal Resources Corporation
d/b/a Questar Energy Trading Company are named as defendants in a case
involving allegations of gas mismeasurement and of improper royalty
valuations. The plaintiff filed on behalf of the federal government
to recover underpaid royalties under the False Claims Acts, and the
Department of Justice declined to intervene. Relief sought by the
plaintiff is unspecified. This case and 75 substantially similar
cases filed by the plaintiff have been consolidated for discovery and
pre-trial rulings in Wyoming's federal district court. Motions to
dismiss have been filed. The QMR subsidiaries dispute these claims.
Questar Energy Trading and Questar Gas Management, two of the
Company's wholly owned subsidiaries, have been added as defendants in
a lawsuit filed by Jack Grynberg, an independent producer, pending in
a Utah state district court (Grynberg v. Questar Pipeline Company).
The lawsuit was originally filed against Questar Pipeline Company, an
affiliate of the Company in Questar's Regulated Services unit, in
September of 1999. It alleges that the Questar defendants mismeasured
gas volumes attributable to his working interest from a property in
southwestern Wyoming. The plaintiff cites mismeasurement to support
claims for breach of contract, negligent misrepresentation, fraud,
breach of fiduciary responsibilities and alleges damages of $27
million. The Questar defendants have filed a comprehensive motion to
dismiss the complaint on several grounds including expiration of the
applicable statute of limitations, no basis for independent tort
claims, and federal preemption.
In Quinque Operating Company v. Gas Pipelines, et al., each of Questar
Gas Management, Wexpro and Universal Resources Corporation (now known
as Questar E&P) is named as a defendant in a lawsuit involving
allegations of mismeasurement of natural gas resulting in underpayment
of royalties to private and state lessors. Relief sought by the
plaintiff is unspecified. Plaintiffs have asked that the case be
certified as a nationwide class action. The case was removed from
state to federal court and a motion to remand is pending. There are
over 220 defendants. The QMR subsidiaries dispute these claims.
Royalty class actions such as Quinque are being asserted in numerous
states against other companies in the oil and gas production and
marketing businesses in which QMR's subsidiaries participate.
Accordingly, QMR expects similar royalty class actions to be filed in
other states in which it has significant production and marketing
activities such as Wyoming and Colorado, although such actions have
not yet been filed and are not currently threatened.
There are various other legal proceedings against subsidiaries of QMR.
The Company regularly reviews potential liabilities related to legal
proceedings and records accruals after considering estimates of the
outcome of such matters and our experience in contesting, litigating,
and settling similar matters. While it is not currently possible to
predict or determine the outcomes of the Bridenstine case or various
other legal proceedings against QMR, it is the opinion of management
that the outcomes will not have a material adverse effect on the
Company's future results of operations, financial position or
liquidity.
Also see Note 7 of the Notes to Consolidated Financial Statements
under Item 13 of this Form 10.
- -29-
ITEM 9. MARKET PRICE OF AND DIVIDENDS OF THE REGISTRANT'S COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS
The common stock of the Company is owned entirely by Questar and,
therefore, there is no trading of the Company's stock. Dividends of
$4.3 million, $16.6 million, $15.9 million, and $16.3 million were
declared and paid during the three months ended March 31, 2000, and
the years ended December 31, 1999, 1998 and 1997, respectively. See
Note 4 of the Notes to Consolidated Financial Statements under Item 13
of this Form 10 regarding restrictions as to dividend availability.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES
There have been no sales of unregistered securities by the Company.
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED
The following description of the capital stock of the Company and
certain provisions of the Company's Amended Articles of Incorporation
and Bylaws is a summary and is qualified in its entirety by the
provisions of the Amended Articles of Incorporation and Bylaws, which
have been filed as exhibits to this Form 10.
The Company has authorized twenty-five million (25,000,000) shares of
Common Stock with a par value of $1.00 per share. All outstanding
shares of stock are held by Questar Corporation. No preferred stock
has been issued or authorized.
Each common shareholder of record is entitled to one vote, by person
or by proxy for each share of Common Stock held on every matter
properly submitted to the stockholders for a vote. Except as
otherwise provided by law or in the Amended Articles of Incorporation
or Bylaws, stockholder votes are decided by a majority vote of the
outstanding shares.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Reference is made to Section 16-10a-901 through 16-10a-909 of the Utah
Revised Business Corporation Act, which provides for indemnification
of directors and officers in certain circumstances.
The Bylaws provide that the Company may voluntarily indemnify any
individual made a party to a proceeding because he is or was a
director, officer, employee or agent of the Company against liability
incurred in the proceeding, but only if the Company has authorized the
payment in accordance with the applicable statutory provisions of the
Utah Revised Business Corporation Act (Sections 16-10a-902, 16-10a-904
and 16-10a-907) and a determination has been made in accordance with
the procedures set forth in such provision that such individual
conducted himself in good faith, that he reasonably believed his
conduct, in his official capacity with the Company, was in its best
interests and that his conduct, in all other cases, was at least not
opposed to the Company's best interests, and that he had no reasonable
cause to believe his conduct was unlawful in the case of any criminal
proceeding. The foregoing indemnification in connection with a
proceeding by or in the right of the Company is limited to reasonable
expenses incurred in connection with the proceeding, which expenses
may be advanced by the Company. The Company's Bylaws provide that the
Company may not voluntarily indemnify a director, officer, employee or
agent of the Company in connection with a proceeding by or in the
right of the Company in which such individual was adjudged liable to
the Company or in connection with any other proceeding charging
improper personal benefit to him, whether or not involving action in
his official capacity, in which he was adjudged liable on the basis
that personal benefit was improperly received by him.
The Bylaws provide further that the Company shall indemnify a
director, officer, employee or agent of the Company who was wholly
successful, on the merits or otherwise, in defense of any proceeding
to which he was a party because he is or was such a director, officer,
employee or agent, against reasonable expenses incurred by him in
connection with the proceeding.
- -30-
The Bylaws further provide that no director of the Company shall be
personally liable to the Company or its stockholders for monetary
damages for any action taken or any failure to take any action, as a
director, except liability for (a) the amount of a financial benefit
received by a director to which he is not entitled; (b) an intentional
infliction of harm on the Company or the shareholders; (c) for any
action that would result in liability of the director under the
applicable statutory provision concerning unlawful distributions; or
(d) an intentional violation of criminal law.
Questar, the Company's parent, maintains an insurance policy on behalf
of the officers and directors of the Company pursuant to which
(subject to the limits and limitations of such policy) the officers
and directors are insured against certain expenses in connection with
the defense of actions or proceedings, and certain liabilities which
might be imposed as a result of such actions or proceedings, to which
any of them is made a party by reason of being or having been a
director or officer.
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements and Supplementary Data
Page
Financial Statements -
Report of Independent Auditors 32
Consolidated Statements of Income for the years ended December 31,
1999, 1998 and 1997 and for the three months ended March 31, 2000
(unaudited) and 1999 (unaudited) 33
Consolidated Balance Sheets at December 31, 1999 and 1998 and
March 31, 2000 (unaudited) 34
Consolidated Statements of Shareholder's Equity for the years ended
December 31, 1999, 1998 and 1997 and for the three months ended
March 31, 2000 (unaudited) 36
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998, and 1997 and for the three months ended
March 31, 2000 (unaudited) and 1999 (unaudited) 37
Notes to Consolidated Financial Statements 38
Supplementary Data -
Oil and Gas Producing Activities (Note 13 to Consolidated Financial
Statements) 52
- -31-
Report of Independent Auditors
Board of Directors
Questar Market Resources, Inc.
We have audited the accompanying consolidated balance sheets of
Questar Market Resources, Inc. and subsidiaries as of December 31,
1999, and 1998, and the related consolidated statements of income and
common shareholder's equity and cash flows for each of the three years
in the period ended December 31, 1999. These financial statements are
the responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States. Those standards require that
we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position
of Questar Market Resources, Inc. and subsidiaries at December 31,
1999, and 1998, and the consolidated results of their operations and
their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally
accepted in the United States.
/s/ Ernst & Young LLP
Ernst & Young LLP
Salt Lake City, Utah
February 7, 2000
- -32-
QUESTAR MARKET RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS)
For the Three Months For the Year
Ended March 31, Ended December 31,
2000 1999 1999 1998 1997
(Unaudited)
REVENUES
From unaffiliated customers $119,471 $94,643 $418,603 $382,791 $451,233
From affiliates 22,290 21,203 79,708 75,481 72,407
TOTAL REVENUES 141,761 115,846 498,311 458,272 523,640
OPERATING EXPENSES
Natural gas and other
product purchases 63,893 56,392 239,201 230,462 291,851
Operating and maintenance 22,918 20,169 79,916 73,763 72,958
Depreciation and amortization 20,977 19,605 78,608 71,377 67,078
Write-down of full cost oil
and gas properties 31,000 6,000
Write-down of gas gathering
properties 3,000
Other taxes 7,314 5,128 21,516 24,988 25,569
Wexpro settlement agreement
- oil income sharing 984 209 2,292 1,053 2,347
TOTAL OPERATING EXPENSES 116,086 101,503 421,533 432,643 468,803
OPERATING INCOME 25,675 14,343 76,778 25,629 54,837
INTEREST AND OTHER INCOME 1,093 847 4,272 3,638 5,854
INCOME (LOSS) FROM UNCONSOLIDATED
AFFILIATES 999 (31) 763 (930) (288)
DEBT EXPENSE (5,370) (4,263) (17,363) (12,631) (10,882)
INCOME FROM CONTINUING
OPERATIONS BEFORE
INCOME TAXES 22,397 10,896 64,450 15,706 49,521
INCOME TAX EXPENSE (CREDIT) 7,348 2,643 18,584 (1,019) 10,410
INCOME FROM CONTINUING
OPERATIONS 15,049 8,253 45,866 16,725 39,111
DISCONTINUED OPERATIONS - QUESTAR
ENERGY SERVICES, NET OF INCOME
TAXES OF $347 IN 1998 AND
$631 IN 1997 (563) (1,021)
NET INCOME $15,049 $8,253 $45,866 $16,162 $38,090
See accompanying notes to consolidated financial statements.
- -33-
QUESTAR MARKET RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
As of March 31, As of December 31,
2000 1999 1998
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 2,206 $ 1,894
Notes receivable from Questar $ 4,000 25,100
Accounts receivable, net of
allowance of $1,321 in 2000,
$1,350 in 1999, and $3,253 in 1998 71,097 64,364 61,833
Accounts receivable from affiliates 11,962 11,459 11,359
Inventories, at lower of average
cost or market -
Gas and oil storage 2,699 8,863 8,892
Materials and supplies 2,421 2,390 1,893
Prepaid expenses and deposits 5,806 4,452 4,369
TOTAL CURRENT ASSETS 96,191 95,528 115,340
PROPERTY, PLANT AND EQUIPMENT
Oil and gas properties, on the basis
of full cost accounting -
Proved properties 1,009,167 943,349 918,237
Unproved properties,
not being amortized 87,138 69,777 62,487
Support equipment and facilities 16,370 13,408 14,878
Cost of service oil and gas
properties, on the basis of
successful efforts accounting 318,882 318,451 297,809
Gathering, processing and marketing 125,204 124,691 119,230
1,556,761 1,469,676 1,412,641
Less: Allowances for depreciation
and amortization 801,217 778,695 717,129
NET PROPERTY, PLANT AND EQUIPMENT 755,544 690,981 695,512
INVESTMENT IN UNCONSOLIDATED AFFILIATES 14,225 13,301 3,673
OTHER ASSETS - Note 3 52,374 48,081 628
$918,334 $847,891 $815,153
- -34-
LIABILITIES AND SHAREHOLDER'S EQUITY
(IN THOUSANDS)
As of March 31, As of December 31,
2000 1999 1998
(Unaudited)
CURRENT LIABILITIES
Checks outstanding in excess
of cash balances $ 1,246
Notes payable to Questar $ 49,700 24,500 $121,800
Accounts payable and accrued expenses
Accounts and other payables 64,157 67,385 63,272
Accounts payable to affiliates 2,244 2,952 2,414
Federal income taxes 8,267 6,232 6,105
Other taxes 16,980 14,266 13,661
Accrued interest 2,344 1,443 1,044
TOTAL CURRENT LIABILITIES 143,692 118,024 208,296
INVESTMENT IN DISCONTINUED OPERATIONS -
Questar Energy Services 1,905
LONG-TERM DEBT 293,074 264,894 181,624
DEFERRED INCOME TAXES 66,080 59,936 52,113
OTHER LIABILITIES 13,051 14,674 11,577
MINORITY INTEREST 2,882 2,529
COMMITMENTS AND CONTINGENCIES - Note 7
SHAREHOLDER'S EQUITY
Common stock - par value $1 per share;
authorized 25,000,000 shares; issued
and outstanding 4,309,427 shares 4,309 4,309 4,309
Additional paid-in capital 116,027 116,027 116,027
Retained earnings 281,112 270,388 239,217
Other comprehensive income (loss) (1,893) (2,890) 85
399,555 387,834 359,638
$918,334 $847,891 $815,153
See accompanying notes to consolidated financial statements.
- -35-
QUESTAR MARKET RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
(IN THOUSANDS)
Additional Other
Common Paid-in Retained Comprehesive Comprehensive
Stock Capital Earnings Income Income
Balance at January 1, 1997 $4,309 $116,027 $217,190 ($181)
Net income 38,090 $38,090
Cash dividends (16,325)
Foreign currency translation
adjustment, net of income
taxes of $98 173 173
Balance at December 31, 1997 4,309 116,027 238,955 (8) $38,263
Net income 16,162 16,162
Cash dividends (15,900)
Foreign currency translation
adjustment, net of income
taxes of $53 93 93
Balance at December 31, 1998 4,309 116,027 239,217 85 $16,255
Net income 45,866 45,866
Cash dividends (16,600)
Dividend of shares of Questar
Energy Services 1,905
Unrealized loss on securities
available for sale, net of
income tax credit of $1,557 (2,515) (2,515)
Foreign currency translation
adjustment, net of income taxes
of $284 (460) (460)
Balance at December 31, 1999 4,309 116,027 270,388 (2,890) $42,891
Net income (unaudited) 15,049 15,049
Cash dividends (4,325)
Unrealized gain on securities
available for sale, net of income
taxes of $811 1,309 1,309
Foreign currency translation
adjustment net of income
taxes of $263 (312) (312)
Balance at March 31, 2000
(unaudited) $4,309 $116,027 $281,112 ($1,893) $16,046
See accompanying notes to consolidated financial statements.
- -36-
QUESTAR MARKET RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
For the Three Months For the Year
Ended March 31, Ended December 31,
2000 1999 1999 1998 1997
(Unaudited)
OPERATING ACTIVITIES
Net income $15,049 $ 8,253 $ 45,866 $16,162 $38,090
Depreciation and amortization 21,148 20,194 81,150 71,951 67,667
Deferred income taxes 357 (226) 9,381 (4,619) (2,428)
Write-down of full cost oil
and gas properties 31,000 6,000
Write-down of gas gathering
properties 3,000
(Income) loss from unconsolidated
affiliates, net of cash
distributions (924) 85 (66) 1,211 1,872
Gain from sale of securities (388)
Loss from discontinued operations 563 1,021
Changes in operating assets and
liabilities
Accounts receivable (3,734) 9,697 (2,631) 20,572 22,196
Inventories 6,133 7,288 (468) (4,996) (1,045)
Prepaid expenses and deposits (1,354) 547 (83) 555 (191)
Accounts payable and accrued
expenses (4,651) (13,323) 5,655 (7,002) (3,883)
Federal income taxes payable 2,036 2,385 127 2,399 3,620
Other assets (1,305) 95 (783) (628) 1,213
Other liabilities (1,623) 1,976 3,097 345 (197)
NET CASH PROVIDED FROM OPERATING
ACTIVITIES 31,132 36,971 140,857 127,513 136,935
INVESTING ACTIVITIES
Capital expenditures
Purchases of property, plant
and equipment (80,336) (13,301) (109,405) (252,671) (92,310)
Other investments (812) (24,864) (1,875)
(80,336) (14,113) (134,269) (254,546) (92,310)
Proceeds from disposition of
property, plant and equipment 309 1,324 38,624 7,857 11,018
Proceeds from sale of securities 1,214
NET CASH USED IN INVESTING
ACTIVITIES (80,027) (12,789) (94,426) (246,689) (81,292)
FINANCING ACTIVITIES
Change in notes receivable from
Questar 4,000 (10,600) 21,100 8,400 (17,200)
Change in notes payable to Questar 25,200 (10,400) (97,300) 77,500 (23,700)
Change in short-term debt (10,000)
Cash in escrow balance (583) (36,727)
Checks written in excess of cash
balances (1,246) 1,246 (2,505)
Issuance of long-term debt 33,402 3,640 275,000 64,343 63,547
Payment of long-term debt (5,000) (195,000) (14,283) (48,432)
Payment of dividends (4,325) (4,150) (16,600) (15,900) (16,325)
NET CASH PROVIDED FROM (USED IN
FINANCING ACTIVITIES 51,448 (21,510) (48,281) 120,060 (54,615)
Foreign currency translation
adjustment (347) (44) (4) (14)
CHANGE IN CASH AND CASH EQUIVALENTS 2,206 2,672 (1,894) 880 1,014
Beginning cash and cash equivalents 1,894 1,894 1,014
ENDING CASH AND CASH EQUIVALENTS $2,206 $4,566 $ - $1,894 $1,014
See accompanying notes to consolidated financial statements.
- -37-
QUESTAR MARKET RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Summary of Accounting Policies
Principles of Consolidation: The consolidated financial statements
contain the accounts of Questar Market Resources, Inc. and
subsidiaries (the "Company" or "QMR"). The Company is a wholly-owned
subsidiary of Questar Corporation ("Questar"). QMR, through its
subsidiaries, conducts gas and oil exploration, development and
production, gas gathering and processing, and wholesale energy
marketing. Questar Exploration and Production Company ("Questar
E&P"), formerly named Celsius Energy Company and Universal Resources
Corporation, conducts the exploration, development and production
activities. Wexpro Company ("Wexpro") operates and develops producing
properties on behalf of an affiliate, Questar Gas Company ("Questar
Gas"). Questar Gas Management Company ("Questar Gas Management")
conducts gas gathering and plant processing activities. Questar
Energy Trading Company ("Questar Energy Trading") performs wholesale
energy marketing activities and, through a 75% interest in Clear Creek
Storage Company, LLC, constructed and operates a gas storage facility.
All significant intercompany balances and transactions have been
eliminated in consolidation.
Investments in Unconsolidated Affiliates: The Company owns a 15%
interest in Canyon Creek Compression Co., and a 50% interest in Blacks
Fork Gas Processing Co. The Company uses the equity method to account
for investments in affiliates in which it does not have control and
generally, its investment in these affiliates equals the underlying
equity in net assets.
Interim Financial Data: The unaudited consolidated financial
statements as of March 31, 2000, and for the three-month periods ended
March 31, 2000 and 1999, and all related footnote information for
these periods have been prepared on the same basis as the audited
financial statements and, in the opinion of management, include all
adjustments, consisting of normal recurring adjustments, necessary for
a fair presentation of financial position, results of operations and
cash flows in accordance with accounting principles generally accepted
in the United States and pursuant to the rules and regulations of the
Securities and Exchange Commission.
Use of Estimates: The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts
of assets and liabilities and disclosure of contingent liabilities
reported in the financial statements and accompanying notes. Actual
results could differ from those estimates.
Revenue Recognition: Revenues are recognized in the period that
services are provided or products are delivered.
Wexpro settlement agreement-oil income sharing: Wexpro settlement
agreement-oil income sharing represents payments made to Questar Gas
for their share of the income from oil and NGL products associated
with cost of service oil properties pursuant to the terms of the
Wexpro settlement agreement (Note 10).
Cash and Cash Equivalents: Cash equivalents consist principally of
repurchase agreements with original maturities of three months or
less.
Notes receivable from Questar: Notes receivable from Questar represent
interest bearing demand notes for excess cash balances loaned to
Questar until the funds are needed in the Company's operations or
until bank borrowings can be repaid at maturity. The funds are
centrally managed by Questar and earn an interest rate that is
identical to the interest rate paid for borrowings from Questar.
Property, Plant and Equipment: QMR uses the full cost accounting
method for the majority of its oil and gas exploration and development
activities. However, as ordered by the Utah Public Service
Commission, the successful efforts method of accounting is utilized
with respect to costs associated with certain "cost of service" oil
and gas properties managed and developed by Wexpro and regulated for
ratemaking purposes. Cost of service oil and gas properties are those
properties for which the operations and return on investment are
regulated by the Wexpro settlement agreement (see Note 10). Pursuant
to the settlement agreement, production from the gas properties
operated by Wexpro is delivered
- -38-
to Questar Gas at Wexpro's cost of providing this service. That cost
includes a return on Wexpro's investment. While oil produced from the
cost of service properties is sold at market prices, the proceeds are
credited pursuant to the terms of the settlement agreement allowing
Questar Gas to share in the proceeds for the purpose of reducing
natural gas rates.
Full Cost Accounting -
Under the full cost method, all costs associated with the
acquisition, exploration and development of oil and gas reserves,
including certain directly related internal employee costs, are
capitalized. Such amounts include the cost of drilling and
equipping productive wells, dry hole costs, lease acquisition
costs, delay rentals, and costs related to such activities.
Exclusive of field-level costs, the Company capitalized
$3,003,000, $2,603,000, and $1,590,000 of internal costs in 1999,
1998, and 1997, respectively. Costs associated with production
and general corporate activities are expensed in the period
incurred, as are interest costs. Sales of oil and gas
properties, whether or not being amortized currently, are
accounted for as adjustments of capitalized costs, with no gain
or loss recognized, unless such adjustments would significantly
alter the relationship between capitalized costs and proved
reserves.
The Company limits, on a country by country cost center basis,
the capitalized costs of oil and gas properties, net of
accumulated amortization and related deferred taxes, to the
present value of estimated future net revenues from proved oil
and gas reserves, based upon current economic and operating
conditions and estimated future development expenditures,
discounted at 10%, plus the cost of unproved properties not being
amortized, as adjusted for related income tax effects (the full
cost ceiling). If capitalized costs exceed the full cost
ceiling, the excess is expensed. The Company recorded
write-downs of oil and gas properties pursuant to the ceiling
limitation required by the full cost accounting method amounting
to $31 million in 1998 and $6 million in 1997.
Capitalized costs are amortized, on a country by country cost
center basis, by an equivalent unit of production method based
upon production and estimates of proved reserves quantities. The
Company presently has two cost centers: the United States and
Canada. Amortizable costs include developmental drilling in
progress as well as estimates of future development costs of
proved reserves, but exclude the costs of certain unproved oil
and gas properties until the properties are evaluated.
The aggregate costs of unproved properties not being amortized
are assessed at least annually for possible impairments or
reduction in value. Significant properties are assessed
individually. If a reduction in value has occurred, costs being
amortized are increased. Of the $69.8 million of net unproved
property costs at December 31, 1999 excluded from the amortizable
base, $14.2 million, $27.7 million, and $7.8 million were
incurred in 1999, 1998, and 1997, respectively. Based on
anticipated future exploration and development activities, the
Company expects the majority of the costs of unproved properties
currently excluded to be evaluated and included in the
amortization calculation within the next five years.
Successful Efforts Accounting -
The Company uses the successful efforts method of accounting with
respect to costs associated with the development of cost of
service oil and gas properties. The cost to drill and equip
development wells, successful or unsuccessful, and construct
appurtenant facilities are capitalized. Geological and
geophysical costs are expensed as incurred.
Capitalized costs are amortized on an individual field basis
using the unit-of-production method based upon proved oil and gas
reserves attributable to the field. Costs of future site
restoration, dismantlement, and abandonment for producing
properties are accrued as part of depreciation and amortization
expense for tangible equipment by assuming no salvage value in
the calculation of the unit of production rate.
- -39-
Gathering, Processing and Marketing -
The investments in gathering facilities, processing plants and
other general support property, plant and equipment are generally
depreciated using the straight-line method based upon estimated
useful lives ranging from 3 to 20 years.
SFAS No. 121 -
The Company follows the provisions of Statement of Financial
Accounting Standards (SFAS) 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
in evaluating impairment of the Company's cost of service oil and
gas properties (accounted for under the successful efforts
method) and its gathering, processing and other property, plant
and equipment. The Company recorded a write-down of its
investment in gas gathering properties of $3 million in 1997
under the provisions of SFAS 121.
Depreciation and amortization -
Depreciation and amortization expense consists of the following
components (in thousands, except for rates):
Full cost oil and gas properties $16,076 $15,401 $61,057 $55,015 $51,175
Amortization rate, per unit
of production (Mcfe)
U.S. .80 .85 .81 .83 .81
Canada .81 .60 .65 1.04 1.17
Cost of service oil and gas
properties 3,537 3,024 12,665 11,379 10,213
Amortization rate, per unit
of production (Mcfe) .43 .40 .42 .39 .39
Gathering, processing and
marketing 1,364 1,180 4,886 4,983 5,690
Total $20,977 $19,605 $78,608 $71,377 $67,078
Accumulated depreciation and amortization consists of the following
components:
At March 31, At December 31,
2000 1999 1998
(unaudited)
Full cost oil and gas properties $563,123 $544,491 $498,718
Cost of service oil and gas
properties 183,914 180,867 168,236
Gathering, processing and
marketing 54,180 53,337 50,175
Total $801,217 $778,695 $717,129
- -40-
Capitalized Interest: The Company capitalizes interest costs, when
applicable, related to cost of service and gathering, processing, and
marketing activities during the construction period of plant and
equipment. Interest costs related to full cost oil and gas activities
are expensed in the period incurred. Capitalized interest aggregated
$357,000, $1,363,000, and $604,000 in 1999, 1998, and 1997,
respectively, and are included in Interest and Other Income in the
Consolidated Statements of Income.
Foreign Currency Translation: The Company conducts gas and oil
exploration and production activities in western Canada. The local
currency is the functional currency of the Company's foreign
operations. Translation from the functional currency to U. S. dollars
is performed for balance sheet accounts using the exchange rate in
effect at the balance-sheet date. Revenue and expense accounts are
translated using an average exchange rate for the period. Adjustments
resulting from such translations are reported as a separate component
of other comprehensive income in shareholder's equity. Deferred
income taxes have been provided on translation adjustments because the
earnings are not considered to be permanently invested.
Energy Price Risk Management: QMR enters into swaps, futures contracts
or option agreements to hedge exposure to price fluctuations in
connection with marketing of the Company's natural gas and oil
production, and to secure a known margin for the purchase and resale
of gas, oil and electricity in marketing activities. There is a high
degree of correlation between such contracts and the physical
transactions. The timing of production and of the hedge contracts is
closely matched. Hedge prices are established in the areas of QMR's
production operations. The Company settles most contracts in cash and
recognizes the gains and losses on hedge transactions during the same
time period as the related physical transactions. Contracts no longer
qualifying for high correlation with the physical transactions would
be marked-to-market and recognized in current period income. Cash
flows from the hedge contracts are reported in the same category as
cash flows from the hedged assets. The Company does not enter into
hedging contracts for speculative purposes.
Interest Rate Risk Management: The Company uses variable rate debt as
part of its financing plans. These agreements expose the Company to
market risk related to changes in interest rates.
Credit Risk: The Company's primary market areas are the Rocky
Mountain region of the United States and Canada and the Mid-continent
region of the United States. Exposure to credit risk may be impacted
by the concentration of customers in these regions due to changes in
economic or other conditions. Customers include numerous entities that
may be affected differently by changing conditions. Management
believes that its credit-review procedures, loss reserves and customer
deposits have adequately provided for usual and customary
credit-related losses.
Income Taxes: The Company accounts for income tax expense on a
separate return basis. Pursuant to Internal Revenue Code Regulations,
the Company's operations are consolidated with those of Questar and
its subsidiaries for income tax purposes. The income tax arrangement
between QMR and Questar provides that the tax liability of the group
shall be allocated to the several members of the group on the basis of
the percentage of the total tax which the tax of such member if
computed on a separate return would bear to the total amount of the
taxes for all members of the group so computed. The Company also
receives payment for tax benefits used in the consolidated tax return
even if such benefits would not have been usable had the Company filed
a separate return.
Comprehensive Income: QMR reports comprehensive income on the
Consolidated Statements of Shareholder's Equity. Other comprehensive
income transactions that currently apply to QMR result from changes in
market value of securities available for sale and changes in holding
value resulting from foreign currency translation adjustments. These
transactions are not the culmination of the earnings process, but
result from periodically adjusting historical balances to market
value. The balances in accumulated foreign currency translation
adjustments and unrealized losses on securities available for sale
amounted to $375,000 and $2,515,000, respectively, at December 31,
1999. The balance in accumulated foreign currency translation
adjustments at December 31, 1998, was $85,000. Income is realized
when the securities available for sale are sold. Income taxes
associated with realized gains from selling securities available for
sale were $146,000 in 1999.
New accounting standard: The Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standard ("SFAS")
No. 133, "Accounting for Derivative Instruments and Hedging
Activities" in June 1998.
- -41-
The Statement establishes accounting and reporting standards requiring
that the fair value of all derivative instruments be recorded in the
balance sheet as either an asset or liability. The Statement requires
that changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met wherein
gains and losses are to be reflected in other comprehensive income in
shareholder's equity until the hedged item is recognized.
Due to the issuance of SFAS No. 137, which deferred the effective date
of SFAS No. 133, the Company is required to adopt the statement for
fiscal years beginning after June 15, 2000. The Company has not
quantified the impact of adopting SFAS No. 133, but plans on adopting
the statement by January 1, 2001.
During 2000, the FASB issued SFAS No. 138, which amends the accounting
and reporting standards of SFAS No. 133 for certain derivative
instruments and certain hedging activities and should be adopted
concurrently with SFAS No. 133, according to its provisions and the
issuance of SFAS No. 137. The Company has not quantified the impact
SFAS No. 138 will have upon the adoption of SFAS No. 133.
Reclassifications: Certain reclassifications were made to the 1998
and 1997 financial statements to conform with the 1999 presentations.
Note 2 - Acquisitions
HSRTW, Inc.
A subsidiary of QMR acquired 100% of the common stock of HSRTW, Inc.,
a wholly owned subsidiary of HS Resources, Inc. for $155 million,
effective September 1, 1998. QMR obtained an estimated 150 Bcfe of
proved oil and gas reserves primarily in Oklahoma, Texas, Arkansas,
and Louisiana as a result of the transaction. The cash transaction
was accounted for under the purchase method of accounting for business
combinations.
The Company's consolidated statement of income for the year ended
December 31, 1998, includes only four months of operations from the
HSRTW acquisition. The following unaudited pro forma consolidated
results of operations assume the acquisition occurred on January 1 of
each year. The pro forma results do not necessarily represent results
which would have occurred if the acquisition had taken place on the
basis assumed above, nor are they indicative of the results of future
combined operations.
For the year ended December 31,
(In Thousands) 1998 1997
(Unaudited)
Total Revenuese $479,649 $573,959
Net Income $ 21,215 $ 45,846
The pro forma amounts reflect the combined results of the Company,
HSRTW, and the following purchase accounting adjustments for the
periods presented:
depreciation and amortization calculated on the basis of the
allocated purchase price and acquired proved reserves;
incremental interest expense on additional debt that would
have been incurred to finance the acquisition;
estimated general and administrative expenses based on
consolidated efficiencies; and
estimated income tax effects on the pro forma adjustments.
- -42-
Canor Energy Ltd.
On January 26, 2000, a subsidiary of QMR acquired 100% of the
outstanding shares of Canor from NI Canada ULC, a subsidiary of
Northwest Natural Gas Co., for cash of $US 61 million plus the
assumption of $5.4 million of short-term debt. The transaction was
accounted for as a purchase. Canor owns and/or operates more than 800
wells located in Alberta, British Columbia, and Saskatchewan provinces
of Canada. Canor's proven gas and oil reserves were estimated at 61.1
Bcfe. Assets purchased and liabilities assumed were as follows:
(In Thousands)
Cash $ 245
Other current assets 3,502
Property, plant and equipment 73,720
Other assets 282
Short-term debt (5,444)
Other current liabilities (4,356)
Deferred income taxes (4,976)
Other liabilities (1,989)
Total purchase price, including
acquisition costs $60,984
Note 3 - Other Assets
Other assets include the following:
As of March 31, As of December 31,
2000 1999 1998
(In Thousands) (Unaudited)
Cash held in escrow account (a) $37,310 $36,727
Securities available for sale (b) 12,522 10,402 $628
Other 2,542 952
Total other assets $52,374 $48,081 $628
_______________
(a)Proceeds from the sale of nonstrategic oil and gas properties in
November and December of 1999, were placed in escrow with a
qualified intermediary in accordance with the statutory
requirements for a tax-free exchange under U.S. Internal Revenue
Code Section 1031.
(b)The value of securities available for sale approximate fair
value at the balance sheet date based on published share prices.
The Company records unrealized gains or losses, based on market
value net of income taxes, as a separate component of other
comprehensive income in shareholder's equity. Gains or losses
resulting from the sale of securities are included in the
determination of income.
Note 4 - Debt
QMR has a $300 million senior revolving credit facility agented by
Bank of America. Borrowing under this agreement amounted to $264.9
million at December 31, 1999 at a 6.54% interest rate. The agreement
was entered into April 1999 and replaced an unsecured short-term and
long-term line-of-credit arrangements with various banks. The loan is
- -43-
segmented into US and Canadian portions. The US portion of the loan
is a 5-year facility with $227 million available. The Canadian portion
amounts to $68 million and is a 6-year facility. The interest rate is
generally equal to LIBOR plus a small premium. Under the most
restrictive terms of the senior-revolving credit facility, QMR could
have paid a dividend of $57.6 million at December 31, 1999.
Maturities of long-term debt for the five years following December 31,
1999, are as follows:
(In Thousands)
2000 $ -
2001 2,995
2002 30,995
2003 2,995
2004 179,995
Questar makes loans to QMR under a short-term borrowing arrangement.
Short-term notes payable to Questar outstanding as of December 31,
1999 amounted to $24.5 million with an average interest rate of 6.61%
and $121.8 million as of December 31, 1998 with an interest rate of
5.71%.
Cash paid for interest was $16,964,000 in 1999, $13,229,000 in 1998
and $11,557,000 in 1997.
Note 5 - Financial Instruments
The carrying amounts and estimated fair values of the Company's
financial instruments were as follows:
December 31, 1999 December 31, 1998
Carrying Estimated Fair Carrying Estimated
Value Value Value Fair Value
(In Thousands)
Financial assets
Cash and cash equivalents $1,894 $1,894
Notes receivable from Questar $4,000 $4,000 25,100 25,100
Financial liabilities
Short-term loans 25,746 25,746 121,800 121,800
Long-term debt 264,894 264,894 181,624 181,624
Gas and oil price hedging
contracts (6,200) 6,000
The Company used the following methods and assumptions in estimating
fair values: (1) Cash and cash equivalents, notes receivable from
Questar and short-term loans - the carrying amount approximates fair
value; (2) Long-term debt - the carrying amount of variable-rate debt
approximates fair value; (3) Gas and oil price hedging contracts - the
fair value of contracts is based on market prices as posted on the
NYMEX from the last trading day of the year.
The average price of the oil contracts at December 31, 1999 was $18.83
per bbl and was based on the average of fixed amounts in contracts
which settle against the NYMEX. All oil contracts relate to
Company-owned production where basis adjustments would result in a net
to the well price of between $17.22 and $17.67 per bbl. The average
price of the gas contracts at December 31, 1999 was $2.22 per Mcf
representing the average of contracts with different terms including
fixed, various into-the-pipe postings and NYMEX references. Gas
hedging contracts were in place for QMR-owned production and gas
marketing transactions. Transportation and heat value adjustments on
the hedges of Company-owned gas as of December 31, 1999 would result
in an average price of between $2.15 and $2.23 per Mcf, net back to
the well.
- -44-
Fair value is calculated at a point in time and does not represent the
amount the Company would pay to retire the debt securities. In the
case of gas-and-oil price-hedging activities, the fair value
calculation does not consider changes in the fair value of the
corresponding scheduled physical transactions (i.e., the correlation
between the index price and the price to be realized for the physical
delivery of oil or gas production).
Energy Price Risk Management: The Company held open hedge contracts
covering the price exposure for about 72.1 million Dth of gas and 2.4
million barrels of oil at December 31, 1999 and 45.3 million Dth of
gas and 464,000 barrels of oil at December 31, 1998. The hedging
contracts are primarily for gas and oil marketing activities, but also
include QMR-owned production. The contracts at December 31, 1999 had
terms extending through December 2001 with about 65% of those
contracts expiring by the end of 2000. A primary objective of
energy-price hedging is to protect product sales from adverse changes
in energy prices. The Company does not enter into hedging contracts
for speculative purposes.
Credit Risk Management: The Company's primary areas are the Rocky
Mountain and Mid-Continent regions of the United States. Exposure to
credit risk may be impacted by the concentration of customers in these
regions due to changes in economic or other conditions. Customers
include numerous industries that may be affected differently by
changing conditions. Management believes that its credit review
procedures, loss reserves, and collection procedures have adequately
protected against unusual credit related losses.
Interest Rate Risk Management: The Company had $264.9 million of
variable rate long-term debt outstanding at December 31, 1999. The
book value of variable-rate debt approximates fair value.
Foreign Currency Risk Management: The Company does not hedge the
foreign currency exposure of its foreign operation's net assets and
long-term debt. The net assets of the foreign operation were negative
at December 31, 1999. Long-term debt owned by the foreign operation,
amounting to $59.9 million (U.S.), is expected to be repaid from the
future foreign operations.
Securities Available for Sale: Securities available for sale represent
equity instruments traded on national exchanges. The value of these
investments is subject to day to day market volatility.
Note 6 - Income Taxes
The components of income taxes expense (benefit) for years ended
December 31 were as follows:
1999 1998 1997
(In Thousands)
Federal
Current $11,411 $4,263 $14,574
Deferred 4,826 (86) (1,218)
State
Current 1,568 228 1,350
Deferred 620 1,007 (291)
Foreign 159 (6,431) (4,005)
Income taxes $18,584 ($1,019) $10,410
The difference between income tax expense and the tax computed by
applying the statutory federal income tax rate of 35% to income from
continuing operations before income taxes is explained as follows:
- -45-
1999 1998 1997
(In Thousands)
Income from continuing operations
before income taxes $64,450 $15,706 $49,521
Federal income taxes at statutory rate $22,558 $ 5,497 $17,332
State income taxes, net of federal
income tax benefit 1,422 803 745
Nonconventional fuel credits (5,282) (5,736) (6,633)
Foreign income taxes 48 (1,771) (630)
Other (162) 188 (404)
Income taxes $18,584 ($1,019) $10,410
Effective income tax rate 28.8% - 21.0%
Significant components of the Company's deferred tax liabilities and
assets at December 31 were as follows:
1999 1998
(In Thousands)
Deferred tax liabilities
Property, plant and equipment $74,333 $64,674
Other 509 205
74,842 64,879
Deferred tax assets
Alternative minimum tax and
nonconventional fuel credit
carry-forwards 2,468 6,535
Reserves, compensation plans and other 12,438 6,231
14,906 12,766
Net deferred tax liabilities $59,936 $52,113
The Company paid $7,183,000 in 1999 and $9,029,000 in 1997 for income
taxes. Cash received for income taxes amounted to $1,856,000 in 1998.
Note 7 - Litigation and Commitments
Questar E&P, as well as QMR and Questar, are among the named
defendants in a class action lawsuit involving royalty payments in
Oklahoma state court. In Bridenstine vs. Kaiser-Francis Oil Company,
the plaintiffs have alleged various fraud and contract claims against
all defendants for a 17-year period. While this litigation does not
specify the amount of damages being claimed, estimates have at times
been in excess of $80 million, plus punitive damages. Management
cannot predict the outcome of the lawsuit, which will be tried before
a jury beginning February of 2001, and which may result in a material
adverse judgment. The plaintiffs' primary claim alleges that a
transportation fee charged against royalty payments was improper or
excessive. The claims involve wells connected to an intrastate
pipeline system that Questar Gas Management presently owns and
operates. Kaiser-Francis and Questar E&P are the major working
interest owners and operators of a majority of the wells connected to
this pipeline system. Questar E&P disputes plaintiffs' claims and
will continue to vigorously defend against such litigation.
- -46-
The Company regularly reviews potential liabilities related to legal
proceedings and records appropriate accruals after considering
estimates of the outcome of such matters and our experience in
contesting, litigating, and settling similar matters. While it is not
currently possible to predict or determine the outcome of the
Bridenstine case or various other legal proceedings against QMR, it is
the opinion of management that the outcomes will not have a material
adverse effect on the Company's future results of operations,
financial position or liquidity.
Questar Energy Trading has contracted for firm-transportation services
with various pipelines to transport 76.2 MDths per day of gas. The
contracts extend for the next seven years and have an annual cost of
approximately $3 million. Due to market conditions and competition,
it is possible that Questar Energy Trading may be unable to sell
enough gas to fully utilize the contracted capacity. Also, Questar
Energy Trading has reserved firm-storage capacity of 1,065 MDths per
day with Questar Pipeline through 2008 with an annual cost of
$627,000.
The minimum future payments under the terms of long-term operating
leases for the Company's primary office locations for the five years
following December 31, 1999, are as follows:
(In Thousands)
2000 $1,980
2001 1,918
2002 1,371
2003 507
2004 43
Total minimum future rental payments have not been reduced for
sublease rental receipts of $96,000, $96,000, and $24,000, which are
expected to be received in the years ended December 31, 2000, 2001,
and 2002, respectively.
Total rental expense amounted to $1,804,000, $1,397,000, and
$1,112,000 in 1999, 1998, and 1997, respectively. Sublease rental
receipts were $94,000 in 1999.
Note 8 - Employment Benefits
Pension Plan: Substantially all of QMR's employees are covered by
Questar's defined benefit pension plan. Benefits are generally based
on years of service and the employee's 72-pay period interval of
highest earnings during the ten years preceding retirement. It is the
Company's policy to make contributions to the plan at least sufficient
to meet the minimum funding requirements of applicable laws and
regulations. Plan assets consist principally of equity securities and
corporate and U.S. government debt obligations. Pension cost was
$887,000 in 1999, $761,000 in 1998 and $1,345,000 in 1997. Included
in pension cost for 1997 is $419,000 of expense associated with an
early retirement package offered to a limited number of the Company's
employees.
QMR's portion of plan assets and benefit obligations is not
determinable because the plan assets are not segregated or restricted
to meet the Company's pension obligations. If the Company were to
withdraw from the pension plan, the pension obligation for the
Company's employees would be retained by the pension plan. At
December 31, 1999, Questar's fair value of plan assets exceeded the
accumulated benefit obligation.
Postretirement Benefits Other Than Pensions: QMR pays a portion of
health-care costs and life insurance costs for employees. The Company
linked the health-care benefits to years of service and limited the
Company's monthly health care contribution per individual to 170% of
the 1992 contribution. Employees hired after December 31, 1996, do
not qualify for postretirement medical benefits under this plan. The
Company's policy is to fund amounts allowable for tax deduction under
the Internal Revenue Code. Plan assets consist of equity securities,
and corporate and U.S. government debt obligations. The Company is
amortizing the transition obligation over a 20-year period, which
began in 1992. Costs of postretirement benefits other than pensions
were $1,158,000 in 1999 and $1,018,000 in 1998 and $1,083,000 in 1997.
- -47-
QMR's portion of plan assets and benefit obligations related to
postretirement medical and life insurance benefits is not determinable
because the plan assets are not segregated or restricted to meet the
Company's obligations.
Postemployment Benefits: The Company recognizes the net present value
of the liability for postemployment benefits, such as long-term
disability benefits and health-care and life-insurance costs, when
employees become eligible for such benefits. Postemployment benefits
are paid to former employees after employment has been terminated but
before retirement benefits are paid. The Company accrues both current
and future costs. The liability is remeasured each year and the
change is recorded in income. Postemployment benefits accumulate for
salary continuation, health-care and life-insurance costs. Benefits
are paid from the Company's general funds. The Company's
postemployment benefit liability at December 31, 1999 was $381,000 and
in 1998 was $376,000 based on discount rates of 7.75% and 6.75%,
respectively.
Employee Investment Plan: The Company participates in Questar's
Employee Investment Plan (EIP), which allows eligible employees to
purchase Questar common stock or other investments through payroll
deduction of pretax earnings. The Company makes matching
contributions to the EIP of 80% of the first 6% of salary contributed
by employees and contributes an additional $200 of common stock in the
name of each eligible employee. The Company's expense and
contribution to the plan was $895,000 in 1999, $811,000 in 1998 and
$747,000 in 1997.
Note 9 - Related Party Transactions
QMR receives a significant portion of its revenues from services
provided to Questar Gas. The Company received $79,324,000 in 1999,
$75,171,000 in 1998 and $72,138,000 in 1997 for operating cost of
service oil and gas properties, gathering gas and supplying a portion
of gas for resale, among other services provided to Questar Gas.
Operation of cost of service oil and gas properties is described in
Wexpro Settlement Agreement (Note 10). The Company also received
revenues from other affiliated companies totaling $384,000 in 1999,
$310,000 in 1998 and $269,000 in 1997.
Questar performs certain administrative functions for QMR. The
Company was charged for its allocated portion of these services which
totaled $4,469,000 in 1999, $3,970,000 in 1998 and $5,311,000 in 1997.
These costs are included in operating and maintenance expenses and are
allocated based on each affiliate's proportional share of revenues;
net of product costs; property, plant and equipment; and payroll.
Management believes that the allocation method is reasonable and that
expenses would be substantially the same if incurred on a standalone
basis.
QMR's subsidiaries contracted for transportation and storage services
with Questar Pipeline and paid $3,378,000 in 1999, $3,968,000 in 1998
and $4,011,000 in 1997 for those services.
Questar InfoComm Inc is an affiliated company that provides some data
processing and communication services to QMR. The Company paid
Questar InfoComm $2,276,000 in 1999, $2,273,000 in 1998 and $2,391,000
in 1997.
QMR has a 5-year lease with Questar for space in an office building
located in Salt Lake City, Utah, and owned by a third party. The
annual lease payment, which began October of 1997, is $863,000.
The Company received interest income from affiliated companies of
$681,000 in 1999, $1,908,000 in 1998 and $2,370,000 in 1997. QMR
incurred debt expense to affiliated companies of $3,350,000 in 1999,
$3,331,000 in 1998 and $2,661,000 in 1997.
Note 10 - Wexpro Settlement Agreement
Wexpro's operations are subject to the terms of the Wexpro settlement
agreement. The agreement was effective August 1, 1981, and sets forth
the rights of Questar Gas' utility operations to share in the results
of Wexpro's operations. The agreement was approved by the PSCU and
PSCW in 1981 and affirmed by the Supreme Court of Utah in 1983. Major
provisions of the settlement agreement are as follows:
- -48-
a. Wexpro continues to hold and operate all oil-producing
properties (productive oil reservoirs) previously transferred
from Questar Gas' nonutility accounts. The oil production from
these properties is sold at market prices, with the revenues
used to recover operating expenses and to give Wexpro a return
on its investment. The after tax rate of return is adjusted
annually and is approximately 13.7%. Any net income remaining
after recovery of expenses and Wexpro's return on investment
is divided between Wexpro and Questar Gas, with Wexpro
retaining 46%.
b. Wexpro conducts developmental oil drilling on productive oil
reservoirs and bears any costs of dry holes. Oil discovered
from these properties is sold at market prices, with the
revenues used to recover operating expenses and to give Wexpro
a return on its investment in successful wells. The after tax
rate of return is adjusted annually and is approximately
18.7%. Any net income remaining after recovery of expenses
and Wexpro's return on investment is divided between Wexpro
and Questar Gas, with Wexpro retaining 46%.
c. Amounts received by Questar Gas from the sharing of Wexpro's
oil income are used to reduce natural-gas costs to utility
customers.
d. Wexpro conducts developmental gas drilling on productive gas
reservoirs and bears any costs of dry holes. Natural gas
produced from successful drilling is owned by Questar Gas.
Wexpro is reimbursed for the costs of producing the gas plus a
return on its investment in successful wells. The after tax
rate of return allowed Wexpro is approximately 21.7%.
e. Wexpro operates productive gas reservoir properties owned by
Questar Gas. Wexpro is reimbursed for its costs of operating
these properties, including a rate of return on any investment
it makes. This after tax rate of return is approximately
13.7%.
Note 11 - Discontinued Operations - Transfer of Questar Energy
Services
QMR transferred all of its investment in Questar Energy Services, Inc.
("Questar Energy Services"), a wholly-owned subsidiary to Questar
Regulated Services Company ("Questar Regulated Services"), an
affiliate, effective January 1, 1999.
Questar Regulated Services, a wholly-owned subsidiary of Questar, is a
sub-holding company that holds the investment of Questar Gas, a retail
natural gas distributor. The transfer was in the form of a dividend
of 100% of the shares of Questar Energy Services at book value. No
gain or loss was generated as a result of the transfer. Questar
Energy Services provides energy management equipment, installation,
and service contracts for commercial and industrial clients and home
security systems, service contracts, and equipment financing to
residential customers and markets its services and products to many of
the same customers served by Questar Gas.
Summarized information relating to discontinued operations are as
follows:
For the Year Ended December 31,
1998 1997
(In thousands)
Revenues $2,355 $595
Operating (loss) (1,180) (1,773)
Net (loss) (563) (1,021)
- -49-
At December 31,
1998 1997
(In thousands)
Total assets $7,230 $4,326
Total liabilities 9,135 5,668
Common equity (deficit) (1,905) (1,342)
Note 12 - Business Segment Information
QMR is a sub-holding company that has three primary business segments:
exploration and production; the management and development of cost of
service properties; and gathering, processing and marketing. QMR's
reportable segments are strategic business units with similar
operations and management objectives. The reportable segments are
managed separately because each segment requires different operational
assets, technology, and management strategies.
Operating Segment Information
For the Three Months For the Year
Ended March 31, Ended December 31,
2000 1999 1999 1998 1997
(Unaudited)
(In Thousands)
Revenues from Unaffiliated Customers
Exploration and production $49,509 $36,200 $162,475 $135,509 $135,060
Cost of service 3,844 2,124 8,844 10,025 14,474
Gathering, processing, and marketing 66,118 56,319 247,284 237,257 301,699
$119,471 $94,643 $418,603 $382,791 $451,233
Revenues from Affiliated Companies
Cost of service $17,130 $15,094 $62,335 $58,581 $50,020
Gathering, processing, and marketing 5,160 6,109 17,373 16,900 22,387
$22,290 $21,203 $79,708 $75,481 $72,407
Depreciation and Amortization Expense
Exploration and production $16,076 $15,401 $61,057 $55,015 $51,175
Cost of service 3,537 3,024 12,665 11,379 10,213
Gathering, processing, and marketing 1,364 1,180 4,886 4,983 5,690
$20,977 $19,605 $78,608 $71,377 $67,078
Operating Income (Loss)
Exploration and production (1) $15,805 $4,975 $37,406 ($6,063) $27,555
Cost of service 9,031 7,794 32,948 28,218 24,988
Gathering, processing, and marketing (2) 839 1,574 6,424 3,474 2,294
$25,675 $14,343 $76,778 $25,629 $54,837
- -50-
Income (Loss) from Continuing Operations
Exploration and production $8,396 $2,372 $20,808 ($3,257) $22,281
Cost of service 5,787 5,084 20,880 18,653 16,983
Gathering, processing, and marketing 866 797 4,178 1,329 (153)
$15,049 $8,253 $45,866 $16,725 $39,111
Fixed Assets - Net
Exploration and production $549,552 $492,815 $482,043 $496,884 $373,070
Cost of service 134,968 128,328 137,584 129,573 113,228
Gathering, processing, and marketing 71,024 66,896 71,354 69,055 68,878
$755,544 $688,039 $690,981 $695,512 $555,176
Geographic Information
For the Three Months For the Year
Ended March 31, Ended December 31,
2000 1999 1999 1998 1997
(In Thousands) (Unaudited)
Revenues
United States $134,788 $113,362 $485,995 $447,798 $514,827
Canada 6,973 2,484 12,316 10,474 8,813
$141,761 $115,846 $498,311 $458,272 $523,640
Fixed Assets-Net
United States $648,922 $653,791 $654,961 $662,260 $511,547
Canada 106,622 34,248 36,020 33,252 43,629
$755,544 $688,039 $690,981 $695,512 $555,176
______________
(1)The exploration and production segment impaired full cost oil
and gas properties by $31 million in 1998 and $6 million in
1997. The entire 1997 write-down was applicable to Canadian
operations, while $12 million of the 1998 write-down was
applicable to Canadian operations.
(2)The gathering, processing, and marketing segment recorded a $3
million write-down of its gas gathering assets under the
provision of SFAS 121 in 1997.
- -51-
Note 13 - Supplemental Oil and Gas Information (Unaudited)
QMR uses the full cost accounting method for the majority of its oil
and gas exploration and development activities. However, as ordered
by the Utah Public Service Commission, the successful efforts method
of accounting is utilized with respect to costs associated with
certain cost of service oil and gas properties managed and developed
by Wexpro and regulated for ratemaking purposes. Cost of service oil
and gas properties are those properties for which the operations and
return on investment are regulated by the Wexpro settlement agreement
(see Note 10).
Oil and Gas Exploration and Development Activities: The following
information is provided with respect to QMR's oil and gas exploration
and development activities, located in the United States and Canada.
Capitalized Costs -
The aggregate amounts of costs capitalized for oil and gas exploration
and development activities and the related amounts of accumulated
depreciation and amortization follow:
December 31, 1999
United States Canada Total
(In Thousands)
Proved properties $885,333 $58,016 $943,349
Unproved properties 58,248 11,529 69,777
Support equipment and facilities 12,418 990 13,408
955,999 70,535 1,026,534
Accumulated depreciation and amortization 509,976 34,515 544,491
$446,023 $36,020 $482,043
December 31, 1998
United States Canada Total
(In Thousands)
Proved properties $869,514 $48,723 $918,237
Unproved properties 49,724 12,763 62,487
Support equipment and facilities 13,949 929 14,878
933,187 62,415 995,602
Accumulated depreciation and amortization 469,555 29,163 498,718
$463,632 $33,252 $496,884
- -52-
December 31, 1997
United States Canada Total
(In Thousands)
Proved properties $702,427 $41,994 $744,421
Unproved properties 19,200 13,390 32,590
Support equipment and facilities 12,556 888 13,444
734,183 56,272 790,455
Accumulated depreciation and amortization 404,742 12,643 417,385
$329,441 $43,629 $373,070
Unproved Properties -
Unproved properties are excluded from amortization until evaluated. A
summary of costs excluded from amortization at December 31, 1999, and
the period in which these costs were incurred are listed below by cost
center:
Year Costs Incurred
Total 1999 1998 1997 1996 and Prior
(In Thousands)
United States
Acquisition $45,351 $11,447 $24,203 $1,165 $ 8,536
Exploration 12,897 2,302 2,542 2,078 5,975
58,248 13,749 26,745 3,243 14,511
Canada
Acquisition 10,111 281 585 4,327 4,918
Exploration 1,418 145 414 198 661
11,529 426 999 4,525 5,579
$69,777 $14,175 $27,744 $7,768 $20,090
Costs Incurred -
The following costs were incurred with respect to oil and gas
exploration and development activities:
- -53-
Year Ended December 31, 1999
United States Canada Total
(In Thousands)
Property acquisition
Unproved $12,547 $ 351 $12,898
Proved 3,746 18 3,764
Exploration 7,467 501 7,968
Development 53,488 3,745 57,233
$77,248 $4,615 $81,863
Year Ended December 31, 1998
United States Canada Total
(In Thousands)
Property acquisition
Unproved $ 29,367 $ 145 $ 29,512
Proved 126,723 3,144 129,867
Exploration 10,055 1,222 11,277
Development 43,090 5,363 48,453
$209,235 $9,874 $219,109
Year Ended December 31, 1997
United States Canada Total
(In Thousands)
Property acquisition
Unproved $4,057 $203 $4,260
Proved 2,155 2,155
Exploration 9,975 1,198 11,173
Development 28,511 4,437 32,948
$44,698 $5,838 $50,536
Results of Operations -
Following are the results of operations of QMR's oil and gas
exploration and development activities, before corporate overhead and
interest expenses. The Company recorded write-downs of its full cost
oil and gas properties pursuant to the ceiling limitation in 1998 and
1997.
- -54-
Year Ended December 31, 1999
United States Canada Total
(In Thousands)
Revenues $150,159 $ 12,316 $162,475
Production expenses 41,948 3,681 45,629
Depreciation and amortization 57,545 3,512 61,057
Total expenses 99,493 7,193 106,686
Revenues less expenses 50,666 5,123 55,789
Income taxes - Note A 13,616 2,567 16,183
Results of operations before
corporate overhead and interest
expenses $37,050 $ 2,556 $39,606
Year Ended December 31, 1998
United States Canada Total
(In Thousands)
Revenues $125,035 $10,474 $135,509
Production expenses 38,788 3,004 41,792
Depreciation and amortization 49,740 5,275 55,015
Write-down of oil and gas properties 19,000 12,000 31,000
Total expenses 107,528 20,279 127,807
Revenues less expenses 17,507 (9,805) 7,702
Income taxes - Note A 1,191 (4,030) (2,839)
Results of operations before corporate
overhead and interest expenses $16,316 ($5,775) $10,541
- -55-
Year Ended December 31, 1997
United States Canada Total
(In Thousands)
Revenues $126,247 $ 8,813 $135,060
Production expenses 36,922 2,424 39,346
Depreciation and amortization 45,801 5,374 51,175
Write-down of oil and gas properties 6,000 6,000
Total expenses 82,723 13,798 96,521
Revenues less expenses 43,524 (4,985) 38,539
Income taxes - Note A 9,330 (3,025) 6,305
Results of operations before corporate
overhead and interest expenses $34,194 ($1,960) $32,234
Note A - Income tax expense has been reduced by nonconventional fuel
tax credits of $5,282,000 in 1999, $5,736,000 in 1998, and $6,633,000
in 1997.
Estimated Quantities of Proved Oil and Gas Reserves -
Estimates of the reserves located in the United States were made by
Ryder Scott Company, H. J. Gruy and Associates, Inc., Netherland,
Sewell & Associates, and Malkewicz Hueni Associates, Incorporated,
independent reservoir engineers. Estimated Canadian reserves were
prepared by Gilbert Laustsen Jung Associates Ltd. Reserve estimates
are based on a complex and highly interpretive process that is subject
to continuous revision as additional production and
development-drilling information becomes available. The quantities
reported below are based on existing economic and operating conditions
at December 31. All oil and gas reserves reported were located in the
United States and Canada. The Company does not have any long-term
supply contracts with foreign governments or reserves of equity
investees.
Natural Gas Oil
United States Canada Total United States Canada Total
(MMcf) (MBbls)
Proved Reserves
Balance at January 1, 1997 359,542 24,475 384,017 16,129 2,127 18,256
Revisions of estimates 11,177 (4,635) 6,542 (1,929) (316) (2,245)
Extensions and discoveries 24,306 4,366 28,672 669 898 1,567
Purchase of reserves in place 8,166 8,166 351 351
Sale of reserves in place (1,292) (1,292) (450) (3) (453)
Production (44,370) (3,072) (47,442) (2,106) (271) (2,377)
- -56-
Standardized Measure of Future Net Cash Flows Relating to Proved
Reserves -
Future net cash flows were calculated at December 31 using year-end
prices and known contract-price changes. Year-end production costs,
development costs and appropriate statutory income tax rates, with
consideration of any future tax rates already legislated, were used to
compute the future net cash flows. All cash flows were discounted at
10% to reflect the time value of cash flows, without regard to the
risk of specific properties.
The assumptions used to derive the standardized measure of future net
cash flows are those required by accounting standards and do not
necessarily reflect the Company's expectations. The usefulness of the
standardized measure of future net cash flows is impaired because of
the reliance on reserve estimates and production schedules that are
inherently imprecise.
Year Ended December 31, 1999
United States Canada Total
(In Thousands)
Future cash inflows $1,327,070 $107,227 $1,434,297
Future production and development
costs (459,625) (31,426) (491,051)
Future income tax expenses (181,644) (10,773) (192,417)
Future net cash flows 685,801 65,028 750,829
10% annual discount for estimated timing
of net cash flows (283,030) (23,365) (306,395)
Standardized measure of discounted future
net cash flows $402,771 $41,663 $444,434
- -57-
Year Ended December 31, 1998
United States Canada Total
(In Thousands)
Future cash inflows $988,365 $66,873 $1,055,238
Future production and development costs (365,493) (22,784) (388,277)
Future income tax expenses (76,935) (76,935)
Future net cash flows 545,937 44,089 590,026
10% annual discount for estimated timing
of net cash flows (216,505) (14,809) (231,314)
Standardized measure of discounted future
net cash flows $329,432 $29,280 $358,712
Year Ended December 31, 1997
United States Canada Total
(In Thousands)
Future cash inflows $883,723 $68,550 $952,273
Future production and development costs (331,750) (25,066) (356,816)
Future income tax expenses (87,948) (87,948)
Future net cash flows 464,025 43,484 507,509
10% annual discount for estimated timing
of net cash flows (189,326) (14,885) (204,211)
Standardized measure of discounted future
net cash flows $274,699 $28,599 $303,298
The principal sources of change in the standardized measure of
discounted future net cash flows were:
Year Ended December 31,
1999 1998 1997
(In Thousands)
Beginning balance $358,712 $303,298 $395,372
Sales of oil and gas produced, net of
production costs (116,846) (93,717) (95,714)
Net changes in prices and production
costs 163,239 (51,568) (132,738)
Extensions and discoveries, less related
costs 78,611 24,430 28,964
Revisions of quantity estimates 28,311 (14,583) (5,529)
Purchase of reserves in place 3,764 129,867 2,155
Sale of reserves in place (33,043) (540) (3,606)
Accretion of discount 35,871 30,330 39,538
Net change in income taxes (62,263) 10,783 69,691
Change in production rate (12,627) 7,543 8,077
Other 705 12,869 (2,912)
Net change 85,722 55,414 (92,074)
Ending balance $444,434 $358,712 $303,298
- -58-
Cost of Service Activities: The following information is provided with
respect to cost of service oil and gas properties managed and
developed by Wexpro and regulated by the Wexpro settlement agreement.
Information on the standardized measure of future net cash flows has
not been included for cost of service activities as the operations of
and return on investment for such properties are regulated by the
Wexpro settlement agreement.
Capitalized Costs -
Capitalized costs for cost of service oil and gas properties and the
related amounts of accumulated depreciation and amortization follow:
December 31,
1999 1998 1997
(In Thousands)
Proved properties $318,451 $297,809 $270,073
Accumulated depreciation and amortization 180,867 168,236 156,845
$137,584 $129,573 $113,228
Costs Incurred -
Costs incurred by Wexpro for cost of service oil and gas producing
activities were $21,273,000 in 1999, $26,956,000 in 1998, and
$26,837,000 in 1997.
Results of Operations -
Following are the results of operations of QMR's cost of service
activities before corporate overhead and interest expenses.
Year Ended December 31,
1999 1998 1997
(In Thousands)
Revenues
From unaffiliated companies $ 8,844 $10,025 $14,474
From affiliates - Note A 62,335 58,581 50,020
Total revenues 71,179 68,606 64,494
Production expenses 18,548 22,439 22,280
Depreciation and amortization 12,665 11,379 10,213
Total expenses 31,213 33,818 32,493
Revenues less expenses 39,966 34,788 32,001
Income taxes 14,602 12,441 11,334
Results of operations before corporate
overhead and interest expenses $25,364 $22,347 $20,667
Note A - Represents revenues received from Questar Gas pursuant to
Wexpro settlement agreement.
- -59-
Estimated Quantities of Proved Oil and Gas Reserves -
The following estimates were made by the Company's reservoir
engineers. No estimates are available for cost of service proved
undeveloped reserves that may exist.
Natural Gas Oil
(MMcf) (MBbls)
Proved Developed Reserves
Balance at January 1, 1997 359,907 3,092
Revisions of estimates 7,240 123
Extensions and discoveries 7,486 419
Production (37,454) (585)
Balance at December 31, 1997 337,179 3,049
Revisions of estimates 15,017 (46)
Extensions and discoveries 25,077 333
Production (37,138) (613)
Balance at December 31, 1998 340,135 2,723
Revisions of estimates 5,699 976
Extensions and discoveries 46,739 213
Production (38,890) (623)
Balance at December 31, 1999 353,683 3,289
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not Applicable
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS
(a)Reference is made to the Index to Consolidated Financial
Statements and Supplementary Data appearing at Item 13.
Financial Statements and Supplementary Data of this Form.
(b)The following is an Index of Exhibits required by Item 601
of Regulation S-K filed with the Securities and Exchange
Commission as part of this Form:
Exhibit
Number Description
3.1.* Articles of Incorporation dated April 27, 1988 for Utah
Entrada Industries, Inc.
3.2.* Articles of Merger, dated May 20, 1988, of Entrada
Industries, Inc., a Delaware corporation and Utah
Entrada Industries, Inc, a Utah corporation.
3.3.* Articles of Amendment dated August 31, 1998, changing
the name of Entrada Industries, Inc. to Questar Market
Resources, Inc.
- -60-
3.4.* Bylaws (as amended effective February 8, 2000).
4.1.1 U.S. Credit Agreement, dated April 19, 1999, by and
among Questar Market Resources, Inc., as U.S. borrower,
NationsBank, N.A., as U.S. agent, and certain financial
institutions, as lenders, with the First Amendment dated
May 17, 1999, the Second Amendment dated July 30, 1999,
the Third Amendment dated November 30, 1999, the Fourth
Amendment dated April 17, 2000, and the Fifth Amendment
dated October 6, 2000.
4.2. Long-term debt instruments with principal amounts not
exceeding 10% of QMR's total consolidated assets are not
filed as exhibits to this Report. QMR will furnish a
copy of those agreements to the SEC upon its request.
10.1.** Stipulation and Agreement, dated October 14, 1981,
executed by Mountain Fuel Supply Company [Questar Gas
Company]; Wexpro Company; the Utah Department of
Business Regulations, Division of Public Utilities; the
Utah Committee of Consumer Services; and the staff of
the Public Service Commission of Wyoming. (Exhibit No.
10(a) to Questar Gas Company's Form 10-K Annual Report
for 1981.)
10.2.2 Questar Market Resources, Inc. Annual Management
Incentive Plan, as amended and restated effective
October 26, 2000.
10.3.**2 Questar Corporation Executive Incentive Retirement
Plan, as amended and restated effective May 19, 1998.
(Exhibit No. 10.2. to Form 10-Q Report for Quarter Ended
June 30, 1998, filed by Questar Corporation.)
10.4.2 Questar Corporation Long-Term Stock Incentive Plan, as
amended and restated effective October 26, 2000.
10.5.**2 Questar Corporation Executive Severance Compensation
Plan, as amended and restated effective May 19, 1998.
(Exhibit No. 10.3. to Form 10-Q Report for Quarter Ended
June 30, 1998, filed by Questar Corporation.)
10.6.2 Questar Market Resources, Inc. Deferred Compensation
Plan for Directors, as amended and restated effective
October 26, 2000.
10.7.**2 Questar Corporation Supplemental Executive Retirement
Plan, as amended and restated effective June 1, 1998.
(Exhibit No. 10.6. to Form 10-Q Report for Quarter Ended
June 30, 1998, filed by Questar Corporation.)
10.8.**2 Questar Corporation Stock Option Plan for Directors,
as amended and restated effective October 29, 1998.
(Exhibit No. 10.10. to Form 10-Q Report for Quarter
Ended September 30, 1998, filed by Questar Corporation.)
10.9.**2 Form of Individual Indemnification Agreement dated
February 9, 1993 between Questar Corporation and
directors, including directors of Questar Market
Resources, Inc. (Exhibit No. 10.11. to Form 10-K Annual
Report for 1992 filed by Questar Corporation.)
10.10.**2 Questar Corporation Deferred Share Plan, as amended
and restated effective May 19, 1998. (Exhibit No. 10.7.
to Form 10-Q Report for Quarter Ended June 30, 1998,
filed by Questar Corporation.)
- -61-
10.11.**2 Questar Corporation Deferred Compensation Plan, as
amended and restated effective May 19, 1998. (Exhibit
No. 10.10. to Form 10-Q Report for Quarter Ended June
30, 1998, filed by Questar Corporation.)
10.12.**2 Questar Corporation Directors' Stock Plan as approved
May 21, 1996. (Exhibit No. 10.15. to Form 10-Q Report
for Quarter ended June 30, 1996, filed by Questar
Corporation.)
10.13.**2 Questar Corporation Deferred Share Make-Up Plan.
(Exhibit No. 10.8. to Form 10-Q Report for Quarter Ended
June 30, 1998, filed by Questar Corporation.)
10.14.**2 Questar Corporation Special Situation Retirement
Plan. (Exhibit No. 10.10. to Form 10-Q Report for
Quarter Ended June 30, 1998, filed by Questar
Corporation.)
12. Ratio of Earnings to Fixed Charges.
27. Financial Data Schedule.
________________________
* Filed previously.
** Exhibits so marked have been filed with the Securities and
Exchange Commission as part of the indicated filing and are
incorporated herein by reference.
1 Only Annex I and Schedule I to the U.S. Credit Agreement, the
Fourth Amendment, and the Fifth Amendment are included. Other
items filed previously.
2 Exhibit so marked is a management contract or compensation plan
or arrangement.
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the registrant has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto
duly authorized.
QUESTAR MARKET RESOURCES, INC.
BY: /s/ G. L. Nordloh
G. L. NORDLOH
PRESIDENT AND CEO
Date: November 9, 2000
- -62-
EXHIBIT INDEX
Exhibit
Number Description
3.1.* Articles of Incorporation dated April 27, 1988 for Utah
Entrada Industries, Inc.
3.2.* Articles of Merger, dated May 20, 1988, of Entrada Industries,
Inc., a Delaware corporation and Utah Entrada Industries, Inc,
a Utah corporation.
3.3.* Articles of Amendment dated August 31, 1998, changing the name
of Entrada Industries, Inc. to Questar Market Resources, Inc.
3.4.* Bylaws (as amended effective February 8, 2000).
4.1.1 U.S. Credit Agreement, dated April 19, 1999, by and among
Questar Market Resources, Inc., as U.S. borrower, NationsBank,
N.A., as U.S. agent, and certain financial institutions, as
lenders, with the First Amendment dated May 17, 1999, the
Second Amendment dated July 30, 1999, the Third Amendment
dated November 30, 1999, the Fourth Amendment dated April 17,
2000, and the Fifth Amendment dated October 6, 2000.
4.2. Long-term debt instruments with principal amounts not
exceeding 10% of QMR's total consolidated assets are not filed
as exhibits to this Report. QMR will furnish a copy of those
agreements to the SEC upon its request.
10.1.** Stipulation and Agreement, dated October 14, 1981, executed by
Mountain Fuel Supply Company [Questar Gas Company]; Wexpro
Company; the Utah Department of Business Regulations, Division
of Public Utilities; the Utah Committee of Consumer Services;
and the staff of the Public Service Commission of Wyoming.
(Exhibit No. 10(a) to Questar Gas Company's Form 10-K Annual
Report for 1981.)
10.2.2 Questar Market Resources, Inc. Annual Management Incentive
Plan, as amended and restated effective October 26, 2000.
10.3.**2 Questar Corporation Executive Incentive Retirement Plan, as
amended and restated effective May 19, 1998. (Exhibit No.
10.2. to Form 10-Q Report for Quarter Ended June 30, 1998,
filed by Questar Corporation.)
10.4.2 Questar Corporation Long-Term Stock Incentive Plan, as amended
and restated effective October 26, 2000.
10.5.**2 Questar Corporation Executive Severance Compensation Plan, as
amended and restated effective May 19, 1998. (Exhibit No.
10.3. to Form 10-Q Report for Quarter Ended June 30, 1998,
filed by Questar Corporation.)
10.6.2 Questar Market Resources, Inc. Deferred Compensation Plan for
Directors, as amended and restated effective October 26, 2000.
10.7.**2 Questar Corporation Supplemental Executive Retirement Plan, as
amended and restated effective June 1, 1998. (Exhibit No.
10.6. to Form 10-Q Report for Quarter Ended June 30, 1998,
filed by Questar Corporation.)
10.8.**2 Questar Corporation Stock Option Plan for Directors, as
amended and restated effective October 29, 1998. (Exhibit No.
10.10. to Form 10-Q Report for Quarter Ended September 30,
1998, filed by Questar Corporation.)
- -63-
10.9.**2 Form of Individual Indemnification Agreement dated
February 9, 1993 between Questar Corporation and directors,
including directors of Questar Market Resources, Inc.
(Exhibit No. 10.11. to Form 10-K Annual Report for 1992 filed
by Questar Corporation.)
10.10.**2 Questar Corporation Deferred Share Plan, as amended and
restated effective May 19, 1998. (Exhibit No. 10.7. to Form
10-Q Report for Quarter Ended June 30, 1998, filed by Questar
Corporation.)
10.11.**2 Questar Corporation Deferred Compensation Plan, as amended
and restated effective May 19, 1998. (Exhibit No. 10.10. to
Form 10-Q Report for Quarter Ended June 30, 1998, filed by
Questar Corporation.)
10.12.**2 Questar Corporation Directors' Stock Plan as approved May 21,
1996. (Exhibit No. 10.15. to Form 10-Q Report for Quarter
ended June 30, 1996, filed by Questar Corporation.)
10.13.**2 Questar Corporation Deferred Share Make-Up Plan. (Exhibit
No. 10.8. to Form 10-Q Report for Quarter Ended June 30, 1998,
filed by Questar Corporation.)
10.14.**2 Questar Corporation Special Situation Retirement Plan.
(Exhibit No. 10.10. to Form 10-Q Report for Quarter Ended June
30, 1998, filed by Questar Corporation.)
12. Ratio of Earnings to Fixed Charges.
27. Financial Data Schedule.
________________________
* Filed previously.
** Exhibits so marked have been filed with the Securities and
Exchange Commission as part of the indicated filing and are
incorporated herein by reference.
1 Only Annex I and Schedule I to the U.S. Credit Agreement, the
Fourth Amendment, and the Fifth Amendment are included. Other
items filed previously.
2 Exhibit so marked is a management contract or compensation
plan or arrangement.
- -64-
Exhibit 4.1. ANNEX I
DEFINED TERMS
"364-Day Commitment Fee Rate" means, on any date, the number
of Basis Points per annum set forth below based on the Applicable
Rating Level on such date:
Applicable Applicable 364-Day Commitment
Rating Level Fee Rate
Level I 7.0
Level II 8.5
Level III 10.0
Level IV 12.5
Level V 15.0
Level VI 22.5
Level VII 27.5
"Acquired Debt" means, with respect to any specified Person,
(i) Indebtedness of any other Person existing at the time such other
Person is merged with or into or became a Subsidiary of such
specified Person, including, without limitation, Indebtedness
incurred in connection with, or in contemplation of, such other
Person merging with or into or becoming a Subsidiary of such
specified Person, and (ii) Indebtedness secured by a Lien
encumbering any assets acquired by such specified Person, and any
refinancing of the foregoing indebtedness on similar terms, taking
into account current market conditions.
"Adjusted Canadian Dollar Eurodollar Rate" means, for any
Canadian Dollar Eurodollar Loan for any Eurodollar Interest Period
therefor, the per annum rate equal to the sum of (a) the Applicable
Margin plus (b) the rate per annum (rounded upwards, if necessary,
to the nearest 1/1000 of 1%) determined by Canadian Agent to be
equal to the quotient obtained by dividing (i) the Canadian Dollar
Eurodollar Rate for such Canadian Dollar Eurodollar Loan for such
Eurodollar Interest Period by (ii) 1 minus the Reserve Requirement
for such Canadian Dollar Eurodollar Loan for such Interest Period.
The Adjusted Canadian Dollar Eurodollar Rate for any Canadian Dollar
Eurodollar Loan shall change whenever the Applicable Margin or the
Reserve Requirement changes. No Adjusted Canadian Dollar Eurodollar
Rate charged by any Person shall ever exceed the Highest Lawful
Rate.
"Adjusted US Dollar Eurodollar Rate" means, for any US Dollar
Eurodollar Loan for any Eurodollar Interest Period therefor, the per
annum rate equal to the sum of (a) the Applicable Margin plus (b)
the rate per annum (rounded upwards, if necessary, to the nearest
1/1000 of 1%) determined by Agent to be equal to the quotient
obtained by dividing (i) the US Dollar Eurodollar Rate for such US
Dollar Eurodollar Loan for such Eurodollar Interest Period by (ii) 1
minus the Reserve Requirement for such US Dollar Eurodollar Loan for
such Interest Period. The Adjusted US Dollar Eurodollar Rate for
any US Dollar Eurodollar Loan shall change whenever the Applicable
Margin or the Reserve Requirement changes. No Adjusted US Dollar
Eurodollar Rate charged by any Person shall ever exceed the Highest
Lawful Rate.
"Affiliate" means, as to any Person, each other Person that
directly or indirectly (through one or more intermediaries or
otherwise) controls, is controlled by, or is under common control
with, such Person. A Person shall be deemed to be "controlled by"
any other Person if such other Person possesses, directly or
indirectly, power
(a) to vote 20% or more of the securities (on a fully
diluted basis) having ordinary voting power for the election of
directors or managing general partners; or
(b) to direct or cause the direction of the management
and policies of such Person whether by contract or otherwise.
"Applicable Currency" means (i) when used with respect to any
US Loan or US LC Obligations, US Dollars, and (ii) when used with
respect to any Canadian Prime Rate Loan, any Canadian Dollar
Eurodollar Loan or any Bankers' Acceptance, Canadian Dollars, and
(iii) when used with respect to any Canadian Base Rate Loan or an US
Dollar Eurodollar Loan made under the Canadian Agreement, US Dollars.
"Applicable Lending Office" means, for each Lender and for
each Type of Loan, the "Lending Office" of such Lender (or of an
Affiliate of such Lender) designated for such Type of Loan on the
signature pages hereof or such other office of such Lender (or an
Affiliate of such Lender) as such Lender may from time to time
specify to US Agent, Canadian Agent, and Borrowers by written notice
in accordance with the terms hereof as the office by which its Loans
of such Type are to be made and maintained.
"Applicable Margin" means when used in the Canadian Agreement
and when used in the US Agreement on any date, the number of Basis
Points per annum set forth below based on the Applicable Rating
Level on such date:
Applicable Applicable
Rating Level Margin
Level I 30.0
Level II 35.0
Level III 45.0
Level IV 60.0
Level V 75.0
Level VI 100.0
Level VII 125.0
In the event that the Canadian Revolving Loans convert into Canadian
Term Loans pursuant to Section 1.7 of the Canadian Agreement, then
as of April 20, 2004, and at all times thereafter the Applicable
Margin as set forth above on such Canadian Term Loans shall increase
by fifteen (15) Basis Points per annum. Changes in the Applicable
Margin will occur automatically without prior notice as changes in
the Applicable Rating Level occur. US Agent will give notice
promptly to Borrowers and the Lenders of changes in the Applicable
Margin.
"Applicable Rating Level" means for any day, the highest
Rating Level (as such term is defined below in this paragraph)
issued by S&P or Moody's (collectively, in this definition called
the "Designated Rating Agencies"), provided that if the Rating Level
issued by one Designated Rating Agency is more than one level higher
than the Rating Level issued by the other Designated Rating Agency,
the "Applicable Rating Level" will be one level above the lowest
Rating Level. As used in this definition, (i) the term "Rating
Level" means for any day with respect to any of the Designated
Rating Agencies, the rating level described below (or its then
equivalent) applicable on such day, issued by such Designated Rating
Agency, from time to time, with respect to US Borrower's Long-Term
Debt or if such rating is unavailable, equivalents thereof,
including counterparty ratings, implied ratings and corporate
ratings; (ii) "US Borrower's Long-Term Debt" means senior,
unsecured, non-credit enhanced long-term indebtedness for borrowed
money of US Borrower, and (iii) " " means a rating equal to or more
favorable than and " " means a rating equal to or less favorable
than.
Rating Level S&P Moody's
Level I A A2
Level II A- A3
Level III BBB+ Baa1
Level IV BBB Baa2
Level V BBB- Baa3
Level VI BB+ Ba1
Level VII BB Ba2
If either of the Designated Rating Agencies shall not have in effect
a rating for US Borrower's Long-Term Debt or if the rating system of
any of the Designated Rating Agencies shall change, or if either of
the Designated Rating Agencies shall cease to be in the business of
rating corporate debt obligations, US Borrower and Required Lenders
shall negotiate in good faith to amend this definition to reflect
such changed rating system or the unavailability of ratings from
such Designated Rating Agency, but until such an agreement shall be
reached, the Applicable Rating Level shall be based only upon the
rating by the remaining Designated Rating Agency.
"BA Discount Rate" means, in respect of a BA being accepted
by a Lender on any date, (i) for a Lender that is listed in Schedule
I to the Bank Act (Canada), the average bankers' acceptance rate as
quoted on Reuters CDOR page (or such other page as may, from time to
time, replace such page on that service for the purpose of
displaying quotations for bankers' acceptances accepted by leading
Canadian financial institutions) at approximately 10:00 a.m.
(Toronto time) on such drawdown date for bankers' acceptances having
a comparable maturity date as the maturity date of such BA (the
"CDOR Rate"); or, if such rate is not available at or about such
time, the average of the bankers' acceptance rates (expressed to
five decimal places) as quoted to the Agent by the Schedule I BA
Reference Banks as of 10:00 a.m. (Toronto time) on such drawdown
date for bankers' acceptances having a comparable maturity date as
the maturity date of such BA; and (ii) for a Lender that is listed
in Schedule II to the Bank Act (Canada), the rate established by the
Canadian Agent to be the lesser of (A) the CDOR Rate plus 10 Basis
Points; and (B) the average of the bankers' acceptance rates
(expressed to five decimal places) as quoted to the Canadian Agent
by the Schedule II BA Reference Banks as of 10:00 a.m. (Toronto
time) on such drawdown date for bankers' acceptances having a
comparable maturity date as the maturity date of such BA;
"Bankers' Acceptance" or "BA" means a Canadian Dollar draft
of Canadian Borrower, for a term selected by such Canadian Borrower
of either 30, 60, 90 or 180 days (as reduced or extended by the
Lender, acting reasonably, to allow the maturity thereof to fall on
a Business Day) payable in Canada.
"Bankruptcy and Insolvency Act (Canada)" means the Bankruptcy
and Insolvency Act, S.C. 1992, c. 27, including the regulations made
and, from time to time, in force under that Act.
"Basis Point" means one one-hundredth of one percent (0.01%).
"Borrower" means any of US Borrower and Canadian Borrower.
"Borrowing" means a borrowing of new Loans of a single Type
pursuant to Section 1.2 or a Continuation or Conversion of existing
Loans into a single Type (and, in the case of Eurodollar Loans, with
the same Interest Period) pursuant to Section 1.3 of the US
Agreement or the Canadian Agreement or the acceptance or purchase of
Bankers' Acceptances issued by Canadian Borrower under the Canadian
Agreement or the Continuation or Conversion of existing Banker's
Acceptances into Canadian Loans of a single Type in the case of
Eurodollar Loans with the same Interest Period pursuant to Section
1.3 of the Canadian Agreement.
"Borrowing Notice" means a written or telephonic request, or
a written confirmation, made by any Borrower which meets the
requirements of Section 1.2 of the US Agreement or Section 1.2 of
the Canadian Agreement.
"Business Day" means (a) with respect to the Canadian
Agreement, a day, other than a Saturday or Sunday, on which
commercial banks are open for business with the public in Dallas,
Texas and Toronto, Ontario and (b) with respect to the US Agreement,
a day, other than a Saturday or Sunday, on which commercial banks
are open for business with the public in Dallas, Texas. Any Business
Day in any way relating to Eurodollar Loans (such as the day on
which an Interest Period begins or ends) must also be a day on
which, in the judgment of US Agent or Canadian Agent, as applicable,
significant transactions in dollars are carried out in the interbank
eurocurrency market.
"Canadian Advances" has the meaning given to such term in
Section 1.1 of the Canadian Agreement.
"Canadian Agent" means Bank of America Canada, as
administrative agent under the Canadian Agreement, and its
successors and assigns in such capacity.
"Canadian Agreement" means that certain Credit Agreement
dated the Closing Date among Canadian Borrower, Canadian Agent and
Lenders, as it may be amended, supplemented, restated or otherwise
modified and in effect from time to time.
"Canadian Base Rate Loan" means a Canadian Loan which bears
interest at the Canadian US Dollar Base Rate.
"Canadian Borrower" means Celsius Energy.
"Canadian Dollar" or "C$" means the lawful currency of Canada.
"Canadian Dollar Eurodollar Loan" means a Canadian Loan that
bears interest at the Adjusted Canadian Dollar Eurodollar Rate.
"Canadian Dollar Eurodollar Rate" means, for any Canadian
Dollar Eurodollar Loan within a Borrowing and with respect to the
related Interest Period therefor, the rate per annum (rounded
upwards, if necessary, to the nearest 1/1000 of 1%) appearing on the
Dow Jones Market Service (formerly Telerate Access Service) Page
3740 (or any successor page) as the London interbank offered rate
for deposits in Canadian Dollars at approximately 11:00 a.m. (London
time) two Business Days prior to the first day of such Interest
Period for a term comparable to such Interest Period. If for any
reason such rate is not available, then such offered rate shall be
otherwise independently determined by Canadian Agent from an
alternate, substantially similar independent source available to
Canadian Agent or shall be calculated by Canadian Agent by a
substantially similar methodology as that theretofore used to
determine such offered rate on Dow Jones Market Service, in the
London interbank eurodollar market for a period of time equal or
comparable to the related Interest Period and in an amount equal to
or comparable to the principal amount of the eurodollar portion to
which such Interest Period relates.
"Canadian Facility Maturity Date" means the date which is
five years and one day after the Conversion Date.
"Canadian Facility Usage" means, at the time in question, the
US Dollar Exchange Equivalent of the aggregate amount of Canadian
Loans, Canadian LC Obligations, and BA's outstanding at such time.
"Canadian Guarantor" means US Borrower.
"Canadian LC Issuer" means Bank of America Canada in its
capacity as the issuer of Letters of Credit under the Canadian
Agreement, and its successors in such capacity. Canadian Agent may,
with the consent of Canadian Borrower and the Lender in question,
appoint any Canadian Resident Lender hereunder as a Canadian LC
Issuer in place of or in addition to Bank of America Canada.
"Canadian LC Obligations" means, at the time in question, the
sum of all Matured Canadian LC Obligations plus the maximum amounts
which Canadian LC Issuer might then or thereafter be called upon to
advance under all Letters of Credit then outstanding under the
Canadian Agreement.
"Canadian LC Sublimit" means C $5,000,000.
"Canadian Loan Documents" means the Canadian Agreement, the
Canadian Notes, the Letters of Credit issued under the Canadian
Agreement, the LC Applications related thereto, the BA's, the
Guaranty executed by Canadian Guarantor, and all other agreements,
certificates, documents, instruments and writings at any time
delivered in connection herewith or therewith (exclusive of term
sheets and commitment letters).
"Canadian Loans" means the Canadian Revolving Loans, the
Canadian Term Loans into which such Revolving Loans may be converted
and the Competitive Bid Loans made under the Canadian Agreement.
"Canadian Maximum Credit Amount" means the Canadian Dollar
Exchange Equivalent of US $58,000,000 on the Closing Date; provided
that the Canadian Maximum Credit Amount may be increased up to US
$70,000,000 pursuant to Section 1.1(b) of the Canadian Agreement.
"Canadian Notes" means each Lender's "Canadian Note", as
defined in Section 1.1 of the Canadian Agreement, and the
Competitive Bid Notes issued under the Canadian Agreement.
"Canadian Obligations" means all Liabilities from time to
time owing by Canadian Borrower to any Lender Party under or
pursuant to any of the Canadian Loan Documents, including all
Canadian LC Obligations owing thereunder. "Canadian Obligation"
means any part of the Canadian Obligations.
"Canadian Prime Rate" means on any day a fluctuating rate of
interest per annum equal to the higher of (i) the rate of interest
per annum most recently announced by Bank of America Canada as its
reference rate for Canadian Dollar commercial loans made to a Person
in Canada; and (ii) Bank of America Canada's Discount Rate for
Bankers' Acceptances having a maturity of thirty days plus the
Applicable Margin. No Canadian Prime Rate charged by any Person
shall ever exceed the Highest Lawful Rate
"Canadian Prime Rate Loan" means a Canadian Loan that bears
interest at the Canadian Prime Rate.
"Canadian Resident Lender" means each Lender identified as
such on the signature pages to the Canadian Agreement or any
Assignment and Acceptance executed by a new Lender, each being a
Person that is not a non-resident of Canada for the purposes of the
Income Tax Act (Canada).
"Canadian Revolving Loans" has the meaning given it in
Section 1.1 of the Canadian Agreement.
"Canadian Revolving Period" means the period from and
including the Closing Date until the Conversion Date (or, if
earlier, the day on which the obligations of Lenders to make
Canadian Loans or the obligations of Canadian LC Issuer to issue
Letters of Credit under the Canadian Agreement have been terminated
or the Canadian Notes first become due and payable in full).
"Canadian Term Loan" has the meaning given it in Section 1.7
of the Canadian Agreement.
"Canadian Term Period" means the period from and including
the day immediately following the Conversion Date until and
including the Canadian Facility Maturity Date.
"Canadian US Dollar Base Rate" means for a day, the rate per
annum equal to the higher of (a) the Federal Funds Rate for such day
plus one-half of one percent (0.5%) and (b) the rate of interest per
annum most recently established by Bank of America Canada as its
reference rate for US Dollar commercial loans made to a Person in
Canada. Any change in the Canadian US Dollar Base Rate due to a
change in the Bank of America Canada's reference rate shall be
effective on the effective date of such change. No Canadian US
Dollar Base Rate charged by any Person shall ever exceed the Highest
Lawful Rate.
"CBRS" means CBRS Inc., or its successor.
"Celsius Energy" means Celsius Energy Resources Ltd., a
Canadian corporation organized under the laws of Alberta.
"Change of Control" means the occurrence of any of the
following events: (i) any Person (or syndicate or group (a "Group")
of Persons which is deemed a "person" for the purposes of Section
13(d)(3) of the Securities Exchange Act of 1934, as amended)
acquires more than fifty percent (50%) of the outstanding stock of
either Borrower having ordinary voting power (disregarding changes
in voting power based on the occurrence of contingencies) for the
election of directors; (ii) during any period of twelve successive
months a majority of the Persons who were directors of either
Borrower at the beginning of such period cease to be directors of
either Borrower; or (iii) such Person or Group succeeds in having
sufficient of its nominees elected to the board of directors of
either Borrower, such that such nominees, when added to any existing
director or remaining director remaining on the board of directors
after such election who is an Affiliate of such Person or Group,
will constitute a majority of such board of directors.
"Closing Date" means April 19, 1999.
"Companies' Creditors Arrangement Act (Canada)" means the
Companies' Creditors Arrangement Act, R.S.C. 1985, c. C-36,
including the regulations made and from time to time in force under
that Act.
"Competitive Bid" means (i) with respect to the US Agreement,
a response from any Lender to an Invitation to Bid, substantially in
the form of Exhibit J to the US Agreement and (ii) with respect to
the Canadian Agreement, a response from any Canadian Resident Lender
to an Invitation to Bid, substantially in the form of Exhibit K to
the Canadian Agreement.
"Competitive Bid Accept/Reject Letter" means (i) with respect
to the US Agreement, a notice sent by US Borrower to US Agent,
substantially in the form of Exhibit K to the US Agreement,
indicating its acceptance or rejection of Competitive Bids from
various Lenders and (ii) with respect to the Canadian Agreement, a
notice sent by Canadian Borrower to Canadian Agent, substantially in
the form of Exhibit L to the Canadian Agreement, indicating its
acceptance or rejection of Competitive Bids from various Lenders.
"Competitive Bid Interest Period" means, with respect to any
Competitive Bid Loan, a period from seven days or more as specified
in the Competitive Bid applicable thereto until, in the case of
Competitive Bid Loans made under the US Agreement, the last day of
the US Facility Commitment Period and, in the case of Competitive
Bid Loans made under the Canadian Agreement, the last day of the
Canadian Revolving Period.
"Competitive Bid Loan" means (i) with respect to the US
Agreement, a loan from a Lender to US Borrower pursuant to the
bidding procedure described in Section 1.7 of the US Agreement and
(ii) with respect to the Canadian Agreement, a loan from a Canadian
Resident Lender to Canadian Borrower pursuant to the bidding
procedure described in Section 1.9 of the Canadian Agreement.
"Competitive Bid Note" (i) with respect to the US Agreement,
a "Competitive Bid Note" as defined in Section 1.7 of the US
Agreement and (ii) with respect to the Canadian Agreement, a
"Competitive Bid Note" as defined in Section 1.9 of the Canadian
Agreement.
"Competitive Bid Rate" means, for any Competitive Bid Loan,
the fixed rate at which such Lender is willing to make such
Competitive Bid Loan indicated in its Competitive Bid. The
Competitive Bid Rate shall in no event, however, exceed the Highest
Lawful Rate.
"Competitive Bid Request" means (i) with respect to the US
Agreement, a request by US Borrower in the form of Exhibit H to the
US Agreement for Lenders to submit Competitive Bids and (ii) with
respect to the Canadian Agreement, a request by Canadian Borrower in
the form of Exhibit I to the Canadian Agreement for Canadian
Resident Lenders to submit Competitive Bids.
"Consolidated" refers to the consolidation of any Person, in
accordance with US GAAP, with its properly consolidated
subsidiaries. References herein to a Person's Consolidated
financial statements, financial position, financial condition,
liabilities, etc. refer to the consolidated financial statements,
financial position, financial condition, liabilities, etc. of such
Person and its properly consolidated subsidiaries.
"Consolidated Assets" means the total assets of US Borrower
and its Restricted Subsidiaries which would be shown as assets on a
Consolidated balance sheet of US Borrower and its Restricted
Subsidiaries prepared in accordance with US GAAP, after eliminating
all amounts properly attributable to minority interest, if any, in
the stock and surplus of the Restricted Subsidiaries.
"Consolidated Interest Expense" means, for any period, total
interest expense, whether paid or accrued, including without
limitation all commissions, discounts and other fees and charges
owed with respect to Letters of Credit.
"Consolidated Net Income" means, for any period, US
Borrower's and its properly Consolidated subsidiaries' gross
revenues for such period, including any cash dividends or
distributions actually received from any other Person during such
period, minus US Borrower's and such subsidiaries' expenses and
other proper charges against income (including taxes on income, to
the extent imposed), determined on a Consolidated basis after
eliminating earnings or losses attributable to outstanding minority
interests and excluding the net earnings of any Person other than
such a subsidiary in which US Borrower or any of such subsidiaries
has an ownership interest.
"Consolidated Net Worth" means as to US Borrower and its
properly Consolidated subsidiaries at any time, the remainder of all
Consolidated assets of US Borrower and such subsidiaries which would
be shown on their Consolidated balance sheet prepared as of such
time in accordance with GAAP, minus the sum of (a) all amounts which
would be shown on such balance sheet as minority interests in any
such subsidiaries, plus (b) all Consolidated Liabilities of US
Borrower and such subsidiaries which would be shown on such balance
sheet, adjusted by treating as Liabilities rather than equity all
capital stock and other equity securities which US Borrower or any
such subsidiary would be required to purchase, redeem or otherwise
acquire at the election of any holder thereof, upon the passage of
time, or upon the occurrence of any contingency (other than the
voluntary election of US Borrower or any such subsidiary to make
such purchase, redemption or acquisition).
"Continuation" (i) as used in the US Agreement shall refer to
the continuation pursuant to Section 1.3 thereof of a Eurodollar
Loan as a Eurodollar Loan from one Interest Period to the next
Interest Period and (ii) as used in the Canadian Agreement shall
refer to the continuation pursuant to Section 1.3 thereof of a
Eurodollar Loan as a Eurodollar Loan from one Interest Period to the
next Interest Period or a rollover of a Banker's Acceptance at
maturity.
"Continuation/Conversion Notice" means (i) with respect to
the US Agreement, a written or telephonic request, or a written
confirmation, made by Borrower which meets the requirements of
Section 1.3 of the US Agreement, and (ii) with respect to the
Canadian Agreement, a written or telephonic request, or a written
confirmation, made by the applicable Canadian Borrower which meets
the requirements of Section 1.3 of the Canadian Agreement.
"Conversion" (i) as used in the US Agreement shall refer to a
conversion pursuant to Section 1.3 or Article III of one Type of US
Loan into another Type of US Loan and (ii) as used in the Canadian
Agreement shall refer to a conversion pursuant to Section 1.3 or
Article III of one Type of Canadian Advance into another Type of
Canadian Advance.
"Conversion Date" means the date which is 364 days after the
Closing Date, or such later day to which the Conversion Date is
extended pursuant to Section 1.6 of the Canadian Agreement.
"DBRS" means Dominion Bond Rating Service Limited, or its
successor.
"Debt to Capitalization Ratio" means, at the time of
determination, the ratio of (a) Funded Debt to (b) the sum of the
Funded Debt plus Shareholders' Equity.
"Default" means any Event of Default and any default, event
or condition which would, with the giving of any requisite notices
and the passage of any requisite periods of time, constitute an
Event of Default.
"Default Rate" means at the time in question (i) with respect
to any US Base Rate Loan, the rate one percent (1.0%) above the US
Base Rate then in effect, (ii) with respect to any US Dollar
Eurodollar Loan, the rate one percent (1%) above the Adjusted US
Dollar Eurodollar Rate then in effect for such Loan, (iii) with
respect to any Canadian Prime Rate Loan, the rate one percent (1.0%)
above the Canadian Prime Rate then in effect for such Loan, (iv)
with respect to any Canadian Base Rate Loan, the rate one percent
(1%) above the Canadian US Dollar Base Rate then in effect for such
Loan, (v) with respect to any Canadian Dollar Eurodollar Loan, the
rate one percent (1%) above the Adjusted Canadian Dollar Eurodollar
Rate then in effect for such Loan; and (vi) with respect to any
Competitive Bid Loan, the rate one percent (1%) above the
Competitive Bid Rate then in effect for such Loan. No Default Rate
charged by any Person shall ever exceed the Highest Lawful Rate.
"Depository Bills and Notes Act (Canada)" means the
Depository Bills and Notes Act (Canada), R.S.C. 1998, c. 13,
including the regulations made and, from time to time, in force
under that Act.
"Disclosure Schedule" means (i) with respect to the US
Agreement, Schedule 1 thereto, and (ii) with respect to the Canadian
Agreement, Schedule 1 thereto.
"Discount Proceeds" means, in respect of each Bankers'
Acceptance, funds in an amount which is equal to:
((Face Amount) divided by (1 + (Rate x Term)) divided by 365
(where "Face Amount" is the principal amount of the Bankers'
Acceptance being purchased, "Rate" is the BA Discount Rate divided
by 100 and "Term" is the number of days in the term of the Bankers'
Acceptance.)
"Distribution" means (a) any dividend or other distribution
made by a Restricted Person on or in respect of any stock,
partnership interest, or other equity interest in such Restricted
Person (including any option or warrant to buy such an equity
interest), or (b) any payment made by a Restricted Person to
purchase, redeem, acquire or retire any stock, partnership interest,
or other equity interest in such Restricted Person (including any
such option or warrant).
"Domestic Lending Office" means, with respect to any Lender,
the office of such Lender specified as its "Domestic Lending Office"
below its name on its signature page to the Canadian Agreement or
the US Agreement, or such other office as such Lender may from time
to time specify to any Borrower and Agent; with respect to LC
Issuer, the office, branch, or agency through which it issues
Letters of Credit; and, with respect to Agent, the office, branch,
or agency through which it administers this Agreement.
"Eligible Transferee" means a Person which either (a) is a
Lender or an Affiliate of a Lender, or (b) is consented to as an
Eligible Transferee by US Agent or Canadian Agent, as applicable,
and, so long as no Default or Event of Default is continuing, by the
Borrowers, in each case which consent will not be unreasonably
withheld; provided that the no consent shall be required for a
Person to be an "Eligible Transferee" for purposes of Section
10.6(d) of the US Agreement and Section 10.6(d) of the Canadian
Agreement.
"Environmental Laws" means any and all Laws relating to the
environment or to emissions, discharges, releases or threatened
releases of pollutants, contaminants, chemicals, or industrial,
toxic or hazardous substances or wastes into the environment
including ambient air, surface water, ground water, or land, or
otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport, or handling of
pollutants, contaminants, chemicals, or industrial, toxic or
hazardous substances or wastes.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, together with all rules and
regulations promulgated with respect thereto.
"ERISA Affiliate" means US Borrower and all members of a
controlled group of corporations and all trades or businesses
(whether or not incorporated) under common control that, together
with US Borrower, are treated as a single employer under Section 414
of the Internal Revenue Code.
"ERISA Plan" means any employee pension benefit plan subject
to Title IV of ERISA maintained by any ERISA Affiliate with respect
to which any Restricted Person has a fixed or contingent liability.
"Eurodollar Interest Period" means, with respect to each
particular Eurodollar Loan in a Borrowing, the period specified in
the Borrowing Notice or Continuation/Conversion Notice applicable
thereto, beginning on and including the date specified in such
Borrowing Notice or Continuation/Conversion Notice (which must be a
Business Day), and ending one, two, three, or six months thereafter,
as the applicable Borrower may elect in such notice; provided that:
(a) any Interest Period which would otherwise end on a day which is
not a Business Day shall be extended to the next succeeding Business
Day unless such Business Day falls in another calendar month, in
which case such Interest Period shall end on the next preceding
Business Day; (b) any Interest Period which begins on the last
Business Day in a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the end of
such Interest Period) shall end on the last Business Day in a
calendar month; and (c) notwithstanding the foregoing, any Interest
Period which would otherwise end after the last day of the US
Facility Commitment Period or the Canadian Revolving Period shall
end on the last day of the US Facility Commitment Period or the
Canadian Revolving Period (or, if the last day of such period is not
a Business Day, on the next preceding Business Day).
"Eurodollar Lending Office" means, with respect to any
Lender, the office of such Lender specified as its "Eurodollar
Lending Office" below its name on the signature page hereto (or, if
no such office is specified, its Domestic Lending Office), or such
other office of such Lender as such Lender may from time to time
specify to Borrowers, Canadian Agent, and US Agent.
"Eurodollar Loan" means any Canadian Dollar Eurodollar Loan
and any US Dollar Eurodollar Loan.
"Event of Default" means (i) with respect to the US Agreement
the meaning given to such term in Section 8.1 thereof and (ii) with
respect to the Canadian Agreement the meaning given to such term in
Section 8.1 thereof.
"Exchange Equivalent" in respect of one currency (the
"Original Currency"), being Canadian Dollars or U.S. Dollars, as the
case may be, means, at the date of determination, the amount of
currency expressed in the other such currency necessary to purchase,
based on the Noon Rate on such date, the specified amount of the
Original Currency on such date.
"Federal Funds Rate" means, for any day, the rate per annum
(rounded upwards, if necessary, to the nearest 1/100th of one
percent) equal to the weighted average of the rates on overnight
Federal funds transactions with members of the Federal Reserve
System arranged by Federal funds brokers on such day, as published
by the Federal Reserve Bank of Dallas, Texas on the Business Day
next succeeding such day, provided that (i) if the day 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 Federal Funds Rate for such day shall be the
average rate quoted to US Agent on such day on such transactions as
determined by US Agent.
"Fiscal Quarter" means a three-month period ending on March
31, June 30, September 30 or December 31 of any year.
"Fiscal Year" means a twelve-month period ending on December
31 of any year.
"Five-Year Commitment Fee Rate" means, on any date, the
number of Basis Points per annum set forth below based on the
Applicable Rating Level on such date:
Applicable Applicable Five Year Commitment
Rating Level Fee Rate
Level I 8.5
Level II 10.0
Level III 12.5
Level IV 15.0
Level V 17.5
Level VI 25.0
Level VII 30.0
"Funded Debt" means the aggregate of the following
Indebtedness of US Borrower and its Subsidiaries, after elimination
of intercompany items and other Consolidation in accordance with
GAAP: (a) Indebtedness (including the Obligations) for borrowed
money, regardless of maturity, (b) Indebtedness constituting an
obligation to pay the deferred purchase price of property, (c)
Indebtedness evidenced by a bond, debenture, note or similar
instrument, and (d) Indebtedness which is due and payable at the
time in question, with respect to letters of credit or reimbursement
agreements therefor.
"Governmental Authority" means any domestic or foreign,
national, federal, provincial, state, municipal or other local
government or body and any division, agency, ministry, commission,
board or authority or any quasi-governmental or private body
exercising any statutory, regulatory, expropriation or taxing
authority under the authority of any of the foregoing, and any
domestic, foreign or international judicial, quasi-judicial,
arbitration or administrative court, tribunal, commission, board or
panel acting under the authority of any of the foregoing.
"Hazardous Materials" means any substances regulated under
any Environmental Law, whether as pollutants, contaminants, or
chemicals, or as industrial, toxic or hazardous substances or
wastes, or otherwise.
"Hedging Contract" means (a) any agreement providing for
options, swaps, floors, caps, collars, forward sales or forward
purchases involving interest rates, commodities or commodity prices,
equities, currencies, bonds, or indexes based on any of the
foregoing, (b) any option, futures or forward contract traded on an
exchange, and (c) any other derivative agreement or other similar
agreement or arrangement.
"Highest Lawful Rate" means, with respect to each Lender
Party to whom Obligations are owed, the maximum nonusurious rate of
interest that such Lender Party is permitted under applicable Law to
contract for, take, charge, or receive with respect to such
Obligations. All determinations herein of the Highest Lawful Rate,
or of any interest rate determined by reference to the Highest
Lawful Rate, shall be made separately for each Lender Party as
appropriate to assure that the Loan Documents are not construed to
obligate any Person to pay interest to any Lender Party at a rate in
excess of the Highest Lawful Rate applicable to such Lender Party.
"Income Tax Act (Canada)" means the Income Tax Act, S.C.
1970-71-72, c. 63, including the regulations made and, from time to
time, in force under that Act.
"Indebtedness" of any Person means Liabilities in any of the
following categories:
(a) Liabilities for borrowed money,
(b) Liabilities constituting an obligation to pay the
deferred purchase price of property or services, other than
customary payment terms taken in the ordinary course of such
Person's business,
(c) Liabilities evidenced by a bond, debenture, note or
similar instrument,
(d) Liabilities arising under conditional sales or other
title retention agreements or under leases capitalized in accordance
with US GAAP, but excluding customary oil, gas or mineral leases,
(e) Liabilities with respect to payments received in
consideration of oil, gas, or other minerals yet to be acquired or
produced at the time of payment (including obligations under
"take-or-pay" contracts to deliver gas in return for payments
already received and the undischarged balance of any production
payment created by such Person or for the creation of which such
Person directly or indirectly received payment);
(f) Liabilities under Hedging Contracts,
(g) Liabilities with respect to letters of credit or
applications or reimbursement agreements therefor, or
(h) Liabilities under direct or indirect guaranties of
Liabilities of any Person or constituting obligations to purchase or
acquire or to otherwise protect or insure a creditor against loss in
respect of Indebtedness of the types described in paragraphs (a)
through (g) above of any Person (such as obligations under working
capital maintenance agreements, agreements to keep-well, or
agreements to purchase debt, assets, goods, securities or services,
but excluding endorsements in the ordinary course of business of
negotiable instruments in the course of collection),
provided, however, that the "Indebtedness" of any Person shall not
include Liabilities that were incurred by such Person on ordinary
trade terms to vendors, suppliers, or other Persons providing goods
and services for use by such Person in the ordinary course of its
business, unless and until such Liabilities are outstanding more
than 90 days past the original invoice or billing date therefor.
Any Indebtedness owed by a partnership shall be deemed Indebtedness
of any partner in such partnership to the extent such partner has
any liability of any kind therefor.
"Initial Financial Statements" means the audited annual
Consolidated financial statements of US Borrower dated as of
December 31, 1997 and December 31, 1998.
"Interest Act (Canada)" means the Interest Act, R.S.C. 1985,
c. I-15, including the regulations made and, from time to time, in
force under that Act.
"Interest Payment Date" means (a) with respect to each US
Base Rate Loan, Canadian US Dollar Base Rate Loan, and Canadian
Prime Rate Loan, the last day of each March, June, September and
December beginning June 30, 1999, and (b) with respect to each
Eurodollar Loan, the last day of the Eurodollar Interest Period that
is applicable thereto and, if such Eurodollar Interest Period is six
months in length, the date specified by Agent which is approximately
three months after such Eurodollar Interest Period begins; provided
that the last day of each calendar month shall also be an Interest
Payment Date for each such Loan so long as any Event of Default
exists under Section 8.1 (a) or (b).
"Interest Period" means (i) with respect to any Eurodollar
Loan, the related Eurodollar Interest Period and (ii) with respect
to any Competitive Bid Loan, the related Competitive Bid Interest
Period.
"Internal Revenue Code" means the United States Internal
Revenue Code of 1986, as amended from time to time and any successor
statute or statutes.
"Investment" means any investment made directly or
indirectly, in any Person, whether by acquisition of shares of
capital stock, indebtedness or other obligations or securities or by
loan, advance, capital contribution or otherwise and whether made in
cash, by the transfer of property, or by any other means.
"Invitation to Bid" means (i) with respect to the US
Agreement, an invitation by US Agent to each Lender, substantially
in the form of Exhibit I thereto, inviting such Lender to submit
Competitive Bids in response to a Competitive Bid Request under the
US Agreement, and (ii) with respect to the Canadian Agreement, an
invitation by Canadian Agent to each Lender, substantially in the
form of Exhibit J thereto, inviting such Lender to submit
Competitive Bids in response to a Competitive Bid Request under the
Canadian Agreement.
"Judgment Interest Act (Alberta)" means the Judgment Interest
Act, S.A. 1984 c. J-O.5, including the regulations made and, from
time to time, in force under that Act.
"Law" means any statute, law, regulation, ordinance, rule,
treaty, judgment, order, decree, permit, concession, franchise,
license, agreement or other governmental restriction of the United
States or Canada or any state, province or political subdivision
thereof or of any foreign country or any department, province or
other political subdivision thereof.
"LC Application" means any application for a Letter of Credit
hereafter made by any Borrower to US LC Issuer or Canadian LC Issuer.
"LC Collateral" (i) as used in the US Agreement, has the
meaning given to such term in Section 2.6 of the US Agreement and
(ii) as used in the Canadian Agreement, has the meaning given such
term in Section 2.11 of the Canadian Agreement.
"Lender Parties" means US Agent, Canadian Agent, US LC
Issuer, Canadian LC Issuer, and all Lenders.
"Lenders" means each signatory to the US Agreement and the
Canadian Agreement (other than any Borrower), including NationsBank,
N.A. and Bank of America Canada in their capacity as a Lender
hereunder rather than as US Agent or Canadian Agent and US LC Issuer
or Canadian LC Issuer, respectively, and the successors of each such
party as holder of a US Note or a Canadian Note.
"Lenders Schedule" means Annex II to the US Agreement and
Annex II to the Canadian Agreement which are the same.
"Letter of Credit" means any letter of credit issued by US LC
Issuer under the US Agreement or by Canadian LC Issuer under the
Canadian Agreement at the application of any Borrower.
"Liabilities" means, as to any Person, all indebtedness,
liabilities and obligations of such Person, whether matured or
unmatured, liquidated or unliquidated, primary or secondary, direct
or indirect, absolute, fixed or contingent, and whether or not
required to be considered pursuant to US GAAP.
"Lien" means, with respect to any property or assets, any
lien, mortgage, security interest, pledge, deposit, production
payment, rights of a vendor under any title retention or conditional
sale agreement or lease substantially equivalent thereto, tax lien,
mechanic's or materialman's lien, or any other charge or encumbrance
for security purposes, whether arising by Law or agreement or
otherwise, but excluding any right of offset. "Lien" also means any
filed financing statement, any registration of a pledge (such as
with an issuer of uncertificated securities), or any other
arrangement or action which would serve to perfect a Lien described
in the preceding sentence, regardless of whether such financing
statement is filed, such registration is made, or such arrangement
or action is undertaken before or after such Lien exists.
"Loan Documents" means, collectively, the Canadian Loan
Documents and the US Loan Documents.
"Loans" means, collectively, the Canadian Loans and the US
Loans.
"Majority Lenders" means Lenders whose aggregate Percentage
Shares exceed sixty-six and two thirds percent (66 2/3%).
"Material Adverse Effect" means any event which would
reasonably be expected to have a material and adverse effect upon
(a) US Borrower's Consolidated financial condition, (b) US
Borrower's Consolidated operations, properties or prospects,
considered as a whole, (c) US Borrower's ability to timely pay the
Obligations, or (d) the enforceability of the material terms of any
Loan Documents.
"Matured Canadian LC Obligations" means all amounts paid by
Canadian LC Issuer on drafts or demands for payment drawn or made
under or purported to be under any Letter of Credit issued under the
Canadian Agreement and all other amounts due and owing to Canadian
LC Issuer under any LC Application for any such Letter of Credit, to
the extent the same have not been repaid to Canadian LC Issuer (with
the proceeds of Loans or otherwise).
"Matured US LC Obligations" means all amounts paid by US LC
Issuer on drafts or demands for payment drawn or made under or
purported to be under any Letter of Credit issued under the US
Agreement and all other amounts due and owing to US LC Issuer under
any LC Application for any such Letter of Credit, to the extent the
same have not been repaid to US LC Issuer (with the proceeds of
Loans or otherwise).
"Maximum Canadian Drawing Amount" means at the time in
question the sum of the maximum amounts which Canadian LC Issuer
might then or thereafter be called upon to advance under all Letters
of Credit issued pursuant to the Canadian Agreement which are then
outstanding.
"Maximum US Drawing Amount" means at the time in question the
sum of the maximum amounts which US LC Issuer might then or
thereafter be called upon to advance under all Letters of Credit
issued pursuant to the US Agreement which are then outstanding.
"Moody's" means Moody's Investor Service, Inc., or its
successor.
"Net Proceeds" means with respect to any Bankers' Acceptance,
the Discount Proceeds less the amount equal to the applicable
Stamping Fee Rate multiplied by the face amount of such Bankers'
Acceptance..
"Non-resident Lender" means any Lender which is not a
Canadian Resident Lender, and shall initially mean each Lender
identified as such on the signature pages to the Canadian Agreement
or thereafter on any Assignment and Acceptance.
"Noon Rate" means, in relation to the conversion of one
currency into another currency, the rate of exchange for such
conversion as quoted by the Bank of Canada (or, if not so quoted,
the spot rate of exchange quoted for wholesale transactions made by
Canadian Agent at Toronto, Ontario at approximately noon (Toronto
local time)).
"Notes" mean, collectively, the Canadian Notes and the US Notes.
"Obligations" means, collectively, the US Obligations and the
Canadian Obligations.
"Offer of Extension" means (a) with respect to the Canadian
Agreement, a written offer by Canadian Agent, for and on behalf of
Required Lenders, to Canadian Borrower to extend the Canadian
Facility Revolving Period to a date 364 days from acceptance by
Canadian Borrower of such offer, and setting forth, if applicable,
the terms and conditions on which such extension is offered by the
Lenders and as may be accepted by Canadian Borrower, and (b) with
respect to the US Agreement, a written offer by US Agent, for and on
behalf of Required Lenders, to US Borrower to extend the Tranche B
Revolving Period to a date 364 days from acceptance by US Borrower
of such offer, and setting forth, if applicable, the terms and
conditions on which such extension is offered by the Lenders and as
may be accepted by US Borrower.
"Percentage Share" means
(a) under the US Agreement with respect to any Lender (i)
when used in Article I or Article II of the US Agreement, in any
Borrowing Notice thereunder or when no US Loans are outstanding, the
percentage set forth opposite such Lender's name on the Lenders
Schedule as modified by assignments of a Lender's rights and
obligations under the US Agreement made by or to such Lender in
accordance with the terms of the US Agreement or pursuant to Section
1.1(f) of the US Agreement, and (ii) when used otherwise, the
percentage obtained by dividing (x) the sum of the unpaid principal
balance of such Lender's US Loans and such Lender's Percentage Share
of the US LC Obligations, by (y) the sum of the aggregate unpaid
principal balance of all US Loans at such time plus the aggregate
amount of all US LC Obligations outstanding at such time; and
(b) under the Canadian Agreement with respect to any
Lender (i) when used in Article I or Article II of the Canadian
Agreement, in any Borrowing Notice thereunder or when no Canadian
Advances are outstanding, the percentage set forth opposite such
Lender's name on the Lenders Schedule as modified by assignments of
a Lender's rights and obligations under the Canadian Agreement made
by or to such Lender in accordance with the terms of the Canadian
Agreement or pursuant to Section 1.1(b) of the Canadian Agreement,
and (ii) when used otherwise, the percentage obtained by dividing
(x) the sum of the unpaid principal balance of such Lender's
Canadian Advances and such Lender's Percentage Share of the Canadian
LC Obligations, by (y) the sum of the aggregate unpaid principal
balance of all Canadian Advances at such time plus the aggregate
amount of all Canadian LC Obligations outstanding at such time.
"Permitted Liens" means:
(a) operators' liens under customary operating
agreements, statutory Liens for taxes, statutory mechanics' and
materialmen's Liens, and other similar statutory Liens, provided
such Liens secure only Liabilities which are not delinquent or which
are being contested as provided in Section 6.7 of the US Agreement
or Section 6.7 of the Canadian Agreement;
(b) Liens on any oil and gas properties which neither
have developed reserves (producing or non-producing) properly
attributable thereto nor are otherwise held under lease by
production of other reserves;
(c) Liens on the Restricted Persons' office facilities;
(d) Liens on property securing non-recourse debt
permitted under Section 7.1(f) of the US Agreement and Section
7.1(f) of the Canadian Agreement which is acquired with proceeds or
developed with proceeds of the non-recourse debt; and
(e) Liens to secure the Obligations
provided that nothing in this definition shall in and of itself
constitute or be deemed to constitute an agreement or acknowledgment
by the US Agent or the Canadian Agent or any Lender that the
Indebtedness subject to or secured by any such Permitted Lien ranks
(apart from the effect of any Lien included in or inherent in any
such Permitted Liens) in priority to the Obligations.
"Person" means an individual, corporation, partnership,
limited liability company, association, joint stock company, trust
or trustee thereof, estate or executor thereof, unincorporated
organization or joint venture, Tribunal, or any other legally
recognizable entity.
"Rating Agency" means any of S & P or Moody's.
"Regulation D" means Regulation D of the Board of Governors
of the Federal Reserve System as from time to time in effect.
"Request for an Offer of Extension" means (a) with respect to
the Canadian Agreement, a written request made by Canadian Borrower
to the Lenders to have Required Lenders issue an offer to Canadian
Borrower extending the Canadian Revolving Period for a further 364
days, and (b) with respect to the US Agreement, a written request
made by US Borrower to the Lenders to have Required Lenders issue an
offer to US Borrower extending the Tranche B Revolving Period for a
further 364 days.
"Required Lenders" means Lenders whose aggregate Percentage
Shares equal or exceed fifty percent (50%).
"Reserve Requirement" means, at any time, the maximum rate
at which reserves (including any marginal, special, supplemental, or
emergency reserves) are required to be maintained under regulations
issued from time to time by the Board of Governors of the Federal
Reserve System of the United States of America (or any successor) by
member banks of such Federal Reserve System against "Eurocurrency
liabilities" (as such term is used in Regulation D). Without
limiting the effect of the foregoing, the Reserve Requirement shall
reflect any other reserves required to be maintained by such member
banks with respect to (a) any category of liabilities which includes
deposits by reference to which the Adjusted US Dollar Eurodollar
Rate or the Adjusted Canadian Dollar Eurodollar Rate is to be
determined, or (b) any category of extensions of credit or other
assets which include US Dollar Eurodollar Loans or Canadian Dollar
Eurodollar Loans.
"Restricted Person" means any of US Borrower and each
Restricted Subsidiary.
"Restricted Subsidiary" means Canadian Borrower and any other
Subsidiary of US Borrower that is not an Unrestricted Subsidiary.
"S & P" means Standard & Poor's Ratings Services (a division
of McGraw Hill Companies, Inc.), or its successor.
"Schedule I BA Reference Banks" means the Lenders listed in
Schedule I to the Bank Act (Canada) as are, at such time, designated
by Canadian Agent, with the prior consent of Canadian Borrower
(acting reasonably), as the Schedule I BA reference Banks.
"Schedule II BA Reference Banks" means the Lenders listed in
Schedule II to the Bank Act (Canada) as are, at such time,
designated by Canadian Agent, with the prior consent of Canadian
Borrower (acting reasonably), as the Schedule II BA Reference Banks.
"Shareholders' Equity" means the remainder of (i) US
Borrower's Consolidated assets minus (ii) the sum of (x) US
Borrower's Consolidated liabilities plus (y) all treasury stock of
US Borrower and its Subsidiaries.
"Stamping Fee Rate" means with respect to any Bankers'
Acceptance accepted by any Canadian Resident Lender at any time, the
Applicable Margin then in effect; provided that if an Event of
Default has occurred and is continuing, the Stamping Fee Rate shall
be increased by one hundred (100) Basis Points.
"Subsidiary" means, with respect to any Person, any
corporation, association, partnership, limited liability company,
joint venture, or other business or corporate entity, enterprise or
organization which is directly or indirectly (through one or more
intermediaries) controlled by or owned fifty percent or more by such
Person, provided that (a) associations, joint ventures or other
relationships (i) which are established pursuant to a standard form
operating agreement or similar agreement or which are partnerships
for purposes of federal income taxation only, (ii) which are not
corporations or partnerships (or subject to the Uniform Partnership
Act) under applicable state Law, and (iii) whose businesses are
limited to the exploration, development and operation of oil, gas or
mineral properties, transportation and related facilities and
interests owned directly by the parties in such associations, joint
ventures or relationships, shall not be deemed to be "Subsidiaries"
of such Person and (b) associations, joint ventures or other
relationships (i) which are not corporations or partnerships under
applicable provincial Law, and (ii) whose businesses are limited to
the exploration, development and operation of oil, gas or mineral
properties, transportation and related facilities and interests
owned directly by the parties in such associations, joint ventures
or relationships, shall not be deemed to be "Subsidiaries" of such
Person.
"Termination Event" means (a) the occurrence with respect to
any ERISA Plan of (i) a reportable event described in Sections
4043(b)(5) or (6) of ERISA or (ii) any other reportable event
described in Section 4043(b) of ERISA other than a reportable event
not subject to the provision for 30-day notice to the Pension
Benefit Guaranty Corporation pursuant to a waiver by such
corporation under Section 4043(a) of ERISA, or (b) the withdrawal of
any ERISA Affiliate from an ERISA Plan during a plan year in which
it was a "substantial employer" as defined in Section 4001(a)(2) of
ERISA, or (c) the filing of a notice of intent to terminate any
ERISA Plan or the treatment of any ERISA Plan amendment as a
termination under Section 4041 of ERISA, or (d) the institution of
proceedings to terminate any ERISA Plan by the Pension Benefit
Guaranty Corporation under Section 4042 of ERISA, or (e) any other
event or condition which might constitute grounds under Section 4042
of ERISA for the termination of, or the appointment of a trustee to
administer, any ERISA Plan.
"Total Capitalization" means the sum (without duplication) of
(i) the Consolidated Total Funded Debt of US Borrower plus (ii) the
Consolidated Shareholder's Equity of US Borrower.
"Total Funded Debt" means Liabilities referred to in clauses
(a), (b), (c), (d), and (e) of the definition of "Indebtedness".
"Tranche A Facility Usage" means, at the time in question,
the aggregate amount of Tranche A Loans and existing US LC
Obligations outstanding at such time under the US Agreement.
"Tranche A Loan" has the meaning given it in Section 1.1(a)
of the US Agreement.
"Tranche A Maximum Credit Amount" means $150,000,000;
provided that the Tranche A Maximum Credit Amount may be increased
up to $180,000,000 pursuant to Section 1.1(f) of the US Agreement.
"Tranche A Note" has the meaning given it in Section 1.1(a)
of the US Agreement.
"Tranche B Conversion Date" means the date which is 364 days
after the Closing Date, or such later day to which the Tranche B
Conversion Date is extended pursuant to Section 1.1 of the US
Agreement.
"Tranche B Facility Usage" means, at the time in question,
the aggregate amount of Tranche B Loans outstanding at such time
under the US Agreement.
"Tranche B Loan" has the meaning given it in Section 1.1(b)
of the US Agreement.
"Tranche B Maturity Date" means the date which is two (2)
years after the Tranche B Conversion Date.
"Tranche B Maximum Credit Amount" means $42,000,000; provided
that the Tranche B Maximum Credit Amount may be increased up to
$50,000,000 pursuant to Section 1.1(f) of the US Agreement.
"Tranche B Note" has the meaning given it in Section 1.1(b)
of the US Agreement.
"Tranche B Revolving Period" means the period from the
Closing Date until the Tranche B Conversion Date.
"Tribunal" means any government, any arbitration panel, any
court or any governmental department, commission, board, bureau,
agency or instrumentality of the United States of America or Canada
or any state, province, commonwealth, nation, territory, possession,
county, parish, town, township, village or municipality, whether now
or hereafter constituted or existing.
"Type" means (i) with respect to any US Loans, the
characterization of such US Loans as either US Base Rate Loans or US
Dollar Eurodollar Loans and (ii) with respect to any Canadian
Advances, the characterization of such Canadian Advances as Canadian
Base Rate Loans, Canadian Prime Rate Loans, US Dollar Eurodollar
Loans, Canadian Dollar Eurodollar Loans or Bankers' Acceptances.
"Unrestricted Subsidiary" means any corporation, association,
partnership, limited liability company, joint venture, or other
business or corporate entity, enterprise or organization in which
US Borrower does not presently own an interest (directly or
indirectly) which hereafterbecomes a Subsidiary of US Borrower and
which, within 90 days thereafter, is designated as an Unrestricted
Subsidiary by USBorrower to US Agent, provided that US Borrower may
not designate asan Unrestricted Subsidiary any Subsidiary in which it
has made anInvestment of more than US $25,000,000 (directly or indirectly)
by any means other than newly issued stock or treasury stock of US
Borrower, which may be used to make an Investment in Unrestricted
Subsidiaries without limit and provided further that in the event
the book value of the assets of any Unrestricted Subsidiary at any
time exceeds US $25,000,000, such Subsidiary shall cease to be an
Unrestricted Subsidiary and shall automatically become a Restricted
Person.
"Utilization Fee Rate" means, on any date, the number of
Basis Points per annum set forth below based on the Applicable
Rating Level on such date:
Applicable Applicable Utilization
Rating Level Fee Rate
Level I 10.0
Level II 10.0
Level III 15.0
Level IV 15.0
Level V 20.0
Level VI 20.0
Level VII 20.0
"US Account" means an account established by Canadian Agent
in New York into which funds to be advanced to Canadian Borrower by
Lenders in US Dollars and funds to be paid by Canadian Borrower to
Lenders in US Dollars will be deposited.
"US Agent" means NationsBank, N.A., as administrative agent,
under the US Agreement and its successors and assigns in such
capacity.
"US Agreement" means that certain Credit Agreement of even
date herewith among US Borrower, Agent and the Lenders, as it may be
amended, supplemented, restated or otherwise modified and in effect
from time to time.
"US Base Rate" means, for any day, the rate per annum equal
to the higher of (a) the Federal Funds Rate for such day plus
one-half of one percent (0.5%) and (b) the US Reference Rate for
such day. Any change in the US Base Rate due to a change in the US
Reference Rate or the Federal Funds Rate shall be effective on the
effective date of such change in the US Reference Rate or Federal
Funds Rate. No US Base Rate charged by any Person shall ever exceed
the Highest Lawful Rate.
"US Base Rate Loan" means a US Loan made in US Dollars which
bears interest at the US Base Rate.
"US Borrower" means Questar Market Resources, Inc., a Utah
corporation.
"US Dollar" or "US $" means the lawful currency of the United
States of America.
"US Dollar Equivalent" means, with respect to an amount
denominated in Canadian Dollars, the amount of US Dollars required
to purchase the relevant stated amount of Canadian Dollars on the
date of determination.
"US Dollar Eurodollar Loan" means a US Loan or a Canadian
Loan, in each case, which bears interest at the Adjusted US Dollar
Eurodollar Rate.
"US Dollar Eurodollar Rate" means, for any US Dollar
Eurodollar Loan within a Borrowing and with respect to the related
Interest Period therefor, the rate per annum (rounded upwards, if
necessary, to the nearest 1/1000 of 1%) appearing on the Dow Jones
Market Service (formerly Telerate Access Service) Page 3750 (or any
successor page) as the London interbank offered rate for deposits in
US Dollars at approximately 11:00 a.m. (London time) two Business
Days prior to the first day of such Interest Period for a term
comparable to such Interest Period. If for any reason such rate is
not available, the term "US Dollar Eurodollar Rate" shall mean, for
any US Dollar Eurodollar Loan within a Borrowing and with respect to
the related Interest Period therefor, the rate per annum (rounded
upwards, if necessary, to the nearest 1/1000 of 1%) appearing on
Reuters Screen LIBO Page as the London interbank offered rate for
deposits of US Dollars at approximately 11:00 a.m. (London time) two
Business Days prior to the first day of such Interest Period for a
term comparable to such Interest Period; provided, however, if more
than one rate is specified on Reuters Screen LIBO Page, the
applicable rate shall be the arithmetic mean of all such rates
(rounded upwards, if necessary, to the nearest 1/1000 of 1%).
"US Facility Commitment Period" means the period from and
including the Closing Date until the US Facility Maturity Date (or,
if earlier, the day on which the obligations of Lenders to make US
Loans hereunder or the obligations of US LC Issuer to issue Letters
of Credit hereunder have been terminated or the US Notes first
become due and payable in full).
"US Facility Maturity Date" means April 19, 2004.
"US Facility Usage" means, at the time in question, the
aggregate amount of US Loans and existing US LC Obligations
outstanding at such time under the US Agreement.
"US GAAP" means those generally accepted accounting
principles and practices which are recognized as such from time to
time by the Financial Accounting Standards Board (or any generally
recognized successor) and which, in the case of US Borrower and its
Consolidated Subsidiaries, are applied for all periods after the
Closing Date in a manner consistent with the manner in which such
principles and practices were applied to the Initial Financial
Statements.
"US LC Issuer" means NationsBank, N.A. in its capacity as the
issuer of Letters of Credit under the US Agreement, and its
successors in such capacity.
"US LC Obligations" means, at the time in question, with
respect to the US Agreement, the sum of all Matured US LC
Obligations plus the maximum amounts which US LC Issuer might then
or thereafter be called upon to advance under all Letters of Credit
then outstanding.
"US LC Sublimit" means US $8,000,000.
"US Loans" means the Tranche A Loans, the Tranche B Loans and
Competitive Bid Loans made under the US Agreement.
"US Loan Documents" means the US Agreement, the US Notes
issued under the US Agreement, the Letters of Credit issued under
the US Agreement, the LC Applications related thereto, and all other
agreements, certificates, documents, instruments and writings at any
time delivered in connection herewith or therewith (exclusive of
term sheets and commitment letters).
"US Maximum Credit Amount" means the amount of US
$192,000,000; provided that the US Maximum Credit Amount may be
increased up to US $230,000,000 pursuant to Section 1.1(f) of the US
Agreement.
"US Notes" means the Tranche A Notes, the Tranche B Notes and
the Competitive Bid Notes issued under the US Agreement.
"US Obligations" means all Liabilities from time to time
owing by any Restricted Person to any Lender Party under or pursuant
to any of the US Loan Documents, including all US LC Obligations
owing thereunder. "US Obligation" means any part of the US
Obligations.
"US Reference Rate" means the per annum rate of interest
established from time to time by NationsBank, N.A. as its prime
rate, which rate may not be the lowest rate of interest charged by
NationsBank, N.A. to its customers.
"Withholding Tax" has the meaning given it in Section 3.2(d)
of the Canadian Agreement.
US Schedules and Exhibits
SCHEDULE 1
DISCLOSURE SCHEDULE
EXHIBIT A-1
PROMISSORY NOTE
US$ _______________ ___________, 1999
FOR VALUE RECEIVED, the undersigned, Questar Market
Resources, Inc., a Utah corporation (herein called "Borrower"),
hereby promises to pay to the order of
(herein called "Lender"), the principal
sum of
Dollars (US$ ), or, if greater
or less, the aggregate unpaid principal amount of the Tranche A
Loans made under this Note by Lender to Borrower pursuant to the
terms of the Credit Agreement (as hereinafter defined), together
with interest on the unpaid principal balance thereof as hereinafter
set forth, both principal and interest payable as herein provided in
lawful money of the United States of America at the offices of US
Agent under the Credit Agreement, 901 Main Street, Dallas, Texas or
at such other place within Dallas County, Texas, as from time to
time may be designated by the holder of this Note.
This Note (a) is issued and delivered under that certain US
Credit Agreement of even date herewith among Borrower, NationsBank,
N.A., individually and as administrative agent ("US Agent"), and the
lenders (including Lender) referred to therein (herein, as from time
to time supplemented, amended or restated, called the "Credit
Agreement"), and is a "Tranche A Note" as defined therein and (b) is
subject to the terms and provisions of the Credit Agreement, which
contains provisions for payments and prepayments hereunder and
acceleration of the maturity hereof upon the happening of certain
stated events. Payments on this Note shall be made and applied as
provided herein and in the Credit Agreement. Reference is hereby
made to the Credit Agreement for a description of certain rights,
limitations of rights, obligations and duties of the parties hereto
and for the meanings assigned to terms used and not defined herein.
The principal amount of this Note, together with all interest
accrued hereon, shall be due and payable in full on the US Facility
Maturity Date.
Tranche A Loans that are US Base Rate Loans (exclusive of any
past due principal or interest) from time to time outstanding shall
bear interest on each day outstanding at the US Base Rate in effect
on such day; provided that if an Event of Default has occurred and
is continuing, US Base Rate Loans shall bear interest on each day
outstanding at the applicable Default Rate in effect on such day.
On each Interest Payment Date Borrower shall pay to the holder
hereof all unpaid interest which has accrued on the US Base Rate
Loans to but not including such Interest Payment Date. Each Tranche
A Loan that is a US Dollar Eurodollar Loan (exclusive of any past
due principal or interest) shall bear interest on each day during
the related Interest Period at the related Adjusted US Dollar
Eurodollar Rate in effect on such day; provided that if an Event of
Default has occurred and is continuing, such US Dollar Eurodollar
Loan shall bear interest on each day outstanding at the applicable
Default Rate in effect on such day. On each Interest Payment Date
relating to such US Dollar Eurodollar Loan, Borrower shall pay to
the holder hereof all unpaid interest which has accrued on such US
Dollar Eurodollar Loan to but not including such Interest Payment Date.
All past due principal of and past due interest on the Loans
shall bear interest on each day outstanding at the applicable
Default Rate in effect on such day, and such interest shall be due
and payable daily as it accrues. Notwithstanding the foregoing
provisions of this paragraph: (a) this Note shall never bear
interest in excess of the Highest Lawful Rate, and (b) if at any
time the rate at which interest is payable on this Note is limited
by the Highest Lawful Rate (by the foregoing subsection (a) or by
reference to the Highest Lawful Rate in the definitions of US Base
Rate, Adjusted US Dollar Eurodollar Rate, and Default Rate), this
Note shall bear interest at the Highest Lawful Rate and shall
continue to bear interest at the Highest Lawful Rate until such time
as the total amount of interest accrued hereon equals (but does not
exceed) the total amount of interest which would have accrued hereon
had there been no Highest Lawful Rate applicable hereto.
Notwithstanding the foregoing paragraph and all other
provisions of this Note, in no event shall the interest payable
hereon, whether before or after maturity, exceed the maximum amount
of interest which, under applicable Law, may be charged on this
Note, and this Note is expressly made subject to the provisions of
the Credit Agreement which more fully set out the limitations on how
interest accrues hereon. The term "applicable Law" as used in this
Note shall mean the laws of the State of Utah or the laws of the
United States, whichever laws allow the greater interest, as such
laws now exist or may be changed or amended or come into effect in
the future.
If this Note is placed in the hands of an attorney for
collection after default, or if all or any part of the indebtedness
represented hereby is proved, established or collected in any court
or in any bankruptcy, receivership, debtor relief, probate or other
court proceedings, Borrower and all endorsers, sureties and
guarantors of this Note jointly and severally agree to pay
reasonable attorneys' fees and collection costs to the holder hereof
in addition to the principal and interest payable hereunder.
Borrower and all endorsers, sureties and guarantors of this
Note hereby severally waive demand, presentment, notice of demand
and of dishonor and nonpayment of this Note, protest, notice of
protest, notice of intention to accelerate the maturity of this
Note, declaration or notice of acceleration of the maturity of this
Note, diligence in collecting, the bringing of any suit against any
party and any notice of or defense on account of any extensions,
renewals, partial payments or changes in any manner of or in this
Note or in any of its terms, provisions and covenants, or any
releases or substitutions of any security, or any delay, indulgence
or other act of any trustee or any holder hereof, whether before or
after maturity.
THIS NOTE AND THE RIGHTS AND DUTIES OF THE PARTIES HERETO
SHALL BE GOVERNED BY THE LAWS OF THE STATE OF UTAH (WITHOUT REGARD
TO PRINCIPLES OF CONFLICTS OF LAW), EXCEPT TO THE EXTENT THE SAME
ARE GOVERNED BY APPLICABLE FEDERAL LAW.
QUESTAR MARKET RESOURCES, INC.
By:
Name:
Title:
EXHIBIT A-2
PROMISSORY NOTE
US$ _______________ ___________, 1999
FOR VALUE RECEIVED, the undersigned, Questar Market
Resources, Inc., a Utah corporation (herein called "Borrower"),
hereby promises to pay to the order of
(herein called "Lender"), the principal
sum of
Dollars (US$ ), or, if greater
or less, the aggregate unpaid principal amount of the Tranche B
Loans made under this Note by Lender to Borrower pursuant to the
terms of the Credit Agreement (as hereinafter defined), together
with interest on the unpaid principal balance thereof as hereinafter
set forth, both principal and interest payable as herein provided in
lawful money of the United States of America at the offices of US
Agent under the Credit Agreement, 901 Main Street, Dallas, Texas or
at such other place within Dallas County, Texas, as from time to
time may be designated by the holder of this Note.
This Note (a) is issued and delivered under that certain US
Credit Agreement of even date herewith among Borrower, NationsBank,
N.A., individually and as administrative agent ("US Agent"), and the
lenders (including Lender) referred to therein (herein, as from time
to time supplemented, amended or restated, called the "Credit
Agreement"), and is a "Tranche B Note" as defined therein and (b) is
subject to the terms and provisions of the Credit Agreement, which
contains provisions for payments and prepayments hereunder and
acceleration of the maturity hereof upon the happening of certain
stated events. Payments on this Note shall be made and applied as
provided herein and in the Credit Agreement. Reference is hereby
made to the Credit Agreement for a description of certain rights,
limitations of rights, obligations and duties of the parties hereto
and for the meanings assigned to terms used and not defined herein.
The principal amount of this Note, together with all interest
accrued hereon, shall be due and payable in full on the Tranche B
Maturity Date.
Tranche B Loans that are US Base Rate Loans (exclusive of any
past due principal or interest) from time to time outstanding shall
bear interest on each day outstanding at the US Base Rate in effect
on such day; provided that if an Event of Default has occurred and
is continuing, US Base Rate Loans shall bear interest on each day
outstanding at the applicable Default Rate in effect on such day.
On each Interest Payment Date Borrower shall pay to the holder
hereof all unpaid interest which has accrued on the US Base Rate
Loans to but not including such Interest Payment Date. Each Tranche
B Loan that is a US Dollar Eurodollar Loan (exclusive of any past
due principal or interest) shall bear interest on each day during
the related Interest Period at the related Adjusted US Dollar
Eurodollar Rate in effect on such day; provided that if an Event of
Default has occurred and is continuing, such US Dollar Eurodollar
Loan shall bear interest on each day outstanding at the applicable
Default Rate in effect on such day. On each Interest Payment Date
relating to such US Dollar Eurodollar Loan, Borrower shall pay to
the holder hereof all unpaid interest which has accrued on such US
Dollar Eurodollar Loan to but not including such Interest Payment Date.
All past due principal of and past due interest on the Loans
shall bear interest on each day outstanding at the applicable
Default Rate in effect on such day, and such interest shall be due
and payable daily as it accrues. Notwithstanding the foregoing
provisions of this paragraph: (a) this Note shall never bear
interest in excess of the Highest Lawful Rate, and (b) if at any
time the rate at which interest is payable on this Note is limited
by the Highest Lawful Rate (by the foregoing subsection (a) or by
reference to the Highest Lawful Rate in the definitions of US Base
Rate, Adjusted US Dollar Eurodollar Rate, and Default Rate), this
Note shall bear interest at the Highest Lawful Rate and shall
continue to bear interest at the Highest Lawful Rate until such time
as the total amount of interest accrued hereon equals (but does not
exceed) the total amount of interest which would have accrued hereon
had there been no Highest Lawful Rate applicable hereto.
Notwithstanding the foregoing paragraph and all other
provisions of this Note, in no event shall the interest payable
hereon, whether before or after maturity, exceed the maximum amount
of interest which, under applicable Law, may be charged on this
Note, and this Note is expressly made subject to the provisions of
the Credit Agreement which more fully set out the limitations on how
interest accrues hereon. The term "applicable Law" as used in this
Note shall mean the laws of the State of Utah or the laws of the
United States, whichever laws allow the greater interest, as such
laws now exist or may be changed or amended or come into effect in
the future.
If this Note is placed in the hands of an attorney for
collection after default, or if all or any part of the indebtedness
represented hereby is proved, established or collected in any court
or in any bankruptcy, receivership, debtor relief, probate or other
court proceedings, Borrower and all endorsers, sureties and
guarantors of this Note jointly and severally agree to pay
reasonable attorneys' fees and collection costs to the holder hereof
in addition to the principal and interest payable hereunder.
Borrower and all endorsers, sureties and guarantors of this
Note hereby severally waive demand, presentment, notice of demand
and of dishonor and nonpayment of this Note, protest, notice of
protest, notice of intention to accelerate the maturity of this
Note, declaration or notice of acceleration of the maturity of this
Note, diligence in collecting, the bringing of any suit against any
party and any notice of or defense on account of any extensions,
renewals, partial payments or changes in any manner of or in this
Note or in any of its terms, provisions and covenants, or any
releases or substitutions of any security, or any delay, indulgence
or other act of any trustee or any holder hereof, whether before or
after maturity.
THIS NOTE AND THE RIGHTS AND DUTIES OF THE PARTIES HERETO
SHALL BE GOVERNED BY THE LAWS OF THE STATE OF UTAH (WITHOUT REGARD
TO PRINCIPLES OF CONFLICTS OF LAW), EXCEPT TO THE EXTENT THE SAME
ARE GOVERNED BY APPLICABLE FEDERAL LAW.
QUESTAR MARKET RESOURCES, INC.
By:
Name:
Title:
EXHIBIT B
BORROWING NOTICE
Reference is made to that certain US Credit Agreement dated
as of April 19, 1999 (as from time to time amended, the
"Agreement"), by and among Questar Market Resources, Inc., a Utah
corporation ("US Borrower"), NationsBank, N.A., as individually and
as administrative agent ("US Agent"), and certain financial
institutions ("Lenders"). Terms which are defined in the Agreement
are used herein with the meanings given them in the Agreement.
Pursuant to the terms of the Agreement, US Borrower hereby requests
Lenders to make [Tranche A/Tranche B] Loans to US Borrower as follows:
Aggregate amount of US Loans: US $ ___________________
Type of US Loans in Borrowing: ___________________
[US Base Rate Loans or US Dollar Eurodollar Loans]
Date on which US Loans are to be made: ___________________
Length of Interest Period for Eurodollar Loans____________ months
[1, 2, 3 or 6 months]
To induce Lenders to make such Loans, US Borrower hereby
represents, warrants, acknowledges, and agrees to and with US Agent
and each Lender that:
(a) The officer of US Borrower or such other Person duly
authorized by the President of US Borrower signing this
instrument is the duly elected, qualified and acting officer
of US Borrower or such other Person duly authorized by the
President of US Borrower as indicated below such officer's
signature hereto having all necessary authority to act for US
Borrower in making the request herein contained.
(b) The representations and warranties of US Borrower set
forth in the Agreement and the other US Loan Documents are
true and correct on and as of the date hereof (except to the
extent that the facts on which such representations and
warranties are based have been changed by the extension of
credit under the Agreement), with the same effect as though
such representations and warranties had been made on and as
of the date hereof.
(c) There does not exist on the date hereof any condition
or event which constitutes a Default which has not been
waived in writing as provided in Section 10.1(a) of the
Agreement; nor will any such Default exist upon US Borrower's
receipt and application of the Loans requested hereby. US
Borrower will use the Loans hereby requested in compliance
with Section 1.4 of the Agreement.
(d) Except to the extent waived in writing as provided in
Section 10.1(a) of the Agreement, US Borrower has performed
and complied with all agreements and conditions in the
Agreement required to be performed or complied with by US
Borrower on or prior to the date hereof, and each of the
conditions precedent to US Loans contained in the Agreement
remains satisfied.
(e) The US Facility Usage, after the making of the Loans
requested hereby, will not be in excess of the US Maximum
Credit Amount on the date requested for the making of such
Loans. [The Tranche A Facility Usage, after the making of
the Loans requested hereby, will not be in excess of the
Tranche A Maximum Credit Amount on the date requested for the
making of such Loans./ The Tranche B Loans, after the making
of such Loans, will not be in excess of the Tranche B
Maximum Credit Amount.]
(f) The US Loan Documents have not been modified, amended
or supplemented by any unwritten representations or promises,
by any course of dealing, or by any other means not provided
for in Section 10.1(a) of the Agreement. The Agreement and
the other US Loan Documents are hereby ratified, approved,
and confirmed in all respects.
The officer of US Borrower or such other Person duly
authorized by the President of US Borrower signing this instrument
hereby certifies that, to the best of his knowledge after due
inquiry, the above representations, warranties, acknowledgments, and
agreements of US Borrower are true, correct and complete.
IN WITNESS WHEREOF, this instrument is executed as of
____________, 1999.
QUESTAR MARKET RESOURCES, INC.
By:
Name:
Title:
EXHIBIT C
CONTINUATION/CONVERSION NOTICE
Reference is made to that certain US Credit Agreement dated
as of April 19, 1999 (as from time to time amended, the
"Agreement"), by and among Questar Market Resources, Inc., a Utah
corporation ("US Borrower"), NationsBank, N.A., individually and as
administrative agent ("US Agent"), and certain financial
institutions ("Lenders"). Terms which are defined in the Agreement
and which are used but not defined herein are used herein with the
meanings given them in the Agreement.
US Borrower hereby requests a conversion or continuation of
existing [Tranche A/Tranche B] Loans into a new Borrowing pursuant
to Section 1.3 of the Agreement as follows:
Existing Borrowing(s) to be continued or converted:
US $____________ of US Dollar Eurodollar Loans with
Eurodollar Interest Period ending ______________
US $____________ of US Base Rate Loans
If being combined with new US Loans, US $____________ of new
US Loans to be advanced on ____________, ________
Aggregate amount of new Borrowing: US $__________________
Type of US Loans in new Borrowing: __________________
Date of continuation or conversion: __________________
Length of Eurodollar Interest Period for US Dollar Eurodollar Loans
(1, 2, 3 or 6 months): ___________ months
To meet the conditions set out in the Credit Agreement for such
conversion/continuation, US Borrower hereby represents, warrants,
acknowledges, and agrees to and with US Agent and each Lender that:
(a) The officer of US Borrower or such other Person duly
authorized by the President of US Borrower signing this
instrument is the duly elected, qualified and acting officer of
US Borrower or such other Person duly authorized by the
President of US Borrower as indicated below such officer's
signature hereto having all necessary authority to act for US
Borrower in making the request herein contained.
(b) There does not exist on the date hereof any condition or
event which constitutes a Default which has not been waived in
writing as provided in Section 10.1(a) of the Credit Agreement.
(c) The US Loan Documents have not been modified, amended or
supplemented by any unwritten representations or promises, by
any course of dealing, or by any other means not provided for
in Section 10.1(a) of the Agreement. The Credit Agreement and
the other US Loan Documents are hereby ratified, approved, and
confirmed in all respects.
The officer of US Borrower or such other Person duly authorized
by the President of US Borrower signing this instrument hereby
certifies that, to the best of his knowledge after due inquiry, the
above representations, warranties, acknowledgments, and agreements
of US Borrower are true, correct and complete.
IN WITNESS WHEREOF this instrument is executed as of
__________________, 1999.
QUESTAR MARKET RESOURCES, INC.
By:
Name:
Title:
EXHIBIT D
CERTIFICATE ACCOMPANYING
FINANCIAL STATEMENTS
Reference is made to that certain US Credit Agreement dated
as of April 19, 1999 (as from time to time amended, the
"Agreement"), by and among Questar Market Resources, Inc., a Utah
corporation ("US Borrower"), NationsBank, N.A., individually and as
administrative agent ("US Agent"), and certain financial
institutions ("Lenders"), which Agreement is in full force and
effect on the date hereof. Terms which are defined in the Agreement
are used herein with the meanings given them in the Agreement.
This Certificate is furnished pursuant to Section 6.1(b) of
the Agreement. Together herewith US Borrower is furnishing to US
Agent and each Lender US Borrower's *[audited/unaudited] financial
statements (the "Financial Statements") as at
(the "Reporting Date"). US Borrower hereby represents, warrants,
and acknowledges to US Agent and each Lender that:
(a) the officer of US Borrower signing this instrument is
the duly elected, qualified and acting Vice President -
Finance of US Borrower and as such is US Borrower's chief
financial officer;
(b) the Financial Statements are accurate and complete
and satisfy the requirements of the Agreement;
(c) attached hereto is a schedule of calculations showing
US Borrower's compliance as of the Reporting Date with the
requirements of Sections of the
Agreement *[and US Borrower's non-compliance as of such date
with the requirements of Section(s) 7.11 and 7.12 of the
Agreement];
(d) on the Reporting Date US Borrower was, and on the
date hereof US Borrower is, in full compliance with the
disclosure requirements of Section 6.2(c) and 6.4 of the
Agreement, and no Default otherwise existed on the Reporting
Date or otherwise exists on the date of this instrument
*[except for Default(s) under Section(s)
of the Agreement, which *[is/are] more fully described on a
schedule attached hereto].
(e) *[Unless otherwise disclosed on a schedule attached
hereto,] The representations and warranties of US Borrower
set forth in the Agreement and the other US Loan Documents
are true and correct on and as of the date hereof (except to
the extent that the facts on which such representations and
warranties are based have been changed by the extension of
credit under the Agreement), with the same effect as though
such representations and warranties had been made on and as
of the date hereof.
The officer of US Borrower signing this instrument hereby
certifies that he has reviewed the Loan Documents and the Financial
Statements and has otherwise undertaken such inquiry as is in his
opinion necessary to enable him to express an informed opinion with
respect to the above representations, warranties and acknowledgments
of US Borrower and, to the best of his knowledge, such
representations, warranties, and acknowledgments are true, correct
and complete.
IN WITNESS WHEREOF, this instrument is executed as of
____________, 1999.
QUESTAR MARKET RESOURCES, INC.
By:
Name:
Title:
EXHIBIT E
OPINION OF US BORROWER'S COUNSEL
[To be inserted.]
EXHIBIT F
ASSIGNMENT AND ACCEPTANCE
Reference is made to the US Credit Agreement dated as of
April 19, 1999 (the "Credit Agreement") among Questar Market
Resources, Inc., a Utah corporation (the "US Borrower"), the Lenders
(as defined in the Credit Agreement) and NationsBank, N.A.,
individually and as administrative agent for the Lenders (the "US
Agent"). Terms defined in the Credit Agreement are used herein with
the same meaning.
The "Assignor" and the "Assignee" referred to on Schedule 1
agree as follows:
1. The Assignor hereby sells and assigns to the
Assignee, without recourse and without representation or warranty
except as expressly set forth herein, and the Assignee hereby
purchases and assumes from the Assignor, an interest in and to the
Assignor's rights and obligations under the Credit Agreement and the
other US Loan Documents as of the date hereof equal to the
percentage interest specified on Schedule 1 of all outstanding
rights and obligations under the Credit Agreement and the other US
Loan Documents. After giving effect to such sale and assignment,
the Assignee's Maximum US Credit Amount and the amount of the Loans
owing to the Assignee will be as set forth on Schedule 1.
2. The Assignor (i) represents and warrants that it is
the legal and beneficial owner of the interest being assigned by it
hereunder and that such interest is free and clear of any adverse
claim; (ii) makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties or
representations made in or in connection with the US Loan Documents
or the execution, legality, validity, enforceability, genuineness,
sufficiency or value of the US Loan Documents or any other
instrument or document furnished pursuant thereto; (iii) makes no
representation or warranty and assumes no responsibility with
respect to the financial condition of any Restricted Person or the
performance or observance by any Restricted Person of any of its
obligations under the US Loan Documents or any other instrument or
document furnished pursuant thereto; and (iv) attaches the US Note
held by the Assignor and requests that US Agent exchange such US
Note for new US Notes payable to the order of the Assignee in an
amount equal to the Maximum US Credit Amount assumed by the Assignee
pursuant hereto and to the Assignor in an amount equal to the
Maximum US Credit Amount retained by the Assignor, if any, as
specified on Schedule 1.
3. The Assignee (i) confirms that it has received a copy
of the Credit Agreement, together with copies of the financial
statements referred to in Section 6.2 thereof and such other
documents and information as it has deemed appropriate to make its
own credit analysis and decision to enter into this Assignment and
Acceptance; (ii) agrees that it will, independently and without
reliance upon US Agent, the Assignor or any other Lender and based
on such documents and information as it shall deem appropriate at
the time, continue to make its own credit decisions in taking or not
taking action under the Credit Agreement; (iii) confirms that it is
an Eligible Transferee; (iv) appoints and authorizes US Agent to
take such action as US Agent on its behalf and to exercise such
powers and discretion under the Credit Agreement as are delegated to
US Agent by the terms thereof, together with such powers and
discretion as are reasonably incidental thereto; (v) agrees that it
will perform in accordance with their terms all of the obligations
that by the terms of the Credit Agreement are required to be
performed by it as a Lender; and (vi) attaches any U.S. Internal
Revenue Service or other forms required under Section 3.9
4. Following the execution of this Assignment and
Acceptance, it will be delivered to US Agent for acceptance and
recording by US Agent. The effective date for this Assignment and
Acceptance (the "Effective Date") shall be the date of acceptance
hereof by US Agent, unless otherwise specified on Schedule 1.
5. Upon such acceptance and recording by US Agent, as of
the Effective Date, (i) the Assignee shall be a party to the Credit
Agreement and, to the extent provided in this Assignment and
Acceptance, have the rights and obligations of a Lender thereunder
and (ii) the Assignor shall, to the extent provided in this
Assignment and Acceptance, relinquish its rights and be released
from its obligations under the Credit Agreement.
6. Upon such acceptance and recording by US Agent, from
and after the Effective Date, US Agent shall make all payments under
the Credit Agreement and the US Notes in respect of the interest
assigned hereby (including, without limitation, all payments of
principal, interest and commitment fees with respect thereto) to the
Assignee. The Assignor and Assignee shall make all appropriate
adjustments in payments under the Credit Agreement and the US Notes
for periods prior to the Effective Date directly between themselves.
7. This Assignment and Acceptance shall be governed by,
and construed in accordance with, the Laws of the State of Utah.
8. This Assignment and Acceptance may be executed in any
number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be
an original and all of which taken together shall constitute one and
the same agreement. Delivery of an executed counterpart of Schedule
1 to this Assignment and Acceptance by telecopier shall be effective
as delivery of a manually executed counterpart of this Assignment
and Acceptance.
IN WITNESS WHEREOF, the Assignor and the Assignee have caused
Schedule 1 to this Assignment and Acceptance to be executed by their
officers thereunto duly authorized as of the date specified thereon.
SCHEDULE 1
to
ASSIGNMENT AND ACCEPTANCE
Percentage interest assigned: _____%
Assignee's Maximum US Credit Amount: US $ _____
Aggregate outstanding principal amount
of Loans assigned: US $ _____
Principal amount of US Note payable to Assignee: US $ _____
Principal amount of US Note payable to Assignor: US $ _____
Effective Date (if other than date
of acceptance by US Agent): *_____,___
[NAME OF ASSIGNOR], as Assignor
By:
Title:
Dated: ,
[NAME OF ASSIGNEE], as
Assignee
By:
Title:
Domestic Lending Office:
Eurodollar Lending Office:
* This date should be no earlier than five Business
Days after the delivery of this Assignment and
Acceptance to US Agent.
Accepted [and Approved] **
this day of , 19 _
[NationsBank, N.A./Bank of America]
By:
Title:
[Approved this day
of , 19
QUESTAR MARKET RESOURCES, INC.
By: ]**
Title:
** Required if the Assignee is an Eligible Transferee
solely by reason of subsection (b) of the definition
of "Eligible Transferee".
EXHIBIT G
LETTER OF CREDIT APPLICATION AND AGREEMENT
[To Be Inserted]
EXHIBIT H
COMPETITIVE BID REQUEST
NationsBank, N.A.
as US Agent
901 Main Street
Post Office Box 830104
Dallas, Texas 75202
Attention: ____________________ [Date]
QUESTAR MARKET RESOURCES, INC.
Ladies and Gentlemen:
Reference is made to that certain US Credit Agreement dated as
of April 19, 1999 (as from time to time amended, the "Agreement"),
by and among Questar Market Resources, Inc. ("US Borrower"),
NationsBank, N.A., individually and as administrative agent ("US
Agent"), and certain financial institutions ("Lenders"). Terms
which are defined in the Agreement and which are used but not
defined herein are used herein with the meanings given them in the
Agreement. US Borrower hereby gives notice pursuant to Section
2.__(a) of the Agreement that it requests Competitive Bids under the
Agreement on the terms set forth below:
1. Proposed Date of Competitive Bid Loan: .
(which is a Business Day)
2. Aggregate Principal Amount of Competitive Bid Loan:
US $ .
(US $5,000,000 or greater integral multiple of US
$1,000,000)
3. Competitive Bid Interest Period and last day thereof:
.
(1 day to 7 days)
To induce Lenders to make such Competitive Bids, US Borrower
hereby represents, warrants, acknowledges, and agrees to and with US
Agent and each Lender that:
(a) The officer of US Borrower signing this
instrument is the duly elected, qualified and acting officer of
US Borrower as indicated below such officer's signature hereto
having all necessary authority to act for US Borrower in making
the request herein contained.
(b) The representations and warranties of US
Borrower set forth in the Agreement and the other US Loan
Documents, except as expressly made as of specific date, are
true and correct in all material respects on and as of the date
hereof (except to the extent that the facts on which such
representations and warranties are based have been changed by
the extension of credit under the Agreement), with the same
effect as though such representations and warranties had been
made on and as of the date hereof.
(c) There does not exist on the date hereof any
condition or event which constitutes a Default which has not
been waived in writing as provided in Section 10.1(a) of the
Agreement; nor will any such Default exist upon US Borrower's
receipt and application of any Competitive Bid Loan made
pursuant hereto.
(d) The sum of (i) the aggregate unpaid principal
balance of the US Loans, after the making of any Competitive
Bid Loan in the amount indicated hereby, plus (ii) the US LC
Obligations outstanding, will not be in excess of the Maximum
US Credit Amount on the date requested for the making of such
Loans.
The officer of US Borrower signing this instrument hereby
certifies that, to the best of his knowledge after due inquiry, the
above representations, warranties, acknowledgments, and agreements
of US Borrower are true, correct and complete.
IN WITNESS WHEREOF, this instrument is executed as of
, 1999.
QUESTAR MARKET RESOURCES, INC.
By:
Name:
Title:
EXHIBIT I
INVITATION TO BID
To Lenders under the
(as defined below)
Attention: ____________________ [Date]
QUESTAR MARKET RESOURCES, INC.
Ladies and Gentlemen:
Reference is made to that certain US Credit Agreement dated as
of April 19, 1999 (as from time to time amended, the "Agreement"),
by and among Questar Market Resources, Inc. ("US Borrower"),
NationsBank, N.A., individually and as administrative agent ("US
Agent"), and certain financial institutions ("Lenders"). Terms
which are defined in the Agreement and which are used but not
defined herein are used herein with the meanings given them in the
Agreement. US Borrower has delivered a Competitive Bid Request
dated pursuant to Section 1.7(a)
of the Agreement, and you are invited to submit a Competitive Bid by
not later than 9:00 a.m., Dallas, Texas time on the date specified
for the proposed Competitive Bid Loan. Your Competitive Bid must
comply with Section 1.7(b) of the Agreement and the following terms
as set forth in US Borrower's Competitive Bid Request:
1. Proposed Date of Competitive Bid Loan:
.
(which is a Business Day)
2. Aggregate Principal Amount of Competitive Bid Loan:
US $ .
(US $5,000,000 or greater integral multiple of US
$1,000,000)
3. Competitive Bid Interest Period and last day thereof:
.
(from 7 days or more to the last day of the US Facility
Commitment Period)
NATIONSBANK, N.A.,
as US Agent
By:
Name:
Title:
EXHIBIT J
COMPETITIVE BID
NationsBank, N.A.
as US Agent
901 Main Street
Post Office Box 830104
Dallas, Texas 75202
Attention: _______________ [Date]
QUESTAR MARKET RESOURCES, INC.
Ladies and Gentlemen:
Reference is made to that certain US Credit Agreement dated as
of April 19, 1999 (as from time to time amended, the "Agreement"),
by and among Questar Market Resources, Inc.. ("US Borrower"),
NationsBank, N.A., individually and as administrative agent ("US
Agent"), and certain financial institutions ("Lenders"). Terms
which are defined in the Agreement and which are used but not
defined herein are used herein with the meanings given them in the
Agreement. The undersigned Lender hereby makes a Competitive Bid
pursuant to Section 1.7(b) of the Agreement, in response to the
Competitive Bid Request of US Borrower dated ____________________,
on the following terms:
1. Principal Amount: US $ .
(US $5,000,000 or greater integral multiple of US
$1,000,000; multiple Competitive Bids may be accepted by
US Borrower)
2. Competitive Bid Rate: percent (__%) .
(expressed in decimal form to no more than four decimal
places)
3. Competitive Bid Interest Period and last day thereof:
.
(1 day to 7 days)
The undersigned Lender hereby confirms that it is prepared to
extend credit to US Borrower upon acceptance by US Borrower of this
Competitive Bid pursuant to Section 1.7(d) of the Agreement.
, Lender
By:
Name:
Title:
EXHIBIT K
COMPETITIVE BID ACCEPT/REJECT LETTER
NationsBank, N.A.
as US Agent
901 Main Street
Post Office Box 830104
Dallas, Texas 75202
Attention: ____________________ [Date]
QUESTAR MARKET RESOURCES, INC.
Ladies and Gentlemen:
Reference is made to that certain US Credit Agreement dated as
of April 19, 1999 (as from time to time amended, the "Agreement"),
by and among Questar Market Resources, Inc. ("US Borrower"),
NationsBank, N.A., individually and as administrative agent ("US
Agent"), and certain financial institutions ("Lenders"). Terms
which are defined in the Agreement and which are used but not
defined herein are used herein with the meanings given them in the
Agreement. Pursuant to Section 1.7(c) of the Agreement, US Borrower
hereby accepts the following Competitive Bids made in response to US
Borrower's Competitive Bid Request dated ____________________ for
Competitive Bid Loans maturing ____________________:
Lender Principal Amount Interest Rate
US $ %
US $ %
US $ %
US Borrower hereby rejects the following Competitive Bids:
Lender Principal Amount Interest Rate
US $ %
US $ %
US $ %
The proceeds of the Competitive Bid Loans made pursuant to the
Competitive Bids accepted hereby should be deposited in NationsBank,
N.A. account number __________ on ____________________ [or wire
transferred to __________________].
QUESTAR MARKET RESOURCES, INC.
By:
Name:
Title:
EXHIBIT L
COMPETITIVE BID NOTE
___________ ____________, 1999
FOR VALUE RECEIVED, the undersigned, Questar Market Resources,
Inc., a Utah corporation ("Borrower"), hereby promises to pay to the
order of
("Lender"), the aggregate unpaid principal
amount of all Competitive Bid Loans made under this Note by Lender
to Borrower pursuant to the terms of the Credit Agreement (as
hereinafter defined), together with interest on the unpaid principal
balance thereof as hereinafter set forth, both principal and
interest payable as herein provided in lawful money of the United
States of America at the offices of US Agent under the Credit
Agreement, 901 Main Street, Dallas, Texas or at such other place
within Dallas County, Texas, as from time to time may be designated
by the holder of this Note.
This Note (a) is issued and delivered under that certain US
Credit Agreement dated as of [___________], 1999, among Borrower,
NationsBank, N.A., individually and as administrative agent ("US
Agent"), and the lenders (including Lender) referred to therein (as
from time to time supplemented, amended or restated, the "Credit
Agreement"), and is a "Competitive Bid Note" as defined therein, and
(b) is subject to the terms and provisions of the Credit Agreement,
which contains provisions for payments and prepayments hereunder and
acceleration of the maturity hereof upon the happening of certain
stated events. Payments on this Note shall be made and applied as
provided herein and in the Credit Agreement. Reference is hereby
made to the Credit Agreement for a description of certain rights,
limitations of rights, obligations and duties of the parties hereto
and for the meanings assigned to terms used and not defined herein.
For the purposes of this Note, "Competitive Bid Rate Payment
Date" means, with respect to each Competitive Bid Loan: (i) the day
on which the related Competitive Bid Interest Period ends, and (ii)
any day on which past due interest or past due principal is owed
hereunder with respect to such Competitive Bid Loan and is unpaid.
If the terms hereof or of the Credit Agreement provide that payments
of interest or principal with respect to such Competitive Bid Loan
shall be deferred from one Competitive Bid Rate Payment Date to
another day, such other day shall also be a Competitive Bid Rate
Payment Date.
The principal amount of this Note and interest accrued hereon,
shall be due and payable as set forth in the Credit Agreement, and
shall in any event be due in full on the last day of the US Facility
Commitment Period.
Each Competitive Bid Loan (exclusive of any past due principal
or past due interest) shall bear interest on each day during the
related Competitive Bid Interest Period at the Competitive Bid Rate
in effect on such day for such Competitive Bid Loan, provided that
if an Event of Default has occurred and is continuing such
Competitive Bid Loan shall bear interest on each day outstanding at
the applicable Default Rate in effect on such day. On each
Competitive Bid Rate Payment Date relating to any Competitive Bid
Loan, Borrower shall pay to the holder hereof all unpaid interest
which has accrued on such Competitive Bid Loan to but not including
such Competitive Bid Rate Payment Date.
All past due principal of and past due interest on Competitive
Bid Loans shall bear interest on each day outstanding at the
applicable Default Rate in effect on such day, and such interest
shall be due and payable daily as it accrues. Notwithstanding the
foregoing provisions of this paragraph: (a) this Note shall never
bear interest in excess of the Highest Lawful Rate, and (b) if at
any time the rate at which interest is payable on this Note is
limited by the Highest Lawful Rate (by the foregoing clause (a) or
by reference to the Highest Lawful Rate in the definitions of
Competitive Bid Rate and Default Rate), this Note shall bear
interest at the Highest Lawful Rate and shall continue to bear
interest at the Highest Lawful Rate until such time as the total
amount of interest accrued hereon equals (but does not exceed) the
total amount of interest which would have accrued hereon had there
been no Highest Lawful Rate applicable hereto.
Notwithstanding the foregoing paragraph and all other
provisions of this Note, in no event shall the interest payable
hereon, whether before or after maturity, exceed the maximum amount
of interest which, under applicable Law, may be charged on this
Note, and this Note is expressly made subject to the provisions of
the Credit Agreement which more fully set out the limitations on how
interest accrues hereon. The term "applicable Law" as used in this
Note shall mean the laws of the State of Utah or the laws of the
United States, whichever laws allow the greater interest, as such
laws now exist or may be changed or amended or come into effect in
the future.
If this Note is placed in the hands of an attorney for
collection after default, or if all or any part of the indebtedness
represented hereby is proved, established or collected in any court
or in any bankruptcy, receivership, debtor relief, probate or other
court proceedings, Borrower and all endorsers, sureties and
guarantors of this Note jointly and severally agree to pay
reasonable attorneys' fees and collection costs to the holder hereof
in addition to the principal and interest payable hereunder.
Borrower and all endorsers, sureties and guarantors of this
Note hereby severally waive demand, presentment, notice of demand
and of dishonor and nonpayment of this Note, protest, notice of
protest, notice of intention to accelerate the maturity of this
Note, declaration or notice of acceleration of the maturity of this
Note, diligence in collecting, the bringing of any suit against any
party and any notice of or defense on account of any extensions,
renewals, partial payments or changes in any manner of or in this
Note or in any of its terms, provisions and covenants, or any
releases or substitutions of any security, or any delay, indulgence
or other act of any trustee or any holder hereof, whether before or
after maturity.
THIS NOTE AND THE RIGHTS AND DUTIES OF THE PARTIES HERETO SHALL
BE GOVERNED BY THE LAWS OF THE STATE OF UTAH (WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW), EXCEPT TO THE EXTENT THE SAME ARE
GOVERNED BY APPLICABLE FEDERAL LAW.
QUESTAR MARKET RESOURCES, INC.
By:
Name:
Title:
[Execution]
FOURTH AMENDMENT TO US CREDIT AGREEMENT
THIS FOURTH AMENDMENT TO US CREDIT AGREEMENT (herein called
the "Amendment") dated effective as of April 17, 2000, by and among
Questar Market Resources, Inc., a Utah corporation ("US Borrower"),
Bank of America, N.A. ("Bank of America"), individually and as
administrative agent for the Lenders, as defined below ("US Agent"),
and the undersigned Lenders.
W I T N E S S E T H:
WHEREAS, US Borrower, US Agent and the lenders as signatories
thereto (the "Original Lenders") entered into that certain US Credit
Agreement dated as of April 19, 1999, as amended by that certain
First Amendment to US Credit Agreement dated as of May 17, 1999, as
amended by that certain Second Amendment to US Credit Agreement
dated as of July 30, 1999, and as amended by that certain Third
Amendment to US Credit Agreement dated as of November 30, 1999 (the
"Original Agreement"), for the purpose and consideration therein
expressed, whereby the Original Lenders became obligated to make
loans to US Borrower as therein provided; and
WHEREAS, US Borrower, Agent and The Sumitomo Bank, Limited
("Sumitomo") desire that Sumitomo make a commitment under the US
Credit Agreement in the aggregate amount of $7,666,666.67, of which
fifty percent (50%) shall be through assignment from Bank of America
(the "Bank of America Assigned Amount") and fifty percent (50%)
shall be through an increase in the US Maximum Credit Amount, the
Tranche A Maximum Credit Amount and the Tranche B Maximum Credit
Amount; and
WHEREAS, US Borrower, Agent, Mellon Bank, N.A. ("Mellon"),
and The Industrial Bank of Japan, Limited ("IBJ") desire that IBJ
make a commitment under the US Credit Agreement in the aggregate
amount of $7,666,666.67, all of which shall be through assignment
from Mellon (the "Mellon Assigned Amount"); and
WHEREAS, contemporaneously with the execution and delivery of
this Amendment, Bank of America and Sumitomo are entering into that
certain Assignment and Acceptance dated of even date herewith,
whereby Bank of America is selling and assigning to Sumitomo the
Bank of America Assigned Amount of Bank of America's rights and
obligations under the US Credit Agreement and the other US Loan
Documents as of the date hereof; and
WHEREAS, contemporaneously with the execution and delivery of
this Amendment, Mellon and IBJ are entering into that certain
Assignment and Acceptance dated of even date herewith, whereby
Mellon is selling and assigning to IBJ the Mellon Assigned Amount of
Mellon's rights and obligations under the US Credit Agreement and
the other US Loan Documents as of the date hereof; and
WHEREAS, US Borrower, US Agent, Sumitomo, IBJ and the other
undersigned Lenders desire to amend the definitions of the Tranche A
Maximum Credit Amount, the Tranche B Conversion Date, the Tranche B
Maximum Credit Amount and the US Maximum Credit Amount, and desire
to amend the Lenders Schedule; and
WHEREAS, the increases in the US Maximum Credit Amount, the
Tranche A Maximum Credit Amount and the Tranche B Maximum Credit
Amount will be provided by commitments of Sumitomo, and the
obligations of the Original Lenders to make Loans will not be
increased by this Amendment; and
WHEREAS, now that the US Maximum Credit Amount is fully
committed by US Lenders, minor adjustments in the Tranche B Note
amounts shall be made and new Tranche B Notes shall be issued to US
Lenders;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and agreements contained herein and in the Original
Agreement, in consideration of the loans which may hereafter be made
by Lenders to US Borrower, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I.
Definitions and References
Section 1.1. Terms Defined in the Original Agreement.
Unless the context otherwise requires or unless otherwise expressly
defined herein, the terms defined in the Original Agreement shall
have the same meanings whenever used in this Amendment.
Section 1.2. Other Defined Terms. Unless the context
otherwise requires, the following terms when used in this Amendment
shall have the meanings assigned to them in this Section 1.2.
"Amendment" means this Fourth Amendment to US Credit Agreement.
"Amendment Documents" means this Amendment, the IBJ
Assignment and Acceptance, the Sumitomo Assignment and
Acceptance and the New US Notes.
"IBJ Assignment and Acceptance" means the Assignment and
Acceptance of even date herewith by and between IBJ, Mellon,
Agent and US Borrower, in form attached hereto as Exhibit C-1.
"Lenders" means the Original Lenders, IBJ and Sumitomo.
"New US Notes" means (i) the Tranche A Notes of even date
herewith made payable to the order of each of Bank of
America, IBJ, Mellon and Sumitomo, in form attached hereto as
Exhibit A-1, with appropriate insertions, (ii) the Tranche B
Notes of even date herewith made payable to the order of US
Lenders, in form attached hereto as Exhibit A-2, with
appropriate insertions, and (iii) the Competitive Bid Notes
of even date herewith made payable to the order of IBJ and
Sumitomo, in form attached hereto as Exhibit A-3.
"Sumitomo Assignment and Acceptance" means the Assignment
and Acceptance of even date herewith by and between Bank of
America, Sumitomo and US Borrower, in form attached hereto as
Exhibit C-2.
"US Credit Agreement" means the Original Agreement as
amended hereby.
ARTICLE II.
Amendments to Original Agreement
Section 2.1. Defined Terms. The definitions of "US Maximum
Credit Amount", "Tranche A Maximum Credit Amount", "Tranche B
Maximum Credit Amount" and "Tranche B Conversion Date" in Annex I of
the Original Agreement are hereby amended in their entirety to read
as follows:
"'Tranche B Conversion Date' means April 16, 2001, or such
later day to which the Tranche B Conversion Date is extended
pursuant to Section 1.1 of the US Agreement."
"'Tranche A Maximum Credit Amount' means the amount of US
$180,000,000."
"'Tranche B Maximum Credit Amount' means the amount of US
$50,000,000."
"'US Maximum Credit Amount' means the amount of US
$230,000,000."
Section 2.2. Lenders Schedule. Annex II to the Original
Agreement is hereby amended in its entirety to read as set forth in
Exhibit B attached hereto.
ARTICLE III.
Conditions of Effectiveness
Section 3.1. Effective Date. This Amendment shall become
effective as of the date first above written when, and only when:
(i) US Agent shall have received, at US Agent's office, a
counterpart of this Amendment executed and delivered by Required
Lenders, US Borrower, IBJ and Sumitomo;
(ii) US Borrower shall have issued and delivered to US Agent,
for subsequent delivery to IBJ, a Tranche A Note with appropriate
insertions payable to the order of IBJ, duly executed on behalf of
US Borrower, dated the date hereof;
(iii) US Borrower shall have issued and delivered to US
Agent, for subsequent delivery to Mellon, a Tranche A Note with
appropriate insertions payable to the order of Mellon, duly executed
on behalf of US Borrower, dated the date hereof;
(iv) US Borrower shall have issued and delivered to US Agent,
for subsequent delivery to Sumitomo, a Tranche A Note with
appropriate insertions payable to the order of Sumitomo, duly
executed on behalf of US Borrower, dated the date hereof;
(v) US Borrower shall have issued and delivered to US Agent,
a Tranche A Note with appropriate insertions payable to the order of
Bank of America, duly executed on behalf of US Borrower, dated the
date hereof;
(vi) US Borrower shall have issued and delivered to US Agent,
for subsequent delivery to each US Lender, a Tranche B Note for each
US Lender with appropriate insertions payable to the order of the
appropriate US Lender;
(vii) US Borrower shall have issued and delivered to US
Agent, for subsequent delivery to IBJ, a Competitive Bid Note with
appropriate insertions payable to the order of IBJ, duly executed on
behalf of US Borrower, dated the date hereof;
(viii) US Borrower shall have issued and delivered to US
Agent, for subsequent delivery to Sumitomo, a Competitive Bid Note
with appropriate insertions payable to the order of Sumitomo, duly
executed on behalf of US Borrower, dated the date hereof;
(ix) US Agent shall have received, at US Agent's office, a
counterpart of the IBJ Assignment and Acceptance executed and
delivered by US Borrower, Mellon and IBJ;
(x) US Agent shall have received, at US Agent's office, a
counterpart of the Sumitomo Assignment and Acceptance executed and
delivered by US Borrower and Sumitomo;
(xi) US Agent shall have received, at US Agent's office, a
certificate of the Secretary or Assistant Secretary and of the
President, Chief Financial Officer or Vice President of
Administrative Services of US Borrower dated the date of this
Amendment certifying: (a) that resolutions adopted in connection
with the Original Agreement by the Board of Directors of the US
Borrower authorize the execution, delivery and performance of this
Amendment by US Borrower, (b) to the names and true signatures of
the officers of the US Borrower authorized to sign this Amendment,
and (c) that all of the representations and warranties set forth in
Article IV hereof are true and correct at and as of the time of such
effectiveness; and
(xii) US Agent shall have additionally received from US
Borrower, in connection with such US Loan Documents, all other fees
and reimbursements to be paid to US Agent pursuant to any US Loan
Documents, or otherwise due US Agent and including fees and
disbursements of US Agent's attorneys.
ARTICLE IV.
Representations and Warranties
Section 4.1. Representations and Warranties of Borrower. In
order to induce US Agent and the undersigned Lenders to enter into
this Amendment, US Borrower represents and warrants to US Agent that:
(a) The representations and warranties contained in
Article V of the Original Agreement are true and correct at
and as of the time of the effectiveness hereof; except that
US Borrower currently has a Subsidiary by the name of Canor
Energy Ltd. ("Canor"), which is not listed in the Disclosure
Schedule. Canor shall be merged with and into Celsius Energy
Resources, Ltd. ("Celsius"), with the surviving entity being
Celsius by December 31, 2000.
(b) US Borrower has duly taken all action necessary to
authorize the execution and delivery by it of the Amendment
Documents and to authorize the consummation of the
transactions contemplated hereby and thereby and the
performance of its obligations hereunder and thereunder. US
Borrower is duly authorized to borrow funds under the US
Credit Agreement.
(c) The execution and delivery by the various Restricted
Persons of the Amendment Documents to which each is a party,
the performance by each of its obligations under such
Amendment Documents and the consummation of the transactions
contemplated by the various Amendment Documents do not and
will not (a) conflict with any provision of (i) any Law, (ii)
the organizational documents of any Restricted Person, or
(iii) any agreement, judgment, license, order or permit
applicable to or binding upon any Restricted Person, or (b)
result in the acceleration of any Indebtedness owed by any
Restricted Person, or (c) result in or require the creation
of any Lien upon any assets or properties of any Restricted
Person, except as expressly contemplated or permitted in the
Loan Documents. Except as expressly contemplated in the Loan
Documents no consent, approval, authorization or order of,
and no notice to or filing with any Tribunal or third party
is required in connection with the execution, delivery or
performance by any Restricted Person of any Amendment
Document or to consummate any transactions contemplated by
the Amendment Documents.
(d) This Amendment is, and the other Amendment Documents
when duly executed and delivered will be, a legal, valid and
binding obligation of each Restricted Person which is a party
hereto or thereto, enforceable in accordance with their
terms, except as such enforcement may be limited by
bankruptcy, insolvency or similar Laws of general application
relating to the enforcement of creditors' rights and by
equitable principles of general application relating to the
enforcement of creditor's rights.
ARTICLE V.
Miscellaneous
Section 5.1. Ratification of Agreements. The Original
Agreement as hereby amended is hereby ratified and confirmed in all
respects. The US Loan Documents, as they may be amended or affected
by the various Amendment Documents, are hereby ratified and
confirmed in all respects. Any reference to the US Credit Agreement
in any Loan Document shall be deemed to be a reference to the
Original Agreement as hereby amended. Any reference to the Lenders
or the Lender Parties in any Loan Document shall be deemed to
include IBJ and Sumitomo. Any reference to the Tranche A Notes, the
Tranche B Notes and the Competitive Bid Notes in any other US Loan
Document shall be deemed to include a reference to the New US Notes
issued and delivered pursuant to this Amendment. The execution,
delivery and effectiveness of this Amendment and each of the New US
Notes shall not, except as expressly provided herein or therein,
operate as a waiver of any right, power or remedy of Lenders under
the US Credit Agreement, the US Notes, or any other US Loan Document
nor constitute a waiver of any provision of the US Credit Agreement,
the US Notes or any other US Loan Document.
Section 5.2. Survival of Agreements; Cumulative Nature. All
of Restricted Persons' various representations, warranties,
covenants and agreements herein shall survive the execution and
delivery of this Amendment and the other Amendment Documents and the
performance hereof and thereof, including without limitation the
making or granting of the US Loans and the delivery of the New US
Notes and shall further survive until all of the US Obligations are
paid in full to each Lender Party and all of Lender Parties'
obligations to US Borrower are terminated. All statements and
agreements contained in any certificate or instrument delivered by
any Restricted Person hereunder or under the US Credit Agreement to
any Lender Party shall be deemed representations and warranties by
US Borrower or agreements and covenants of US Borrower under this
Amendment and under the US Credit Agreement. The representations,
warranties, indemnities, and covenants made by Restricted Persons in
the US Loan Documents, and the rights, powers, and privileges
granted to Lender Parties in the US Loan Documents, are cumulative,
and, except for expressly specified waivers and consents, no Loan
Document shall be construed in the context of another to diminish,
nullify, or otherwise reduce the benefit to any Lender Party of any
such representation, warranty, indemnity, covenant, right, power or
privilege. In particular and without limitation, no exception set
out in this Amendment or any other Amendment Document to any
representation, warranty, indemnity, or covenant herein or therein
contained shall apply to any similar representation, warranty,
indemnity, or covenant contained in any other Loan Document, and
each such similar representation, warranty, indemnity, or covenant
shall be subject only to those exceptions which are expressly made
applicable to it by the terms of the various US Loan Documents.
Section 5.3. Loan Documents. This Amendment, the IBJ
Assignment and Acceptance, the Sumitomo Assignment and Acceptance
and the New US Notes are each a US Loan Document, and all provisions
in the US Credit Agreement pertaining to US Loan Documents apply
hereto and thereto.
Section 5.5. Governing Law. This Amendment, the IBJ
Assignment and Acceptance, the Sumitomo Assignment and Acceptance
and the New US Notes shall each be governed by and construed in
accordance the laws of the State of Utah and any applicable laws of
the United States of America in all respects, including
construction, validity and performance. US Borrower hereby
irrevocably submits itself and each other Restricted Person to the
non-exclusive jurisdiction of the state and federal courts sitting
in the State of Utah and agrees and consents that service of process
may be made upon it or any Restricted Person in any legal proceeding
relating to the Amendment Documents or the Obligations by any means
allowed under Utah or federal law.
Section 5.6. Counterparts. This Amendment may be separately
executed in any number of counterparts and by the different parties
hereto in separate counterparts, each of which when so executed
shall be deemed to constitute one and the same Amendment. This
Amendment may be validly executed and delivered by facsimile or
other electronic transmission.
THIS AMENDMENT AND THE OTHER US 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.
[The remainder of this page has been intentionally left blank.]
IN WITNESS WHEREOF, this Amendment is executed as of the date
first above written.
QUESTAR MARKET RESOURCES, INC.
US Borrower
By:
G. L. Nordloh
President and Chief Executive
Officer
BANK OF AMERICA, N.A.,
Administrative Agent, US LC Issuer and
Lender
By:
Tracey S. Barclay
Principal
THE SUMITOMO BANK, LIMITED
Lender
By:
Name:
Title:
THE INDUSTRIAL BANK OF JAPAN, LIMITED
Lender
By:
Name:
Title:
TORONTO DOMINION (TEXAS), INC.
Lender
By:
Name:
Title:
BANK OF MONTREAL
Lender
By:
Name:
Title:
BANK ONE, N.A. (Main Office Chicago)
Lender
By:
Name:
Title:
FIRST SECURITY BANK, N.A.
Lender
By:
Name:
Title:
MELLON BANK, N.A.
Lender
By:
Name:
Title:
U.S. BANK NATIONAL ASSOCIATION
Lender
By:
Name:
Title:
THE BANK OF TOKYO-MITSUBISHI, LTD.,
HOUSTON AGENCY
Lender
By:
Name:
Title:
EXHIBIT A-1
Tranche A Notes
EXHIBIT A-2
Tranche B Notes
EXHIBIT A-3
Competitive Bid Notes
EXHIBIT B
LENDER'S SCHEDULE
EXHIBIT C-1
IBJ ASSIGNMENT AND ACCEPTANCE
EXHIBIT C-2
SUMITOMO ASSIGNMENT AND ACCEPTANCE
[Execution]
FIFTH AMENDMENT TO US CREDIT AGREEMENT
THIS FIFTH AMENDMENT TO US CREDIT AGREEMENT (herein called
the "Amendment") made as of October 6, 2000, by and among Questar
Market Resources, Inc., a Utah corporation ("US Borrower"), Bank of
America, N.A., individually and as administrative agent for the
Lenders as defined below ("US Agent"), and the undersigned Lenders.
W I T N E S S E T H:
WHEREAS, US Borrower, US Agent and the lenders as signatories
thereto (the "Lenders") entered into that certain US Credit
Agreement dated as of April 19, 1999, as amended by that certain
First Amendment to US Credit Agreement dated as of May 17, 1999, as
amended by that certain Second Amendment to US Credit Agreement
dated as of July 30, 1999, as amended by that certain Third
Amendment to US Credit Agreement dated as of November 30, 1999, and
as amended by that certain Fourth Amendment to US Credit Agreement
dated as of April 17, 2000 (the "Original Agreement"), for the
purpose and consideration therein expressed, whereby the Lenders
became obligated to make loans to US Borrower as therein provided; and
WHEREAS, US Borrower, US Agent and the undersigned Lenders
desire to amend the Original Agreement for the purposes as provided
herein;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and agreements contained herein and in the Original
Agreement, in consideration of the loans which may hereafter be made
by Lenders to US Borrower, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I.
Definitions and References
Section 1.1. Terms Defined in the Original Agreement.
Unless the context otherwise requires or unless otherwise expressly
defined herein, the terms defined in the Original Agreement shall
have the same meanings whenever used in this Amendment.
Section 1.2. Other Defined Terms. Unless the context
otherwise requires, the following terms when used in this Amendment
shall have the meanings assigned to them in this Section 1.2.
"Amendment" means this Fifth Amendment to US Credit Agreement.
"US Credit Agreement" means the Original Agreement as
amended hereby.
ARTICLE II.
Amendments to Original Agreement
Section 2.1. Hedging Contracts. Section 7.10(i)(B) of the
Original Agreement is hereby amended in its entirety to read as
follows:
"(B) such contracts do not require any Restricted Person
to provide any Lien or letter of credit to secure US
Borrower's obligations thereunder, other than Liens on cash
or cash equivalents and letters of credit; provided that the
aggregate amount of cash and cash equivalents subject to
Liens securing such contracts and the undrawn amount of all
letters of credit securing such contracts shall not exceed
(i) US $45,000,000 at any time, through and including
December 31, 2000 and (ii) US $30,000,000 at any time
thereafter."
ARTICLE III.
Waiver
Section 3.1. Waiver. US Borrower has informed US Agent
that US Borrower and Restricted Persons may have violated the
provisions of Section 7.10(i) of the Original Agreement for the
Fiscal Quarter ended September 30, 2000. US Agent and the
undersigned Lenders hereby (a) waive any such violation of Section
7.10(i) and (b) waive any Default or Event of Default resulting from
such violation.
ARTICLE IV.
Conditions of Effectiveness
Section 4.1. Effective Date. This Amendment shall become
effective as of the date first above written when, and only when,
(i) US Agent shall have received, at US Agent's office, a
counterpart of this Amendment executed and delivered by US Borrower
and Required Lenders, (ii) a certificate of the Secretary or
Assistant Secretary and of the President, Chief Financial Officer or
Vice President of Administrative Services of US Borrower dated the
date of this Amendment certifying: (a) that resolutions adopted in
connection with the Original Agreement by the Board of Directors of
the US Borrower authorize the execution, delivery and performance of
this Amendment by US Borrower, (b) to the names and true signatures
of the officers of the US Borrower authorized to sign this
Amendment, and (c) that all of the representations and warranties
set forth in Article V hereof are true and correct at and as of the
time of such effectiveness; and (iii) US Agent shall have
additionally received from US Borrower, in connection with such US
Loan Documents, all other fees and reimbursements to be paid to US
Agent pursuant to any US Loan Documents, or otherwise due US Agent
and including fees and disbursements of US Agent's attorneys.
ARTICLE V.
Representations and Warranties
Section 5.1. Representations and Warranties of Borrower.
In order to induce US Agent and Lenders to enter into this
Amendment, US Borrower represents and warrants to US Agent that:
(a) The representations and warranties contained in
Article V of the Original Agreement are true and correct at
and as of the time of the effectiveness hereof.
(b) US Borrower has duly taken all action necessary to
authorize the execution and delivery by it of this Amendment
and to authorize the consummation of the transactions
contemplated hereby and the performance of its obligations
hereunder. US Borrower is duly authorized to borrow funds
under the US Credit Agreement.
(c) The execution and delivery by US Borrower of this
Amendment, the performance by US Borrower of its obligations
hereunder and the consummation of the transactions
contemplated herein do not and will not (a) conflict with any
provision of (i) any Law, (ii) the organizational documents
of US Borrower, or (iii) any agreement, judgment, license,
order or permit applicable to or binding upon US Borrower, or
(b) result in the acceleration of any Indebtedness owed by US
Borrower, or (c) result in or require the creation of any
Lien upon any assets or properties of US Borrower, except as
expressly contemplated or permitted in the Loan Documents.
Except as expressly contemplated in the Loan Documents no
consent, approval, authorization or order of, and no notice
to or filing with any Tribunal or third party is required in
connection with the execution, delivery or performance by US
Borrower of this Amendment or to consummate any transactions
contemplated herein.
(d) This Amendment is a legal, valid and binding
obligation of US Borrower, enforceable in accordance with its
terms, except as such enforcement may be limited by
bankruptcy, insolvency or similar Laws of general application
relating to the enforcement of creditors' rights and by
equitable principles of general application relating to the
enforcement of creditor's rights.
ARTICLE VI.
Miscellaneous
Section 6.1. Ratification of Agreements. The Original
Agreement as hereby amended is hereby ratified and confirmed in all
respects. The US Loan Documents, as they may be amended or affected
by this Amendment, are hereby ratified and confirmed in all
respects. Any reference to the US Credit Agreement in any Loan
Document shall be deemed to be a reference to the Original Agreement
as hereby amended. The execution, delivery and effectiveness of
this Amendment shall not, except as expressly provided herein,
operate as a waiver of any right, power or remedy of Lenders under
the US Credit Agreement, the US Notes, or any other US Loan Document
nor constitute a waiver of any provision of the US Credit Agreement,
the US Notes or any other US Loan Document.
Section 6.2. Survival of Agreements; Cumulative Nature.
All of US Borrower's various representations, warranties, covenants
and agreements herein shall survive the execution and delivery of
this Amendment and the performance hereof, including without
limitation the making or granting of the US Loans, and shall further
survive until all of the US Obligations are paid in full to each
Lender Party and all of Lender Parties' obligations to US Borrower
are terminated. All statements and agreements contained in any
certificate or instrument delivered by any Restricted Person
hereunder or under the US Credit Agreement to any Lender Party shall
be deemed representations and warranties by US Borrower or
agreements and covenants of US Borrower under this Amendment and
under the US Credit Agreement. The representations, warranties,
indemnities, and covenants made by Restricted Persons in the US Loan
Documents, and the rights, powers, and privileges granted to Lender
Parties in the US Loan Documents, are cumulative, and, except for
expressly specified waivers and consents, no Loan Document shall be
construed in the context of another to diminish, nullify, or
otherwise reduce the benefit to any Lender Party of any such
representation, warranty, indemnity, covenant, right, power or
privilege. In particular and without limitation, no exception set
out in this Amendment to any representation, warranty, indemnity, or
covenant herein contained shall apply to any similar representation,
warranty, indemnity, or covenant contained in any other Loan
Document, and each such similar representation, warranty, indemnity,
or covenant shall be subject only to those exceptions which are
expressly made applicable to it by the terms of the various US Loan
Documents.
Section 6.3. Loan Documents. This Amendment is a US Loan
Document, and all provisions in the US Credit Agreement pertaining
to US Loan Documents apply hereto.
Section 6.4. Governing Law. This Amendment shall be
governed by and construed in accordance the laws of the State of
Utah and any applicable laws of the United States of America in all
respects, including construction, validity and performance. US
Borrower hereby irrevocably submits itself and each other Restricted
Person to the non-exclusive jurisdiction of the state and federal
courts sitting in the State of Utah and agrees and consents that
service of process may be made upon it or any Restricted Person in
any legal proceeding relating to the Amendment Documents or the
Obligations by any means allowed under Utah or federal law.
Section 6.5. Counterparts. This Amendment may be
separately executed in any number of counterparts and by the
different parties hereto in separate counterparts, each of which
when so executed shall be deemed to constitute one and the same
Amendment. This Amendment may be validly executed and delivered by
facsimile or other electronic transmission.
THIS AMENDMENT AND THE OTHER US 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.
[The remainder of this page has been intentionally left blank.]
IN WITNESS WHEREOF, this Amendment is executed as of the date
first above written.
QUESTAR MARKET RESOURCES, INC.
US Borrower
By:
G. L. Nordloh
President and Chief Executive
Officer
Mailing Address:
P.O. Box 45433
Salt Lake City, Utah 84145
Attention: Martin H. Craven
Street Address:
180 East 100 South
Salt Lake City, Utah 84111
Telephone: (801) 324-5497
Fax: (801) 324-5483
BANK OF AMERICA, N.A.
Administrative Agent, US LC Issuer
and Lender
By:
Name:
Title:
TORONTO DOMINION (TEXAS), INC.
Lender
By:
Name:
Title:
BANK OF MONTREAL
Lender
By:
James Whitmore
Director
BANK ONE, N.A., f/k/a THE FIRST
NATIONAL BANK OF CHICAGO
Lender
By:
Name:
Title:
FIRST SECURITY BANK, N.A.
Lender
By:
Name:
Title:
MELLON BANK, N.A.
Lender
By:
Roger E. Howard
Vice President
U.S. BANK NATIONAL ASSOCIATION
Lender
By:
Mark E. Thompson
Vice President
THE BANK OF TOKYO-MITSUBISHI, LTD.,
HOUSTON AGENCY
Lender
By:
Name:
Title:
THE INDUSTRIAL BANK OF JAPAN, LIMITED
Lender
By:
Name:
Title:
THE SUMITOMO BANK, LIMITED
Lender
By:
Name:
Title:
Exhibit 10.2.
QUESTAR MARKET RESOURCES, INC.
ANNUAL MANAGEMENT INCENTIVE PLAN
(As Amended and Restated Effective October 26, 2000)
Paragraph 1. Name. The name of this Plan is the Annual
Management Incentive Plan (the Plan) for Questar Market Resources,
Inc. (the Company).
Paragraph 2. Purpose. The purpose of the Plan is to provide
an incentive to officers and key employees of the Company for the
accomplishment of major organizational and individual objectives
designed to further the efficiency, profitability, and growth of the
Company.
Paragraph 3. Administration. The Management Performance
Committee (Committee) of the Board of Directors of Questar
Corporation (Questar) shall have full power and authority to
interpret and administer the Plan. Such Committee shall consist of
no less than three disinterested members of the Board of Directors.
Recommendations made by the Committee shall be reviewed by the
Boards of Directors of participating employers.
Paragraph 4. Participation. Within 60 days after the
beginning of each year, the Committee shall nominate Participants
from the officers and key employees for such year. The Committee
shall also establish a target bonus for the year for each
Participant expressed as a percentage of base salary or specified
portion of base salary. Participants shall be notified of their
selection and their target bonus as soon as practicable.
Paragraph 5. Determination of Performance Objectives. Within
60 days after the beginning of each year, the Committee shall
establish target, minimum, and maximum performance objectives for
the Company and for its affiliates and shall determine the manner in
which the target bonus is allocated among the performance
objectives. The Committee shall also recommend a dollar maximum for
payments to Participants for any Plan year. The Board of Directors
shall take action concerning the recommended dollar maximum within
60 days after the beginning of the Plan year. Participants shall be
notified of the performance objectives as soon as practicable once
such objectives have been established.
Paragraph 6. Determination and Distribution of Awards. As
soon as practicable, but in no event more than 90 days after the
close of each year during which the Plan is in effect, the Committee
shall compute incentive awards for eligible participants in such
amounts as the members deem fair and equitable, giving consideration
to the degree to which the Participant's performance has contributed
to the performance of the Company and its affiliated companies and
using the target bonuses and performance objectives previously
specified. Aggregate awards calculated under the Plan shall not
exceed the maximum limits approved by the Board of Directors for the
year involved. To be eligible to receive a payment, the Participant
must be actively employed by the Company or an affiliate as of the
date of distribution except as provided in Paragraph 8.
Amounts shall be paid (less appropriate withholding taxes
and FICA deductions) according to the following schedule:
Award Distribution Schedule
Percent of
Award Date
Initial Award 75% As soon as possible after initial
(First Year award is of determined
of Participation)
25 One year after initial award is
determined
100%
Subsequent Awards 50% As soon as possible after award is
determined
25 One year after award is determined
25 Two years after award is determined
100%
Paragraph 7. Restricted Stock in Lieu of Cash.
Participants who have a target bonus of $10,000 or higher shall be
paid all deferred portions of such bonus with restricted shares of
Questar's common stock under Questar's Long-Term Stock Incentive
Plan. Such stock shall be granted to the participant when the
initial award is determined, but shall vest free of restrictions
according to the schedule specified above in Paragraph 6.
Paragraph 8. Termination of Employment.
(a) In the event a Participant ceases to be an employee
during a year by reason of death, disability or approved retirement,
an award, or a reduction in force, if any, determined in accordance
with Paragraph 6 for the year of such event, shall be reduced to
reflect partial participation by multiplying the award by a fraction
equal to the months of participation during the applicable year
through the date of termination rounded up to whole months divided
by 12.
For the purpose of this Plan, approved retirement shall mean
any termination of service on or after age 60, or, with approval of
the Board of Directors, early retirement under Questar's qualified
retirement plan. For the purpose of this Plan, disability shall
mean any termination of service that results in payments under
Questar's long-term disability plan. A reduction in force, for the
purpose of this Plan, shall mean any involuntary termination of
employment due to the Company's economic condition, sale of assets,
shift in focus, or other reasons independent of the Participant's
performance.
The entire amount of any award that is determined after the
death of a Participant shall be paid in accordance with the terms of
Paragraph 11.
In the event of termination of employment due to disability,
approved retirement, or a reduction in force, a Participant shall be
paid the undistributed portion of any prior awards in his final
paycheck or in accordance with the terms of elections to voluntarily
defer receipt of awards earned prior to February 12, 1991, or
deferred under the terms of Questar's Deferred Compensation Plan.
In the event of termination due to disability, approved retirement,
or a reduction in force, any shares of common stock previously
credited to a Participant shall be distributed free of restrictions
during the last month of employment. The current market value
(defined as the closing price for the stock on the New York Stock
Exchange on the date in question) of such shares shall be included
in the Participant's final paycheck. Such Participant shall be paid
the full amount of any award (adjusted for partial participation)
declared subsequent to the date of such termination within 30 days
of the date of declaration. Any partial payments shall be made in
cash.
(b) In the event a Participant ceases to be an employee during
a year by reason of a change in control, he shall be entitled to
receive all amounts deferred by him prior to February 12, 1991, and
all undistributed portions for prior Plan years. He shall also be
entitled to an award for the year of such event as if he had been an
employee throughout such year. The entire amount of any award for
such year shall be paid in a lump sum within 60 days after the end
of the year in question. Such amounts shall be paid in cash.
For the purpose of this Plan, a "change in control" shall be
deemed to have occurred if (i) any Acquiring Person (as that term is
used in the Rights Agreement dated February 13, 1996, between
Questar and ChaseMellon Shareholder Services, L.L.C. ("Rights
Agreement")) is or becomes the beneficial owner (as such term is
used in Rule 13d-3 under the Securities Exchange Act of 1934) of
securities of Questar representing 25 percent or more of the
combined voting power of Questar, or (ii) the following individuals
cease for any reason to constitute a majority of the number of
directors then serving as directors of Questar: individuals who, as
of May 19, 1998, constitute Questar's Board of Directors (Board) and
any new director (other than a director whose initial assumption of
office is in connection with an actual or threatened election
contest, including but not limited to a consent solicitation,
relating to the election of directors of Questar) whose appointment
of election by the Board or nomination for election by Questar's
stockholders was approved or recommended by a vote of at least
two-thirds of the directors when still in office who either were
directors on May 19, 1998, or who appointment, election or
nomination for election was previously so approved or recommended;
or (iii Questar stockholders approve a merger or consolidation of
Questar or any direct of indirect subsidiary of Questar with any
other corporation, other than a merger of consolidation that would
result in the voting securities of Questar outstanding immediately
prior to such merger or consolidation continuing to represent
(either by remaining outstanding or by being converted into voting
securities of the surviving entity or any parent thereof) at least
60 percent of the combined voting power of the securities of Questar
or such surviving entity or its parent outstanding immediately after
such merger or consolidation, or a merger or consolidation effected
to implement a recapitalization of Questar (or similar transaction)
in which no person is or becomes the beneficial owner, directly or
indirectly, of securities of Questar representing 25 percent or more
of the combined voting power of Questar's then outstanding
securities; or (iv) Questar's stockholders approve a plan of
complete liquidation or dissolution of the Company or there is
consummated an agreement for the sale or disposition by Questar of
all or substantially all of Questar's assets, other than a sale of
disposition by Questar of all or substantially all of the Company's
assets to an entity, at least 60 percent of the combined voting
power of the voting securities of which are owned by stockholders of
Questar in substantially the same proportion as their ownership of
Questar immediately prior to such sale. A change in control,
however, shall not be considered to have occurred until all
conditions precedent to the transaction, including but not limited
to, all required regulatory approvals have been obtained.
Paragraph 9. Interest on Previously Deferred Amounts. Amounts
voluntarily deferred prior to February 12, 1991, shall be credited
with interest from the date the payment was first available in cash
to the date of actual payment. Such interest shall be calculated at
a monthly rate using the typical rates paid by major banks on new
issues of negotiable Certificates of Deposit in the amounts of
$1,000,000 or more for one year as quoted in The Wall Street Journal
on the Thursday closest to the end of the month or other published
source of rates as identified by Questar Corporation's Treasury
department.
Paragraph 10. Coordination with Deferred Compensation
Plan. Some Participants are entitled to defer the receipt of their
cash bonuses under the terms of Questar's Deferred Compensation
Plan, which became effective November 1, 1993. Any cash bonuses
deferred pursuant to the Deferred Compensation Plan shall be
accounted for and distributed according to the terms of such plan
and the choices made by the Participant.
Paragraph 11. Death and Beneficiary Designation. In the event
of the death of a Participant, any undistributed portions of prior
awards shall become payable. Amounts previously deferred by the
Participant, together with credited interest to the date of death,
shall also become payable. Each Participant shall designate a
beneficiary to receive any amounts that become payable after death
under this Paragraph or Paragraph 8. In the event that no valid
beneficiary designation exists at death, all amounts due shall be
paid as a lump sum to the estate of the Participant. Any shares of
restricted stock previously credited to the Participant shall be
distributed to the Participant's beneficiary or, in the absence of a
valid beneficiary designation, to the Participant's estate, at the
same time any cash is paid.
Paragraph 12. Amendment of Plan. The Company's Board of
Directors, at any time, may amend, modify, suspend, or terminate the
Plan, but such action shall not affect the awards and the payment of
such awards for any prior years. The Board of Directors cannot
terminate the Plan in any year in which a change of control has
occurred without the written consent of the Participants. The Plan
shall be deemed suspended for any year for which the Board of
Directors has not fixed a maximum dollar amount available for award.
Paragraph 13. Nonassignability. No right or interest of any
Participant under this Plan shall be assignable or transferable in
whole or in part, either directly or by operation of law or
otherwise, including, but not by way of limitation, execution, levy,
garnishment, attachment, pledge, bankruptcy, or in any other manner,
and no right or interest of any Participant under the Plan shall be
liable for, or subject to, any obligation or liability of such
Participant. Any assignment, transfer, or other act in violation of
this provision shall be void.
Paragraph 14. Effective Date of the Plan. The Plan shall be
effective with respect to the fiscal year beginning January 1, 1998,
and shall remain in effect until it is suspended or terminated as
provided by Paragraph 12. This Plan replaces the individual plans
previously adopted by entities within Questar Market Resources.
Plan participants who previously received awards under any Annual
Management Incentive Plan adopted by the Company or an affiliate
shall be treated as ongoing participants for purposes of the
distribution schedule in Paragraph 6.
Exhibit 10.4.
QUESTAR CORPORATION
LONG-TERM STOCK INCENTIVE PLAN
(As Amended and Restated October 26, 2000)
Section 1. Purpose
The Questar Corporation Long-Term Stock Incentive Plan (the "Plan") is
designed to encourage officers and selected key employees of and consultants
to Questar Corporation and its affiliated companies (the "Company") to
acquire a proprietary interest in the Company, to generate an increased
incentive to contribute to the Company's future growth and success, and to
enhance the Company's ability to attract and retain talented officers and
employees. Accordingly, the Company, during the term of this Plan, may
grant incentive stock options, nonqualified stock options, stock
appreciation rights, restricted stock, performance shares, and other awards
valued in whole or in part by reference to the Company's stock.
Section 2. Definitions
"Affiliate" shall mean any business entity in which the Company
directly or indirectly has an equity interest deemed significant by the
Company's Board of Directors.
"Approved Termination" shall mean any retirement under the Company's
Retirement Plan, with approval of the Board of Directors, or any termination
of service on or after age 55, with approval of the Board.
"Award" shall mean a grant or award under Section 6 through 10,
inclusive, of the Plan, as evidenced in a written document delivered to a
Participant as provided in Section 12(b).
"Board" shall mean the Board of Directors of the Company.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
"Committee" shall mean the Management Performance Committee of the
Board of Directors.
"Common Stock" or "Stock" shall mean the Common Stock, no par value, of
the Company. The term shall also include any Common Stock Purchase Rights
attached to the Common Stock.
"Company" shall mean Questar Corporation on a consolidated basis.
"Designated Beneficiary" shall mean the beneficiary designated by the
Participant, in a manner determined by the Committee, to receive amounts due
the Participant in the event of the Participant's death. In the absence of
an effective designation by the Participant, Designated Beneficiary shall
mean the Participant's estate.
"Disability" shall mean permanent and total disability within the
meaning of Section 105(d)(4) of the Code.
"Employee" shall mean any officer or key employee of or consultant to
the Employer.
"Employer" shall mean the Company and any Affiliate.
"Fair Market Value" shall mean the regular closing benchmark price of
the Company's Common Stock reported on the New York Stock Exchange on the
date in question, or, if the Common Stock shall not have been traded on such
date, the closing price on the next preceding day on which a sale occurred.
"Family Member" shall mean the Participant's spouse, children,
grandchildren, parents, siblings, nieces and nephews.
"Fiscal Year" shall mean the fiscal year of the Company.
"Incentive Stock Option" shall mean a stock option granted under
Section 6 that is intended to meet the requirements of Section 422 of
the Code.
"Nonqualified Stock Option" shall mean a stock option granted under
Section 6 that is not intended to be an Incentive Stock Option.
"Option" shall mean an Incentive Stock Option or a Nonqualified Stock
Option.
"Participant" shall mean an Employee who is selected by the Committee
to receive an Award under the Plan.
"Payment Value" shall mean the dollar amount assigned to a Performance
Share which shall be equal to the Fair Market Value of the Common Stock on
the day of the Committee's determination under Section 8(c)(2) with respect
to the applicable Performance Period.
"Performance Period" or "Period" shall mean the period of years
selected by the Committee during which the performance is measured for the
purpose of determining the extent to which an Award of Performance Shares
has been earned.
"Performance Goals" shall mean the objectives established by the
Committee for a Performance Period, for the purpose of determining the
extent to which Performance Shares that have been contingently awarded for
such Period are earned.
"Performance Share" shall mean an Award granted pursuant to Section 8
of the Plan expressed as a share of Common Stock.
"Reduction in Force" shall mean an involuntary termination of
employment due to economic conditions, sale of assets, shift in focus, or
other reasons independent of the Participant's performance.
"Restricted Period" shall mean the period of years selected by the
Committee during which a grant of Restricted Stock or Restricted Stock Units
may be forfeited to the Company.
"Restricted Stock" shall mean shares of Common Stock contingently
granted to a Participant under Section 9 of the Plan.
"Restricted Stock Unit" shall mean a fixed or variable dollar
denominated unit contingently awarded under Section 9 of the Plan.
"Right" shall mean a Stock Appreciation Right granted under Section 7.
"Stock Unit Award" shall mean an Award of Common Stock or units granted
under Section 10.
"Termination of Employment" shall mean the date on which a Participant
actually notifies his/her supervisor of his/her resignation, in the case of
a voluntary termination; and the date on which the Company actually notifies
the Participant of his/her termination, in the case of an involuntary
termination. This term, as defined, does not include termination of
employment as the result of an Approved Termination, Disability, death, or
Reduction in Force.
Section 3. Administration
The Plan shall be administered by the Committee. The Committee shall
have sole and complete authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the operation of
the Plan, and to interpret the terms and provisions of the Plan. The
Committee's decisions shall be binding upon all persons, including the
Company, stockholders, an Employer, Employees, Participants, Designated
Beneficiaries, and Family Members.
Section 4. Eligibility
Awards may only be granted to officers and key employees of or
consultants to the Company or any Affiliate who have the capacity to
contribute to the success of the Company. When selecting Participants and
making Awards, the Committee may consider such factors as the Employee's
functions and responsibilities and the Employee's past, present and future
contributions to the Company's profitability and growth.
Neither the members of the Committee nor any member of the Board who is
not an Employee of the Company shall be eligible to receive awards.
Nothing contained in the Plan or in any individual agreement pursuant
to the terms of the Plan shall confer upon any Participant any right to
continue in the employment of the Company or to limit in any respect the
right of the Company to terminate the Participant's employment at any time
and for any reason.
Section 5. Maximum Amount Available for Awards and Maximum Award
The aggregate number of shares of Common Stock that may be issued under
Awards pursuant to this Plan on an annual basis shall not exceed one percent
(1%) of the issued and outstanding shares of Common Stock as of the first
day of each calendar year for which the Plan is in effect. Any shares
available in any year using this formula that are not granted under this
Plan or other plans in which stock is awarded to Employees would be
available for use in subsequent years. Shares of Common Stock may be made
available from the authorized but unissued shares of the Company or from
shares reacquired by the Company, including shares purchased in the open
market. In the event that an Option or Right expires or is terminated
unexercised as to any shares of Common Stock covered thereby, or any Award
in respect of shares is forfeited for any reason under the Plan, such
shares, to the extent not precluded by applicable law or regulation, shall
be again available for Awards pursuant to the Plan.
In the event that the Committee shall determine that any stock
dividend, extraordinary cash dividend, recapitalization, reorganization,
merger, consolidation, split-up, spin-off, combination, exchange of shares,
warrants or rights offering to purchase Common Stock at a price
substantially below fair market value or other similar corporate event
affects the Common Stock such that an adjustment is required in order to
preserve the benefits or potential benefits intended to be made available
under this Plan, then the Committee, in its sole discretion, may take
action. The Committee may adjust any or all of the number and kind of
shares that thereafter may be awarded or optioned and sold or made the
subject of Rights under the Plan, the number and kind of shares subject to
outstanding Options and other Awards, and the grant, exercise or conversion
price with respect to any of the foregoing and/or, if deemed appropriate,
make provision for a cash payment to a Participant or a person who has an
outstanding Option or other Award.
There is a maximum of 200,000 shares that can be the subject of Awards
granted to any single Participant in any given fiscal year.
Section 6. Stock Options
(a) Grant. Subject to the provisions of the Plan, the Committee shall
have sole and complete authority to determine the Employees to whom Options
shall be granted, the number of shares to be covered by each Option, the
option price therefor and the conditions and limitations, applicable to the
exercise of the Option. The Committee shall have the authority to grant
Incentive Stock Options, Nonqualified Stock Options, or both types of
Options. In the case of Incentive Stock Options, the terms and conditions
of such grants shall be subject to and comply with such rules as may be
prescribed by Section 422 of the Code and any implementing regulations.
(b) Option Price. The Committee shall establish the option price at
the time each Option is granted, which price shall not be less than 100
percent of the Fair Market Value of the Common Stock on the date of grant.
(c) Exercise. Each Option shall be exercisable at such times and
subject to such terms and conditions as the Committee, in its sole
discretion, may specify in the applicable Award or thereafter; provided,
however, that in no event may any Option granted hereunder be exercisable
earlier than six months after the date of such grant or after the expiration
of ten years from the date of such grant. The Committee may impose such
conditions with respect to the exercise of Options, including without
limitation, any conditions relating to the application of federal or state
securities laws, as it may deem necessary or advisable.
No shares shall be delivered pursuant to any exercise of an Option
until payment in full of the option price is received by the Company. Such
payment may be made in cash, or its equivalent, or, if and to the extent
permitted by the Committee, by exchanging shares of Common Stock owned by
the optionee (which are not the subject of any pledge or other security
interest), or by a combination of the foregoing, provided that the combined
value of all cash and cash equivalents and the Fair Market Value of any such
Common Stock so tendered to the Company, valued as of the date of such
tender, is at least equal to such option price.
(d) Transferability. Participants are allowed to transfer vested
Nonqualified Stock Options to Family Members or family trusts, provided that
such options were granted as of and after February 10, 1998 and provided
that such transfers are made and transferred Options are exercised in
accordance with procedural rules adopted by the Committee.
Section 7. Stock Appreciation Rights
(a) The Committee may, with sole and complete authority, grant Rights
in tandem with an Option. Rights shall not be exercisable earlier than six
months after grant, shall not be exercisable after the expiration of ten
years from the date of grant and shall have an exercise price of not less
than 100 percent of the Fair Market Value of the Common Stock on the date of
grant.
(b) A Right shall entitle the Participant to receive from the Company
an amount equal to the excess of the Fair Market Value of a share of Common
Stock on the exercise of the Right over the grant price thereof. The
Committee shall determine whether such Right shall be settled in cash,
shares of Common Stock or a combination of cash and shares of Common Stock.
Section 8. Performance Shares
(a) The Committee shall have sole and complete authority to determine
the Employees who shall receive Performance Shares and the number of such
shares for each Performance Period and to determine the duration of each
Performance Period and the value of each Performance Share. There may be
more than one Performance Period in existence at any one time, and the
duration of Performance Periods may differ from each other.
(b) Once the Committee decides to use Performance Shares, it shall
establish Performance Goals for each Period on the basis of criteria
selected by it. During any Period, the Committee may adjust the Performance
Goals for such Period as it deems equitable in recognition of unusual or
non-recurring events affecting the Company, changes in applicable tax laws
or accounting principles, or such other factors as the Committee may
determine.
(c) As soon as practicable after the end of a Performance Period, the
Committee shall determine the number of Performance Shares that have been
earned on the basis of performance in relation to the established
Performance Goals. Payment Values of earned Performance Shares shall be
distributed to the Participant or as soon as practicable after the
expiration of the Performance Period and the Committee's determination. The
Committee shall determine whether Payment Values are to be distributed in
the form of cash and/or shares of Common Stock.
Section 9. Restricted Stock and Restricted Stock Units
(a) Subject to the provisions of the Plan, the Committee shall have
sole and complete authority to determine the Employees to whom shares of
Restricted Stock and Restricted Stock Units shall be granted, the number of
shares of Restricted Stock and the number of Restricted Stock Units to be
granted to each Participant, the duration of the Restricted Period during
which and the conditions under which the Restricted Stock and Restricted
Stock Units may be forfeited to the Company, and the other terms and
conditions of such Awards.
(b) Shares of Restricted Stock and Restricted Stock Units may not be
sold, assigned, transferred, pledged or otherwise encumbered, except as
herein provided, during the Restricted Period. At the expiration of the
Restricted Period, the Company shall deliver such certificates to the
Participant or the Participant's legal representative. Payment for
Restricted Stock Units shall be made to the Company in cash and/or shares of
Common Stock, as determined at the sole discretion of the Committee.
Section 10. Other Stock Based Awards
(a) In addition to granting Options, Rights, Performance Shares,
Restricted Stock, Restricted Stock Units, the Committee shall have authority
to grant Stock Unit Awards to Participants that can be in the form of Common
Stock or units, the value of which is based, in whole or in part, on the
value of Common Stock. Subject to the provisions of the Plan, Stock Unit
Awards shall be subject to such terms, restrictions, conditions, vesting
requirements and payment rules as the Committee may determine in its sole
and complete discretion at the time of grant.
(b) Any shares of Common Stock that are part of a Stock Unit Award may
not be assigned, sold, transferred, pledged or otherwise encumbered prior to
the date on which the shares are issued or, if later, the date provided by
the Committee at the time of grant of the Stock Unit Award.
Stock Unit Awards may provide for the payment of cash consideration by
the person to whom such Award is granted or provide that the Award, and any
Common Stock to be issued in connection therewith, if applicable, shall be
delivered without the payment of cash consideration, provided that for any
Common Stock to be purchased in connection with a Stock Unit Award the
purchase price shall be at least 50 percent of the Fair Market Value of such
Common Stock on the date such Award is granted.
Stock Unit Awards may relate in whole or in part to certain performance
criteria established by the Committee at the time of grant. Stock Unit
Awards may provide for deferred payment schedules and/or vesting over a
specified period of employment. In such circumstances as the Committee may
deem advisable, the Committee may waive or otherwise remove, in whole or in
part, any restriction or limitation to which a Stock Unit Award was made
subject at the time of grant.
(c) In the sole and complete discretion of the Committee, an Award,
whether made as a Stock Unit Award under this Section 10 or as an Award
granted pursuant to Sections 6 through 9, may provide the Participant with
dividends or dividend equivalents (payable on a current or deferred basis)
and cash payments in lieu of or in addition to an Award.
Section 11. Termination of Employment
The following provisions define a Participant's status in the event of
termination of employment:
(a) Options and Rights. If a Participant shall cease to be employed
by the Company or an Affiliate either directly or in a consulting role, any
Option and any Right granted to him under the Plan shall terminate in
accordance with the following rules:
(1) A Participant who terminates employment for any reason other
than Approved Termination, Disability, death, or Reduction in Force shall
lose the right to exercise any Options or Rights as of Termination of
Employment. Any Options transferred to a Family Member or family trust
shall also be terminated as of the Participant's Termination of Employment
for any reason other than Approved Termination, Disability, death or
Reduction in Force.
(2) A Participant who terminates employment as a result of an
Approved Termination shall have a period of time specified in the individual
agreements by which Options are granted to exercise such Options or Rights.
(3) A Participant who is Disabled shall have 12 months after
Termination of Employment in which to exercise an Option or Right.
(4) A Participant whose employment is terminated as a result of a
Reduction in Force shall have 30 days from the date on which he is notified
of his termination to exercise any Options or Rights that were vested as of
the date of notification.
(5) Upon the death of a Participant during employment, the
Participant's Designated Beneficiary shall have 12 months from the date of
death to exercise the Participant's Option or Right. Upon the death of a
Participant after an Approved Termination but within the period specified by
the Committee to exercise Options or Rights after the Participant's Approved
Termination, the Participant's Designated Beneficiary shall have the period
specified by the Committee to exercise the Option or Right.
(6) The foregoing notwithstanding, a Participant or the
Participant's Designated Beneficiary shall not be permitted to exercise an
Option or Right after the expiration date and a Participant shall forfeit
any Options or Rights upon a determination made by the Board that the
Participant has accepted employment or provided consulting services to a
direct competitor of the Company.
(b) Restricted Stock. If a Participant terminates employment before
the end of the Restricted Period for a reason other than death, Approved
Termination, Disability, Change of Control, or Reduction in Force, the
Participant shall forfeit all shares of Restricted Stock as of Termination
of Employment. If a Participant terminates employment as a result of death,
Approved Termination, Change of Control, or Reduction in Force, the
Committee, in its sole discretion, shall determine what portion, if any, of
the Restricted Stock shall be freed from restrictions.
(c) Performance Shares and Other Awards. If a Participant ceases to
be an Employee before the end of any Performance Period as a result of
death, Approved Termination, Disability, or Reduction in Force, the
Committee may authorize the payment to such Participant or his Designated
Beneficiary of a pro rata portion of the amount that would have been paid to
him had he continued as an Employee to the end of the Performance Period.
In the event a Participant terminates employment for any other reason, any
amounts for outstanding Performance Periods shall be forfeited as of
Termination of Employment.
Section 12. General Provisions
(a) Withholding. The Employer shall have the right to deduct from all
amounts paid to a Participant in cash any taxes required by law to be
withheld in respect of Awards under this Plan. In the case of payments of
Awards in the form of Common Stock, the Committee shall require the
Participant to pay to the Employer the amount of any taxes required to be
withheld with respect to such Common Stock, or, in lieu thereof, the
Employer shall have the right to retain (or the Participant may be offered
the opportunity to elect to tender) the number of shares of Common Stock
whose Fair Market Value equals the amount required to be withheld.
(b) Awards. Each Award shall be evidenced in writing delivered to the
Participant and shall specify the terms and conditions and any rules
applicable to such Award.
(c) Nontransferability. Except as provided in Section 6(d), no Award
shall be assignable or transferable, and no right or interest of any
Participant shall be subject to any lien, obligation or liability of the
Participant, except by will or the laws of descent and distribution.
(d) No Rights as Stockholder. Subject to the provisions of the
applicable Award, no Participant or Designated Beneficiary shall have any
rights as a stockholder with respect to any shares of Common Stock to be
distributed under the Plan until becoming the holder. Notwithstanding the
foregoing, in connection with each grant of Restricted Stock hereunder, the
applicable Award shall specify if and to what extent the Participant shall
not be entitled to the rights of a stockholder in respect of such Restricted
Stock.
(e) Construction of the Plan. The validity, construction,
interpretation, administration and effect of the Plan and of its rules and
regulations, and rights relating to the Plan, shall be determined solely in
accordance with the laws of Utah.
(f) Effective Date. Subject to the approval of the stockholders of
the Company, the Plan shall be effective on March 1, 1991. No Options or
Awards may be granted under the Plan, however, until the Plan is approved by
the Company's shareholders or after May 20, 2001.
(g) Amendment of Plan. The Board of Directors may amend, suspend or
terminate the Plan or any portion thereof at any time, provided that no
amendment shall be made without stockholder approval if such approval is
necessary to comply with any tax or regulatory requirement, including for
these purposes any approval requirement that is a prerequisite for exemptive
relief under Section 16(b) of the Securities Exchange Act of 1934.
(h) Amendment of Award. The Committee may amend, modify or terminate
any outstanding Award with the Participant's consent at any time prior to
payment or exercise in any manner not inconsistent with the terms of the
Plan, including without limitation, to change the date or dates as of which
an Option or Right becomes exercisable; a Performance Share is deemed
earned; Restricted Stock becomes nonforfeitable; or to cancel and reissue an
Award under such different terms and conditions as it determines appropriate.
Section 13. Change of Control.
In the event of a Change of Control of the Company, all Options,
Restricted Stock, and other Awards granted under the Plan shall vest
immediately.
A Change in Control of the Company shall be deemed to have occurred if
(i) any "Acquiring Person" (as such term is defined in the Rights Agreement
dated as of February 13, 1996, between the Company and ChaseMellon
Shareholder Services L.L.C. ("Rights Agreement")) is or becomes the
beneficial owner (as such term is used in Rule 13d-3 under the Securities
Exchange Act of 1934) of securities of the Company representing 25 percent
or more of the combined voting power of the Company; or (ii) the following
individuals cease for any reason to constitute a majority of the number of
directors then serving: individuals who, as of May 19, 1998, constitute the
Company's Board of Directors and any new director (other than a director
whose initial assumption of office is in connection with an actual or
threatened election contest, including but not limited to a consent
solicitation, relating to the election of directors of the Company) whose
appointment or election by the Board or nomination for election by the
Company's stockholders was approved or recommended by a vote of at least
two-thirds of the directors then still in office who either were directors
on May 19, 1998, or whose appointment, election or nomination for election
was previously so approved or recommended; or (iii) the Company's
stockholders approve a merger or consolidation of the Company or any direct
or indirect subsidiary of the Company with any other corporation, other than
a merger or consolidation that would result in the voting securities of the
Company outstanding immediately prior to such merger or consolidation
continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity or any parent
thereof) at least 60 percent of the combined voting power of the securities
of the Company or such surviving entity or its parent outstanding
immediately after such merger or consolidation, or a merger or consolidation
effected to implement a recapitalization of the Company (or similar
transaction) in which no person is or becomes the beneficial owner, directly
or indirectly, of securities of the Company representing 25 percent or more
of the combined voting power of the Company's then outstanding securities;
or (iv) the Company's stockholders approve a plan of complete liquidation or
dissolution of the Company or there is consummated an agreement for the sale
or disposition by the Company of all or substantially all of the Company's
assets, other than a sale or disposition by the Company of all or
substantially all of the Company's assets to an entity, at least 60 percent
of the combined voting power of the voting securities of which are owned by
stockholders of the Company in substantially the same proportions as their
ownership of the Company immediately prior to such sale. A Change in
Control, however, shall not be considered to have occurred until all
conditions precedent to the transaction, including but not limited to, all
required regulatory approvals have been obtained.
Exhibit 10.6.
QUESTAR MARKET RESOURCES, INC.
DEFERRED COMPENSATION PLAN FOR DIRECTORS
(As Amended and Restated May 19, 1998)
1. Purpose of Plan.
The purpose of the Deferred Compensation Plan for Directors
("Plan") is to provide Directors of Questar Market Resources,
Inc. (the "Company") with an opportunity to defer compensation
paid to them for their services as Directors of the Company and
to maintain a Deferred Account Balance until they cease to
serve as Directors of the Company or its affiliates.
2. Eligibility.
Subject to the conditions specified in this Plan or otherwise
set by the Company's Board of Directors, all voting Directors
of the Company who receive compensation for their service as
Directors are eligible to participate in the Plan. Eligible
Directors are referred to as "Directors." Directors who elect
to defer receipt of fees or who have account balances are
referred to as "Participants" in this Plan.
3. Administration.
The Company's Board of Directors shall administer the Plan and
shall have full authority to make such rules and regulations
deemed necessary or desirable to administer the Plan and to
interpret its provisions.
4. Election to Defer Compensation.
(a) Time of Election. A Director can elect to defer
future compensation or to change the nature of his election for
future compensation by submitting a notice prior to the
beginning of the calendar year. A newly elected Director is
entitled to make a choice within five days of the date of his
election or appointment to serve as a Director to defer payment
of compensation for future service. An election shall continue
in effect until the termination of the Participant's service as
a Director or until the end of the calendar year during which
the Director serves written notice of the discontinuance of his
election.
All notices of election, change of election, or discontinuance
of election shall be made on forms prepared by the Corporate
Secretary and shall be dated, signed, and filed with the
Corporate Secretary. A notice of change of election or
discontinuance of election shall operate prospectively from the
beginning of the calendar year, but any compensation deferred
shall continue to be held and shall be paid in accordance with
the notice of election under which it was withheld.
(b) Amount of Deferral. A Participant may elect to defer
receipt of all or a specified portion of the compensation
payable to him for serving as a Director and attending Board
and Committee Meetings as a Director. For purposes of this
Plan, compensation does not include any funds paid to a
Director to reimburse him for expenses.
(c) Period of Deferral. When making an election to defer all
or a specified percentage of his compensation, a Participant
shall elect to receive the deferred compensation in a lump sum
payment within 45 days following the end of his service as a
Director or in a number of annual installments (not to exceed
four), the first of which would be payable within 45 days
following the end of his service as a Director with each
subsequent payment payable one year thereafter. Under an
installment payout, the Participant's first installment shall
be equal to a fraction of the balance in his Deferred
Compensation Account as of the last day of the calendar month
preceding such payment, the numerator of which is one and the
denominator of which is the total number of installments
selected. The amount of each subsequent payment shall be a
fraction of the balance in the Participant's Account as of the
last day of the calendar month preceding each subsequent
payment, the numerator of which is one and the denominator of
which is the total number of installments elected minus the
number of installments previously paid. The term "balance," as
used herein, refers to the amount credited to a Participant's
Account or to the Fair Market Value (as defined in Section 5
(a)) of the Phantom Shares of Questar Corporation's common
stock ("Common Stock") credited to his Account.
(d) Phantom Stock Option and Certificates of Deposit Option.
When making an election to defer all or a specified percentage
of his compensation, a Participant shall choose between two
methods of determining earnings on the deferred compensation.
He may choose to have such earnings calculated as if the
deferred compensation had been invested in Common Stock at the
Fair Market Value (as defined in Section 5 (a)) of such stock
as of the date such compensation amount would have otherwise
been payable to him ("Phantom Stock Option"). Or he may choose
to have earnings calculated as if the deferred compensation had
been invested in negotiable certificates of deposit at the time
such compensation would otherwise be payable to him
("Certificates of Deposit Option").
The Participant must choose between the two options for all of
the compensation he elects to defer in any given year. He may
change the option for future compensation by filing the
appropriate notice with the Corporate Secretary before the
first day of each calendar year, but such change shall not
affect the method of determining earnings for any compensation
deferred in a prior year.
5. Deferred Compensation Account.
A Deferred Compensation Account ("Account") shall be
established for each Participant.
(a) Phantom Stock Option Account. If a Participant elects the
Phantom Stock Option, his Account will include the number of
shares and partial shares of Common Stock (to four decimals)
that could have been purchased on the date such compensation
would have otherwise been payable to him. The purchase price
for such stock is the Fair Market Value of such stock, i.e.,
the closing price of such stock as reported on the Composite
Tape of the New York Stock Exchange for such date or the next
preceding day on which sales took place if no sales occurred on
the actual payable date.
The Participant's Account shall also include the dividends
that would have become payable during the deferral period if
actual purchases of Common Stock had been made, with such
dividends treated as if invested in Common Stock as of the
payable date for such dividends.
(b) Certificates of Deposit Option Account. If a Participant
elects the Certificates of Deposit Option, his Account will be
credited with any compensation deferred by the Participant at
the time such compensation would otherwise be payable and with
interest calculated at a monthly rate using the typical rates
paid by major banks on new issues of negotiable Certificates of
Deposit on amounts of $1,000,000 or more for one year as quoted
in The Wall Street Journal under "Money Rates" on the first day
of the relevant calendar month or the next preceding business
day if the first day of the month is a non-business day. The
interest credited to each Account shall be based on the amount
held in the Account at the beginning of each particular month.
6. Statement of Deferred Compensation Account.
Within 45 days after the end of the calendar year, a
statement will be sent to each Participant listing the balance
in his Account as of the end of the year.
7. Retirement.
Upon retirement or resignation as a Director from the
Board of Directors, a Participant shall receive payment of the
balance in his Account in accordance with the terms of his
prior instructions and the terms of the Plan unless he is still
serving as a voting director of Questar Corporation
("Questar"). Upon retirement or resignation as a Director of
Questar or upon appointment as a non-voting Senior Director of
Questar, a Participant shall receive payment of the balance in
his Account in accordance with the terms of his prior
instructions and the terms of the Plan unless he is currently
serving as a Director of the Company.
8. Payment of Deferred Compensation.
(a) Phantom Stock Option. The amount payable to the
Participant choosing the Phantom Stock Option shall be the cash
equivalent of the stock using the Fair Market Value of such
stock on the date of withdrawal.
(b) Certificates of Deposit Option. The amount payable to the
Participant choosing the Certificate of Deposit Option shall
include the interest on all sums credited to the Account, with
such interest credited to the date of withdrawal.
(c) The date of withdrawal for both the Phantom Stock Option
Account and the Certificates of Deposit Option Account shall be
the last day of the calendar month preceding payment or if
payment is made because of death, the date of death.
(d) The payment shall be made in the manner (lump sum or
installment) chosen by the Participant. In the event of a
Participant's death, payment shall be made within 45 days of
the Participant's death to the beneficiary designated by the
Participant or, in the absence of such designation, to the
Participant's estate.
9. Payment, Change in Control.
Notwithstanding any other provisions of this Plan or
deferral elections made pursuant to Section 4 of this Plan, a
Director, in the event of a Change in Control of Questar, shall
be entitled to elect a distribution of his account balance
within 60 days following the date of a Change in Control. For
the purpose of this Plan, a "Change in Control" shall be deemed
to have occurred if (i) any "Acquiring Person" (as that term is
used in the Rights Agreement dated February 13, 1996, between
Questar and ChaseMellon Shareholder Services, L.L.C. ("Rights
Agreement")) is or becomes the beneficial owner (as such term
is used in Rule 13d-3 under the Securities Exchange Act of
1934) of securities of Questar representing 25 percent or more
of the combined voting power of Questar, or (ii) the following
individuals cease for any reason to constitute a majority of
the number of directors then serving as directors of Questar:
individuals who, as of May 19, 1998, constitute Questar's Board
of Directors ("Board") and any new director (other than a
director whose initial assumption of office is in connection
with an actual or threatened election contest, including but
not limited to a consent solicitation, relating to the election
of directors of Questar) whose appointment of election by the
Board or nomination for election by Questar's stockholders was
approved or recommended by a vote of at least two-thirds of the
directors when still in office who either were directors on May
19, 1998, or who appointment, election or nomination for
election was previously so approved or recommended; or (iii
Questar stockholders approve a merger or consolidation of
Questar or any direct of indirect subsidiary of Questar with
any other corporation, other than a merger of consolidation
that would result in the voting securities of Questar
outstanding immediately prior to such merger or consolidation
continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity
or any parent thereof) at least 60 percent of the combined
voting power of the securities of Questar or such surviving
entity or its parent outstanding immediately after such merger
or consolidation, or a merger or consolidation effected to
implement a recapitalization of Questar (or similar
transaction) in which no person is or becomes the beneficial
owner, directly or indirectly, of securities of Questar
representing 25 percent or more of the combined voting power of
Questar's then outstanding securities; or (iv) Questar's
stockholders approve a plan of complete liquidation or
dissolution of the Company or there is consummated an agreement
for the sale or disposition by Questar of all or substantially
all of Questar's assets, other than a sale of disposition by
Questar of all or substantially all of the Company's assets to
an entity, at least 60 percent of the combined voting power of
the voting securities of which are owned by stockholders of
Questar in substantially the same proportion as their ownership
of Questar immediately prior to such sale. A Change in
Control, however, shall not be considered to have occurred
until all conditions precedent to the transaction, including
but not limited to, all required regulatory approvals have been
obtained.
10. Hardship Withdrawal.
Upon petition to and approval by the Company's Board of
Directors, a Participant may withdraw all or a portion of the
balance in his Account in the case of financial hardship in the
nature of an emergency, provided that the amount of such
withdrawal cannot exceed the amount reasonable necessary to
meet the financial hardship. The Board of Directors shall have
sole discretion to determine the circumstances under which such
withdrawals are permitted.
11. Amendment and Termination of Plan.
The Plan may be amended, modified or terminated by the
Company's Board of Directors. No amendment, modification, or
termination shall adversely affect a Participant's rights with
respect to amounts accrued in his Account. In the event that
the Plan is terminated, the Board of Directors has the right to
make lump-sum payments of all Account balances on such date as
it may determine.
12. Nonassignability of Plan.
The right of a Participant to receive any unpaid portion of
his Account shall not be assigned, transferred, pledged or
encumbered or be subject in any manner to alienation or
attachment.
13. No Creation of Rights.
Nothing in this Plan shall confer upon any Participant the
right to continue as a Director. The right of a Participant to
receive any unpaid portion of his Account shall be an unsecured
claim against the general assets and will be subordinated to
the general obligations of the Company.
14. Effective Date.
The Plan was effective on June 1, 1982, and shall remain in
effect until it is discontinued by action of the Company's
Board of Directors. The effective date of the amendment to the
Plan establishing a Phantom Stock Option is January 1, 1983.
The Plan was amended and restated effective April 30, 1991, was
amended and restated effective February 13, 1996, and was
further amended and restated effective May 19, 1998.
Exhibit No. 12
Questar Market Resources, Inc. and Subsidiaries
Ratio of Earnings to Fixed Charges
The ratios of earnings to fixed charges for 1997, 1998 and 1999 are
derived from audited financial statements of Questar Market
Resources. The ratios for 1995, 1996 and the 12 months ended March
31, 2000 and 1999 are from unaudited financial statements.
12 months ended March 31,12 months ended December 31,
2000 1999 1999 1998 1997 1996 1995
(Dollars in Thousands)
Earnings
Income from continuing operations before
income taxes $75,951 13519 $64,450 $15,706 $49,521 $56,134 $43,638
Less income, plus loss from Canyon Creek (216) (233) (231) (202) (160) 35 (141)
Plus distribution from Canyon Creek 304 244 266 281 334 60 314
Plus loss from Questar WMC 65 546 114
Plus debt expense 18,470 14,255 17,363 12,631 10,882 8,699 6,323
Plus interest capitalized during
construction 884 542 357 1,363 604 70 63
Plus interest portion of rental expense 1,773 1,487 855 699 556 500 441
$97,190 $29,814 $83,091 $30,478 $61,802 $66,044 $50,752
Fixed Charges
Debt expense $18,470 $14,255 $17,363 $12,631 $10,882 $8,699 $6,323
Plus interest capitalized during
construction 884 542 357 1,363 604 70 63
Plus interest portion of rental expense 1,773 1,487 855 699 556 500 441
$21,127 $16,284 $18,575 $14,693 $12,042 $9,269 $6,827
Ratio of Earnings to Fixed Charges 4.60 1.83 4.47 2.07 5.13 7.13 7.43
1/ For purposes of this presentation, earnings represent income
from continuing operations before income taxes and fixed charges.
Fixed charges consist of total interest charges, amortization of
debt issuance costs, and the interest portion of rental costs
(which is estimated at 50%).
2/ Income from continuing operations before income taxes
includes QMR's 50% share of pretax earnings of Blacks Fork.
3/ Distributions from Canyon Creek are included and earnings
are excluded because QMR owns less than 50%. QMR's ownership
interest in Canyon Creek is 15%.
4/ Write-downs of investment in oil and gas properties reduced
income before income taxes of $31 million in 1998 and $9 million
in 1997.
5
1,000
3-MOS 3-MOS
DEC-31-2000 DEC-31-1999
MAR-31-2000 MAR-31-1999
2,206 4,566
0 0
84,380 102,266
(1,321) (3,092)
5,120 3,497
96,191 111,059
1,556,761 1,424,392
755,544 736,353
918,334 804,227
143,692 186,937
293,074 186,008
0 0
0 0
4,309 4,309
395,246 361,406
918,334 804,227
0 0
141,761 115,846
0 0
86,811 76,561
29,275 24,942
0 0
5,370 4,263
22,397 10,896
7,348 2,643
15,049 8,253
0 0
0 0
0 0
15,049 8,253
0 0
0 0
