<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-KA/1
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission File Number 0-14183
- ------------------------------
ENERGY WEST INCORPORATED
------------------------
(Exact name of registrant as specified in its charter)
Montana 81-0141785
---------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1 First Avenue South, Great Falls, Mt. 59401
----------------------------------------------
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code (406)-791-7500
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of Exchange on which registered
Common Stock - Par Value $.15 NASDAQ
----------------------------- ------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (229.45 of this chapter) is not contained herein, and will not
be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K [X].
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of September 20, 1996: Common Stock, $.15 Par Value -
$11,997,032
The number of shares outstanding of the issuer's classes of common stock as of
September 20, 1996: Common Stock, $.15 Par Value - 2,336,245 shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the annual shareholders' report for the year ended June 30, 1996 are
incorporated by reference into Parts I and II.
Portions of the proxy statement for the annual shareholders meeting held
November 21, 1996 are incorporated by reference into Part III.
1
<PAGE>
PART I
Item 1. - Business
ENERGY WEST INCORPORATED ("the Company") is a regulated public utility,
with certain non-utility operations conducted through its subsidiaries. The
Company's regulated utility operations primarily involve the distribution and
sale of natural gas to the public in the Great Falls, Montana and Cody, Wyoming
areas. Since January 1993, the Company's regulated utility operations have also
included the distribution of propane to the public through an underground
propane vapor system in the Payson, Arizona area, and since 1995, the
distribution of natural gas through an underground system in West Yellowstone,
Montana, that is supplied by liquified natural gas ("LNG").
The Company conducts certain non-regulated non-utility operations through
its three wholly-owned subsidiaries, Rocky Mountain Fuels, Inc. ("RMF"), Energy
West Resources, Inc. ("EWR"), [formerly Vesta, Inc.] and Montana Sun, Inc.
("Montana Sun"). RMF is engaged in the distribution of bulk propane in
Northwestern Wyoming, the Payson, Arizona area and the Cascade, Montana area.
EWR is involved in gas storage, a small amount of oil and gas development and
the marketing of gas in Montana and Wyoming. Montana Sun owns two real estate
properties in Great Falls, Montana.
UTILITY OPERATIONS
The Company's primary business is the distribution and sale of natural gas
and propane to residential, commercial and industrial customers. The natural
gas distribution operations consist of two divisions, the Great Falls division
and the Cody division. The Cody division is also involved in the transportation
of natural gas. In addition, since January 1993 the Company has been involved
in the regulated distribution of propane in Arizona through the Broken Bow
division. Generally, residential customers use natural gas and propane for
space heating and water heating, commercial customers use natural gas and
propane for space heating and cooking, and industrial customers use natural gas
as a fuel in industrial processing and space heating. The Company's revenues
from utility operations are generated under tariffs regulated by the respective
state utility commissions.
GREAT FALLS DIVISION
The Great Falls division provides natural gas service to Great
Falls, Montana and much of suburban Great Falls within approximately 11 miles of
the city limits. The service area has a population base of approximately
65,000. The Company has a franchise to distribute natural gas within the city
of Great Falls. The franchise was renewed for 50 years by the city of Great
Falls in 1971. As of June 30, 1996, the Great Falls division provided service
to over 25,000 customers, including approximately 22,000 residential customers,
approximately 3,000 commercial customers, an oil refinery through a
transportation agreement and Malmstrom Air Force Base ("Malmstrom").
2
<PAGE>
The following table shows the Great Falls division's revenues by customer class
for the year ended June 30, 1996 and the past two fiscal years:
Gas Revenues
(in thousands)
Years Ended June 30,
--------------------
1996 1995 1994
---- ---- ----
Residential................. $8,648 $8,996 $9,016
Commercial.................. 6,146 6,350 6,360
Malmstrom................... 0 1,393 1,437
Transportation.............. 468 73 88
----- ----- -----
Total............... $15,262 $16,812 $16,901
------- ------- -------
------- ------- -------
The following table shows the volumes of natural gas, expressed in millions
of cubic feet ("MMcf") at 13.28 P.S.I.A., sold by the Great Falls division for
the year ended June 30, 1996 and the past two fiscal years:
Gas Volumes
(MMcf)
Years Ended June 30,
--------------------
1996 1995 1994
---- ---- ----
Residential................ 2,540 2,297 2,315
Commercial................. 1,822 1,646 1,655
Malmstrom................... 0 464 478
----- ----- -----
Total Gas Sales....... 4,362 4,407 4,448
----- ----- -----
----- ----- -----
Transportation 1,294 714 521
----- ----- -----
----- ----- -----
Malmstrom, the Great Falls division's largest customer, accounted for
approximately 3% of the revenues of the division. Including revenues received
by EWR, Malmstrom accounted for approximately 5% of the consolidated revenues of
the Company in fiscal 1996. On July 1, 1995, Malmstrom became a transport
customer of the Great Falls division, purchasing its gas load from EWR, a
wholly-owned subsidiary of ENERGY WEST INCORPORATED. The Great Falls division
will experience no loss of margin as a result of this new contract. Malmstrom
purchases gas for space heating and water heating for buildings and residential
housing, to supplement its coal-fired central heating system. Malmstrom, which
is located near Great Falls, is an air force base with intercontinental nuclear
missiles and KC-135 refueling tankers. The base employed approximately 4,400
military personnel and 550 civilian personnel as of June 30, 1996. As of this
date, a current realignment plan by the federal government, calls for the base
to receive additional Minuteman III missiles from North Dakota, and the
refueling unit to move to Florida. The plan is now final and when both changes
take place, the base is expected to lose approximately 700 jobs.
3
<PAGE>
Beginning in three years, Malmstrom has been selected as the site where 13
of 15 test flight of NASA's X-33 space shuttle will land during 1999. No
assurance can be given as to the future level of activity at Malmstrom.
The Great Falls division's other transport customer is an oil refinery
located in the city. The Company provides gas to the customer for processing
use in its refining business. In fiscal 1996, the refinery accounted for less
than 1% of the consolidated revenues of the Company. Historically, this
customer's gas load has remained relatively constant during the year because the
gas is used in the customer's business and is therefore not weather-sensitive.
On June 1, 1993, the refinery became a transport customer of the Great Falls
division, purchasing its gas load from EWR, a wholly-owned subsidiary of ENERGY
WEST INCORPORATED. The Great Falls division has not experienced a loss of
margin as a result of this new contract.
In July, 1996 it was announced that a $20 million pasta plant will be built
in Great Falls. Construction is expected to begin in the fall of 1996 and is
estimated to use approximately 60,000 Mcf/year of natural gas annually.
The Great Falls division's gas distribution operations are subject to
regulation by the Montana Public Service Commission ("MPSC"). The MPSC
regulates rates, adequacy of service, accounting, issuance of securities and
other matters.
In November, 1994, the Company filed for a rate increase to recover the
cost of increased operating expenses, increases in financing expenses due to
additional investments in utility plant, and other costs of doing business.
Included with the filing was a new surcharge to recover costs associated with
the environmental assessment and remediation of its service center, which was
formerly a manufactured gas plant site. The Montana Consumer Counsel ("MCC")
intervened in the rate case and in January, 1995, the Company and the MCC filed
a Joint Motion for Suspension of the Procedural Order, in order to allow both
parties to negotiate toward a stipulated settlement. On May 30, 1995, the MPSC
approved the revenue requirement stipulation executed between the Company and
the MCC as filed in March, 1995, which reduced base rates by $250,000 and
allowed a new surcharge associated with the manufactured gas plant site with an
initial balance of approximately $183,000, with the surcharge calculated on a
two-year recovery of the average annual basis. The effective date of the rate
decrease and surcharge was the beginning of fiscal 1996 or July 1, 1995. The
rate decrease reduces earnings per share by approximately 1.8 cents on
normalized volumes.
4
<PAGE>
In June, 1996, the Great Falls division filed a rate adjustment application
with the MPSC of approximately $386,000, to recover increased gas supply costs,
as part of an annual filing made by the Great Falls division to balance gas
supply costs against gas revenues. This filing does not increase the Great
Falls division's margins.
On July 8, 1996, the Great Falls division filed a general rate increase
with the MPSC, which reflects increased operating, maintenance and depreciation
costs as well as a change in the cost of capital. The Great Falls division has
applied for and expects interim relief no later than November, 1996. The Rate
Hearing will be held in late fiscal 1997 and no assurance can be given as to the
amount of rate relief that will be granted to the Company.
Historically, the Great Falls division has purchased all of its gas from
Montana Power Company ("MPC"), a publicly owned electric and gas utility serving
much of Montana. In 1991 the MPSC ordered MPC to become an open access
transporter of natural gas over a phase-in period ending on August 31, 1993.
Since the 1991 order, the Company has been able to purchase gas from sources
other than MPC and transport supplies on MPC's system. The Company has
increased its gas purchases from suppliers other than MPC, as open access
transportation has been phased in. The Great Falls division, as of June 30,
1996, purchases approximately forty percent of its gas from a Canadian producer
under a long-term contract expiring in 2007, and approximately twenty percent of
its gas from two Montana producers under long-term contracts expiring between
1998 and 2005 and fifteen percent of its gas from short-term contracts with
Montana producers. The division also makes spot market purchases from time to
time to fill its storage capacity in the spring and summer.
The price of gas under the contract with the Canadian producer is
negotiated annually between the parties. The prices of gas under the contracts
with the two independent producers can be negotiated bi-annually by either
party. Gas purchased from the division's suppliers is transported through
pipelines owned by MPC and is delivered to the division's distribution system at
two city gates. The Company pays transportation tariffs to MPC at rates
approved by the MPSC.
Open access for the division's customers was negotiated between the
division, MPC and the MPSC during 1991, which called for a three year phase-in
of open access gas supplies, with gas costs tracking filings every six months.
The three year phase-in period began in November, 1991, with two-thirds of
supply purchased from MPC under the "Firm Utility Gas Cost" ("FUGC") rate and
one-third directly from other gas suppliers. The regulatory mechanism used to
track the phase-in resulted in additional costs in 1994 that offset an increase
in gross margins associated with the change in contract terms with the refinery
customer, which changed from a gas supply contract to a transportation contract.
On September 1, 1993, the Great Falls division became a full open access
customer of MPC.
5
<PAGE>
The division secured the balance of its long-term gas supplies, to replace
gas which was previously being supplied by MPC, on terms satisfactory to the
Company.
The Great Falls division contracts for gas storage from MPC in MPC-owned
gas storage areas and pays storage tariffs at rates approved by the MPSC. The
division uses this storage capacity to provide for seasonal peaking needs and to
take advantage of lower priced gas generally available during the summer months.
During 1996, the Company was a party to gas financial swap agreements for
its regulated operations, including the Great Falls and Cody divisions. Under
these agreements, the Company is required to pay the counterparty (an entity
making a market in gas futures) a cash settlement equal to the excess of the
stated index price over an agreed upon fixed price for gas purchases. The
Company receives cash from the counterparty when the stated index price falls
below the fixed price. These swap agreements are made to minimize exposure to
gas price fluctuations. Any cash settlements or receipts are included in gas
purchased.
CODY DIVISION
The Cody division provides natural gas service in Northwestern Wyoming to
the city of Cody and the towns of Meeteetse and Ralston and the surrounding
areas. The service area has a population base of approximately 12,000. The
Cody division has a franchise granted by the Wyoming Public Service Commission
(the "WPSC") for gas purchasing, transportation and distribution covering the
west side of the Big Horn Basin, which stretches approximately 70 miles north
and south and 40 miles east and west from Cody. The franchise is effective
until 2002. As of June 30, 1996, the Cody division provided service to
approximately 5,200 customers, including 4,500 residential customers, 700
commercial customers and one industrial customer. The division also provides
transportation service to two customers.
The following table shows the Cody division's revenues by customer class
for the year ended June 30, 1996 and the past two fiscal years:
Gas Revenues
(in thousands)
Years Ended June 30,
--------------------
1996 1995 1994
---- ---- ----
Residential................. $2,353 $2,176 $2,219
Commercial.................. $1,922 $1,887 $2,034
Industrial.................. $1,360 $1,375 $1,331
Transportation.............. $ 305 $ 172 $ 228
------ ------ ------
Total................. $5,940 $5,610 $5,812
------ ------ ------
------ ------ ------
6
<PAGE>
The following table shows the volumes of natural gas, expressed in millions
of cubic feet ("MMcf") at 13.28 P.S.I.A., sold by the Cody division for the year
ended June 30, 1996 and the past two fiscal years:
Gas Volumes
(MMcf)
Years Ended June 30,
--------------------
1996 1995 1994
---- ---- ----
Residential................. 536 486 474
Commercial.................. 565 539 559
Industrial.................. 552 517 473
--- --- ---
Total Gas Sales....... 1,653 1,542 1,506
----- ----- -----
----- ----- -----
Transportation 642 1,484 2,533
---- ----- -----
---- ----- -----
The industrial sale in the Cody division is to Celotex, a manufacturer of
gypsum wallboard, under a long-term contract expiring in 2000. Sales to the
customer are made pursuant to a special industrial customer tariff which
fluctuates with the cost of gas. In fiscal 1996 this customer accounted for
approximately 23% of the revenues of the division and approximately 4% of the
consolidated revenues of the Company. The division's sales to Celotex, whose
business is cyclical and dependent on the level of national housing starts,
increased by 7% over previous year's volumes. Celotex and its parent company
Jim Walters Corporation, have been operating under Chapter 11 bankruptcy since
October, 1990. The bankruptcy stems from potential asbestos claims.
Approximately $132,000 was due the Cody division prior to the bankruptcy filing.
During 1995 the division increased its allowance for uncollectible accounts to
$52,000. Celotex has filed a plan for reorganization. On July 12, 1996, a
joint Plan of Reorganization was filed by Celotex. The Bankruptcy Court has
also scheduled a confirmation hearing on the Plans to begin October 7, 1996. If
the Plan is confirmed, the distribution will equal between 94% and 95% of the
principal amount of the claim and distribution could be made prior to the end of
1996.
No assurance can be given that Celotex will continue to be a significant
customer of the Cody division.
The Cody division's primary transportation customer is Interenergy
Corporation, a regional aggregator, producer and marketer of gas and the
division's primary supplier of natural gas. The parameters of the
transportation tariff (currently between $.08 and $.30 per Mcf) are established
by the WPSC. Agreements between the Company and the customer are negotiated
periodically within the parameters.
7
<PAGE>
The division's revenues are generated under regulated tariffs that are
designed to recover a base cost of gas, administrative and operating expenses
and provide sufficient return to cover interest and profit. The division also
services customers under separate contract rates that were individually approved
by the WPSC. The division's tariffs include a purchased gas adjustment clause
which allows an adjustment of rates charged to customers in order to recover
changes in gas costs from base gas costs. A Wyoming statute permits the WPSC to
allow gas utilities to retain 10% of its cost of gas savings over a base period
level. In fiscal 1996 this gas cost incentive improved gross margin for the
division by approximately $139,000. The amount of gas cost incentive if any,
fluctuates with the market price of natural gas.
The Cody division's last general rate order was effective in 1989. The
Company does not contemplate filing an application for a general rate increase
for the division in the foreseeable future. The division's allowed return on
common equity on normalized earnings, calculated in accordance with the WPSC
order, has been 13.01% since the last general rate order.
The Cody division has a five-year agreement with Interenergy Corporation, a
regional aggregator, producer and marketer of gas, to supply natural gas to the
division. The contract has been renewed and renegotiated annually since 1989.
The contract requires Interenergy to deliver gas to various points on the
division's transmission system. Most of the gas purchased by the division is
transported on the division's own transportation system and the balance is
transported on Interenergy's transportation system. The division also has
several small supply contracts with small producers in the Cody transportation
network. (The division's service area is located in a gas producing region.)
In addition, the division has a backup contract to purchase natural gas from
Coastal Gas Marketing, but has never purchased gas under this contract.
The Cody division does not own storage facilities, however has contracted
with a gas supply company in fiscal 1996 for storage capacity of approximately
500,000 Mcf of natural gas to allow more flexibility in the timing of its gas
purchases. Historically, the division has been able to purchase gas from its
suppliers to meet peak demands.
During 1996, the Company was a party to gas financial swap agreements for
its regulated operations, including the Great Falls and Cody divisions (see
detail explanation under the Great Falls division).
BROKEN BOW DIVISION
The Broken Bow division is involved in the regulated distribution of
propane in the Payson, Arizona area. The division was formed following the
Company's acquisition of Broken Bow Gas's underground propane vapor distribution
system in January 1993. The acquisition was effective as of November 1, 1992.
The service area of the Broken Bow division includes approximately 575 square
miles and has a population base of approximately 30,000. As of June 30, 1996,
the Broken Bow division provided service to approximately 4,000 customers,
including approximately 3,500 residential customers and approximately 500
commercial customers.
8
<PAGE>
The Broken Bow division's operations are subject to regulation by the
Arizona Corporation Commission, which regulates rates, adequacy of service,
issuance of securities and other matters. The Broken Bow division's properties
include approximately 90 miles of underground distribution pipeline, propane
storage facilities and an office building leased from Petrogas, an affiliated
bulk propane distributor in the Payson area. The division purchases its propane
supplies from Petrogas under terms reviewed periodically by the Arizona
Corporation Commission.
In September, 1996, the Broken Bow division will file a general rate
increase with the Arizona Corporation Commission, which reflects increased
operating, maintenance and depreciation costs as well as a change in the cost of
capital. The Arizona Corporation Commission does not provide interim rate
relief and the earliest the rate case would be heard is one year from the
filing, in Fiscal 1998 or in September, 1997.
NON-UTILITY OPERATIONS
The Company conducts its non-utility operations through its three
wholly-owned subsidiaries: RMF, EWR (formerly Vesta) and Montana Sun. RMF
is engaged in the bulk sale of propane through its three divisions: Wyo L-P,
which serves Northwestern Wyoming and Cooke City, Montana, Petrogas, which
serves the Payson, Arizona area and Missouri River Propane, which sells bulk
propane in the Cascade area, immediately southwest of Great Falls, Montana. RMF
acquired assets and operations comprising its Wyo L-P divisions through
acquisitions of existing propane distribution businesses in August 1991 and May
1992. RMF acquired the assets and operations of its Petrogas division through
an acquisition of an existing propane distribution business in January 1993.
The aggregate purchase price for RMF's acquisitions were approximately $2.79
million. RMF had approximately 3,500 customers as of June 30, 1996, of which
the Wyo L-P division had approximately 2,500 customers and the Petrogas division
and Missouri River Propane had approximately 1,000 customers. RMF purchases
propane from various suppliers under short-term contracts and on the spot
market, and sells propane to residential and commercial customers, primarily for
use in space heating and cooking. Petrogas also supplies propane to the Broken
Bow division, while Missouri River Propane supplies propane to Cascade Gas, an
underground propane-vapor system serving the city of Cascade, Montana. For the
twelve months ended June 30, 1996, RMF's revenues (excluding approximately
$1,112,000 sales by Petrogas to the Broken Bow division and approximately
$101,000 sales by Missouri River Propane to Cascade Gas Company, an operating
district of the Great Falls division) were approximately $3,139,000, of which
approximately $2,404,000 was attributable to the Wyo L-P division, $650,000 was
attributable to the Petrogas division and the balance attributable to the
Missouri River Propane division.
9
<PAGE>
On June 28, 1996, Petrogas sold real property, consisting of land and
office and warehouse building, for $525,000 in cash resulting in a gain of
$236,000. The gain will be amortized ratably into income over the initial
ten-year lease term. Concurrent with the sale, the Company leased the property
back for a period of ten years at an annual rental of $51,975. Petrogas
sub-leases the property to the Broken Bow division.
On July 1, 1996, the Company entered into a take or pay propane contract
which expires June 30, 1997. The contract generally requires the Company to
purchase all propane quantities produced by a propane producer in Wyoming
(approximately 182,500 gallons per month) tied to the Billings, Montana spot
price.
Beginning on September 1, 1996, the Company is a party to two gas swap
agreements, for its nonregulated operations, to hedge 4,400 MMBTU of its daily
gas purchases. This contract represents approximately 92% of the supply
received for the Company's customers who have selected fixed price service. The
hedges were made to minimize the Company's exposure to price fluctuations and to
secure a known margin for the purchase and resale of gas in marketing
activities.
RMF faces competition from other propane distributors and suppliers of the
same fuels that compete with natural gas. Competition is based primarily on
price and there is a high degree of competition with other propane distributors
in the service areas.
EWR is involved in a small amount of oil and gas development and the
marketing of gas in Montana and Wyoming. EWR currently has varying working
interests in four oil and nine gas producing properties. Volumes of oil and gas
produced are not significant and did not result in significant net income in
fiscal 1996. The Company believes that the ordering of MPC to provide open
access on its gas transportation system in Montana presents an opportunity for
EWR to do business as a broker of natural gas using the MPC and other systems.
EWR presently has eight customers for those services, plus the State of Montana,
which includes several units of the State of Montana. EWR also purchased an
underground storage facility near Havre, Montana and leased additional storage
capacity from Montana Power Company, to allow more flexibility in the timing of
its gas purchases.
Montana Sun owns a commercial real estate property and a parcel of
undeveloped land in Great Falls, Montana. Montana Sun leases the commercial
property to a federal governmental agency. The Company is presently seeking to
sell the commercial property, but is otherwise inactive at this time.
Additional information with respect to the nonutility operation of the
company is set forth in notes 1, 6, 9 and 10 to the company's consolidated
financial statements.
10
<PAGE>
CAPITAL EXPENDITURES
The Company generally conducts a continuing construction program and has
completed expansion of its gas pipeline in areas around metropolitan Great Falls
as well as an underground propane-vapor system in the town of Cascade, Montana,
southwest of Great Falls. In the Cody division, expansion of the gas system in
that area was completed and in the Broken Bow division, construction is still
being completed, as a result of growth. The Company has completed construction
of a natural gas system in West Yellowstone, Montana started in May of 1994.
West Yellowstone Gas Company transports liquefied natural gas from southwestern
Wyoming for revaporization into the system; operations started in May of 1995.
The Great Falls division has also added an underground propane vapor system to
service customers in the Hardy area, 30 miles southwest of Great Falls, Montana.
In fiscal years 1996, 1995 and 1994, total capital expenditures were $4,590,608,
$4,705,868 and $2,626,221 respectively.
OTHER BUSINESS INFORMATION
The principal competition faced by the Company in its distribution of
natural gas is from other suppliers of competitive fuels, including electricity,
oil, propane and coal. The principal competition faced by the Company in its
distribution and sales of propane is from other propane distributors and
suppliers of the same energy sources that compete with natural gas and
electricity. Competition is based primarily on price and there is a high degree
of competition with other propane distributors in the service areas. The
principal considerations affecting a customer's selection of utility gas service
over competing energy sources include service, price, equipment costs,
reliability and ease of delivery. In addition, the type of equipment already
installed in businesses and residences significantly affects the customer's
choice of energy. However, where previously installed equipment is not an
issue, households in recent years have consistently preferred the installation
of gas heat. The Great Falls division's statistics indicate that approximately
95% of the houses and businesses in the service area use natural gas for space
heating fuel, approximately 91% use gas for water heating and approximately 99%
of the new homes built on or near the Great Falls division's service mains in
recent years have selected natural gas as their energy source. The Cody
division believes that approximately 95% of the houses and businesses in the
service area use natural gas for space heating fuel, approximately 90% use gas
for water heating, and approximately 99% of the new homes built on or near the
division's service mains in recent years have selected gas as their energy
source. The Broken Bow division believes that approximately 59% of the houses
and businesses adjacent to the division's distribution pipeline use the
division's propane for space heating or water heating.
11
<PAGE>
The Company had approximately 141 employees as of June 30, 1996, of which
125 were full-time. Twenty-six of the employees were with the Cody division, 22
employees were with RMF and 15 were with the Broken Bow division. The other 78
employees were with the Great Falls division, including Cascade Gas and West
Yellowstone Gas and at corporate headquarters. Approximately 13 full-time and 3
seasonal hourly employees in the Great Falls division are represented by two
collective bargaining units, the United Association of Journeymen and
Apprentices of the Plumbing and Pipefitting Industry of the USA and the
Construction and General Laborer's Union. The Company's two labor contracts
were renegotiated through April 30, 1997. The Company considers its
relationship with its employees to be satisfactory.
The Company has instituted an extensive customer-related energy
conservation program which encourages the efficient use of energy through
proper conservation measures. The Company provides inspection services to
homeowners and businesses and recommends appropriate conservation projects.
The Company also is concentrating on increasing load in existing residential
structures by the addition of gas appliances and conversion of homes with all
electric appliances. The Company has started a natural gas and propane
appliance showroom to market gas appliances in the Great Falls and Cody
divisions with future plans to market appliances in the propane offices of
the Company.
In addition, the Company encourages converting commercial food service
equipment to natural gas through a developed commercial equipment efficiency
program, both in Great Falls and Cody. The Company's field marketing personnel
are paid through an incentive plan geared to how much load they add to the
system.
12
<PAGE>
The Company has management and employee incentive programs tied to
bottom-line performance of the corporation. Officers and management, down to
first-line supervisors, participate in a pay-for-performance program. If the
Company meets a minimum earnings per share for the consolidated corporation for
25% and a minimum rank on the comparison of utilities published by Edward D.
Jones & Co. for an additional 25% funding and individual divisions meet their
allocated consolidated earnings per share for the other 50%, or in the case of
senior officers and corporate staff the corporation meets a minimum rank on the
comparison of utilities published by Edward D. Jones & Co. for the other 50%;
then the incentive pool is triggered; then whether the incentive is actually
earned depends on whether the individuals in the program achieve individual
specific performance objectives set at the beginning of the year. Incentives
vary from .8% on up of base wages. All officers and eligible employees
participate in the Company's Employee Stock Ownership Plan, in which payout is
based on pre-tax earnings of the Company and approved by the Board each year.
The Company has implemented a deferred compensation plan for directors,
which provides a deferral of directors' fees and incentive awards until such
time as the director ceases to be a director of the Company by retirement or
otherwise. The plan provides an incentive compensation based on the total fees
earned by each Director for that year multiplied by the highest percentage
incentive award for that year to any employee under the Company's management
incentive compensation plan, which In fiscal 1996 was 38.91%. Fees (either cash
or stock) and incentive compensation (stock only) can be received either
currently, as they are earned, or on a deferred basis. Elections to defer
receipts are subject to timing requirements. The deferred compensation plan for
directors is subject to approval of the shareholders at the Annual Shareholders
Meeting of Energy West, Incorporated November 21, 1996.
13
<PAGE>
PART I
ENVIRONMENTAL MATTERS
The Company owns property on which it operated a manufactured gas plant from
1909 to 1928. The site is currently used as a service center for the
Company where certain equipment and materials owned by the Company are
stored. The coal gasification process utilized in the plant resulted in the
production of certain by-products which have been classified by the federal
government and the State of Montana as hazardous to the environment. Several
years ago the Company initiated an assessment of the site to determine if
remediation of the site was required. That assessment resulted in a
submission of a report to the Montana Department of Environmental Quality
(MDEQ) in 1994. The Company has worked with the MDEQ since that time
obtain the data that would lead to a remediation acceptable to MDEQ. The
Company's environmental consultant advises the Company that it expects to
have a report, which will include remediation recommendations, filed with
the MDEQ by approximately mid-summer of 1997. MDEQ would then provide an
opportunity for public comment on the remediation plan. Once the comment
period has ended and due consideration of any comments occurs, the plan can
be finalized. Assuming acceptance of the plan, remediation could be underway
by the fall of 1998.
At June 30, 1996 the Company's costs incurred in evaluating this site have
totalled approximately $320,000. On May 30, 1995 the Company received an
order from the Montana Public Service Commission allowing for a surcharge on
customer bills in conntection with the costs associated with evalution of the
site. As of June 30, 1996 the surcharge had generated approximately $214,000.
The Commission's order calls for ongoing review by the Commission of the costs
incurred for this matter by periodic approvals of the costs incurred for this
matter.
14
<PAGE>
Item 3. - LEGAL PROCEEDINGS
From time to time the Company is involved in litigation relating to claims
arising from its operations in the normal course of business. Neither the
Company nor any of its subsidiaries is a party to any legal proceedings,
other than as described below, the adverse outcome of which individually or
in the aggregate, in the Company's view, would have a material adverse effect
on the Company's results of operations, financial position or liquidity.
On December 20, 1996, an action was filed against the Company by Randy Hynes
and Melissa Hynes in Federal District Court in Wyoming. The action arises
from a natural gas explosion involving a four-plex apartment building which
was damaged after natural gas from a gas line leaked into the building on
February 3, 1996 (which was not serviced by natural gas). The plaintiffs, who
were tenants in the building, sustained burns and other injuries as well as
property damage. The plaintiffs allege that the Company was negligent in
that in failed to maintain the natural gas line consistent with its duty to
do so and failed to properly odorize the gas which caused the explosion. The
action also asserts claims of product liability, willful and wanton conduct
and breach of warranty. The plaintiffs are seeking damages for personal
injury, pain and suffering, emotional distress, loss of earnings, medical
expenses, physical disability and property damage as well as punitive
damages. A dollar amount has not been set forth in the pleadings. The
Company denies responsibility for the damages and is vigorously contesting
the matter. The Company believes the gas leak resulted from damage caused to
the pipeline by an unknown third party. Discovery is proceeding at this
time. A trial has been scheduled for the fall of 1997.
A similar lawsuit involving the same explosion was filed by five other
plaintiffs Wyoming District court, Park County, Wyoming on April 3, 1997.
The allegations are substantially the same as the allegations in the Federal
District Court case, the Company has filed an answer denying liability and is
contesting the matter vigorously. Only limited discovery has occurred to
date. The plaintiffs, Heidl Woodward, at al., were also tenants in the
apartment building.
On October 24, 1996, an action was filed against the Company by Colten and Julie
White and their three children in Superior Court in Gila County, Arizona. The
action arises from an explosion that occurred on May 3, 1995 in the plaintiffs'
new home which was serviced by the Company's propane business. The explosion
occurred in the course of the plaintiffs' attempt to light their appliances for
the first time. The plaintiffs sustained injuries and property damage in the
explosion and the fire that occurred after the explosion. The claims are for
personal injury, mental suffering and anguish, medical expenses, lost income,
property damages and punitive damages. Plaintiffs' claims are based on a strict
liability claim that the propane was defective, breach of warranty in that the
propane was not fit for the purpose fro which it was intended and negligence for
failure to assure that the propane was properly odorized. The dollar value of
the claims has not been set forth in the pleadings of the plaintiffs.
The Company carries commercial general liability insurance for bodily injury and
property damages of $1,000,000 per occurrence and $5,000,000 in the aggregate,
and has an additional $30,000,000 umbrella policy for excess claims. The
Company's general liability carrier has assumed the defense of both Wyoming
actions and the Arizona action. The Company believes it has insurance coverage
for these matters. However, no assurance can be given that insurance will cover
these matters in the event that the company is held liable. In the event of an
adverse result for the Company, and if the Company's insurance does not cover
the matters or is not sufficient to cover the matters, such result could have a
material adverse effect on the Company's results of operations, financial
position and liquidity (depending on the amount of the judgment or judgments).
Item 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
15
<PAGE>
EXECUTIVE OFFICERS AND DIRECTORS OF THE COMPANY
The following table sets forth the names and ages of, and the positions and
offices within the Company presently held by, all directors and executive
officers of the Company:
Name Age Position
---- --- --------
Larry D. Geske 57 President and Director
since 1978; appointed Chief
Executive Officer in 1979
Edward J. Bernica 46 Vice-President and Chief
Financial Officer since
October, 1994
William J. Quast 57 Vice-President,
Treasurer, Controller and
Assistant Secretary since
1988, has been
Vice-President, Secretary
and Treasurer since 1987,
Assistant Vice-President,
Secretary Controller and
Assistant Treasurer since
1983, Secretary since 1982
and an Assistant Treasurer
of the Company since 1979
Tim A. Good 51 Vice-President and
Manager of the CGD since
1988; General Manager of
Cody Gas Company, a
Division of the Coastal
Corporation, for five
years prior to the
acquisition of CGD by the
Company
Sheila M. Rice 49 Vice-President and
Division Manager of the
Great Falls division
since April, 1993;
Vice-President Marketing
and Consumer Services
since 1988 and has been
Vice-President, Marketing
and Consumer Relations
since 1987; was Assistant
Vice-President for
Marketing and Customer
Relations 1983-1987
16
<PAGE>
Name Age Position
---- --- --------
John C. Allen 45 Vice-President of Human
Resources and Corporate
Counsel and Secretary
since 1992; Corporate
Counsel and Secretary
since 1988; Counsel and
Assistant Secretary from
November 1986 to 1988 and
Corporate Attorney to the
Company from March 1986
to November 1986
Lynn F. Hardin 48 Assistant Vice-President
of Gas Supply for the
Great Falls division
since June 1, 1993;
Assistant Vice-President
of Division Administration
since 1989; was manager of
Accounting and
Administration or Cody
Gas Company, a Division
of The Coastal
Corporation, for five
years prior to acquisition
of CGD by the Company
Earl L. Terwilliger, Jr. 48 Assistant Vice-President
for Market Development
for the Great Falls
division since 1990; has
been Assistant
Vice-President of
Customer Accounting and
Credit since 1988
Ian B. Davidson 64 Director since 1969
Timothy J. Moylan (deceased) 40 Director since 1991
Thomas N. McGowen, Jr. 70 Director since 1978
G. Montgomery Mitchell 68 Director since 1984
John Reichel 70 Director since 1984
David A. Flitner 63 Director since 1988
17
<PAGE>
Larry D. Geske has been employed by the Company since 1975 and became President
and Director of the Company in 1978. In 1979, Mr. Geske was appointed to the
position of Chief Executive Officer. In addition, Mr. Geske is a past Director
of First Interstate Bank of Great Falls (parent Company is First Interstate Bank
Corporation) and is a Director of the Great Falls Capital Corporation and the
Great Falls Dodgers Baseball Club. He is also a Director of the American Gas
Association's Board. Mr. Geske, prior to service with the Company, was a Field
Engineer "A" with NIGAS in Aurora, Illinois and a Senior Consultant with Stone
and Webster Management Consultants, Inc. in New York.
Mr. Edward J. Bernica has been employed by the Company since October 1994 and
became Vice-President and Chief Financial Officer in November, 1994. Mr.
Bernica, prior to service with the Company, was Director of Finance at U. S.
West in Englewood, Colorado and prior to that, was employed by ENRON Corporation
in Omaha, Nebraska as Director-Financial Analysis and Planning
William J. Quast has been Vice-President, Treasurer, Controller and Assistant
Secretary since 1988. He has served as Vice-President, Secretary and Treasurer
since 1987 and as Assistant Vice-President, Secretary, Controller and Assistant
Treasurer since 1983. He has served as Secretary of the Company since 1982 and
as Assistant Treasurer of the Company since 1979. Mr. Quast was re-elected in
1993 and served as Trustee for the Great Falls Public School system for most of
fiscal 1996. Mr. Quast, prior to service with the Company, was an accounting
manager for Wyton Oil and Gas Company, a multi-state propane distributor
headquartered in Denver, Colorado and was Treasurer for D. A. Davidson & Co. in
Great Falls, Montana.
Tim A. Good has been Vice-President and Division Manager of the CGD since 1988.
He served as General Manager of Cody Gas Company, a Division of The Coastal
Corporation for five years prior to the acquisition of the Cody Gas Company by
EWST in 1988.
Sheila M. Rice has been Vice-President and Division Manager of the Great Falls
division since April, 1993. Prior to that, she was Vice-President of Marketing
and Consumer Services since 1988. She served as Vice-President, Marketing and
Consumer Relations from 1987 to 1988, Assistant Vice-President for
Marketing/Customer Relations from 1983 to 1987 and as Consumer Service
Representative/Conservation Specialist for the Company from 1979 to 1983.
John C. Allen has been Vice-President of Human Resources and Corporate Counsel
since 1992 and previously served as Corporate Counsel and Secretary of the
Company since 1988. He served as Corporate Counsel and Assistant Secretary from
November 1986 until 1988 and as Corporate Attorney of the Company (March,
1986-November 1986). From 1979 to 1986, Mr. Allen was employed as a staff
attorney with the Montana Consumer Counsel.
18
<PAGE>
Lynn F. Hardin has been Assistant Vice-President of Gas Supply since June 1,
1993. Prior to that, he was Assistant Vice-President of Division Administration
since 1989. He was Manager of Accounting and Administration of Cody Gas
Company, a Division of The Coastal Corporation for five years prior to the
acquisition of the Cody Gas Company by the Company in 1988.
Earl L. Terwilliger, Jr. has been Assistant Vice-President for Market
Development since 1990. He served as Assistant Vice-President of Customer
Accounting and Credit from 1988 to 1990 and Manager of Customer Accounting and
Credit for the previous four years. Prior to that time, Mr. Terwilliger was
office manager.
Ian B. Davidson has been a Director of the Company since 1969. Mr. Davidson has
been Chairman and Chief Executive Officer of D. A. Davidson & Co. since October,
1970. Mr. Davidson also is a Director of Plum Creek Management Company, a
member of the 1996 Nominating Committee for District 3 of the National
Association of Securities Dealers and a member of the C. M. Russell Museum
Advisory Board.
Timothy J. Moylan (deceased) was a Director of the Company since 1991. On
August 1, 1996, Mr. Moylan became deceased, due to a drowning accident, while
vacationing in Mexico. Mr. Moylan was President of the BelRad Group, South
Pacific, Inc., and Natural Resources Group, Inc. Mr. Dean South, a former
Vice-President of Western Operation of Heritage Propane Corporation, was
appointed to fill the unexpired term of Mr. Moylan on August 29, 1996.
Thomas N. McGowen, Jr. has been a Director of the Company since 1978. Mr.
McGowen is past President and Chairman of the Board of Pabst Brewing Company.
Mr. McGowen is a Director of Federal Signal Corporation and Ribi Immunochem
Corporation.
G. Montgomery Mitchell has been a Director of the Company since 1984. Mr.
Mitchell was a Senior Vice-President and Director of Stone and Webster
Management Consultants, Inc. until his retirement in 1993. Mr. Mitchell was
responsible for Stone and Webster's services provided to natural gas utility and
pipeline companies and managed their Houston, Texas office. He is presently
retained by Stone and Webster for advisory and senior consulting services. Mr.
Mitchell also is a Director of Mobile Gas Service Corporation (Alabama).
John Reichel has been a Director of the Company since 1984. Prior to his
retirement he was Managing Director of the Montana Region of First Bank System,
Inc. From 1983 to 1985, Mr. Reichel was Managing Director of the Western
Montana Region of First Bank System, Inc. and from 1975 to 1983 served as
President of First Bank Great Falls. Mr. Reichel retired from First Bank
System, Inc. in 1987. Mr. Reichel has elected not to run for re-election as a
Director in November, 1996.
David A. Flitner has been a Director of the Company since 1988. Mr. Flitner is
owner of the Flitner Ranch and Dave Flitner Packing and Outfitting (Wyoming
Companies) and Hideout Adventures, Inc., a recreational enterprise.
19
<PAGE>
PART II
Item 5. - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Common Stock Prices and Dividend Comparison - Fiscal 1995 and Shares of the
Company's Class A Common Stock are traded in the over-the-counter market on the
NASDAQ (National Association of Securities Dealers Automated Quotation)
system-symbol: EWST. The over-the-counter market quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission, and may
not necessarily represent the actual transactions. Prices are shown as a result
of a 2-for-1 stock split, effective June 24, 1994.
Price Range - Fiscal 1996 High Low
- ------------------------- ---- ---
First Quarter 8 1/4 7 3/4
Second Quarter 9 1/2 7 3/4
Third Quarter 9 3/4 8 3/4
Fourth Quarter 9 3/8 8
Year 9 3/8 7 3/4
Price Range - Fiscal 1995 High Low
- ------------------------- ---- ---
First Quarter 9 1/4 8 1/2
Second Quarter 9 1/4 8
Third Quarter 8 1/2 7 1/2
Fourth Quarter 8 1/4 7 1/2
Year 9 1/4 7 1/2
20
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF CONSOLIDATED OPERATIONS
RESULTS OF CONSOLIDATED OPERATIONS
Fiscal 1996 Compared to Fiscal 1995
Net Income
The Company's net income for fiscal 1996 was $1,267,000 compared to
$1,513,000 in fiscal 1995, a decrease of $246,000 or 16%. The following summary
describes the components of the change between years.
Revenue
Operating revenues increased approximately 3%. Regulated revenues
decreased 3% compared to the prior year due to a rate decrease in the Great
Falls division, effective July 1, 1995. This decrease in rates was partially
offset by colder weather this year than one year ago in the Great Falls and Cody
utility divisions, increased transport revenues in the Cody division and the
recognition of West Yellowstone revenues in this start-up operation.
Nonregulated revenues increased approximately 6%, from increased bulk propane
sales in the areas served by Wyo L-P gas in Wyoming, Missouri River Propane in
Montana and Petrogas in Arizona. Both Missouri River Propane and Petrogas sell
propane to related regulated utilities Cascade Gas Company and Broken Bow Gas
Company, respectively. Operating revenues in Energy West Resources decreased by
20%; however, gas trading revenues increased by 34% due to customer growth and
an increase in volumes.
Gross Margin
Gross margins (operating revenues less cost of gas purchased and cost of
gas trading) increased approximately $664,000 in 1996. Regulatory gross margins
increased approximately $740,000 because of higher margins from natural gas
sales in the Great Falls and Cody divisions. Margins were tempered by the
effects of a rate reduction in the Great Falls division of approximately
$260,000 annually, ordered by the Montana Public Service Commission, which went
into effect on July 1, 1995. In addition, margins of West Yellowstone, a new
operation in Montana, are reflected in this fiscal year. Nonregulated gross
margins decreased approximately $84,000, primarily due to smaller margins in
Energy West Resources' gas marketing operations.
Regulated Revenues
Regulated revenues decreased from $24,363,000 in fiscal 1995 to $23,672,000
in fiscal 1996 or 3%, primarily due to a decrease in the revenues of the Great
Falls division of approximately $1,550,000, due to a $260,000 rate decrease
ordered by the Montana Public Service Commission, a reduction in gas costs
reducing rates by approximately $290,000 and the shift of Malmstrom Air Force
Base revenues to a transportation customer, which further reduced revenues by
approximately $1,000,000. This was offset by the inclusion of West Yellowstone
revenues of approximately $300,000 and increased Cody division revenues of
approximately $330,000, due to increased volumes sold due to customer growth,
colder weather, higher transportation revenues and increases in Propane sales in
the Broken Bow and Cascade divisions, due to customer growth. Gas purchased
decreased from $15,077,500 in fiscal 1995 to $13,646,200 in fiscal 1996 or 10%,
primarily due to a reduction in natural gas costs.
21
<PAGE>
Regulated Operating Income
Regulated operating income increased approximately $65,000 in fiscal 1996
or 3%, primarily due to increased gross margins of approximately $740,000, due
to customer growth, colder weather, higher transportation sales and the
inclusion of West Yellowstone margins. This was offset by increases in
distribution, general, administrative and general expenses of approximately
$490,000, due to operations growth and inflation, increases in depreciation and
amortization expenses of approximately $153,000, due to additional utility plant
and increases in taxes other than income of approximately $29,000, due to higher
property taxes in all three states served by Energy West.
Nonregulated Operating Income
Nonregulated operating income decreased approximately $190,000 in fiscal
1996 or 20%, due to smaller margins in Energy West Resources' gas marketing
operations of approximately $151,000 and higher operating and maintenance
expenses of approximately $156,000 due to inflation and growth of nonregulated
operations, offset partially by lower depreciation and amortization costs.
Other Expenses
Operating expenses (excluding cost of gas sales) increased approximately
$790,000 or 9% in 1996. The primary reason for this increase was due to
normal inflationary trends and lower capitalized payroll since the completion of
the West Yellowstone system, as well as the addition of West Yellowstone's
utility operating expenses this fiscal year.
As a result of the above changes, operating income decreased 4% from
$3,092,000 in 1995 to $2,965,000 in 1996. Total interest expense for the
Company was $1,243,000 for fiscal 1996, up from $939,000 in fiscal 1995, due to
higher short-term borrowing used in expansion of the Company's utility systems.
Other additions to or deductions from operating income in determining net
income remained comparable between the two years.
Fiscal 1995 Compared to Fiscal 1994
Net Income
The Company's net income for fiscal 1995 was $1,513,000 compared to
$1,351,000 in fiscal 1994, an increase of $162,000 or 12% over 1994. However
fiscal 1994 net income included an accounting change of $92,000 due to the
cumulative effect on prior years of the change in accounting for income taxes.
Before the effect of the accounting change, net income increased $254,000 or
20% in 1995 over 1994. The notes to the financial statements further describe
this accounting change. The following summary describes the components of the
change between years.
Revenue
Operating revenues increased approximately 4%, primarily due to gas trading
revenues; regulated utility revenues declined slightly as compared to the prior
year, representing 76% of total revenues in 1995 versus 80% in fiscal 1994.
Nonregulated revenues increased slightly due to growth in the nonregulated
Arizona customer base, served by the Petrogas division.
Gross Margin
Gross margins (operating revenues less cost of gas purchased and cost of
gas trading) increased approximately $994,000 in 1995. Regulatory gross
margins increased approximately $530,000, due to the Great Falls and Broken
Bow divisions. The Great Falls division realized higher margins due to a
timing difference in purchased gas costs. The Broken Bow gross margin
increased due to customer growth in the Payson, Arizona area. The Cody gross
margins remained relatively unchanged, even though sales were down.
Nonregulated gross margins increased approximately $464,000, primarily due to
additional gas trading activity.
22
<PAGE>
Regulated Revenues
Regulated revenues decreased minimally from approximately $24,421,000 in
fiscal 1994 to $24,363,000 in fiscal 1995, primarily due to a decrease in the
revenues of the Great Falls division of approximately $56,000, due primarily
to 1% warmer weather in fiscal 1995, reducing sales of natural gas. Gas
purchases decreased from approximately $15,667,000 in fiscal 1994 to
$15,077,000 in fiscal 1995 or 4%, primarily due to a timing difference in
purchased gas costs booked in the Great Falls division.
Regulated Operating Income
Regulated operating income increased approximately $100,000 in fiscal
1995 or 5%, primarily due to increased gross margins of approximately
$532,000, due to customer growth and higher margins in the Great Falls
division due to a timing difference in purchased gas costs booked. This was
offset by increases in distribution, general and administrative and general
expenses of approximately $296,000, due to operations growth and inflation,
increases in depreciation and amortization expenses of approximately $72,000,
due to additional utility plant and increases in taxes other than income of
approximately $64,000, due to higher property taxes in all three states
served by Energy West.
Nonregulated Operating Income
Nonregulated operating income increased approximately $387,000 in fiscal
1995 from fiscal 1994 or 70%, due primarily to increased margins in Energy
West Resources' gas marketing operations of approximately $440,000, partially
offset by higher operating and maintenance expenses of approximately $48,000
due to inflation and growth of nonregulated operations and higher depreciation
and amortization costs.
Other Expenses
Operating expenses (excluding cost of gas sales) increased approximately
$538,000 in 1995. The primary reason for this increase was increased
depreciation and amortization of approximately $95,000 reflecting the addition
or acquisition of property, plant and equipment, while the remaining increase
was due to inflation and additional personnel required in the growing
operations of the Company.
As a result of the above changes in gross margins and offsetting increases
in operation expenses, depreciation and amortization, operating income
increased 17% from $2,636,000 in 1994 to $3,092,000 in 1995. Total interest
expense for the Company was approximately $939,000 for fiscal 1995, down
slightly from $962,000 in fiscal 1994. Other additions to or deductions from
operating income in determining net income remained comparable between the two
years.
23
<PAGE>
OPERATING RESULTS OF THE COMPANY'S UTILITY OPERATIONS
Years Ended June 30
-------------------
1996 1995 1994
---- ---- ----
(IN THOUSANDS)
Operating revenues:
Great Falls division $15,737 $16,812 $16,900
Cody division 5,940 5,609 5,813
Broken Bow division 1,995 1,942 1,708
------- ------- -------
Total operating revenues 23,672 24,363 24,421
Gas purchased 13,646 15,077 15,667
------- ------- -------
Gross Margin 10,026 9,286 8,754
Operating expenses 7,810 7,136 6,673
Interest charges [SEE NOTE BELOW] 1,145 908 895
Other utility (income) expense-net (118) (126) (106)
Federal and state income taxes 385 454 410
------- ------- -------
Net utility income $ 804 $ 914 $ 882
------- ------- -------
------- ------- -------
[INTEREST CHARGES FOR UTILITY AND NON-UTILITY OPERATIONS DO NOT EQUAL TOTAL
INTEREST CHARGES FOR THE COMPANY, DUE TO ELIMINATING ENTRIES BETWEEN ENTITIES.]
24
<PAGE>
Fiscal 1996 Compared to Fiscal 1995
Revenues and Gross Margins
Utility operating revenues in fiscal 1996 were approximately $23,672,000
compared to $24,363,000 in fiscal 1995. Gross margin, which is defined as
operating revenues less gas purchased, was approximately $10,026,000 for
fiscal 1996 compared to approximately $9,286,000 in fiscal 1995.
Overall revenues decreased from fiscal 1995 due primarily to a $250,000
rate decrease in the Great Falls division in Montana, effective July 1, 1995. In
addition, Malmstrom AFB became a transport customer of the Great Falls
division in fiscal 1996, further reducing operating revenues. Energy West
Resources sold natural gas to Malmstrom AFB in fiscal 1996. This decrease in
rates and the Malmstrom change to transport was tempered by colder weather this
year than one year ago in all utility divisions and recognition of West
Yellowstone revenues this year in this start-up operation. While utility
revenues decreased from fiscal 1995, margins increased approximately 8% for
fiscal 1996, primarily due to higher margins from natural gas sales in the
Great Falls and Cody divisions and propane sales in the Broken Bow division
because of customer growth and colder weather than one year ago in the Great
Falls and Cody divisions and the addition of West Yellowstone's margins in
Fiscal 1996, in this new start-up operation. The winter heating season in the
Great Falls division in fiscal 1996 was approximately 10% colder than fiscal
1995 and 8% colder than "normal" (i.e., the average temperature during the
preceding 30 years). The winter heating season in the Cody division was
approximately 5% colder than fiscal 1995, and very
25
<PAGE>
Fiscal 1995 Compared to Fiscal 1994
Revenues and Gross Margins
Utility operating revenues in fiscal 1995 were $24,363,000 compared to
$24,421,000 in fiscal 1994. Gross margin, which is defined as operating
revenues less gas purchased, was $9,286,000 for fiscal 1995 compared to
$8,754,000 in fiscal 1994.
Although utility revenues remained unchanged from fiscal 1994, margins
increased 6% for fiscal 1995, primarily due to higher margins experienced by
the Great Falls division when compared to margins experienced in fiscal 1994
as a result of a timing difference in purchased gas costs booked, as well
as higher margins in the Broken Bow division as a result of growth in
the Payson, Arizona area. The winter heating season in the Great Falls division
in fiscal 1995 was approximately 1% warmer than fiscal 1994 and 1% warmer than
"normal" (i.e., the average temperature during the preceding 30 years). The
winter heating season in the Cody division was approximately 1% warmer than
fiscal 1994 and 5% warmer than normal. The Broken Bow division experienced a
14% increase in revenues and a 24% increase in margins, as a result of growth
in the Payson, Arizona area.
Operating Expenses
Utility operating expenses, exclusive of the cost of gas purchased and
federal and state income taxes, were $7,136,000 for fiscal 1995, as compared
to $6,673,000 for fiscal 1994. The 7% increase in the period is due to
increased depreciation and amortization, reflecting the addition or
acquisition of property, plant and equipment, while the remaining increase
was due to inflation and additional personnel required in the growing
utility operations of the Company.
Interest Charges
Interest charges allocable to the Company's utility divisions were $908,000
in fiscal 1995, as compared to $895,000 in fiscal 1994. Short-term interest
charges increased as a result of higher interest rates compared to a year ago,
however this was offset by lower interest payments on long-term debt, due to
repayment of principle.
Income Taxes
State and federal income taxes of the Company's utility divisions was
$454,000 in fiscal 1995, as compared to $410,000 in fiscal 1994. The 11%
increase was primarily attributable to a $76,000 increase in pre-tax income of
the utility divisions.
26
<PAGE>
OPERATING RESULTS OF EACH OF THE COMPANY'S NON-UTILITY SUBSIDIARIES
Years Ended June 30
-------------------
1996 1995 1994
---- ---- ----
(IN THOUSANDS)
ROCKY MOUNTAIN FUELS (RMF)
Operating revenues $4,352 $3,902 $3,759
Cost of propane 2,540 2,171 2,050
Operating expenses 1,548 1,484 1,399
Other (income) expense-net (64) (33) (67)
Interest expense [SEE NOTE BELOW] 112 87 113
Federal and state income taxes 85 71 85
Cumulative effect on prior years
of change in accounting for
income taxes 4
------- ------- -------
Net income $ 131 $ 122 $ 183
------- ------- -------
------- ------- -------
ENERGY WEST RESOURCES (Formerly Vesta-Transenergy)
Operating revenues $ 61 $ 76 $ 77
Gas trading revenue 4,348 3,239 1,965
Operating expenses 201 172 170
Cost of gas trading 3,773 2,500 1,667
Other (income) expense-net (20) (43) (44)
Federal and state income taxes 169 259 94
Cumulative effect on prior years
of change in accounting for
income taxes 42
------- ------- -------
Net income $ 286 $ 427 $ 197
------- ------- -------
------- ------- -------
MONTANA SUN
Operating revenues $ 97 $ 99 $ 100
Operating expenses 48 47 61
Other (income) expense-net (24) (16) (24)
Interest expense [SEE NOTE BELOW] 0 (14) (4)
Federal and state income taxes 27 31 26
Cumulative effect on prior years
of change in accounting for
income taxes 46
------ ---- ----
Net income $ 46 $ 51 $ 87
------ ---- ----
------ ---- ----
Total Non-Utility Net Income $ 463 $600 $467
------ ---- ----
------ ---- ----
[INTEREST CHARGES FOR UTILITY AND NON-UTILITY OPERATIONS DO NOT EQUAL TOTAL
INTEREST CHARGES FOR THE COMPANY, DUE TO ELIMINATING ENTRIES BETWEEN ENTITIES.]
27
<PAGE>
Non-Utility Operations
Rocky Mountain Fuels
For the fiscal year ended June 30, 1996, Rocky Mountain Fuels (RMF)
generated net income of approximately $131,000 compared to $122,000 for fiscal
1995. Earnings improved by approximately $76,000, due to decreasing depreciation
expense in all of RMF's operating divisions as a result of changing the
estimated useful lives for certain propane properties from twelve and fifteen
years to twenty years, to better reflect its useful lives. Missouri River
Propane and Big Horn Answering Service had a loss for the fiscal year.
For the fiscal year ended June 30, 1995, RMF generated net income of
$122,000 compared to $183,000 for fiscal 1994. Approximately $68,000 of RMF's
net income for fiscal 1995 was attributable to the Wyo L-P division and
approximately $63,000 was attributable to the Petrogas division. RMF income
decreased because of higher overheads, due to reallocation from the utility
operation and normal inflationary trends along with higher depreciation.
Missouri River Propane and Big Horn Answering Service account for the balance,
which had a net loss for fiscal 1995.
Energy West Resources (Formerly Vesta - Transenergy)
For fiscal 1996, Energy West Resources' (EWR) net income was approximately
$285,000 compared to $427,000 for fiscal 1995, primarily due to lower margins
experienced by its gas marketing operations. Although margins were lower than
1995, EWR's average margin is outstanding and sales volumes have increased 34%.
EWR expenses were also higher than 1995 because of power marketing
investigations, salary and expenses for an EWR specific employee, increased
direct charges and overheads allocated to EWR from EWST management in connection
with efforts to enhance EWR operations.
For fiscal 1995, EWR net income was $427,000 compared to $198,000 for
fiscal 1994, primarily due to increased gas marketing margins. In fiscal 1995,
Energy West Resources' gross marketing margin in gas trading activities
increased approximately 148% to approximately $738,000 from $298,000 in fiscal
1994. This increase in margins was partially offset by the effect of a $42,000
increase to net income in fiscal 1994 as a result from adoption of SFAS No.109.
Montana Sun
For fiscal 1996, Montana Sun's net income was approximately $47,000 as
compared to $51,000 for fiscal 1995.
For fiscal 1995, Montana Sun's net income was $51,000 as compared to
$87,000 for fiscal 1994 which had the effect of an accounting change, from
adoption of SFAS No. 109.
28
<PAGE>
Liquidity and Capital Resources
The Company's operating capital needs, as well as dividend payments and
capital expenditures, are generally funded through cash flow from operating
activities, short-term borrowing and liquidation of temporary cash investments.
Historically, to the extent cash flow has not been sufficient to fund capital
expenditures, the Company has borrowed short-term or issued equity securities to
fund capital expansion projects or reduce short-term borrowing.
The Company's short-term borrowing requirements vary according to the
seasonal nature of its sales and expense activity. The Company has greater need
for short-term borrowing during periods when internally generated funds are not
sufficient to cover all capital and operating requirements, including costs of
gas purchases and capital expenditures. In general, the Company's short-term
borrowing needs for purchases of gas inventory and capital expenditures are
greatest during the summer months and the Company's short-term borrowing needs
for financing of customer accounts receivable are greatest during the winter
months. In addition during the past two years, the Company has used short-term
borrowing to finance the acquisition of propane operations and LNG for West
Yellowstone Gas. Short-term borrowing utilized for construction or property
acquisitions generally has been on an interim basis and converted to long-term
debt and equity when it becomes economical and feasible to do so.
At June 30, 1996, the Company had a $11,000,000 bank line of credit, of
which $7,175,000 had been borrowed under the credit agreement. The short-term
borrowings bear interest at the rate of 8% per annum as of June 30, 1996.
The Company generated net cash from operating activities for fiscal 1996 of
approximately $606,000 as compared to $3,605,000 for fiscal 1995. This change
from fiscal 1995 is attributed to a $246,000 decrease in net income, a reduction
in accounts payable of approximately $1,000,000, an increase in recoverable
costs of gas purchases and prepaid gas of approximately $1,627,000 and other
miscellaneous working capital changes of approximately $1,170,000 offset by
approximately $491,000 increase in deferred income taxes, an increase in gas
inventory of approximately $470,000 and an increase in accounts receivable of
approximately $80,000. Cash used in investing activities was approximately
$3,989,000 for fiscal 1996, as compared to $4,274,000 for fiscal 1995. Capital
expenditures for fiscal 1996 was approximately $4,591,000, primarily due to
system expansion in Payson, Arizona and all other areas and continued expansion
of the West Yellowstone system. Partially offsetting these capital expenditures
were proceeds received from a sale lease back in Payson, Arizona of
approximately $525,000, proceeds from the sale of property, plant and equipment
of $27,000 and proceeds from contributions in aid of construction of
approximately $63,000.
29
<PAGE>
The Company generated net cash from operating activities for fiscal 1995 of
approximately $3,605,000 as compared to $2,837,000 for fiscal 1994. This change
from fiscal 1994 is attributed to a $162,000 increase in net income, $249,000
increase in depreciation and amortization, $92,000 cumulative effect of an
accounting change and other miscellaneous working capital changes, offset by
approximately $302,000 decrease in deferred income taxes. Cash used in
investing activities was approximately $4,274,000 for fiscal 1995, as compared
to $1,817,000 for fiscal 1994. Capital expenditures for fiscal 1995 was
approximately $4,700,000, primarily due to system expansion in all areas and
construction of the West Yellowstone system. Partially offsetting these capital
expenditures were proceeds received from a restricted deposit from the Series
1992A bonds deposited in a construction fund, drawn for specific capital
projects in the Great Falls division of approximately $205,000, proceeds from
the sale of property, plant and equipment of $80,000, proceeds from collection
of long-term notes receivable of $79,000 and proceeds from contributions in aid
of construction of $81,000.
Capital expenditures of the Company are primarily for expansion and
improvement of its gas utility properties. To a lesser extent, funds are also
expended to meet the equipment needs of the Company's operating subsidiaries and
to meet the Company's administrative needs. The Company's capital expenditures
were approximately $4.6 million in fiscal 1996 and approximately $4.7 million
for fiscal 1995 and $2.6 million in fiscal 1994, including RMF's expenditures
for the acquisition of propane operations. During fiscal 1996, approximately
$1.3 million has been expended for the construction of the natural gas system in
West Yellowstone, Montana and approximately $1 million had been expended for gas
system expansion projects for new subdivisions in the Broken Bow division's
service area and approximately $350,000 for additions to the office and the east
storage site of Petrogas in Payson, Arizona. Capital expenditures are expected
to be approximately $3.6 million in fiscal 1997, including approximately $1.4
million for continued expansion for the Broken Bow division, with the balance
for maintenance and other special system expansion projects in the Great Falls
and Cody divisions. The Company continues to evaluate opportunities to expand
its existing businesses from time to time.
The major factors which will affect the Company's future results include
general and regional economic conditions, weather, customer retention and
growth, the ability to meet competitive pressures and to contain costs, changes
in the competitive environment in the Company's non-regulated segment, the
adequacy and timeliness of rate relief, cost recovery and necessary regulatory
approvals, and continued access to capital markets.
The regulatory structure which has historically embraced the gas industry
has been in the process of transition. Legislative and regulatory initiatives,
at both the federal and state levels, are designed to promote competition and
will continue to impose additional pressure on the Company's ability to retain
customers and to maintain current rate levels. The changes in the gas industry
have allowed commercial and industrial customers to negotiate their own gas
purchases directly with producers or brokers. To date, the changes in the gas
industry have not had a negative impact on earnings or cash flow of the
Company's regulated segment.
30
<PAGE>
The accounts and rates of the Company's regulated segment are subject, in
certain respects, to the requirements of the Montana, Wyoming and Arizona public
utilities commissions. As a result, the Company's regulated segment maintains
its accounts in accordance with the requirements of those regulators. The
application of generally accepted accounting principles by the Company's
regulated segments differ in certain respects from application by the
non-regulated segment and other non-regulated businesses. The regulated segment
prepares its financial statements in accordance with Statement of Accounting
Standards No. 71 --"Accounting for the Effects of Certain Types of Regulation"
(SFAS 71). In general, SFAS 71 recognizes that accounting for rate-regulated
enterprises should reflect the relationship of costs and revenues. As a result,
a regulated utility may defer recognition of cost (a regulatory asset) or
recognize an obligation (a regulatory liability) if it is probable that, through
the rate-making process, there will be a corresponding increase or decrease in
revenues. Accordingly, the Company has deferred certain costs, which will be
amortized over various periods of time. The costs deferred are further
described in the Company's financial statements and the notes thereto. To the
extent that collection of such costs or payment of liabilities is no longer
probable as a result of changes in regulation and/or the Company's competitive
position, the associated regulatory asset or liability will be reversed with a
charge or credit to income. If the Company's regulated segment were to
discontinue the application of SFAS 71, the accounting impact would be an
extraordinary, non-cash charge to operations that could be material to the
financial position and results of operation of the Company. However, the
Company is unaware of any circumstances or events in the foreseeable future that
would cause it to discontinue the application of SFAS 71.
Information on the sources and uses of cash for the Company is included in
the Consolidated Statements of Cash Flows on page 22 of the Company's 1996
Annual Report.
SEC Ratio of Earnings to Fixed Charges
For the twelve months ended June 30, 1996, 1995 and 1994, the Company's
ratio of earnings to fixed charges was 2.42, 2.93 and 2.64 times, respectively.
Fixed charges include interest related to long-term debt, short-term borrowing,
certain lease obligations and other current liabilities.
Inflation
Capital intensive businesses, such as the Company's natural gas operations,
are significantly affected by long-term inflation. Neither depreciation charges
against earnings nor the rate-making process reflect the replacement cost of
utility plant. However, based on past practices of regulators, these businesses
will be allowed to recover and earn on the actual cost of their investment in
the replacement or upgrade of plant. Although prices for natural gas may
fluctuate, earnings are not impacted because gas cost tracking procedures
semi-annually balance gas costs collected from customers with the costs of
supplying natural gas. The Company believes that the effects of inflation, at
currently anticipated levels, will not significantly affect results of
operations.
31
<PAGE>
Accounting for Income Taxes
In February 1992 the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards "SFAS") No. 109, "Accounting for
Income Taxes." SFAS No.109 retains the current requirement to record deferred
income taxes for temporary differences that are reported in different years for
financial reporting and tax purposes; however, the methodology for calculating
and recording deferred income taxes has changed. Under the liability method
adopted by SFAS No. 109, deferred tax liabilities or assets are computed using
the tax rate that will be in effect when the temporary differences reverse.
However, the changes in tax rates applied to accumulated deferred income taxes
may not be immediately recognized in operating results by regulated companies
because of rate-making treatment and provisions in the Tax Reform Act of 1986.
Effective July 1, 1993, the Company changed its method of accounting for income
taxes from the deferred method to the liability method required by SFAS No. 109.
As permitted under the new rules, prior year's financial statements have not
been restated. For regulated operations, the cumulative effect of this change
in accounting method on July 1, 1993 resulted in the recording of a regulatory
asset of approximately $601,000 and a regulatory liability of approximately
$205,000. For nonregulated operations, the cumulative effect of this change in
accounting method on July 1, 1993 was to increase net income by approximately
$92,000.
Postretirement Benefits Other Than Pensions
The Company adopted, effective July 1, 1993, SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions." This standard
requires that the projected future cost of providing postretirement benefits be
recognized as an expense as employees render service rather than when paid.
Effective for fiscal year 1994, the Company modified its plan for these benefits
and has elected to pay eligible retirees (post 65 years of age) $125 per month
in lieu of contracting for health and life insurance benefits. The amount of
this payment is fixed and will not increase with medical trends or inflation.
The Company made a change to the plan, effective July 1, 1996 allowing pre-65
retirees and their spouses to remain on the same medical plan as active
employees by contributing 125% of the current COBRA rate to retain this
coverage. The increased liability from this change is $269,200. The Company
expects regulators in Montana and Wyoming to allow recovery of the additional
costs associated with the plan change. The adoption of SFAS No. 106 did not have
a significant effect upon results of operations. See Note 4 to the Consolidated
Financial Statement for additional information.
32
<PAGE>
Environmental Issues
The Company owns property on which it operated a manufactured gas plant
from 1909 to 1928. The site is currently used as a service center for the
Company where certain equipment and materials owned by the Company are
stored. The coal gasification process utilized in the plant resulted in the
production of certain by-products which have been classified by the federal
government and the State of Montana as hazardous to the environment. Several
years ago the Company initiated an assessment of the site to determine if
remediation of the site was required. That assessment resulted in a
submission of a report to the Montana Department of Environmental Quality
(MDEQ) in 1994. The Company has worked with the MDEQ since that time obtain
the data that would lead to a remediation acceptable to MDEQ. The Company's
environmental consultant advises the Company that it expects to have a
report, which will include remediation recommendations, filed with the MDEQ
by approximately mid-summer of 1997. MDEQ would then provide an opportunity
for public comment on the remediation plan. Once the comment period has
ended and due consideration of any comments occurs, the plan can be
finalized. Assuming acceptance of the plan, remediation could be underway by
the fall of 1998.
At June 30, 1996 the Company's costs incurred in evaluating this site
have totalled approximately $320,000. On May 30, 1995 the Company received
an order from the Montana Public Service Commission allowing for a surcharge
on customer bills in conntection with the costs associated with evalution of
the site. As of June 30, 1996 the surcharge had generated approximately
$214,000. The Commission's order calls for ongoing review by the Commission
of the costs incurred for this matter by periodic approvals of the costs
incurred for this matter.
Subsequent Event
In August, 1995, the Company announced that it had signed a letter of
intent and a definitive agreement to purchase the assets of Jackson Vangas in
Jackson, Wyoming, for approximately $1,000,000, from Quantum Chemical (Suburban
Propane Division) of Whippany, New Jersey. Jackson Vangas operates a propane
vapor system which serves approximately 500 customers in and around Jackson,
Wyoming, a city of approximately 5,000 people. In December, 1995, the Wyoming
Public Service Commission granted a natural gas franchise to a competing
utility, which now serves electricity in the Jackson Hole area. Since the
definitive agreement is contingent upon the approval of the Wyoming Public
Service Commission to grant ENERGY WEST a natural gas franchise to serve the
Jackson Hole area, that agreement has now become nullified. The costs of the
Jackson project were written off through March 31, 1996 of approximately
$113,000, which reduced earnings by approximately $.03 per share.
In June, 1996, the Great Falls division filed a rate adjustment application
with the Montana Public Service Commission of approximately $386,000, to recover
increased gas supply costs, as part of an annual filing made by the Great Falls
division to balance gas supply costs against gas revenues. This filing does not
increase the Great Falls division's margins.
In July, 1996, the Great Falls division file a general rate increase with
the Montana Public Service Commission for approximately $963,000, which reflects
increased operating, maintenance and depreciation costs as well as a change in
the cost of capital. The Great Falls division has applied for interim rate
relief of approximately $530,000 and the division expects interim relief no
later than November, 1996. If the Montana Public Service Commission approves
the Great Falls division's rate filing, the impact of rate relief would increase
earnings per share on an annual basis of approximately $.26 per share and would
increase fiscal 1997 earnings by approximately $.07 per share. The Rate Hearing
will be held in late fiscal 1997.
33
<PAGE>
Item 8. - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Auditors
The Board of Directors
Energy West Incorporated
We have audited the accompanying consolidated balance sheets of Energy West
Incorporated and Subsidiaries as of June 30, 1996 and 1995, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended June 30, 1996. 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 generally accepted auditing
standards. 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 Energy West
Incorporated and subsidiaries at June 30, 1996 and 1995, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended June 30, 1996, in conformity with generally accepted accounting
principles.
As described in Notes 4 and 5 to the consolidated financial statements, the
Company changed its method of accounting for postretirement benefits other than
pensions and for income taxes, respectively, in 1994.
As described in Note 1 to the consolidated financial statements, the Company has
restated its fiscal 1996 consolidated financial statements to reflect the
deferral of the gain on sale-leaseback of assets totalling $140,000 net of tax.
\s\ ERNST & YOUNG LLP
Denver, Colorado
August 15, 1996
34
<PAGE>
Energy West Incorporated and Subsidiaries
Consolidated Balance Sheets
JUNE 30
1996 1995
-------------------------
[RESTATED]
ASSETS
Current assets:
Cash and cash equivalents $ 721,093 $ 356,200
Temporary cash investments (at cost which
approximates market) - 59,556
Marketable equity securities 172,208 151,250
Accounts receivable, less allowances for
uncollectible accounts of $208,106 ($191,168
at June 30, 1995) 3,486,328 3,042,603
Natural gas and propane inventory 2,200,778 1,686,704
Materials and supplies 543,316 458,596
Prepayments and other 602,427 59,761
Refundable income tax payments 412,662 241,798
Recoverable costs of gas purchases 953,392 125,410
Deferred income taxes--current - 81,398
-------------------------
Total current assets 9,092,204 6,263,276
Investments 12,476 12,476
Notes receivable due after one year 9,190 15,984
Property, plant and equipment 43,919,358 39,697,080
Less accumulated depreciation and amortization 17,829,528 16,146,743
-------------------------
Net property, plant and equipment 26,089,830 23,550,337
Deferred charges:
Net unamortized debt issue costs 974,876 1,042,155
Regulatory assets for income taxes 443,918 519,484
Unrecognized postretirement obligation 332,800 352,380
Other 539,379 618,689
-------------------------
Total deferred charges 2,290,973 2,532,708
-------------------------
Total assets $37,494,673 $32,374,781
-------------------------
-------------------------
35
<PAGE>
Energy West Incorporated and Subsidiaries
Consolidated Balance Sheets
JUNE 30
1996 1995
---------------------------
[RESTATED]
CAPITALIZATION AND LIABILITIES
Current liabilities:
Long-term debt due within one year $ 348,044 $ 365,833
Notes payable 7,175,000 2,620,000
Accounts payable--gas purchases 1,226,508 1,535,736
Accounts payable--other 826,885 735,810
Payable to employee benefit plans 508,890 443,430
Accrued vacation 327,897 267,350
Other current liabilities 420,954 817,834
Deferred income taxes--current 253,385 -
---------------------------
Total current liabilities 11,087,563 6,785,993
Other:
Deferred Income Taxes 2,700,184 2,674,928
Deferred investment tax credits 502,841 523,903
Contributions in aid of construction 834,917 771,702
Accumulated postretirement obligation 507,386 467,274
Regulatory liability for income taxes 162,121 176,530
Deferred gain on sale-leaseback of assets 236,291 -
Other 17,799 6,736
---------------------------
Total other 4,961,539 4,621,073
Long-term debt (less amounts due
within one year) 10,045,714 10,434,957
Commitments and contingencies (NOTE 10)
Stockholders' equity:
Preferred stock - $.15 par value:
Authorized - 1,500,000 shares;
Outstanding - none - -
Common stock - $.15 par value:
Authorized - 3,500,000 shares; Outstanding
- 2,321,314 shares (2,254,138 shares at
June 30, 1995) 348,198 338,121
Capital in excess of par value 2,635,540 2,117,730
Retained earnings 8,416,119 8,076,907
---------------------------
Total stockholders' equity 11,399,857 10,532,758
---------------------------
Total Capitalization 21,445,571 20,967,715
---------------------------
Total capitalization and liabilities $37,494,673 $32,374,781
---------------------------
---------------------------
SEE ACCOMPANYING NOTES.
36
<PAGE>
Energy West Incorporated and Subsidiaries
Consolidated Statements of Income
YEAR ENDED JUNE 30
1996 1995 1994
----------------------------------------
[RESTATED]
Operating revenue:
Regulated utilities $23,672,186 $24,363,446 $24,421,153
Nonregulated operations 3,297,583 2,946,114 2,961,433
Gas trading 4,348,239 3,238,839 1,964,866
----------------------------------------
Total operating revenue 31,318,008 30,548,399 29,347,452
Operating expenses:
Gas purchased 14,972,454 16,116,688 16,742,903
Cost of gas trading 3,751,053 2,500,363 1,667,182
Distribution, general and
administrative 6,924,391 6,379,651 5,979,621
Maintenance 408,590 306,077 330,762
Depreciation and amortization 1,667,256 1,558,755 1,464,078
Taxes other than income 629,428 594,569 527,142
----------------------------------------
Total operating expenses 28,353,172 27,456,103 26,711,688
----------------------------------------
Operating income 2,964,836 3,092,296 2,635,764
Other income, net 214,902 174,878 199,014
----------------------------------------
Income before interest charges and
income taxes 3,179,738 3,267,174 2,834,778
Interest charges:
Long-term debt 709,872 735,813 741,866
Short-term and other 532,866 202,770 220,317
----------------------------------------
Total interest charges 1,242,738 938,583 962,183
----------------------------------------
Income before income taxes 1,937,000 2,328,591 1,872,595
Provision for income taxes 670,025 815,688 613,964
----------------------------------------
Income before cumulative effect of
change in accounting principle 1,266,975 1,512,903 1,258,631
Cumulative effect on prior years of
change in accounting for income
taxes - - 92,365
----------------------------------------
Net income $1,266,975 $ 1,512,903 $ 1,350,996
----------------------------------------
----------------------------------------
Income per share of common
equivalent stock:
Income before cumulative effect
of change in accounting
principle $.55 $.68 $.57
Cumulative effect of change in
accounting for income taxes - - .04
----------------------------------------
Net income per common share $.55 $.68 $.61
----------------------------------------
----------------------------------------
SEE ACCOMPANYING NOTES.
37
<PAGE>
Energy West Incorporated and Subsidiaries
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Capital in
Common Excess of Retained
Stock Par Value Earnings Total
-----------------------------------------------
<S> <C> <C> <C> <C>
Balance at June 30, 1993 $163,456 $1,720,240 $6,849,793 $8,733,489
Exercise of stock options into 3,800 shares of
common stock at $7.13 to $8.19 per share 285 14,977 - 15,262
Sale of 8,293 shares of common stock at $8.87
per share under the Company's dividend
reinvestment plan 1,244 72,313 - 73,557
Net income for the year ended June 30, 1994 - - 1,350,996 1,350,996
Common stock dividend, 2-for-1 stock split 163,737 (163,737) - -
Cash dividends on common stock--$.36 per share - - (780,342) (780,342)
----------------------------------------------
Balance at June 30, 1994 328,722 1,643,793 7,420,447 9,392,962
Exercise of stock options into 14,410 shares of
common stock at $4.94 to $8.75 per share 2,161 78,318 - 80,479
Sale of 36,720 shares of common stock at $7.50
to $9.00 per share under the Company's
dividend reinvestment plan 5,508 293,529 - 299,037
Issuance of 11,535 shares of common stock to
ESOP at estimated fair value of $9.00 per share 1,730 102,090 - 103,820
Net income for the year ended June 30, 1995 - - 1,512,903 1,512,903
Cash dividends on common stock--$.385 per
share - - (856,443) (856,443)
----------------------------------------------
Balance at June 30, 1995 338,121 2,117,730 8,076,907 10,532,758
Exercise of stock options into 13,680 shares of
common stock at $4.875 to $7.125 per share 2,052 72,918 - 74,970
Sale of 37,611 shares of common stock at $8.00
to $9.50 per share under the Company's
dividend reinvestment plan 5,642 320,158 - 325,800
Issuance of 15,889 shares of common stock to
ESOP at estimated fair value of $8.00 per share 2,383 124,734 - 127,117
Net income for the year ended June 30, 1996 - - 1,266,975 1,266,975
Cash dividends on common stock-- $.405 per
share - - (927,763) (927,763)
----------------------------------------------
Balance at June 30, 1996 $348,198 $2,635,540 $8,416,119 $11,399,857
----------------------------------------------
----------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
38
<PAGE>
Energy West Incorporated and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
1996 1995 1994
------------------------------------
[RESTATED]
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $1,266,975 $ 1,512,903 $ 1,350,996
Adjustments to reconcile net income
to cash flow from operations:
Depreciation and amortization 1,833,511 1,777,559 1,529,310
(Gain) on sale of assets (11,406) (4,174) (25,276)
Investment tax credit (21,062) (21,062) (21,062)
Deferred income taxes 399,205 4,197 306,026
Cumulative effect of change in
accounting method - - 92,365
Changes in operating assets and
liabilities:
Accounts receivable (443,725) (415,072) 92,638
Natural gas and propane
inventory (514,074) (987,081) 506,099
Accounts payable (218,153) 778,999 (616,316)
Recoverable costs of gas
purchases (827,982) 275,556 (134,502)
Prepaid gas (523,212) - -
Other assets and liabilities (333,878) 682,896 (243,278)
------------------------------------
Net cash provided by operating activities 606,199 3,604,721 2,837,000
INVESTING ACTIVITIES
Construction expenditures (4,590,609) (4,705,868) (2,626,221)
Restricted deposit - 204,550 619,367
Increase in marketable equity
securities (20,958) (12,171) (7,911)
Proceeds from sale of assets 552,160 79,749 64,820
Collection of long-term notes
receivable 6,794 78,737 36,526
Proceeds from contributions in aid
of construction 63,215 81,177 88,276
----------------------------------------
Net cash used in investing activities (3,989,398) (4,273,826) (1,825,143)
</TABLE>
39
<PAGE>
Energy West Incorporated and Subsidiaries
Consolidated Statements of Cash Flows (continued)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
1996 1995 1994
-------------------------------------------
[RESTATED]
<S> <C> <C> <C>
FINANCING ACTIVITIES
Proceeds from long-term debt $ - $ 117,808 $ 20,000
Debt issuance and reacquisition costs - - (65,000)
Payment of long-term debt (407,032) (335,000) (333,872)
Proceeds from notes payable 20,965,000 19,926,854 17,428,000
Repayment of notes payable (16,410,000) (18,625,000) (17,491,000)
Sale of common stock 74,970 80,479 15,262
Dividends paid (474,846) (453,586) (706,785)
-----------------------------------------
Net cash provided by (used in)
financing activities 3,748,092 711,555 (1,133,395)
-----------------------------------------
Net increase (decrease) in cash and
cash equivalents 364,893 42,450 (121,538)
Cash and cash equivalents at
beginning of year 356,200 313,750 435,288
-----------------------------------------
Cash and cash equivalents at
end of year $ 721,093 $ 356,200 $ 313,750
-----------------------------------------
-----------------------------------------
Supplemental disclosures of cash
flow information:
Cash paid for:
Interest $ 1,242,035 $ 942,221 $ 932,159
Income taxes 498,461 870,327 369,000
Noncash financing activities:
Dividend reinvestment plan 325,800 299,037 73,557
ESOP shares issued 127,117 103,820 -
SEE ACCOMPANYING NOTES.
</TABLE>
40
<PAGE>
Energy West Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 1996
1. PRINCIPAL ACCOUNTING POLICIES
GENERAL
Energy West Incorporated ("the Company") operates principally in a single
business segment as a distributor of natural gas and propane to residential and
commercial customers. Natural gas and propane vapor distribution operations
(regulated utilities) are regulated by the Montana Public Service Commission
("MPSC"), the Wyoming Public Service Commission ("WPSC") and the Arizona
Corporation Commission. Accordingly, most of the Company's accounting policies
are subject to the requirements set forth in the Federal Energy Regulatory
Commission's Uniform System of Accounts. In some cases, because of the rate
making process, these accounting policies differ from those used by nonregulated
operations. Bulk propane distribution is a nonregulated operation.
CONSOLIDATED SUBSIDIARIES
The Company's wholly-owned nonregulated subsidiaries, Energy West Resources,
Inc. ("EWR") (formerly Vesta, Inc.), Montana Sun, Inc. ("Montana Sun") and Rocky
Mountain Fuels, Inc. ("RMF"), are included in the consolidated financial
statements. The results of operations of these subsidiaries constitute all of
the Company's nonregulated operations. All significant intercompany accounts and
transactions have been eliminated in consolidation.
EWR's activities include a gas marketing operation and oil and gas exploration
and development. Its principal assets are capitalized oil and gas development
costs, storage field costs and equipment, and inventory. EWR currently markets
gas to large industrial customers (businesses using over 60,000 Mcf of natural
gas annually).
Montana Sun's operating activities consist of commercial real estate
development. Its significant assets consist of real estate held for future
sale.
RMF began operations in fiscal 1992 following the Company's acquisition of the
assets and operations of six Wyoming propane distribution entities. In fiscal
1993 these operations were expanded through the acquisition of an Arizona
propane distribution entity. Principal assets of RMF include bulk storage and
customer tanks, delivery trucks and related equipment.
41
<PAGE>
Energy West Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
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 reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
NATURAL GAS AND PROPANE INVENTORY
Natural gas inventory and propane inventory are stated at the lower of weighted
average cost or net realizable value.
RECOVERABLE COSTS OF GAS PURCHASES
Differences between the costs of gas approved by regulators in the Company's
rate structure and actual gas costs are accounted for as a current asset or
liability, as applicable. These differences are recovered or refunded, as
applicable, in future periods by adjustment of the Company's rates.
PROPERTY, PLANT AND EQUIPMENT
Additions to property, plant and equipment are recorded at original cost when
placed in service. Depreciation and amortization are recorded on a
straight-line basis over estimated useful lives or the units-of-production
method, as applicable, at various rates averaging approximately 3.93%, 4.15% and
4.32% during the years ended June 30, 1996, 1995 and 1994, respectively. During
the fourth quarter of 1996, the estimated useful lives for certain propane
properties were increased from twelve and fifteen years to twenty years to
better reflect their estimated useful lives. This change in estimate reduced
depreciation expense by approximately $83,000 in 1996.
OIL AND GAS ACTIVITIES
Oil and gas operations are accounted for under the successful efforts method.
Exploratory drilling costs are capitalized pending determination of proved
reserves; all other exploration costs are expensed. All development and lease
acquisition costs are capitalized. Provision for depreciation and amortization,
including estimated future
42
<PAGE>
Energy West Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
dismantlement and restoration costs, is determined on a field-by-field basis
using the units-of-production method. When properties are sold, the asset cost
and related accumulated depreciation and amortization are eliminated, with any
gain or loss reflected in income.
MARKETABLE EQUITY SECURITIES
Marketable equity securities are classified as available for sale securities.
GAS TRADING
The Company's business activities include the buying and selling of natural gas.
The Company recognizes revenue and costs on gas trading transactions when gas is
delivered to the purchaser.
DEBT ISSUANCE AND REACQUISITION COSTS
Debt premium, discount and issuance expenses are amortized over the life of each
issue. Debt reacquisition costs for refinanced debt are amortized over the
remaining life of the new debt.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For purposes of these statements, all highly liquid investments with original
maturities of three months or less are considered to be cash equivalents.
FINANCIAL INSTRUMENTS
All of the Company's financial instruments requiring fair value disclosure were
recognized in the consolidated balance sheet as of June 30, 1996. Except for
long-term debt, their carrying values approximate the estimated fair values.
Descriptions of the methods and assumptions used to reach this conclusion are as
follows:
Cash, temporary cash investments, accounts receivable, accounts
payable, and payable to employee benefit plans: These financial
instruments have short maturities, or are invested in financial
instruments with short maturities.
43
<PAGE>
Energy West Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
Notes receivable: These notes generally relate to energy conservation
incentive programs, some of which bear favorable interest rates
compared to market for similar risks. However, due to the relatively
small balances of these notes, any differences between carrying value
and fair value are immaterial.
Notes payable: Represent lines of credit, with maturities of a year
or less, bearing interest at current market rates.
The fair value of the Company's long-term debt, based on quoted market prices
for the same or similar issues, is approximately 99% of the carrying value.
EARNINGS PER SHARE
Earnings per common share were computed based on the weighted average number of
common shares outstanding and common stock equivalents, if dilutive.
The weighted average number of such shares at June 30 was 2,298,734 in 1996,
2,235,413 in 1995, and 2,205,050 in 1994.
NEW ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard ("SFAS") No. 121, ACCOUNTING FOR THE IMPAIRMENT OF
LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, effective for
financial statements for fiscal years beginning after December 15, 1995. SFAS
No. 121 requires that long-lived assets and certain identifiable intangibles to
be held and used by an entity be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable, and long-lived assets and certain identifiable intangibles to be
disposed of be reported at the lower of carrying amount or fair value less cost
to sell. SFAS No. 121 also establishes the procedures for review of
recoverability, and measurement of impairment if necessary, of long-lived assets
and certain identifiable intangibles to be held and used by an entity. The
financial effects of adopting the new standard are not expected to be material
to the Company's financial position or operations.
44
<PAGE>
Energy West Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, was issued in October
1995. This standard addresses the timing and measurement of stock-based
compensation expense. The Company has elected to retain the approach of
Accounting Principles Board Opinion ("APB") No. 25, ACCOUNTING FOR STOCK ISSUED
TO EMPLOYEES (the intrinsic value method), for recognizing stock-based expense
in the consolidated financial statements. The Company will adopt SFAS No. 123 in
1997 with respect to the disclosure requirements set forth therein for companies
retaining the intrinsic value approach of APB No. 25.
EFFECTS OF REGULATION
The regulatory structure which has historically embraced the gas industry has
been in the process of transition. Legislative and regulatory initiatives, at
both the federal and state levels, are designed to promote competition and will
continue to impose additional pressure on the Company's ability to retain
customers and to maintain current rate levels. The changes in the gas industry
have allowed commercial and industrial customers to negotiate their own gas
purchases directly with producers or brokers. To date, the changes in the gas
industry have not had a negative impact on earnings or cash flow of the
Company's regulated segment.
The accounts and rates of the Company's regulated segment are subject, in
certain respects, to the requirements of the Montana, Wyoming and Arizona public
utilities commissions. As a result, the Company's regulated segment maintains
its accounts in accordance with the requirements of those regulators. The
application of generally accepted accounting principles by the Company's
regulated segments differ in certain respects from application by the
non-regulated segment and other non-regulated businesses. The regulated segment
prepares its financial statements in accordance with Statement of Accounting
Standards No. 71 -- "Accounting for the Effects of Certain Types of Regulation"
(SFAS 71). In general, SFAS 71 recognizes that accounting for rate-regulated
enterprises should reflect the relationship of costs and revenues. As a result,
a regulated utility may defer recognition of cost (a regulatory asset) or
recognize an obligation (a regulatory liability) if it is probable that, through
the rate-making process, there will be a corresponding increase or decrease in
revenues. Accordingly, the Company has deferred certain costs, which will be
amortized over various periods of time. The costs deferred are further
described in the Company's financial statements and the notes thereto. To the
extent that collection of such costs or payment of liabilities is no longer
probable as a result of changes in regulation and/or the Company's competitive
position, the associated regulatory asset or liability will be reversed with a
charge or credit to income. If the Company's regulated segment were to
discontinue the application of SFAS 71, the accounting impact would be an
extraordinary, non-cash charge to operations that could be material to the
financial position and results of operation of the Company.
45
<PAGE>
Energy West Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
EFFECTS OF REGULATION (CONTINUED)
However, the Company is unaware of any circumstances or events in the
foreseeable future that would cause it to discontinue the application of SFAS
71.
All regulatory assets have been formally approved by the applicable regulator,
although other than environmental cleanup costs, no return on assets is allowed
by the regulators.
The Company uses the lives for depreciation as defined by the regulators which
approximates the economic lives for GAAP.
PRIOR PERIOD ADJUSTMENT
The Company has restated its previously issued fiscal 1996 financial statements
to reflect the deferral of the gain on sale-leaseback of assets totalling
$236,000 (see Note 9). The gain will be amortized ratably into income over the
initial ten-year lease term. The effect on previously reported retained
earnings as of June 30, 1996 and results of operations for the year ended June
30, 1996, are as follows:
Net income:
As previously reported $1,407,366
As restated $1,266,975
Net income per common share:
As previously reported $.61
As restated $.55
Retained earnings:
As previously reported $8,556,510
As restated $8,416,119
46
<PAGE>
Energy West Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
RECLASSIFICATIONS
Certain reclassifications have been made to the fiscal 1995 and 1994
consolidated financial statements to conform to the fiscal 1996 presentation.
2. NOTES PAYABLE
At June 30, 1996, the Company maintained a line of credit totaling $11,000,000
with interest calculated at prime less 1/4 percent. A total of $7,175,000,
$2,620,000 and $1,275,000 had been borrowed under line of credit agreements at
June 30, 1996, 1995, and 1994, respectively. Borrowings on lines of credit,
based upon daily loan balances, averaged $6,166,380, $2,397,175 and $2,369,671
during the years ended June 30, 1996, 1995 and 1994, respectively. The maximum
borrowings outstanding on this line at any month end were $9,415,000, $4,983,000
and $4,267,000 during these same periods. The daily weighted average interest
rate was 8.5%, 8.2% and 6.4% for the years ended June 30, 1996, 1995 and 1994,
respectively. This line of credit expires January 15, 1997. Management
expects this line of credit to be renewed for another year.
47
<PAGE>
Energy West Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. LONG-TERM DEBT OBLIGATIONS
Long-term debt consists of the following:
JUNE 30
1996 1995
-----------------------------
Series 1993 notes payable $ 7,800,000 $ 7,800,000
Industrial development revenue obligations:
Series 1992A 935,000 1,200,000
Series 1992B 1,635,000 1,690,000
Other 23,758 110,790
-----------------------------
Total long-term obligations 10,393,758 10,800,790
Less portion due within one year 348,044 365,833
-----------------------------
Long-term obligations due after one year $10,045,714 $10,434,957
-----------------------------
-----------------------------
SERIES 1993 NOTES PAYABLE
On June 24, 1993, the Company issued $7,800,000 of Series 1993 unsecured notes
bearing interest at rates ranging from 6.20% to 7.60% (6.20% at June 30, 1996),
payable semiannually on June 1 and December 1 of each year, commencing on
December 1, 1993. Maturity dates begin in 1999 and extend to 2013. At the
Company's option, beginning June 1, 2003, notes maturing subsequent to 2003 may
be redeemed prior to maturity, in whole or part, at redemption prices declining
from 104% to 100% of face value, plus accrued interest.
INDUSTRIAL DEVELOPMENT REVENUE OBLIGATIONS
On September 15, 1992, Cascade County, Montana (the County) issued two
Industrial Development Revenue Obligations, the Series 1992A Bonds for
$1,700,000 and Series 1992B Bonds for $1,800,000. The Series 1992A and Series
1992B Bonds are unsecured; however, loan agreements are maintained with the
Company in the same amounts. Both the Series 1992A and Series 1992B Bonds
require annual principal payments on October 1 and semiannual interest payments
on April 1 and October 1 of each year beginning in 1993. The Series 1992A Bonds
have a final maturity in 1999 and bear interest at rates ranging from 3.25% to
5.30%. The Series 1992B bonds have a final maturity in 2012 and bear interest
at rates ranging from 3.35% to 6.50%.
48
<PAGE>
Energy West Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. LONG-TERM DEBT OBLIGATIONS (CONTINUED)
AGGREGATE ANNUAL MATURITIES
<TABLE>
<CAPTION>
IDR OBLIGATIONS
FISCAL SERIES --------------------------- TOTAL
YEAR ENDING 1993 SERIES SERIES LONG-TERM
JUNE 30 NOTES 1992A 1992B OTHER OBLIGATIONS
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997 $ - $280,000 $ 60,000 $ 8,044 $ 348,044
1998 - 295,000 60,000 6,959 361,959
1999 165,000 175,000 65,000 8,032 413,032
2000 175,000 185,000 70,000 723 430,723
2001 370,000 - 75,000 - 445,000
Thereafter 7,090,000 - 1,305,000 - 8,395,000
-------------------------------------------------------------------------------------------
7,800,000 935,000 1,635,000 23,758 10,393,758
Less current portion - 280,000 60,000 8,044 348,044
-------------------------------------------------------------------------------------------
$7,800,000 $655,000 $1,575,000 $15,714 $10,045,714
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
</TABLE>
The Company's long-term debt obligation agreements contain various covenants
including: limiting total dividends and distributions made in the immediately
preceding 60-month period to aggregate consolidated net income for such period,
restricting senior indebtedness, limiting asset sales, and maintaining certain
financial debt and interest ratios.
4. RETIREMENT PLANS
The Company has a defined contribution pension plan (the Plan) which covers
substantially all of the Company's employees. Under the Plan, the Company
contributes 10% of each participant's eligible compensation. Total
contributions to the Plan for the years ended June 30, 1996, 1995 and 1994 were
$383,018, $336,589 and $279,668, respectively.
The Company adopted, effective July 1, 1993, SFAS No. 106, EMPLOYERS' ACCOUNTING
FOR POSTRETIREMENT BENEFITS OTHER THAN PENSIONS. This standard requires that
the projected future cost of providing postretirement benefits be recognized as
an expense as employees render service rather than when paid. Effective for
fiscal year 1994, the Company modified its plan for these benefits and has
elected to pay eligible retirees (post-65 years of age) $125 per month in lieu
of contracting for health and life insurance benefits. The amount of this
payment is fixed and will not increase with medical trends or inflation. The
Company's transition obligation at June 30, 1996 and 1995 was
49
<PAGE>
Energy West Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. RETIREMENT PLANS (CONTINUED)
$332,800 and $352,380, respectively, of which $288,600 in 1996 and $327,400 in
1995 related to the regulated utility operations. The transition obligation was
accrued as a deferred charge and will be amortized over 20 years. Substantially
all of the transition obligation is for the future cost of benefits to active
employees.
The incremental annual increases in consolidated expenses due to adoption of
SFAS No. 106 were $70,900 and $71,200 in fiscal years 1996 and 1995,
respectively. Included in these amounts were $58,100 in 1996 and $62,600 in
1995 relating to regulatory operations. The MPSC allowed recovery of these
costs beginning on July 1, 1995 for the utility operations in Montana.
Management believes it is probable that its regulators in Wyoming will allow
recovery of these costs based upon recent industry rate decisions addressing
this issue. The Company has established a VEBA trust fund and is contributing
to that trust the annual expense of the plan. The balance in that trust after
benefit payments in fiscal year 1996 is $61,750.
The Company made a change to the plan, effective July 1, 1996, allowing pre-65
retirees and their spouses to remain on the same medical plan as active
employees by contributing 125% of the current COBRA rate to retain this
coverage. The increased liability from this change is $269,200 and has been
reflected in the 1996 financial statements. The Company expects regulators in
Montana and Wyoming to allow recovery of the additional costs associated with
the plan change.
50
<PAGE>
Energy West Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. RETIREMENT PLANS (CONTINUED)
The following table presents the amounts recognized at June 30, 1996 and 1995 in
the consolidated financial statements.
1996 1995
------------------
Accumulated postretirement benefit obligation:
Retirees $128,500 $154,400
Fully eligible active plan participants 80,500 53,700
Other active plan participants 522,900 259,174
------------------
$731,900 $467,274
------------------
------------------
Net periodic postretirement benefit cost:
Service cost $ 19,300 $ 19,400
Interest cost 32,000 32,200
Actual return on plan assets (1,500) -
Amortization of transition obligation 19,600 19,600
------------------
Net periodic postretirement benefit cost $ 69,400 $ 71,200
------------------
------------------
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation at June 30, 1996 was 7.5 percent. The
weighted-average annual assumed rate of increase in the per capita cost of
covered benefits (i.e., health care cost trend rate) is 11.0 percent for the
1996-97 fiscal year and is assumed to decrease gradually to 5.5 percent after 6
years and remain at that level thereafter. At June 30, 1995, the
weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7.5 percent. The weighted-average health
care cost trend rate was 12.5 percent for the 1995-96 fiscal year and was
assumed to decrease gradually to 6.5 percent after 7 years and remain at that
level thereafter.
The health care cost trend rate assumption has a significant effect on the
amounts reported. For example, increasing the assumed health care cost trend
rate by one percentage point in each year would increase the accumulated
postretirement benefit obligation as of June 30, 1996 by $45,700. The aggregate
of interest and service cost for the year ended June 30, 1996 is not affected by
this increase due to the minimal number of retirees receiving benefits that are
not fixed and the large number of retirees receiving benefits that were not
affected by the trend rate during the 1995-96 fiscal year.
51
<PAGE>
Energy West Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. INCOME TAX EXPENSE
Effective July 1, 1993, the Company changed its method of accounting for income
taxes from the deferred method to the liability method required by FASB
Statement No. 109, ACCOUNTING FOR INCOME TAXES. As permitted under the new
rules, prior years' financial statements have not been restated.
The cumulative effect of adopting Statement No. 109 as of July 1, 1993 was to
increase net income by $92,365 for nonregulated operations and create a
regulatory asset of $600,867 and regulatory liability of $204,620 for regulated
operations. The regulatory assets and liabilities represent the anticipated
effects on regulated rates charged to customers which will result from the
adoption of Statement No. 109. For the year ended June 30, 1996, amortization
of certain liabilities resulted in a decrease in regulatory assets of $75,566
and in regulatory liabilities of $14,409 for regulated entities, resulting in
ending balances of $443,918 and $162,121, respectively.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred tax assets and liabilities as
of June 30, 1996 and 1995 are as follows:
1996 1995
-------------------------
Deferred tax assets:
Allowance for doubtful accounts $ 54,065 $ 55,987
Unamortized investment tax credit 162,343 175,983
Contributions in aid of construction 115,876 102,458
Other nondeductible accruals 189,935 156,096
Deferred gain on sale of assets 95,900 -
Other 47,093 42,318
-------------------------
Total deferred tax assets 665,212 532,842
52
<PAGE>
Energy West Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. INCOME TAX EXPENSE (CONTINUED)
1996 1995
------------------------
Deferred tax liabilities:
Customer refunds payable $ 399,255 $ 84,525
Property, plant and equipment 2,908,836 2,615,597
Unamortized debt issue costs 201,635 215,827
Unamortized environmental study costs - 101,330
Covenant not to compete 89,041 93,283
Other 20,014 15,810
------------------------
Total deferred tax liabilities 3,618,781 3,126,372
------------------------
Net deferred tax liabilities $2,953,569 $2,593,530
------------------------
------------------------
Income tax expense consists of the following:
YEAR ENDED JUNE 30
1996 1995 1994
-------------------------------------
Current income taxes:
Federal $244,777 $705,420 $490,698
State 21,819 120,074 12,331
-------------------------------------
Total current income taxes 266,596 825,494 503,029
Deferred income taxes (benefits):
Tax depreciation in excess of book 341,217 179,794 139,564
Book amortization in excess of tax (35,958) (56,981) (73,435)
Recoverable cost of gas purchases 322,479 (98,479) 86,341
Environmental study cleanup costs - 20,539 81,442
Regulatory surcharges (44,830) - -
Deferred Gain on sale of assets (95,900)
Other (25,362) 17,813 (62,016)
-------------------------------------
Total deferred income taxes 461,646 62,686 171,896
Investment tax credit, net (21,062) (21,062) (21,062)
-------------------------------------
Total income taxes $707,180 $867,118 $653,863
-------------------------------------
-------------------------------------
Income taxes--operations $670,025 $815,688 $613,964
Income taxes--other income 37,155 51,430 39,899
-------------------------------------
Total income taxes $707,180 $867,118 $653,863
-------------------------------------
-------------------------------------
53
<PAGE>
Energy West Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. INCOME TAX EXPENSE (CONTINUED)
Income tax expense from operations differs from the amount computed by applying
the federal statutory rate to pre-tax income for the following reasons:
1996 1995 1994
-------------------------------------
Tax expense at statutory rate - 34% $666,930 $799,582 $607,394
State income tax, net of federal tax
benefit 44,710 77,377 38,693
Amortization of deferred investment
tax credits (21,062) (21,062) (21,062)
Other 16,602 11,221 28,838
-------------------------------------
Total income taxes $707,180 $867,118 $653,863
-------------------------------------
-------------------------------------
6. REGULATED AND NONREGULATED OPERATIONS
Summarized financial information for the Company's regulated utility and
nonregulated nonutility operations (before intercompany eliminations between
regulated and nonregulated primarily consisting of gas sales from nonregulated
to regulated entities, intercompany accounts receivable, accounts payable,
equity, and subsidiary investment) is as follows:
54
<PAGE>
Energy West Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. REGULATED AND NONREGULATED OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
JUNE 30, 1996
-------------
REG. NONREG. ADJ. CONSOL.
--------------------------------------------------------
<S> <C> <C> <C> <C>
CAPITAL EXPENDITURES $3,910,000 $680,609 $4,590,609
--------------------------------------------------------
--------------------------------------------------------
PROPERTY,PLANT AND EQUIPMENT, NET
REGULATED UTILITIES $22,362,130 $22,362,130
NONREGULATED PROPANE 2,971,174 2,971,174
OIL AND GAS OPERATIONS 274,352 274,352
REAL ESTATE HELD FOR INVESTMENT 482,173 1 482,174
--------------------------------------------------------
TOTAL P P & E 22,362,130 3,727,699 1 26,089,830
CURRENT ASSETS 7,663,566 2,385,186 (956,548) 9,092,204
OTHER ASSETS 3,669,404 590,542 (1,947,307) 2,312,639
---------------------------------------------------------
TOTAL ASSETS $33,695,100 $6,703,427 ($2,903,854) $37,494,673
---------------------------------------------------------
---------------------------------------------------------
EQUITY $9,303,596 $3,168,260 $(1,071,999) $11,399,857
LONG-TERM DEBT 8,257,090 1,788,624 10,045,714
CURRENT LIABILITIES 10,452,787 1,192,271 (557,495) 11,087,563
DEFERRED INCOME TAXES 3,207,968 270,816 (778,600) 2,700,184
OTHER LIABILITIES 2,473,659 283,456 (495,760) 2,261,355
---------------------------------------------------------
TOTAL CAPITALIZATION AND LIABILITIES $33,695,100 $6,703,427 ($2,903,854) $37,494,673
---------------------------------------------------------
---------------------------------------------------------
JUNE 30,1995
------------
REG. NONREG. ADJ. CONSOL.
---------------------------------------------------------
CAPITAL EXPENDITURES $3,933,828 $772,040 $4,705,868
---------------------------------------------------------
---------------------------------------------------------
PROPERTY,PLANT AND EQUIPMENT, NET
REGULATED UTILITIES $19,907,237 $19,907,237
NONREGULATED PROPANE 2,811,913 2,811,913
OIL AND GAS OPERATIONS 334,704 334,704
REAL ESTATE HELD FOR INVESTMENT 496,483 496,483
---------------------------------------------------------
TOTAL P P & E 19,907,237 3,643,100 23,550,337
CURRENT ASSETS 4,458,594 2,420,839 (616,157) 6,263,276
OTHER ASSETS 3,884,006 496,360 (1,819,198) 2,561,168
---------------------------------------------------------
TOTAL ASSETS $28,249,837 $6,560,299 ($2,435,355) $32,374,781
---------------------------------------------------------
---------------------------------------------------------
EQUITY $8,903,740 $2,701,018 $(1,072,000) $10,532,758
LONG-TERM DEBT 8,533,074 1,901,883 10,434,957
CURRENT LIABILITIES 6,304,063 1,493,087 (1,011,157) 6,785,993
DEFERRED INCOME TAXES 2,727,782 299,343 (352,197) 2,674,928
OTHER LIABILITIES 1,781,178 164,968 (1) 1,946,145
---------------------------------------------------------
TOTAL CAPITALIZATION AND LIABILITIES $28,249,837 $6,560,299 ($2,435,355) $32,374,781
---------------------------------------------------------
---------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1996
REG. NONREG. ADJ. CONSOL.
---------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING REVENUE $23,672,186 $4,510,942 ($1,213,359) $26,969,769
GAS TRADING REVENUE 4,348,239 4,348,239
--------------------------------------------------------
TOTAL OPERATING REVENUE 23,672,186 8,859,181 (1,213,359) 31,318,008
GAS PURCHASED 13,646,178 2,539,635 (1,213,359) 14,972,454
COST OF GAS TRADING 3,751,053 3,751,053
DISTRIBUTION, GENERAL & ADMIN 5,578,188 1,346,203 6,924,391
MAINTENANCE 348,123 60,467 408,590
DEPRECIATION AND AMORTIZATION 1,359,339 307,917 1,667,256
TAXES OTHER THAN INCOME 523,768 105,660 629,428
--------------------------------------------------------
OPERATING INCOME $2,216,590 $748,246 $0 $2,964,836
--------------------------------------------------------
--------------------------------------------------------
1995
REG. NONREG. ADJ. CONSOL.
--------------------------------------------------------
OPERATING REVENUE $24,363,446 $4,077,768 ($1,131,655) $27,309,559
GAS TRADING REVENUE 3,238,839 3,238,839
--------------------------------------------------------
TOTAL OPERATING REVENUE 24,363,446 7,316,607 (1,131,655) 30,548,398
GAS PURCHASED 15,077,466 2,170,877 (1,131,655) 16,116,688
COST OF GAS TRADING 2,500,363 2,500,363
DISTRIBUTION, GENERAL & ADMIN 5,130,220 1,249,431 6,379,651
MAINTENANCE 304,677 1,400 306,077
DEPRECIATION AND AMORTIZATION 1,205,758 352,997 1,558,755
TAXES OTHER THAN INCOME 494,338 100,230 594,568
--------------------------------------------------------
OPERATING INCOME $2,150,987 $941,309 $0 $3,092,296
--------------------------------------------------------
--------------------------------------------------------
1994
REG. NONREG. ADJ. CONSOL.
--------------------------------------------------------
OPERATING REVENUE $24,421,153 $3,935,760 ($974,327) $27,382,586
GAS TRADING REVENUE 1,964,866 1,964,866
--------------------------------------------------------
TOTAL OPERATING REVENUE 24,421,153 5,900,626 (974,327) 29,347,452
GAS PURCHASED 15,666,853 2,050,377 (974,327) 16,742,903
COST OF GAS TRADING 1,667,182 1,667,182
DISTRIBUTION, GENERAL & ADMIN 4,792,531 1,187,090 5,979,621
MAINTENANCE 315,409 15,353 330,762
DEPRECIATION AND AMORTIZATION 1,134,150 329,928 1,464,078
TAXES OTHER THAN INCOME 430,446 96,696 527,142
--------------------------------------------------------
OPERATING INCOME $2,081,764 $554,000 $0 $2,635,764
--------------------------------------------------------
--------------------------------------------------------
</TABLE>
55
<PAGE>
Energy West Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. Stock Options and Ownership Plans
Stock Options
There are two Incentive Stock Option Plans which provide for granting options to
purchase up to 200,000 shares of the Company's common stock to key employees.
The option price may not be less than 100% of the common stock fair market value
on the date of grant (110% of the fair market value if the employee owns more
than 10% of the Company's outstanding common stock). These options may not have
a term exceeding five years.
A summary of the activity under the plans is as follows:
Number of Price Per
Shares Share
----------------------------
Fiscal 1996
Outstanding at July 1, 1995 90,588 $4.875-9.125
Granted -
Exercised (13,680) $4.875-7.125
Expired (1,200) $6.50
---------
Outstanding at June 30, 1996 75,708 $6.375-9.125
---------
---------
At June 30, 1996
Exercisable 75,708
Available for grant 6,052
Fiscal 1995
Outstanding at July 1, 1994 106,948 $4.875-8.75
Granted 5,000 $9.125
Exercised (14,410) $4.938-8.75
Expired (6,950) $4.875-7.125
---------
Outstanding at June 30, 1995 90,588
---------
---------
At June 30, 1995
Exercisable 90,588
Available for grant 29,652
Fiscal 1994
Outstanding at July 1, 1993 105,048 $3.188-7.125
Granted 7,000 $7.375-8.75
Exercised (3,800) $3.188-7.125
Expired (1,300) $3.188
---------
Outstanding at June 30, 1994 106,948 $4.875-8.75
---------
---------
At June 30, 1994
Exercisable 106,948
Available for grant 27,702
56
<PAGE>
Energy West Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. Stock Options and Ownership Plans (continued)
Employee Stock Ownership Plan
In 1984, the Company established an Employee Stock Ownership Plan ("ESOP")
which covers most of the Company's employees. The unleveraged ESOP receives
cash contributions from the Company each year as determined by the Board of
Directors and will buy shares of the Company's common stock from either the
Company or the open market at the then current price per share. The ESOP has
no allocated shares, committed-to-be-released shares or suspense shares at
the balance sheet dates. In addition, there are no unearned shares and there
is no repurchase obligation. The Company has contributed and recognized as
expense $121,400, $129,367 and $103,820 for the years ended June 30, 1996,
1995 and 1994, respectively. During the years ended June 30, 1996, 1995 and
1994, the ESOP acquired 15,889 shares at $8.00 per share, 11,535 shares at
$9.00 per share and 11,772 shares at $9.08 per share, respectively.
8. Operating Lease
The Company leases a building in Cody, Wyoming. The lease expires on June 30,
2005. Future minimum rental payments will be approximately $72,000 per year
from fiscal 1996 through fiscal 2005 for total future minimum lease payments of
$648,000. Rental expenses related to this lease were $73,808, $70,133 and
$73,933 in fiscal years 1996, 1995 and 1994, respectively.
9. Gain on Sale-Leaseback of Assets
On June 28, 1996, one of the Company's nonregulated subsidiaries sold real
property, consisting of land and office and warehouse buildings, for $525,000 in
cash. Concurrent with the sale, the Company leased the property back for a
period of ten years at an annual rental of $51,975. The initial ten-year term
of the lease is extended for two successive five-year periods unless the Company
provides at least six months notice prior to the end of either the initial term
or the first successive five-year term.
The Company does not have an option to repurchase the real property. However,
should the lessor have a bona fide third-party offer, the Company has the right
of first refusal to buy the land and buildings under the same terms and
conditions. As a result, the transaction has been recorded as a sale, resulting
in a deferred gain of $236,000, which will be amortized ratably into income over
the initial lease term. The land, buildings and related accounts are no longer
recognized in the accompanying financial statements.
57
<PAGE>
Energy West Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
9. Gain on Sale-Leaseback of Assets (continued)
The future minimum lease payments under the terms of the related lease agreement
require the payment of $51,975 per year from fiscal 1997 through fiscal 2006 for
total future minimum lease payments of $519,750.
10. Commitments and Contingencies
Commitments
The Company has entered into long-term, take or pay natural gas supply contracts
which expire beginning in 1997 and ending in 2005. The contracts generally
require the Company to purchase specified minimum volumes of natural gas at a
fixed price which is subject to renegotiation every two years. Current prices
per Mcf for these contracts range from $1.17 to $1.85. Based on current prices,
the minimum take or pay obligation at June 30, 1996 for each of the next five
years and in total is as follows:
Fiscal Year
-----------
1997 $1,931,088
1998 1,320,018
1999 1,099,218
2000 832,018
2001 832,018
Thereafter 1,809,672
----------
Total $7,824,032
----------
----------
Natural gas purchases under these contracts for the years ended June 30,
1996, 1995 and 1994 approximated $5,520,000, $6,203,000, and $6,091,000,
respectively.
On July 1, 1996, the Company entered into a take or pay propane contract which
expires June 30, 1997. The contract generally requires the Company to purchase
all propane quantities produced by a propane producer in Wyoming (approximately
182,500 gallons per month) tied to the Billings, Montana spot price.
58
<PAGE>
Energy West Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
10. Commitments and Contingencies (continued)
ENVIRONMENTAL MATTERS
The Company owns property on which it operated a manufactured gas plant from
1909 to 1928. The site is currently used as a service center for the
Company where certain equipment and materials owned by the Company are
stored. The coal gasification process utilized in the plant resulted in the
production of certain by-products which have been classified by the federal
government and the State of Montana as hazardous to the environment. Several
years ago the Company initiated an assessment of the site to determine if
remediation of the site was required. That assessment resulted in a
submission of a report to the Montana Department of Environmental Quality
(MDEQ) in 1994. The Company has worked with the MDEQ since that time
obtain the data that would lead to a remediation acceptable to MDEQ. The
Company's environmental consultant advises the Company that it expects to
have a report, which will include remediation recommendations, filed with
the MDEQ by approximately mid-summer of 1997. MDEQ would then provide an
opportunity for public comment on the remediation plan. Once the comment
period has ended and due consideration of any comments occurs, the plan can
be finalized. Assuming acceptance of the plan, remediation could be underway
by the fall of 1998.
At June 30, 1996 the Company's costs incurred in evaluating this site have
totalled approximately $320,000. On May 30, 1995 the Company received an
order from the Montana Public Service Commission allowing for a surcharge on
customer bills in conntection with the costs associated with evalution of the
site. As of June 30, 1996 the surcharge had generated approximately $214,000.
The Commission's order calls for ongoing review by the Commission of the costs
incurred for this matter by periodic approvals of the costs incurred for this
matter.
11. Regulatory Matters
On July 8, 1996, the Company filed a general rate case with the MPSC requesting
a revenue increase for its Great Falls Gas operations. The revenue request is
the result of increased cost of service primarily due to inflation and higher
capital investment for utility operations. The Company intends to file for a
rate increase for Broken Bow (a regulated utility subsidiary in Payson, Arizona)
in the fall of 1996.
59
<PAGE>
Energy West Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
12. Financial Instruments and Risk Management
For fiscal years ending June 30, 1995 and 1996, the Company was a party to
gas financial swap agreements for its regulated operations. Under these
agreements, the Company is required to pay the counterparty (an entity making
a market in gas futures) a cash settlement equal to the excess of the stated
index price over an agreed upon fixed price for gas purchases. The Company
receives cash from the counterparty when the stated index price falls below
the fixed price. These swap agreements are made to minimize exposure to gas
price fluctuations. This price differential had no impact on earnings,
because the effect of the difference is included in gas costs and adjusted to
recoverable cost of gas purchases for any idfferences between the cost of gas
allowed by the regulators and the actual prices paid including any financial
swap agreements.
<TABLE>
<CAPTION>
Fair
Index Price Value of
Volume Range for Contract Index Remaining
(MMBTU Effective Termination Contract Fiscal Value Price Contract
Fiscal Year per Day) Date Date Price Year at June 30 at June 30 At June 30
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995
- -----------
Swap #1 4,000 5/1/95 4/30/96 $1.57 $.98 to $1.14 $2,059,840 $0.98 $1,285,760
1996
- -----------
Swap #1 5,000 11/1/95 10/31/96 $1.35 $.89 to $1.22 $830,250 $0.89 $547,350
</TABLE>
Beginning on September 1, 1996, the Company is a party to two gas swap
agreements, for its nonregulated operations, to hedge 4,400 MMBTU of its
daily gas purchases. This contract represents approximately 92% of the
supply required for the Company's customers who have selected fixed price
service. The hedges were made to minimize the Company's exposure to price
fluctuations and to secure a known margin for the purchase and resale of gas
in marketing activities.
60
<PAGE>
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
ENERGY WEST INC.
June 30, 1996
Balance At Charged Write-Offs Balance
Beginning to Costs Net of at End of
Description of Period & Expenses Recoveries Period
- ----------- ---------- ---------- ---------- ---------
ALLOWANCE FOR
UNCOLLECTIBLE ACCOUNTS
Year Ended June 30, 1994 $169,500 $141,590 ($121,799) $189,291
Year Ended June 30, 1995 $189,291 $81,327 ($79,450) $191,168
Year Ended June 30, 1996 $191,168 $64,509 ($47,571) $208,106
61
<PAGE>
Consolidated Quarterly Financial Data on page 17 of the 1996 Annual Report to
Shareholders is incorporated herein by reference.
Item 9. - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable
62
<PAGE>
PART III
Item 10. - DIRECTORS AND EXECUTIVE OFFICER OF THE REGISTRANT
Information concerning the directors and executive officers is included in Part
I, on pages 16 through 19. The information contained under the heading
"Election of Directors" in the Proxy Statement is incorporated herein by
reference in response to this item.
Item 11. - EXECUTIVE COMPENSATION
The information contained under heading "Executive Compensation" in the Proxy
Statement is incorporated herein by reference in response to this item.
Item 12. - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information contained under the heading "Security Ownership of Certain
Beneficial Owners and Management" in the Proxy Statement is incorporated herein
by reference in response to this item.
Item 13. - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained under the heading "Certain Transactions" in the Proxy
Statement is incorporated herein by reference in response to this item.
63
<PAGE>
PART IV
Item 14. - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8K
(a) 3. Exhibits (See Exhibit Index on Page E-1)
(b) Reports on Form 8-K
None
64
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ENERGY WEST INCORPORATED
/s/ Larry D. Geske /s/ William J. Quast
- ------------------- ---------------------
Larry D. Geske, President and William J. Quast
Chief Executive Officer Vice-President, Treasurer,
and Chairman of the Board Controller and Assistant
Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
/s/ Larry D. Geske 7/8/97
- ------------------- -------
Larry D. Geske President and Chief Executive Date
Officer and Acting Chairman of the Board
/s/ Ian B. Davidson 7/8/97
- ------------------- -------
Ian B. Davidson Director Date
/s/ Thomas N. Mcgowen, Jr. 7/8/97
- -------------------------- -------
Thomas N. McGowen, Jr. Director Date
/s/ G. Montgomery Mitchell 7/8/97
- -------------------------- -------
G. Montgomery Mitchell Director Date
/s/ John Reichel 7/8/97
- ---------------- -------
John Reichel Director Date
/s/ David A. Flitner 7/8/97
- -------------------- -------
David A. Flitner Director Date
65
<PAGE>
EXHIBIT INDEX
Exhibits
- --------
3.1 Restated Articles of Incorporation of the Company, as amended to date
(filed herewith).
3.2 Bylaws of the Company, as amended to date (filed herewith).
4.1 Form of Indenture (including form of Note) relating to the Company's
Series 1993 Notes (incorporated by reference to Exhibit 4.1 to the
Company's Registration Statement on Form S-2, File No. 33-62680).
4.2 Loan Agreement, dated as of September 1, 1992, relating to the Company's
Series 1992A and Series 1992B Industrial Development Revenue Bonds
(incorporated by reference to Exhibit 4.2 to the Company's Registration
Statement on Form S-2, File No. 33-62680).
10.1 Credit Agreement dated as of January 18, 1995, by and between the Company
and Norwest Bank Great Falls, National Association (filed herewith).
10.2 Amendment dated April 17, 1996 to Credit Agreement dated as of January
18, 1995, by and between the Company and Norwest Bank Montana, National
Association (filed herewith).
10.3 Amendment dated November 7, 1996 to Credit Agreement dated as of January
18, 1995, the Company and Norwest Bank Montana, National Association
(filed herewith).
10.4 Promissory Note dated November 7, 1996, issued to Norwest Bank Montana,
National Association (filed herewith).
10.5 Credit Agreement dated as of February 12, 1997, by and between the
Company and First Bank Montana, National Association (filed herewith).
10.6 Delivered Gas Purchase Contract dated February 23, 1997, as amended by
that Letter Amendment Amending Gas Purchase Contract dated March 9, 1982;
that Amendment to Delivered Gas Purchase Contract applicable as of March
20, 1986; that Letter Agreement dated December 18, 1986; that Letter
Agreement dated April 12, 1988; that Letter Agreement dated April 28,
1992; that Letter Agreement dated March 14, 1996; that Letter Agreement
dated April 15, 1996; a second Letter Agreement dated April 15, 1996;
that Letter dated February 18, 1997; and that Letter dated April 1, 1997,
transmitting a Notice of Assignment effective February 26, 1993 (filed
herewith).
10.7 Delivered Gas Purchase Contract dated December 1, 1985, as amended by
that Letter Agreement dated July 1, 1986; that Letter Agreement dated
November 19, 1987; that Letter Agreement dated December 1, 1988; that
Letter Agreement dated July 30, 1992; that Assignment Conveyance and Bill
of Sale effective as of January 1, 1993; that Letter Agreement dated
March 8,, 1993; that Letter Agreement dated October 21, 1993; that Letter
Agreement dated October 18, 1994; that Letter Agreement dated January 30,
1995; that Letter Agreement dated August 30, 1995; that Letter Agreement
dated October 3, 1995; that Letter Agreement dated October 31, 1995; that
Letter Agreement dated December 21, 1995; that Letter Agreement dated
April 25, 1996; that Letter Agreement dated January 29, 1997; and that
Letter dated April 11, 1997 (filed herewith).
E-1
<PAGE>
10.8 Natural Gas Sale and Purchase Agreement dated July 20, 1992 between Shell
Canada Limited and the Company, as amended by that Letter Agreement dated
August 23, 1993; that Amending Agreement effective as of November 1,
1994; and that Schedule A Incorporated Into and Forming a Part of
That Natural Gas Sale and Purchase Agreement, effective as of November 1,
1996 (filed herewith).
10.9 Employee Stock Ownership Plan Trust Agreement (incorporated by reference
to Exhibit 10.2 to Registrant's Registration Statement on Form S-1, File
No. 33-1672).
10.10 1992 Stock Option Plan (filed herewith).
10.11 Form of Incentive Stock Option under the 1992 Stock Option Plan (filed
herewith).
10.12 Management Incentive Plan (filed herewith).
13.1 Portions of the Company's 1996 Annual Report to Shareholders (previously
filed).
21.1 Subsidiaries of the Company (filed herewith).
23.1 Consent of Independent Auditors (filed herewith).
27.1 Financial Data Schedule (filed herewith).
E-1
<PAGE>
[LETTERHEAD]
RESTATED CERTIFICATE OF
INCORPORATION
I, FRANK MURRAY, Secretary of State of the State of Montana, do hereby
certify that duplicate originals of Restate Articles of Incorporation of
GREAT FALLS GAS COMPANY
and Statement on Adoption thereon duly executed pursuant to the provisions of
Section 35-1-213 of the Montana Code Annotated have been received in my office
and found to conform to law.
NOW, THEREFORE, I, FRANK MURRAY, as such Secretary of Sate, by virtue of
the authority vested in me by law, HEREBY ISSUE this Restated Certificate of
Incorporation of Incorporation of
GREAT FALLS GAS COMPANY
and attach hereto a duplicate original of the Restated Articles of Incorporation
and the Statement on Adoption thereon.
IN WITNESS WHEREOF, I have
hereunto set my hand and affixed
the Great Seal of the State of
Montana, at Helena, the Capital
this 24th day of November, A.D. 1980.
/s/ Frank Murray
FRANK MURRAY
Secretary of State
/s/ Leonard C. Larson
By Leonard C. Larson
Chief Deputy
<PAGE>
281111
RESTATED ARTICLES OF INCORPORATION STATE OF MONTANA
FILED
OF NOV 24 1980
FRANK MURRAY
GREAT FALLS GAS COMPANY SECRETARY OF STATE
/s/ Frank Murray
Pursuant to the provisions of Section 58 of the Montana Business
Corporation Act (Section 35-1-213, MCA (1978)), the undersigned corporation,
pursuant to a resolution duly adopted by its Board of Directors, hereby adopts
the following Restated Articles of Incorporation:
FIRST: The name of the corporation is Great Falls Gas Company.
SECOND: The duration of the corporation is to be perpetual.
THIRD: The purposes for which the corporation was and is organized are as
follows:
(a) To acquire by purchase that certain gas franchise known as "Ordinance
No. 310", passed by the city council of the City of Great Falls, Montana, on the
20th day of January, 1908, and approved by the Mayor of said City on the 21st
day of January, 1908, being a grant to Charles U. Gordon, his associates,
successors and assigns, of the right to construct, maintain and operate a plant
for the manufacture, sale and distribution of illuminating and fuel gas and
their by-products, and to use the streets, alleys and public places of said City
therefor, and thereafter to own, said gas franchise and to use and enjoy the
same according to the nature thereof. (As originally pro-
-1-
<PAGE>
vided in the Articles of Incorporation filed February 11, 1909.)
(b) To acquire, own and hold lands, buildings, tanks, machinery, pipes and
pipe lines, and any and all suitable appliances for manufacturing, producing,
and distributing illuminating and fuel gas, and by-products, and any and all
other illuminant products for lighting, heating, and any and all other
beneficial uses and purposes to which they may be applied. (As originally
provided in the Articles of Incorporation filed February 11, 1909.)
(c) To acquire, hold and operate machinery and other property for the
purpose of generating and transmitting electricity, electric energy and electric
light, heat and power; and to supply such gas and illuminant products, heat and
light to the said City of Great Falls, and to the inhabitants thereof, or to any
other useful purpose. (As originally provided in the Articles of Incorporation
filed February 11, 1309.)
(d) To acquire and hold mineral lands and rights to prospect for, bore,
sink wells, produce, pipe and transport natural gas, oil and petroleum; and to
refine, store and deal in petroleum and other oils and their products and
by-products; to operate and maintain oil and natural gas wells, with suitable
tanks and pipe lines for the same; and to acquire, own, dispose of, develop and
operate mines of coal and coal lands. (As originally provided in the Articles of
Incorporation filed
-2-
<PAGE>
February 11, 1909.)
(e) To incur indebtedness in such amount as may be deemed necessary or
proper; to evidence such indebtedness by the bonds or other written obligations
of this corporation; and to secure the payment of such indebtedness by mortgage,
deed of trust, or other form of incumbrance of and upon all or any part of the
property, rights, privileges and franchises of this corporation, whether
acquired at the time of making such incumbrance or thereafter to be acquired.
(As originally provided in the Articles of Incorporation filed February 11,
1909.)
(f) To carry on any other business, or to do any other thing in connection
with the objects and purposes above mentioned that may be necessary or proper to
successfully accomplish or promote said subjects and purposes. And to do any and
all other acts and things, and to exercise any and all other powers, which a
copartnership or natural person could do and exercise, and which now or
hereafter may be authorized by law. (As originally provided in the Articles of
Incorporation filed February 11, 1909.)
(g) To engage in any lawful act or activity for which corporations may be
organized under the Montana Business Corporation Act.
(h) To do each and every thing necessary, proper or convenient for the
accomplishment of any such purposes.
-3-
<PAGE>
FOURTH: The aggregate number of shares which the corporation now has
authority to issue is One Hundred Twenty Thousand (120,000) shares of the par
value of One Dollar and Fifty Cents ($1.50) each, of which Eighty-Seven Thousand
Five Hundred Forty-Four (87,544) shares are issued and outstanding, including
Nine Hundred Thirty-Eight (938) shares of treasury stock. The stated capital of
the corporation is One Hundred Thirty-One Thousand Three Hundred Sixteen Dollars
($131,316.00).
FIFTH: The Bylaws of this corporation may be altered, amended, or
additional provisions adopted by a majority vote of all of the capital stock
represented in any regular or special meeting of the stockholders, or by a
majority of the directors in any regular or special meeting of the Board of
Directors.
SIXTH: The current address of the initial registered
office of the corporation is:
725 Central Avenue
P. O. Box 2229
Great Falls, Montana 59403.
And the name of its current registered agent at such
Address
Larry D. Geske
SEVENTH: The number of directors now constituting the Board of Directors of
the corporation is seven (7).
-4-
<PAGE>
The foregoing Restated Articles of Incorporation correctly set forth
without change the corresponding provisions of the Articles of Incorporation as
herein and as heretofore amended, and supersede the original Articles of
Incorporation and all amendments thereto. DATED this 1st day of May, 1980.
GREAT FALLS GAS COMPANY
BY: /s/ Larry D. Geske
------------------------------
LARRY D. GESKE, President
ATTEST:
/s/ Robert W. Creek
- ---------------------------
ROBERT W. CREEK, Secretary
VERIFICATION
------------
STATE OF MONTANA )
: ss.
County of Cascade )
On this 25th day of August, 1980, before me, the undersigned, a Notary
Public for the State of Montana, personally appeared LARRY D. GESKE and ROBERT
W. CREEK, known to me to be the president and secretary, respectively, of GREAT
FALLS GAS COMPANY, and they, upon their oath, acknowledged to me that such
corporation executed the foregoing Restated Articles of Incorporation of Great
Falls Gas Company and that the statements therein contained are true.
/s/ William Quast
---------------------------------------
Notary Public for the State of Montana
Residing at Great Falls, Montana
My Commission expires: June 16, 1981
(NOTARIAL SEAL)
-5-
<PAGE>
ARTICLES OF AMENDMENT TO ARTICLES OF
INCORPORATION
The name of the Corporation is the Great Falls Gas Company.
The following is the Article of Amendment to the Articles of Incorporation for
Great Falls Gas Company:
[STAMP]
RESOLVED, that the Shareholders amend the Articles of Incorporation, in
order to increase the number of authorized shares of Common Stock, to effect a
10-for-1 split of the Company's Common Stock and to authorize preferred shares
of Preferred Stock, and to establish the par value of said authorized shares,
such amendment to be effective June 15, 1984, and that to that end Article
Fourth be changed to read as follows:
"FOURTH. The total authorized number of shares of this Corporation is
5,000,000, of which 3,500,000 shall be shares of Common Stock of the par
value of $.15 each and of which 1,500,000 shall be shares of preferred stock
of the par value of $.15 each. The shares of Preferred Stock may be issued
from time to time by the Board of Directors in one or more series with such
designations, relative rights, preferences, limitations, dividend rates,
redemption prices, liquidation prices, conversion rights, sinking or purchase
fund rights, and other provisions as the Board of Directors may establish,
fix and determine. The holders of shares of Common Stock shall have one vote
for each share of Common Stock held on each matter submitted to the holders
of shares of Common Stock."
The date of adoption was May 10, 1984, which was the date of a Special
meeting of the Stockholders. There are 86,606 shares of common stock Outstanding
and entitled to vote. The corporation only had one class of stock at the time of
the vote. The holders of 81,066 shares of stock attended, in person or by proxy,
the Special Meeting of Stockholders. The following votes here received:
80,838 votes "for"
161 votes "against"
67 votes "abstained"
The 10-for-1 split of the Company's common stock requires the
issuance of 9 additional shares to each holder of shares, as of the effective
date of June 1984. The transfer agent will send the additional shares along with
a note of explanation signed by the President of the Corporation.
/s/Larry D. Geske /s/ William Quast
- ----------------------- ------------------------
President Secretary
<PAGE>
SECRETARY OF STATE
STATE OF MONTANA
CERTIFICATE OF AMENDMENT
TO THE CERTIFICATE OF INCORPORATION
I, JIM WALTERMIRE, Secretary of State of the State of Montana, do hereby
certify that the Articles of Amendment to the Articles of Incorporation of GREAT
FALLS GAS COMPANY, a Montana profit corporation, duly executed pursuant to the
provisions of Section 35-1-210, Montana Code Annotated, have been received in my
office and conform to law.
NOW, THEREFORE, I, JIM WALTERMIRE, as such Secretary of State, by virtue of
the authority vested in me by law, hereby issue this Certificate of Amendment to
the Certificate of Incorporation of GREAT FALLS GAS COMPANY, a Montana profit
corporation, and attach hereto a copy of the Articles of Amendment to the
Articles of Incorporation.
.
IN WITNESS WHEREOF, I
have hereunto set my hand and
affixed the Great Seal of the
State of Montana, at Helena,
the Capital, this December 10,
A.D. 1987.
/s/ Jim Waltermire
JIM WALTERMIRE
Secretary of State
<PAGE>
GREAT FALLS GAS COMPANY ARTICLES OF INCORPORATION
ARTICLES OF AMENDMENT
Pursuant to the provisions of the Montana Business Corporation Act ( MCA Section
35-1-207 et seq.), Great Falls Gas Company submits its Articles of Amendment as
follows:
1. The name of the corporation is Great Falls Gas Company.
2. The amendment adopted by its shareholders reads as follows:
EIGHTH. A director of the corporation shall not be personally liable
to the corporation or its shareholders for monetary damages for breach
of fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to the corporation or its
shareholders, (ii) for acts or omissions that constitute willful
misconduct, recklessness, or a knowing violation of law, (iii) under
Section 409 of the Montana Business Corporation Act, or (iv) for a
transaction from which the director derives an improper personal
benefit. If the Montana Business Corporation Act is hereafter amended
to authorize further elimination or limitation of the liability of a
director then the liability of a director of the corporation shall be
eliminated or limited to the fullest extent permitted by the Montana
Business Corporation Act, as so amended., Any repeal or modification
of the foregoing provisions of this Article Eight shall not adversely
affect any right or protection of a director of the corporation
existing at the time of such repeal or modification.
3. On August 25th the Board of Directors for Great Falls Gas Company adopted a
resolution proposing to amend the Articles of Incorporation in the above manner.
On November 5th shareholders approved that amendment at the annual shareholders
meeting.
4. The number of shares outstanding at the time of the annual meeting was
1,001,146. The number of shares entitled to vote was 991,766. At the time of the
annual meeting the Company had only one authorized class of stock.
5. The number of shares voted in favor of the amendment was 511,728. The number
of shares voted in opposition to the amendment was 14,800.
6. The amended article does not provide for exchange, reclassification or
cancellation of issued shares.
-1-
<PAGE>
Dated this 7th day of December, 1987.
By: /s/ Larry D. Geske
---------------------------
Larry D. Geske, President
Attest:
/s/ John C. Allen
- -----------------------------------
John C. Allen, Assistant Secretary
VERIFICATION
STATE OF MONTANA )
: ss.
County of Cascade )
On the 7th day of December, 1987, before me, the undersigned, a Notary
Public for the State of Montana, personally appeared LARRY D. GESKE, and JOHN C.
ALLEN, known to me to be the president and assistant secretary, respectively, of
GREAT FALLS GAS COMPANY, and they, upon their oath, acknowledged to me that such
corporation executed the foregoing Restated Articles of Incorporation of Great
Falls Gas Company and that the statements therein contained are true.
/s/ Cheryl Johnson
---------------------------------------
Notary Public for the State of Montana
Residing at Great Falls, Montana
My commission expires: February 21, 1988
(NOTARIAL SEAL)
-2-
<PAGE>
GREAT FALLS GAS COMPANY ARTICLES OF INCORPORATION
ARTICLES OF AMENDMENT
Pursuant to the provisions of the Montana Business Corporation Act (MCA 35-1-230
et seq.) Great Falls Gas Company submits its Articles of Amendment as follows:
1. The name of the corporation is Great Falls Gas Company.
2. At the Shareholders meeting held November 18, 1993, a majority of its
Shareholders adopted the following proposals:
1. To change the corporate name from Great Falls Gas Company to ENERGY
WEST, Incorporated,
2. To amend the Articles of Incorporation to allow for the election of a
range in the number of Directors from five to nine.
Therefore, the Articles of Incorporation shall be changed to replace the
name Great Falls Gas Company throughout the Articles of Incorporation,
wherever it appears with the name ENERGY WEST, Incorporated.
Furthermore, consistent with proposition Number 2 above, Article 3.2 shall
be changed to read as follows:
Section 3.2 Number, Qualification and Term of Office. The number of
directors which shall constitute the whole Board shall be determined by
resolution of the Board of Directors except that the number of directors
shall not be less than five or more than nine. Each director shall own at
least ten shares of capital stock of the Company. The term of office shall
be one year unless the Board of Directors by resolution implement staggered
terms consistent with the requirements of prevailing law. The terms of
directors, if staggered, shall be two years.
3. On November 18, 1993 the Board of Directors for Great Falls Gas Company
adopted a resolution proposing to amend the Articles of Incorporation in
the above manner. On November 18, 1993 shareholders approved that amendment
at the annual shareholders meeting.
4. The number of shares outstanding at the time of the annual meeting was
1,085,724. The number of shares entitled to vote was 1,085,724. At the time
of the annual meeting the Company had only one authorized class of stock.
5. The number of shares voted in favor of Proposal No. 1, the Name Change
amendment, was 951,716. The number of shares voted in opposition to the
amendment was 16,091.
<PAGE>
The number of shares voted in favor of the Proposal No. 2, Number of
Directors, was 941,505. The number of shares voted in opposition to the
amendment was 25,597.
6. The amended article does not provide for exchange, reclassification or
cancellation of issued shares.
Dated this 21st day of December, 1993.
By: /s/ Larry D. Geske
----------------------------------
Larry D. Geske, President and CEO
VERIFICATION
STATE OF MONTANA )
: ss.
County of Cascade )
On the 20th day of December, 1993, before me, the undersigned, a Notary Public
for the State of Montana, personally appeared LARRY D. GESKE, known to me to be
the President and CEO of ENERGY WEST, Incorporated, and upon his oath,
acknowledged to me that such corporation executed the foregoing Articles of
Amendment of ENERGY WEST, Incorporated and that the statements therein contained
are true.
/s/ Cheryl Johnson
- -----------------------------------------
Notary Public for the State of Montana
Residing at Great Falls, Montana
My commission expires: February 21, 1994
<PAGE>
BY LAWS OF ENERGY WEST, INC.
ARTICLE I
OFFICES
Section 1.1. PRINCIPAL OFFICE. The principal office of Great Falls Gas
Company, a Montana corporation, (hereinafter called the "Company"), shall be in
the City of Great Falls, County of Cascade, State of Montana.
Section 1.2. OTHER OFFICES. The Company may also have an office in the City
of Chicago, County of Cook, State of Illinois, and also an office or offices at
such other places either within or without the State of Montana as the board of
Directors (hereinafter called the "Board") may from time to time determine, or
the business of the Company may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 2.1. PLACE OF MEETINGS. All meetings of stockholders shall be held
at the principal office of the Company in Montana.
Section 2.2. ANNUAL MEETINGS. Commencing with the year 1951 an annual
meeting of the stockholders of the Company shall be held on the first Thursday
of April in each year if not a legal holiday, and if a legal holiday, then on
the next succeeding business day not a legal holiday. At each annual meeting,
directors shall be elected by stockholders in accordance with the provisions of
the Articles of Incorporation of the Company (hereinafter called the "Articles
of Incorporation") and these By-Laws. Each such annual meeting shall be a
general meeting, open for the transaction of any business within the powers of
the Company, without special notice of such business, except in any case where
special notice may be required by the laws of the State of Montana.
Section 2.3. SPECIAL MEETINGS OF STOCKHOLDERS. Special meetings of
stockholders for any purpose of purposes may be called at any time by the Board
or the President and shall be called by the Board or the President or the
Secretary upon the request in writing of a stockholder or stockholders holding
of record at least one-fifty of the number of outstanding shares of stock
entitled to vote at such meeting, provided that any such request shall state the
purpose or purposes of the proposed meeting.
1
<PAGE>
Section 2.4. NOTICE OF MEETINGS. Except as otherwise provided by law, or by
the Articles of Incorporation or by the By-Laws, written notice of each annual
and special meeting of stockholders shall be given by at the direction of the
President or the Secretary, or, in case of a special meeting, by the officer or
the person calling the meeting as provided in these By-Laws, either personally
or by mail, not more than 40 days and not less than 10 days before the meeting,
to each stockholder of record entitled to vote there at. Every such notice shall
state the place, day and hour of the meeting, and, in the case of a special
meeting, shall state briefly the purpose or purposes thereof.
Section 2.5. QUORUM AND ADJOURNMENTS. For the purpose of any action to be
taken by stockholders at any meeting, the presence in person or by proxy of the
holders of a majority vote there at shall be necessary to constitute a quorum
for the transaction of business except as otherwise expressly provided by law.
If for any reason there is not present a quorum at any meeting as hereinbefore
provided, the stockholders present or represented at the meeting may adjourn,
and such adjournment and the reasons therefor shall be recorded in the journal
of the proceedings of the meetings of stockholders. If from any cause an
election does not take place on the day appointed in these By-laws, it may be
held on any day thereafter as shall be designated by a majority vote of the
stockholders present or represented at such meeting, or to which such election
may be adjourned or ordered by the Board. At any such adjourned meeting, at
which a quorum shall be present or represented, any business may be transacted
which might have been transacted at the meeting as originally notified. The
absence from any meeting of the number required by law or by the Articles of
Incorporation or these By-laws for action upon any given matter shall not
prevent action at such meeting upon any other matter or matters which may
properly come before the meeting if the number required in respect of such other
matters shall be present. Any regularly called meeting of stockholders may
adjourn from day to day, from time to time.
Section 2.6. ORGANIZATION. Except as otherwise provided by law, at any
meeting of stockholders, the President, or, in the absence of the President, the
Vice President, or, in the absence of both the President and the Vice President,
a chairman, chosen by the vote of a majority in interest of the stockholders
present thereat in person or by proxy and entitled to vote shall act as a
chairman; and the Secretary, or in his absence, an Assistant Secretary, or in
the absence of the Secretary and all Assistant Secretaries, a person whom the
Chairman of the meeting shall appoint shall act as Secretary of the meeting.
Section 2.7. VOTING BY STOCKHOLDERS. Except as otherwise expressly provided
by law or the Articles of Incorporation, each stockholder present in person or
by proxy at any meeting shall have one vote with respect to each share of stock
registered in his name on the books of the Company:
2
<PAGE>
(a) on the date fixed pursuant to Section 8.5 hereof as the record date for
the determination of stockholders entitled to notice of and to vote at such
meeting, or
(b) in the event that no such record date shall have been fixed, then on
the date determined in accordance with Section 8.5 hereof;
provided, however, that, in all elections for Directors, every stockholder
shall have the right to vote in person or by proxy the number of shares standing
in his name, upon which he is entitled to vote, for as many persons as there are
directors to be elected, or to cumulate said shares, and give one candidate as
many votes as the number of directors multiplied by the number of his shares of
stock shall equal, or to distribute them on the same principle among as many
candidates as he shall think fit. The candidates receiving the highest number of
votes shall be deemed elected.
Any stockholder entitled to vote at any meeting may vote either in person
or by his proxy appointed by an instrument in writing, subscribed by such
stockholder, or his attorney or agent thereunto authorized in writing and
delivered to the Secretary of the meeting.
Except as otherwise expressly provided by law or by the Articles of
Incorporation, all matters to be decided by stockholders at any meeting,
shall be decided, if a quorum be present, by a plurality of the votes passed
at the meeting of the stockholders present in person, or by proxy and
entitled to vote thereon.
The vote for election of directors shall be by ballot. Unless directed by
the Chairman of the meeting or demanded by a majority in interest of the
stockholders present in person or by proxy at any meeting and entitled to
vote thereon, the vote on any other matter, other than the election of
directors need not be by ballot. Upon vote by ballot, each proxy if there be
such proxy, and shall state the number of shares voted by him. In the event
that a vote by ballot is so taken, the chairman of the meeting may, and, if
requested by any stockholder present in person or by proxy entitled to vote
thereon, shall appoint two persons to serve as inspectors of election for the
purpose of such vote. Such inspectors of election shall examine the ballots
cast upon the taking of such vote and shall report to the chairman the result
thereof.
3
<PAGE>
ARTICLE III
BOARD OF DIRECTORS
Section 3.1. GENERAL POWERS. The corporate powers, business and property of
the Company shall be exercised, conducted and controlled by the Board as from
time to time constituted.
Section 3.2. NUMBER, QUALIFICATION AND TERM OF OFFICE. The number of
directors which shall constitute the whole Board shall be six directors, each
of whom shall be the holder of at least one share of capital stock of the
Company. The term of office of each director shall be for one year and until
his successor is elected and qualified.
Section 3.3. ELECTION OF DIRECTORS. Directors shall be elected solely
from the list of persons nominated for directors at the meeting. Each
stockholder entitled to vote, present in person or by proxy, shall have the
right to nominate persons to be voted upon.
Section 3.4. PLACE OF MEETINGS. The Board may hold its meetings at the
principal place of business of the Company in the State of Montana or at the
office of the Company in the City of Chicago, Illinois, or at such other
place or places either within or without the State of Montana as the Board
may from time to time determine or shall be specified or fixed in the
respective notices or waivers of notice thereof. In case the meetings of the
Board shall be held outside the State of Montana, either the original minutes
of each meeting containing a record of all proceedings has thereat and signed
by the chairman and the secretary of such meeting or full and complete copies
or duplicates of such minutes certified by such chairman and secretary, under
the seal of the Company, shall be sent to and kept at the principal office of
the Company in Montana and shall be a part of the records in Montana.
Section 3.5. FIRST MEETINGS. A meeting of the Board for the purposes of
organization, election of officers and transaction of other business shall be
held, if practicable, at the close of each annual meeting of stockholders for
election of Directors and at the place of the holding of such election. No
notice of any such meeting held at such time and place need be given. Such
meeting may be held at any other time and place which shall be specified in a
notice given as thereinafter provided of special meetings of the Board or in
a waiver of notice signed by all the Directors.
4
<PAGE>
Section 3.6. REGULAR MEETINGS. Regular meetings of the Board may be held,
with or without notice, at such time and place as may from time to time be
specified in a resolution adopted by the Board and at the time in effect.
Section 3.7. SPECIAL MEETINGS: NOTICE. Special meetings of the Board
shall be held whenever called by the President, or by the Secretary at the
request of the President, or by not less thank two of the Directors, or not
less than one-third of the number of Directors then constituting the Board,
whichever is the greater. Notice of such meetings shall be given to each
Director at least 48 hours before the time fixed for such meeting, and such
notice may be given in person or by mail, telegraph, or cable. Every such
notice shall state the time and place of the meeting, but need not state the
purposed thereof except as otherwise by law or in these By-Laws expressly
provided.
Section 3.8. QUORUM: MANNER OF ACTING. At each meeting of the Board the
presence of a majority of the full number of Directors shall be necessary to
constitute a quorum and sufficient to form a Board for the transaction of
business. Any act and every decision of a majority of the Directors present
at a meeting at which a quorum shall be present and forming such Board shall
be the act of the Board, except as may be otherwise specifically provided by
law or these By-Laws. Any meeting of the Board may be adjourned by a majority
vote of the Directors present at such meeting. In the absence of a quorum at
such meeting, a majority of the Directors present thereat may adjourn such
meeting from time to time until a quorum shall be present thereat. Notice of
any adjourned meeting need not be given. The Directors shall act only as a
Board, and the individual Directors shall have no power as such.
Section 3.9. ORGANIZATION. At all meetings of the Board, the President,
or, in the absence of the President, a Director chosen by the Board, shall
act as Chairman. The Secretary, or, in his absence, the Assistant Secretary
of the Company, or, in the absence of the Secretary and all Assistant
Secretaries, a person appointed by the chairman of the meeting shall act as
Secretary of the meeting.
Section 3.10. COMPENSATION. Directors shall be entitled to receive such
fees and expenses, if any, for attendance at meetings of the Board of
Directors, and/or fixed salaries for services as Directors, as may be fixed
from time to time by resolution of the Board. Directors may also receive
compensation for services rendered to the Company as officers, members of the
Executive Committee or other committee, or in any other capacity.
Section 3.11. VACANCIES. If the office of any director or directors
becomes vacant by reason of death, resignation, retirement, disqualification,
or otherwise, such vacancy or vacancies shall except as otherwise provided by
law of these By-
5
<PAGE>
Laws, be filled by an appointee of the remaining Directors, such appointee to
hold office for the unexpired term in respect of which the vacancy occurred
and until the next annual election of Directors.
ARTICLE IV
EXECUTIVE COMMITTEE AND OTHER COMMITTEES
Section 4.1. DESIGNATION: TERM: VACANCIES. The Board, by resolution
passed by a majority of the whole Board, may designate two or more Directors,
as it may from time to time determine, to constitute together with the
President as an ex-officio member, an Executive Committee, and may designate
one or more other Directors to serve as alternates for the members thereof in
such order and manner as may be fixed of the Executive Committee, and the
Secretary, or in his absence an Assistant Secretary, shall be the Secretary
of the Executive Committee. Any vacancy which may occur in the Executive
Committee shall be filled by the Board at any regular or special meeting
thereof.
Section 4.2. POWERS. To the extent provided in the resolution of the
Board establishing the Executive Committee, and to the extent permitted by
law, the Executive Committee shall have all of the powers vested in the Board
by law or by these By-Laws in the management of the property, business and
affairs of the Company, and such specific powers as may from time to time be
conferred upon the Executive Committee by resolution of the Board, and may
exercise such powers in such manner as the Executive Committee shall deem for
the best interests of the Company in all cases in which specific directions
shall not have been given by the Board; provided, however, that the Executive
Committee shall have no power to make any change in the By-Laws. All action
taken by the Executive Committee shall be subject to revision or alteration
by the Board; provided, however, that such revision or alternation shall not
affect any action taken by any officer or employee of the Company, or by any
third party, or any rights of third parties that have vested, in reliance
upon any action or direction of the Executive Committee.
Section 4.3. PROCEDURE: MEETINGS,: VOTING: RECORDS. The Executive Committee
may prescribe, for the conduct of its business, such rules and regulations, not
inconsistent with these By-Laws, or with such resolution of r the guidance and
control of the Executive Committee as may from time to time be passed by the
Board, as it shall deem necessary or desirable, including, without limitation,
rules fixing the time and place of meetings and the notice to be given thereof,
if any. A majority of the member of the Executive Committee shall constitute a
quorum. The affirmative vote of a majority of the whole Executive Committee, as
from time to time constituted, shall be necessary for the adoption of any
resolution or the taking of any other action. The Executive Committee shall
6
<PAGE>
keep a record of all action taken by it.
Section 4.4. OTHER COMMITTEES. The Board may from time to time by
resolution create such other committee or committees (in addition to the
Executive Committee) of Directors, officers, employees or other person
designated by it with such authority, function, and duties and compensation
as the Board shall by resolution prescribe. Each such committee passed by a
majority of the whole Board, and shall consist upon them by the resolution
creating such committee. A majority of all the members of any such committee
may determine the action and fix the time and place of its meetings, unless
the Board shall otherwise provide. The Board shall have power to change the
members of any such committee at any time, to fill vacancies, and to
discharge any such committee, either with or without cause, at any time.
ARTICLE V
OFFICERS
Section 5.1. DESIGNATION. The principal officers of the Company shall be
a President, one or more Vice Presidents (one of whom maybe designated as
the Senior or Executive Vice President), a Secretary, and a Treasurer; and
there may be, in addition, such appointive officer, agents and employees as
shall be appointed in accordance with the provisions of Section 4.4 of these
By-Laws. Two or more offices may be held by the same person, except the
offices of President and Secretary.
Section 5.2. ELECTION: QUALIFICATIONS. The principal officers of the
Company shall be elected annually by the Board at its first meeting following
the annual meeting of shareholders. The person receiving the greatest number
of votes cast for any principal office at a meeting of the Board for the
election of officers, a quorum being present, shall be deemed elected to such
office. The President shall be elected from among the Directors.
Section 5.3. TERM OF OFFICE: REMOVAL. Unless sooner removed, each
principal officer of the Company shall hold office until his successor shall
have been elected and qualified, but any principal officer may be removed
from office at any time at the pleasure of the Board.
Section 5.5. APPOINTIVE OFFICERS AND AGENTS. The Board may appoint such
officers, other than principal officers, including one or more Assistant
Secretaries, and Assistant Treasurers, and such agents and employees, as the
Board may deem necessary or advisable, each of whom shall hold office or his
position, as the case may be, for such period, have in these By-Laws or as
the Board may from time to
7
<PAGE>
time determine. The Board may delegate to any principal officer or to any
committee the power to appoint, remove, fill vacancies, define the tenure of
office or position, and prescribe the duties and responsibilities of any such
appointive officers, agents or employees.
Section 5.6. SALARIES. The compensation of all officers, agents and
employees of the Company shall be fixed from time to time by the Board, but,
in the absence of a determination by the board, the President or any other
principal officer of the Company designation by him shall have the power to
fix and determine the compensation to be paid appointive officers (other than
principal officers), agents and employees of the Company.
Section 5.7. BONDS. The Treasurer and any Assistant Treasurer and such
other officers and agents of the company as the Board shall prescribe may
each be required by the Board to give bond to the Company in such form and
amount and with such surety and upon such conditions as the Board may
determine. The Company may pay any reasonable premium cost of such bonds.
Section 5.8. EMPLOYMENT CONTRACTS. Every contract of employment for
services to be rendered to the Company shall be at the pleasure of the
Company unless paid contract of employment is in writing, signed by officers
of the company, and approved or authorized by the Board.
Section 5.9. PRESIDENT. The President shall be the executive officer of
the Company; shall preside at meetings for the election of Directors and at
other meetings of stockholders and at meetings of the Board and of the
Executive Committee; subject to the control and direction of the Board, shall
have general supervision, control and management of the affairs and business
of the Company, and general charge and supervision of all the officers,
agents and employees of the company, and shall see that all orders and
resolutions of the Board are carried into effect; shall sign with the
Secretary any or all certificates of shares of stock of the Company; shall
sign and execute in the name of the company all deeds, mortgages, bonds,
contracts or other instruments authorized by the Board, except in cases where
the signing and execution thereof shall be expressly delegated by the Board
or these By-Laws to some other officer or agent of the company; and in
general shall exercise all powers and perform all duties incident to the
office of President and such other powers and duties as may from time to time
be assigned to him by the Board or be prescribed by these By-Laws.
8
<PAGE>
Section 5.10. VICE PRESIDENT. At the request of the President, or during
his absence or disability, a Vice President shall exercise the powers and
perform the duties of the President. Each Vice President shall exercise such
other powers and perform such other duties as may from time to time be
assigned to him by the Board or by the President or prescribed by these
By-Laws. In case there shall be more than one Vice President, the foregoing
shall apply to all the Vice Presidents in the order of there seniority.
Section 5.11. SECRETARY. The Secretary shall attend all meetings of the
Board and all meetings of stockholders and shall be and act as the secretary
of such meetings; shall keep a journal of such meetings in the manner
provided in these ByLaws; shall give, or cause to be given, all notices
provided for in these By-Laws or required by the Articles of Incorporation or
by law; shall be custodian of the records and of the seal of the Company and
see that the seal is affixed to all documents the execution of which on
behalf of the Company under its seal is duly authorized in accordance with
these By-Laws; shall have charge of the Stock and Transfer Book of the
Company, and shall keep or cause to be kept said book in the manner provided
in these By-Laws; shall have charge of all books, records and papers of the
Company relating to its organization as a corporation, and shall see that all
reports, statements, and other documents required by are properly kept or
filed by the Treasurer or some other officer; shall sign with the President
any or all certificates of shares of stock of the company; and in general
shall exercise all powers and perform all duties incident to the office of
Secretary and such other powers and duties as may from time to time be
assigned to him by the Board or the President or be prescribed by these
By-Laws.
Section 5.12. ASSISTANT SECRETARIES. The Assistant Secretaries shall
assist at all time in the performance of the duties of the Secretary, subject
to his control and direction, and, in the absence of the Secretary, the
Assistant Secretary designated therefor by the President, or in the absence
of such designation, and Assistant Secretary, shall exercise the powers and
perform the duties of the Secretary. The Assistant Secretaries shall exercise
such other powers and perform such other duties as may from time to time be
assigned to them by the Board or the President to be prescribed by these
By-Laws.
Section 5.13. TREASURER. Subject to order of the Board or the President,
or as provided for in these By-Laws, the Treasurer shall have the custody of
the corporate fund and securities; shall keep, or cause to be kept, full and
accurate books and records of account of the Company; shall deposit all
moneys and other valuable effects in the name and to the credit of the
Company, in such depositaries as may be designated by the Board; shall
disburse the funds of the Company as may be ordered by the Board, taking
proper vouchers for such disbursements; shall render to the President and
Directors at the regular meeting of the Board, or whenever they
9
<PAGE>
may require it, an account of all his transactions as Treasurer and of the
Financial condition of the Company; and in general shall exercise all powers
and perform all duties incident of the office of Treasurer and such other
powers and duties as may from time to time be assigned to him by the Board,
or the President or be prescribed by these By-Laws.
Section 5.14. ASSISTANT TREASURERS. The Assistant Treasurers shall assist
at all times in the performance of the duties of the Treasurer, subject to
his control and direction, and in the absence of the Treasurer, the Assistant
Treasurer designated therefor by the President, or, in the absence of such
designation, any Assistant Treasurer, shall exercise the powers and perform
the duties of the Treasurer. The Assistant Treasurers shall exercise such
other powers and perform such other duties as may from time to time be
assigned to them by the Board or the President or be prescribed by these
By-Laws.
ARTICLE VI
INDEMNIFICATION
Section 6.1. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Each director or
officer, and their personal representatives, of the Company, shall be
indemnified by the Company against claims, liabilities, expenses, and costs
actually and necessarily incurred by him or his estate in connection with or
arising out of, any action, suit or proceeding in which he is made a party by
reason of his being, or having been an officer or director of the Company, or
of any other company fifty per centum (50%) or more of the voting stock of
which is owned by the Company and which he serves as a Director or officer at
the request of the Company; provided that the Company shall not indemnify
such Director or officer with respect to any matters as to which he shall be
finally adjudged in such action, suit or proceeding to have been liable for
actual negligence or misconduct in the performance of his duties as such
Director or officer. The indemnification herein provided for shall also apply
in respect of any amount paid in compromise of any such claim asserted
against such Director or officer (including expenses and cost actually and
necessarily incurred in connection therewith), provided the Board shall have
first approved such proposed compromise settlement and determined that the
Director or officer involved was not guilty of actual negligence or
misconduct; but in taking such action, any Director involved shall not be
qualified to vote thereon, and if for this reason a quorum of the Board
cannot be obtained to vote on such matter, it shall be determined by a
majority of the disinterested members of the Board, whether or not a quorum,
or such matter may be determined by a committee of three (3) disinterested
stockholders appointed by the stockholders at a duly called special or
regular meeting. As to whether or not a Director or officer was guilty of
actual negligence or misconduct in relation to any such matters, the Board
and each
10
<PAGE>
Director and officer may conclusively rely upon an opinion of independent legal
counsel selected by the Board or by the disinterested members of the Board or by
said stockholders committee, as the case may be.
ARTICLE VII
CHECKS, CONTRACTS, LOANS, BANK ACCOUNT, ETC.
Section 7.1. CHECK, DRAFTS, ETC. All checks, drafts, bill of exchange or
other orders for the payment of money, obligations, notes, or other evidences
of indebtedness, bills of lading, warehouse receipts and insurance
certificates of the company shall be signed or endorsed by such officer or
officers, agent or agents, employee or employees of the Company as shall from
time to time be designated by the Board.
Section 7.2. CONTRACTS. Unless authorized so to do by these By-Laws or
the Board, no officer, agent or employee shall have any power or authority to
bind the Company by any contract or engagement or to pledge its credit or to
render it liable pecuniarily for any purpose or to any amount. The board may
authorize one or more officers, agents or employees of the Company to enter
into any contract or execute and deliver any contract or other instrument in
the name and on behalf of the Company, and such authority may be general or
be confined to specific instances.
Section 7.3. LOANS. No loans shall be contracted on behalf of the
Company, and no negotiable paper shall be issued in its name, unless
authorized by the Board. When so authorized, the officer or officers
thereunto authorized may effect loans and advances at any time of the Company
from any bank, trust Company or other institution or from any person, firm,
association or corporation, and or such loans and advances may make, execute
and deliver promissory notes or other evidences of indebtedness of the
Company and, when authorized as aforesaid, as security for the payment of any
and all loans, advances, indebtedness and liabilities of the company, may
mortgage, pledge, hypothecate or transfer any real or personal property at
the time or thereafter held or to be held by the Company and to that end
execute instruments of mortgage or pledge or otherwise transfer such
property. Such authority may be general or be confined to specific instances.
No loan of money shall be made by the Company to any stockholder thereof.
Section 7.4. DEPOSITS: BANK ACCOUNTS. All funds of the Company shall be
deposited from time to time to the credit of the company in such general or
special bank account or as the Board may from time to time designate, or as
may be designated by any officer or officers of the Company to whom the power
to do so may be delegated by the Board. The Board may make such special rules
and regulations with respect thereto, not inconsistent with the provisions of
these By-
11
<PAGE>
Laws, as it may deem expedient.
Section 7.5. PROXIES. The Board, by resolution from time to time, and
either generally or in specific instances, or the President, unless the Board
shall have acted, may appoint an attorney or attorneys or agent or agents of the
Company, in its name and behalf, to cast the votes, which the Company may be
entitled to cast as a shareholder or otherwise in any other corporation any of
whose stock or other securities may be held by the Company, at meetings of the
holders of the stock or other securities of such other corporation, or to
consent tin writing to any action by such other corporation. Unless otherwise
ordered by the Board, the present, or any other person designated by him for the
purpose, shall have the full power and authority in behalf of the company to
attend and to act and to vote at any meetings of holders of stock or other
securities of any corporation in which the Company may hold stock or securities,
and, at any such meeting, shall possess and may exercise any and all the rights
and powers incident to the ownership of such stock or securities.
ARTICLE VIII
SHARES AND THEIR TRANSFER
Section 8.1. CERTIFICATES FOR SHARES. Certificates for shares of stock of
the Company shall be in such form as shall be approved by the Board. Each
such certificate shall bear the corporate seal or a facsimile thereof and
shall be signed by the President and the Secretary of the Company. In case
any officer or officers who shall have signed any such certificate or
certificates shall cease to be such officer or officers before such
certificate or certificates shall have been issued by the Company, such
certificate or certificates may none the less be adopted by the Company and
be issued and delivered as though the person or person who signed such
certificates or certificates had not ceased to be such officer or officers.
Section 8.2. TRANSFER OF SHARES. Transfer of shares of stock of the
Company, whether part paid or full paid, shall be made only on the books of
the Company, on payment of all taxes thereon and such shares (except as
hereinafter provided in the case of loss, destruction or mutilation of
certificates) properly endorsed by the holder thereof, or accompanied by
proper evidence of succession, assignment or authority to transfer, and
delivered to Secretary of the Company or a transfer agent, if any, of the
company. In addition to such other evidence of succession, assignment or
authority to transfer as may be required by the Company, President, or
Directors of Company may require when shares are owned by person residing out
of the of Montana and before entering any transfer of the shares on the books
of the Company or issuing a certificate therefor to the transferee, from
attorney or agent of the non-resident owner, or from person claiming under
the transfer, an
12
<PAGE>
affidavit or other evidences, that the non-resident owner was alive at the
date of the transfer, and if such affidavit or other satisfactory evidence is
not furnished, may require from the attorney, agent or claimant, a bond of
indemnity, with two sureties, satisfactory to the office of the Company or,
if not so satisfactory, then one approved by the judge of the District Court
of county in which the principal office of the Company is situated,
conditioned to protect the Company against any liability to the legal
representatives of the owners of the shares, in case of his or her death
before the transfer; and if such affidavit or other evidence or bond be not
furnished when required as herein provided, neither the Company nor any
officer thereof, shall be liable for refusing to enter the transfer on the
book of the Company.
A person in whose name shares of stock stand on books of Company shall be
deemed the owner thereof as regards the Company, and, upon any transfer of
shares, the person or persons into whose name or names such shares shall be
transferred on books of the Company shall be substituted for the person or
person out of whose name or names such shares shall have been transferred
with respect to all rights, privileges and obligations of holders of stock of
the Company and as against the Company or any other person or persons. Except
to extent permitted and provided for by law, no transfer of shares of stock
of the Company shall be valid against the Company, its stockholders or its
creditors, for any purpose until they shall have been entered on the records
of the company as hereinbefore in this section provided, or until a new
certificate is issued to the person to whom it has been transferred. The
Company shall be entitled to treat the holder of record of any share or
shares as the holder in fact thereof and, accordingly, shall not be sound to
recognize any equitable or other claim to or interest in such share on the
part of any other person, whether or not it shall have express or other
notice thereof, except as expressly provided by law and these By-Laws.
Section 8.3. LOST, DESTROYED AND MUTILATED CERTIFICATES. The holder of
any stock of the company shall immediately notify the company of any loss,
destruction or mutilation of the certificate for any such stock, and the
Board may, in its discretion, cause to be issued to him a new certificate or
certificates of stock upon the surrender of the mutilate certificate or, in
case or loss or destruction, upon satisfactory proof of such loss or
destruction; and the board may, in its discretion, require the owner of the
lost or destroyed certificate or his legal representative to give such surety
or sureties as it may direct, to indemnify the Company against any claim that
may be made against it with respect to the certificate or certificates
alleged to have been lost or destroyed.
Section 8.4. TRANSFER AGENT AND REGISTRAR: REGULATIONS. The company
shall, if and whenever the Board shall so determine, maintain one or more
transfer officers or agencies, each in charge of a transfer agent designated
by the Board, where the share of the stock of the Company shall be directly
transferable, and/or one or more
13
<PAGE>
registry offices, each in charge or a registrar designated by the Board where
such shares of stock shall be registered, and no certificate for share of
stock of the Company, in respect of which a transfer agent and/or a registrar
shall have been designated, shall be valid unless countersigned by such
transfer agent and/or registered by such registrar. The Board may also make
such additional rules and regulations as it may deem expedient concerning the
issue, transfer and registration of certificates for shares of the stock of
the Company.
Section 8.5. CLOSING OF TRANSFER BOOKS: RECORD DATE. The Board may close
the stock transfer books of the Company for a period not exceeding forty (40)
days preceding the date of any meeting of stockholders or election to vote,
or the date for the payment of any dividend, allotment of rights, or the date
when any change or conversion or exchange of capital stock shall go into
effect or the date of any other corporate action or proceeding; provided,
however, that in lieu of closing the stock transfer books as aforesaid, the
Board may fix in advance a date not exceeding forty (40) days preceding the
date of any meeting of stockholders, election or vote, or the date of the
payment of any dividend, or the date for the allotment of rights, or the date
when any change or conversion or exchange of capital stock shall go into
effect, or the date for any other corporate action or proceeding, as a record
date for the determination of the stockholders entitled to notice of and to
vote at any such dividend, or any such allotment of rights, or to exercise
the rights in respect of any such change or conversion or exchange of capital
stock, or entitled to participate in or benefit by such other corporate
action or proceeding, and, in such case, such stockholders, and only such
stockholders, as shall be stockholders of record on the date so fixed shall
be entitled to notice of and to vote at such meeting, election or vote, or to
receive payment of such dividend, or to receive such allotment of rights, or
to exercise such rights of change or conversion or exchange of stock, or to
participate in or benefit by such other corporate action or proceeding,
notwithstanding any transfer of any stock on the books of the Company, after
any such record date fixed as aforesaid. Each share of stock entitled under
the Article of Incorporation and the laws and constitution of Montana to be
voted may, at every meeting of the stockholders, be voted by the holder of
record thereof, on the books of the Company shall have closed, or a date
shall have been fixed as the record date for the determination of its
stockholders entitled to vote, as hereinbefore provided, no share of stock
shall be voted on at any election of directors which shall have been
transferred on the books of the company within the (10) days next preceding
such election of directors.
ARTICLE IX
DIVIDENDS
Section 9.1. PAYMENTS OF DIVIDENDS. Subject to the provisions of law and the
14
<PAGE>
provisions of the Articles of Incorporation, the Board may, at any regular or
special meeting, declare a dividend out of any funds legally available for
such purpose on the outstanding share of the Company, which dividends may be
paid in cash, in property, or in shares of the Company.
ARTICLE X
BOOKS AND RECORDS
Section 10.1. BOOK OF BY-LAWS. A copy of these By-Laws, certified by a
majority of the Directors and the Secretary of the Company, shall be
typewritten in a book kept in the principal office of the Company to be known
as the "Book of By-Laws". Said book shall be open to the inspection of the
public during the office hours of the Company each day except holidays.
Whenever any amendment to these By-Laws or new by-laws is adopted, it shall
be typewritten in the book of By-Laws, with the original By-Laws, and
immediately after them. If any By-Laws be repealed, the fact of repeal, with
the date of the meeting at which the repeal was enacted, or written consent
was filed, shall be stated in said book.
Section 10.2. JOURNAL OF MEETINGS OF BOARD OF DIRECTORS AND STOCKHOLDERS.
The Company shall also keep a journal of all meeting of its directors and
stockholders, with the time and place of holding the same, whether regular or
special, and if special, its object, how authorized, and the notice thereof
given. Such record must embrace every act done or ordered to be done; who
were present, and, in the record of directors' meetings, who absent. If
requested by any Director or stockholder, the time must be noted when he
entered the meeting or obtained leave of absence therefrom. On a similar
request, the "ayes" and "nays" must be taken on any action or proposed
action, and a record thereof made. On a similar request, the protest of any
Director or stockholder to any
15
<PAGE>
action or proposed action, must be entered in full, and such records must be
opened to the inspection of any Director, stockholder or creditor of the
Company. In lieu of embracing in the records of stockholders' meetings who
were present, a list showing the names of those present at any such meeting,
certified by the chairman and secretary thereof, may be filed and kept in the
office of the Secretary of the Company.
Section 10.3. STOCK AND TRANSFER BOOK. The Company shall also keep a
book, to be know as the "stock and transfer book" in which must be kept a
record of all stock; the names of the stockholders alphabetically arranged;
installments paid or unpaid; assessments levied, and paid and unpaid, a
statement of every alienation, sale or transfer of stock made, the date
thereof, and by and to whom. The Stock and Transfer creditor, provided that
the Board, may, from time to time, prescribe the conditions and regulations
pursuant to which such inspections will be permitted.
Section 10.4. OTHER BOOKS AND RECORDS. The company shall keep a record of
all business transactions and shall keep such other books and records as the
Board or the officers may from time to time determine.
Section 10.5. PLACE OF KEEPING. The books and records of the Company, or
duplicates duly certified thereof, shall be kept at the principal office of
the Company.
ARTICLE XI
MISCELLANEOUS PROVISIONS
Section 11.1. SEAL. The corporate seal shall have inscribed thereon the
name of the Company, the year of its organization, the State of its
incorporation, and the words "Corporate Seal". Such seal may be used by
causing it or a facsimile or equivalent thereof to be impressed or affixed or
reproduced.
Section 11.2. FISCAL YEAR. The fiscal year of the Company shall begin on
January 1 and end of December 31 in each year.
16
<PAGE>
Section 11.3. NOTICES. Any notice required by these By-Laws, or
otherwise, to be given by mail shall be deemed to have been given by mail to
any person entitled thereto at the time it shall have been deposited in a
Post Office or mail box or mail chute maintained of the purpose by the United
States Government, provided that it shall at the time of such deposit be
enclosed in a postage prepaid envelope or wrapped addressed to such person at
his address as it appears on the books and records of the Company, or, if no
address appears on such books and records, then at such address as shall be
otherwise known to the Secretary, or, if no such address appears on such
books and records or is otherwise know to the Secretary, then in care of the
agent of the Company at its principal office in the State of Montana.
Whenever, by any provisions of the Articles of Incorporation or these
By-Laws, or otherwise, any notice is required to be given any specified
number of days before any meeting or other event, the day on which such
notice was given shall be counted, but the day of such meeting or other event
shall not be counted in determining whether or not notice has been given in
proper time in a particular case.
Section 11.4. WAIVER OF NOTICE. Except as may be expressly provided by
law or by the Articles of Incorporation, whenever any notice whatever is
required to be given under the provisions of the laws of the State of Montana
or under the provisions of the Articles of Incorporation or these By-Laws, a
waiver thereof in writing, signed by the person or persons entitled to such
notice, whether before or after the time stated therein, shall be deemed
equivalent thereto. Except as maybe otherwise specifically provided by law,
any waiver by mail, telegraph, cable or wireless, bearing the name of the
person entitled to notice, shall be deemed a waiver in writing, duly signed.
The presence of any person at any meeting, either in person or by proxy,
shall be deemed the equivalent of a waiver in writing, duly signed.
Attendance of a Director at any meeting of the Board shall constituted a
waiver of notice of such meeting except where a Director attends for the
express purpose of objecting to the transaction of any business because the
meeting was not lawfully called or convened.
Section 11.5. INFORMAL ACTION BY STOCKHOLDER. When all the stockholders
entitled under the Articles of Incorporation and the law and constitution of
Montana to vote at any meeting are present at any meeting, however called or
notified, and sign a written consent thereto on a record of such meeting, the
act and proceedings of such meeting are as valid as if has at a meeting
legally called and noticed.
17
<PAGE>
Section 11.6. RESIGNATIONS. Except as otherwise provided by law, any
officer or Director may resign at any time upon giving written notice to the
President or the Secretary. Such resignation shall take effect at the time
specified in the notice and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
Section 11.7. AMENDMENT OF BY-LAWS. These By-Laws may be repealed and
amended and new By-Law maybe adopted by the affirmative vote of a majority of
the Board at any Special meeting of the Board if notice of the proposed
repeal, amendment or new by-law to be adopted be contained in the notice of
such special meeting, provided that the power to be revoked by the vote of
the holders of two-thirds (2/3) of the capital stock of the Company at any
regular meeting of law shall take effect until typewritten, and no repeal of
any by-law shall take effect until the fact of such repeal shall be stated in
the Book of By-Laws in accordance with Section 10.1.
18
<PAGE>
AMENDMENTS
OF THE BY-LAWS
Section 2.2.
Section 2.2. ANNUAL MEETINGS. Commencing with the year 1974 an annual
meeting of the stockholders of the Company shall be held on the first
Thursday of May in each year if not a legal holiday, and if a legal holiday,
then on the next succeeding business day not a legal holiday. At each annual
meeting, directors shall be elected by stockholders in accordance with the
provisions of the Articles of Incorporation of the Company (hereinafter
called the "Articles of Incorporation") and these By-Laws. Each annual
meeting shall be a general meeting, open for the transaction of any business
within the powers of the Company, without special notice of such business,
except in any case where special notice may be required by the laws of the
State of Montana.
Section 3.2.
Section 3.2. NUMBER QUALIFICATIONS AND TERMS OF OFFICE. The number of
directors which shall constitute the whole Board shall be seven directors,
each of whom shall be the holder of at least one share of capital stock of
the Company. The term of office of each Director shall be for one year and
until his successor is elected and qualified.
19
<PAGE>
AMENDMENTS
OF THE BY-LAWS (At September 1, 1982)
Section 2.2.
Section 2.2. ANNUAL MEETING. Commencing with the current fiscal year, an
Annual Meeting of the Stockholders of the Company shall be held on the first
Thursday of November in each year if not a legal holiday, and if a legal
holiday, then on the next succeeding business day not a legal holiday. The
first of the November Annual Meetings is to be held on Thursday, November 4,
1982. At each Annual Meeting, Directors shall be elected by Stockholders in
accordance with the provisions of the Articles of Incorporation of the
Company (hereinafter called the "Articles of Incorporation") and these
By-Laws. Each Annual Meeting shall be a general meeting, open for the
transaction of any business within the powers of the Company, without special
notice of such business except in any case where special notice may be
required by the laws of the State of Montana.
Section 11.2.
Section 11.2. FISCAL YEAR. The Fiscal Year of the Company shall begin on
July 1 and end on June 30 in each year.
20
<PAGE>
AMENDMENTS
OF THE BY-LAWS
Section 3.2
Section 3.2. NUMBER, QUALIFICATION AND TERM OF OFFICE. The number of
directors which shall constitute the whole Board shall be determined by
resolution of the Board of Directors except that the number of directors
shall not be less than five or more than nine. Each director shall own at
least ten shares of capital stock of the Company. The term of office shall be
one year unless the Board of Directors by resolution implement staggered
terms consistent with the requirements of prevailing law. The terms of
directors, if staggered, shall be two years.
21
<PAGE>
AMENDMENTS
OF THE BY-LAWS
Section 5.9. PRESIDENT. The President shall be the executive officer of
the Company; shall preside at stockholder meetings and at meetings of the
board subject to the control of the board; shall preside at meetings for the
election of Directors and at other meetings of stockholders and at meetings
of the board of the Executive Committee; subject to the control and direction
of the Board, shall have general supervision, control and management of the
affairs and business of the Company, and, general charge and supervision of
Vice Presidents and Division Managers, and shall see that all orders and
resolutions of the Board are carried into effect; shall sign or delegate to
one or more Vice Presidents, the power to sign and execute in the name of the
company all deeds mortgages, bonds, contracts or other instruments as may be
required in the ordinary course of business; and in general shall exercise
all powers and perform the duties incident to the office of President and
such other powers and duties as may from time to time be assigned to him by
the Board or be prescribed by these By-Laws.
22
<PAGE>
CREDIT AGREEMENT
THIS CREDIT AGREEMENT is dated as of the 18th day of January, 1995, and is
by and between ENERGY WEST, INCORPORATED, formerly known as Great Falls Gas
Company, of P.O. Box 2229, No. 1 River Park Tower, Great Falls, MT 59403-2229
(the "Borrower"), and NORWEST BANK GREAT FALLS, NATIONAL ASSOCIATION, a national
banking association with offices located at 21 Third Street North, P.O. Box
5011, Great Falls, Montana 59403-8200 (the "Bank").
RECITALS:
WHEREAS, Borrower desires to obtain a committed revolving credit line
in the principal amount of EIGHT MILLION AND NO/100 DOLLARS ($8,000,000.00) for
its own working capital purposes and to fund the working capital needs of
certain of its Subsidiaries; and,
WHEREAS, Borrower desires the Bank to continue to consider making zero
interest rate commercial loans to certain of Borrower's customers (the "Customer
Loans") in an aggregate amount not to exceed TWO MILLION ONE HUNDRED THOUSAND
AND NO/100 DOLLARS ($2,100,000.00);
WHEREAS, the Borrower desires the Bank to make certain
Borrower-guaranteed zero interest loans or CLIP Loans to customers whose
requests have been previously rejected by the Bank (the "Guaranteed Loans"), in
an aggregate amount outstanding not to exceed ONE HUNDRED THOUSAND AND NO/100
DOLLARS ($100,000.00) at any time outstanding.
WHEREAS, the Borrower desires to obtain a stand-by letter of credit
facility from the Bank in the amount of ONE MILLION AND NO/100 DOLLARS
(1,000,000.00);
WHEREAS, the Bank is willing to make the Credit and the Stand-By
Letter of Credit available to the Borrower, to continue consideration of
Customer Loans and to make available the Guaranteed Loans subject to the
provisions of this Credit Agreement;
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements herein, the parties agree as follows:
1. Definitions
In addition to those terms defined in the above recitals, as used herein:
1.1. "Agreement" shall mean this Credit Agreement and all amendments and
supplements hereto which may from time to time become effective
hereafter in accordance with the terms hereof.
1.2. "Banking Day" shall mean a day on which banks are generally open
for business in Great Falls, Montana.
1.3. "Base Rate" shall mean the "base" or "prime" rate of interest as
announced by Norwest Bank Minnesota, National Association, as in
effect from time to time.
1.4. "Borrowed Money" shall mean funds obtained by incurring contractual
indebtedness and shall not include trade accounts payable or money
borrowed from the Bank.
1.5. "Closing Date" shall mean the date on which funds are advanced
under the Credit.
<PAGE>
1.6. "Credit" shall mean the revolving credit line established hereby
for Borrower, which shall not in any event exceed the aggregate
principal amount of EIGHT MILLION AND NO/100 DOLLARS
($8,000,000.00) outstanding at any one time.
1.7. "Default" shall mean an Event of Default as referred to in Section
7 hereof, or an event which with notice or lapse of time or both
would become an Event of Default.
1.8. "Generally Accepted Accounting Principles" shall mean generally
accepted accounting principles applied on a basis consistent with
those reflected in the financial statements referred to in Section
4.5 hereof.
1.9. "Event of Default" shall mean any and all events of default
described in Section 7 hereof.
1.10. "Maturity Date" shall mean January 15, 1996.
1.11. "Note" shall mean the promissory note of the Borrower substantially
in the form of attached Exhibit A, evidencing borrowings under
Section 2.1 hereof.
1.12. "Permitted Liens" shall mean:
1.12.1. Liens in favor of the Bank;
1.12.2. Existing liens disclosed to the Bank in writing prior to
the date of this Agreement; and,
1.12.3. Liens for taxes not delinquent or which Borrower is
contesting in good faith.
1.13. "Stand-By Letter of Credit Line" shall mean the letter or letters
of credit issued under the letter of credit application and
agreement executed by Borrower in accordance with section 2.6 of
this Agreement, which shall be in form and substance as Exhibit C
attached hereto and incorporated herein, and which must not exceed
ONE MILLION AND NO/100 DOLLARS ($1,000,000.00) outstanding at any
one time.
1.14. "Subsidiary" shall mean any corporation of which more than fifty
percent (50%) of the outstanding voting securities shall, at the
time of determination, be owned directly, or indirectly through one
or more intermediaries, by either Borrower.
1.15. "Tangible Net Worth" shall mean the sum of the par or stated value
of all outstanding capital stock, surplus and undivided profits of
the Borrower, less any amounts attributable to treasury stock, good
will, patents, copyrights, mailing lists, catalogues, trademarks,
bond discount and underwriting expenses, organization expenses and
other like intangibles (not including prepaid expenses classified
as current assets or intangible assets offset by equal related
liabilities), excluding also Subchapter S earnings unless such
earnings are converted to Note and subordinated to bank debt or the
Bank is given written confirmation, in form acceptable to the Bank,
that such earnings are being retained as equity capital, all as
determined in accordance with generally accepted accounting
principles.
2. The Loan
2.1. The Bank agrees to lend to Borrower from time to time from the
effective date hereof until the Maturity Date sums not to exceed
EIGHT MILLION AND NO/100 DOLLARS ($8,000,000.00) in aggregate
principal amount at any one time outstanding. Each
Page 2 of 9
<PAGE>
borrowing under this Section 2.1. will be requested in writing or
in person by an authorized officer of Borrower, or telephonic ally
by any person reasonably believed by the Bank to be an authorized
officer of Borrower. Each borrowing under this Section 2.1. will
be evidenced by a notation on the Bank's records, which shall be
conclusive evidence of such borrowing, and by the Note. Within the
limits of the Credit and subject to the terms and conditions
hereof, Borrower may borrow, prepay pursuant to Section 2.5 hereof
and reborrow pursuant to this Section 2.1.
2.2. Interest on the unpaid principal of the Note shall be calculated at
an annual rate of ONE QUARTER OF ONE percent (1/4%) less than the
Base Rate in effect from time to time on the basis of the actual
number of days elapsed in a year of 360 days. Each change in the
Base Rate shall take effect on the first day of the month
immediately succeeding such change.
2.3. Interest on the Note shall be payable on demand but, until such
demand is made, monthly, commencing February 1, 1995, and
continuing on the first day of each succeeding month until the Note
is paid.
2.4. The principal of the Note will be due and payable on the Maturity
Date.
2.5. The Borrower may at any time prepay the Note in whole or from time
to time in part without premium or penalty.
2.6. The Bank shall issue stand-by letters of credit to Enron Risk
Management Services Corporation for the account of Borrower, in an
aggregate amount not to exceed ONE MILLION AND NO/100 DOLLARS. The
Stand-By Letter of Credit shall expire on December 27, 1995.
Borrower shall execute an application, agreement and promissory
note for standby letters of credit (Exhibit B), on standard Norwest
forms as required by the Bank.
2.7. Fees on the Stand-By Letter of Credit Line shall be calculated at a
rate of 1.5% of the amount issued under the Stand-By Letter of
Credit on the basis of the actual number of days elapsed in a year
of 360 days. Borrower shall also pay all additional fees assessed
by Bank in connection with the Stand-By Letter of Credit Line,
issuance of letters of credit or any amendments or modifications of
the Stand-By Letter of Credit Line or letters or credit issued
under the Stand-By Letter of Credit Line.
2.8. Interest on the Stand-By Letter of Credit Line shall be payable on
demand but, until such demand is made, monthly, commencing February
1, 1995, and continuing on the first day of each succeeding month
until the Note is paid.
2.9. In addition, the Bank shall continue to consider making Customer
Loans for the purpose of funding purchases of energy conservation
devices, provided, however, that no such Customer Loan shall be in
an amount in excess of ONE THOUSAND FIVE HUNDRED AND NO/100 DOLLARS
($1,500.00) per household or per unit of an apartment building,
shall not exceed a term of five (5) years and shall require a
minimum payment of $25.00 per month, and the aggregate outstanding
of all Customer Loans shall not at any time exceed TWO MILLION ONE
HUNDRED THOUSAND AND NO/100 DOLLARS ($2,100,000.00). Applications
for Customer Loans shall be subjected to the Bank's customary credit
review policies.
2.10. The interest rate to obligors on the Customer Loans and the
Guaranteed Loans shall be 0%. Borrower, however, shall reimburse
the Bank for all expenses incurred in the
Page 3 of 9
<PAGE>
making of such loans and, in addition, shall pay to the Bank
interest at an annual rate equal to TWO AND ONE-HALF percent
(2 1/2%) in excess of the Base Rate.
2.11. In addition, Borrower shall, on the last day of each month, pay to
Bank for each Customer Loan and/or Guaranteed Loan made by the
Bank: an origination fee of $5.00, a monthly servicing fee of
$0.40, and a delinquency fee, where incurred, of $1.00 for each
payment past due for 30 days or less and $5.00 for each payment
past due more than 30 days.
3. Conditions Precedent
3.1. The Borrower shall deliver the following to the Bank on or before
the Closing Date:
3.1.1. The Note, duly executed by Borrower;
3.1.2. A copy, certified as of the most recent date practicable
by the Secretary of State of Montana of Borrower's
certificate of incorporation, together with a certificate
of Borrower's corporate secretary to the effect that such
certificate of incorporation has not been amended since
the date of the aforesaid certification;
3.1.3. Certificates, as of the most recent dates practicable, of
the Secretary of State of Montana and the secretary of
state of each state in which Borrower is qualified as a
foreign corporation, as to the good standing of Borrower;
3.1.4. A certified copy of Borrower's filed Articles of
Incorporation and By-laws;
3.1.5. A certified copy of resolutions of Borrower's board of
directors authorizing the execution, delivery and
performance of this Agreement, the Note, the leter of
credit application and agreement, and each other document
to be delivered pursuant hereto; and,
3.1.6. A certificate of Borrower's corporate secretary as to the
incumbency and signatures of the officers of Borrower
signing this Agreement, the Note, the leter of credit
application and agreement and each other document to be
delivered pursuant hereto.
3.2. The Bank shall not be obligated to lend hereunder on the occasion
for any borrowing unless:
3.2.1. The representations and warranties contained in Section 5
hereof are true and accurate on and as of such date; and,
3.2.2. No Event of Default, and no event which might become an
Event of Default after the lapse of time or the giving of
notice and the lapse of time, has occurred and is
continuing or will exist upon the disbursement of such
loan.
4. Representations and Warranties
To induce the Bank to enter into this Agreement, the Borrower represents and
warrants to the Bank as follows:
4.1. Borrower is a corporation duly organized, existing and in good
standing under the laws of the State of Montana.
Page 4 of 9
<PAGE>
4.2. The execution, delivery and performance of this Agreement and the
Note by the Borrower are within their corporate powers, have been
duly authorized, and are not in contravention of law, or the terms
of either Borrower's Articles of Incorporation or By-Laws or of any
undertaking to which either Borrower is a party or by which it is
bound.
4.3. The property of the Borrower is not subject to any lien except
Permitted Liens.
4.4. No litigation or governmental proceeding is pending or, to the
knowledge of the officers of Borrower, threatened against Borrower
which could have a material adverse effect on Borrower's financial
condition or business.
4.5. The consolidated financial statements of Borrower and its
Subsidiaries for the fiscal year ending June 30, 1994, prepared by
certified public accountants, and for the period ending November 30,
1994, prepared by the Borrower, copies of which financial
statements have been furnished to the Bank, are complete and
accurate in all respects and present fairly the financial condition
of the Borrower and its Subsidiaries as of such dates, and the
results of their operations for the periods covered thereby in
accordance with Generally Accepted Accounting Principles, and there
have been no material adverse changes in the consolidated financial
condition or business of the Borrower from November 30, 1994, to
the date hereof.
5. Affirmative Covenants
Borrower covenants and agrees that so long as any indebtedness remains
outstanding hereunder, unless the Bank shall otherwise consent in writing, it
will:
5.1. Pay, when due, all taxes assessed against it or its property except
to the extent and so long as contested in good faith.
5.2. Maintain its corporate existence and comply with all laws and
regulations applicable thereto.
5.3. Furnish to the Bank:
5.3.1. Within 150 days after the end of each fiscal year of the
Borrower (i) a detailed, consolidated and consolidating
report of audit of the Borrower and their Subsidiaries
for such fiscal year including the balance sheet of the
Borrower and their Subsidiaries as of the end of such
fiscal year and the statements of profit and loss and
surplus of the Borrower and their Subsidiaries for the
fiscal year then ended, prepared by independent certified
public accountants satisfactory to the Bank, and (ii) a
certificate of such accountants stating whether, in
making their audit, they have become aware of any Event
of Default set forth in Section 7 hereof, or of any event
which might become an Event of Default after the lapse of
time or the giving of notice and the lapse of time, which
has occurred and is then continuing and, if any such
event has occurred and is continuing, specifying the
nature and period of existence thereof.
5.3.2. Within 45 days after the end of each month, (i) the
balance sheet of the Borrower as of the end of such
month, and (ii) the statement of profit and loss and
surplus of the Borrower from the beginning of such fiscal
year to the end of such month in a form acceptable to
Bank. All of the foregoing shall be
Page 5 of 9
<PAGE>
unaudited, but certified as correct (subject to year end
adjustments) by an appropriate officer of the Borrower.
5.3.3. Promptly upon knowledge thereof, notice to the Bank in
writing of the occurrence of any event which has or
might, after the lapse of time or the giving of notice
and the lapse of time, become an Event of Default under
Section 7 hereof.
5.3.4. Promptly, such other information as the Bank may
reasonably request.
5.4. Cause its properties of an insurable nature to be adequately
insured by reputable and solvent insurance companies against loss
or damages customarily insured against by persons operating similar
properties, and similarly situated, and carry such other insurance
(including business interruption insurance) as usually carried by
persons engaged in the same or similar businesses and similarly
situated.
5.5. Keep true, complete and accurate books, records and accounts in
accordance with Generally Accepted Accounting Principles
consistently applied.
6. Negative Covenants
Without the Bank's written consent, which the Bank will not unreasonably
withhold, so long as any indebtedness remains outstanding under the Credit,
Borrower will:
6.1. Permit any lien including, without limitation, any pledge,
assignment, mortgage, title retaining contract or other type of
security interest to exist on its property, real or personal,
except Permitted Liens.
6.2. Enter into any transaction of merger or consolidation, or transfer,
sell, assign, lease or otherwise dispose of (other than sales in
the ordinary course of business) all or a substantial part of its
properties or assets, or any of its promissory notes or accounts
receivable, or any stock (other than directors qualifying shares)
or any assets or properties necessary or desirable for the proper
conduct of its business, or change the nature of its business, or
wind up, liquidate or dissolve, or agree to do any of the
foregoing.
6.3. Create, incur, assume or suffer to exist, contingently or
otherwise, other than in the ordinary course of business for
conducting its present business operation, indebtedness for
Borrowed Money, except: (i) indebtedness arising from issuance of
bonds; (ii) indebtedness arising under this Agreement; (iii)
indebtedness disclosed to the Bank in writing as existing at the
time of execution of this Agreement; and (iv) indebtedness incurred
in connection with the Energy West purchase of Wyo-LP, Broken Bow
Gas Company and Petrogas.
6.4. Become or remain a guarantor or surety, or pledge its credit or
become liable in any manner (except by endorsement for deposit in
the ordinary course of business, and except for the Guaranteed
Loans, as defined herein) on undertakings of another.
6.5. Purchase or otherwise acquire all or substantially all of the
assets of any person, firm, corporation or association unless after
the consummation of such transaction, and after giving effect
thereto and to any concurrent transactions, no Event of Default
specified in Section 7 hereof, and no event which with notice or
lapse of time or both would become such an Event of Default would
exist.
Page 6 of 9
<PAGE>
6.6. Permit the ratio of its Debt to Tangible Net Worth at fiscal year
end to be more than 3.0 to 1.0.
7. Events of Default
7.1. Upon the occurrence of any of the following Events of Default:
7.1.1. Default in any payment of interest or of principal on the
Note when due, and continuance thereof for 15 calendar
days;
7.1.2. Default in the observance or performance of any other
agreement of Borrower or any Subsidiary thereof set forth
herein and continuance thereof for 30 days;
7.1.3. Default by Borrower or any Subsidiary thereof in the
payment of any other indebtedness for Borrowed Money or
in the observance or performance of any term, covenant or
agreement of Borrower or any Subsidiary thereof in any
agreement relating to any indebtedness of Borrower or
Subsidiary, the effect of which default is to permit the
holder of such indebtedness to declare the same due prior
to the date fixed for its payment under the terms
thereof;
7.1.4. Any representation or warranty made by Borrower herein,
or in any statement or certificate furnished by Borrower
hereunder, is untrue in any material respect; or,
7.1.5. The occurrence of any litigation or governmental
proceeding which is pending or threatened against
Borrower or any Subsidiary thereof, which, in the
reasonable opinion of Borrower's legal counsel, could
have a material adverse effect on Borrower's or such
Subsidiary's financial condition or business, and which
is not remedied within a reasonable period of time (a
reasonable period of time not to exceed 10 days) after
notice thereof to the Borrower;
then, or at any time thereafter, unless such Event of Default is remedied,
the Bank or the holder of the Note may, by notice in writing to the
Borrower, terminate the Credit or declare the Note to be due and payable,
or both, whereupon the Credit shall terminate forthwith or the Note shall
immediately become due and payable, or both, as the case may be.
7.2. Upon the occurrence of any of the following Events of Default:
Borrower or any Subsidiary thereof becomes insolvent or bankrupt,
or makes an appointment for the benefit of creditors or consents to
the appointment of a custodian, trustee or receiver for itself or
for the greater part of its properties; or a custodian, trustee or
receiver is appointed for Borrower or any Subsidiary thereof, or
for the greater part of its properties without its consent and is
not discharged within 30 days; or bankruptcy, reorganization or
liquidation proceedings are instituted by or against Borrower or
Subsidiary and, if instituted against it, are consented to by it or
remain undismissed for 30 days;
then the Credits shall automatically terminate and the Note shall
automatically become immediately due and payable, without notice.
8. Miscellaneous
8.1. The provisions of this Agreement shall be in addition to those of
any guaranty, pledge or security agreement, note or other evidence
of liability held by the Bank, all of which
Page 7 of 9
<PAGE>
shall be construed as complementary to each other. Nothing herein
contained shall prevent the Bank from enforcing any or all other
Notes, guaranties, pledges or security agreements in accordance
with their respective terms.
8.2. From time to time, the Borrower will execute and deliver to the
Bank such additional documents and will provide such additional
information as the Bank may reasonably require to carry out the
terms of this Agreement and be informed of the Borrower's status
and affairs.
8.3. The Borrower will pay all expenses, including the reasonable fees
and expenses of legal counsel for the Bank, incurred in connection
with the preparation, administration, amendment, modification or
enforcement of this Agreement, and the collection or attempted
collection of the Note.
8.4. Any notices or consents required or permitted by this Agreement
shall be in writing and shall be deemed delivered if delivered in
person or if sent by certified mail, postage prepaid, return
receipt requested, or telegraph, as follows, unless such address is
changed by written notice hereunder:
8.4.1. If to the Borrower: Energy West, Incorporated
P.O. Box 2229
No. 1 River Park Towers
Great Falls, MT 59403-2229
Attention: Larry D. Geske, President and CEO
William J. Quast, Vice President
Treasurer and Comptroller
Edward J. Bernica, Vice President
and CFO
8.4.2. If to the Bank:
Norwest Bank Great Falls, National
Association
21 3rd Street North
Great Falls, MT 59403
Attention: John Koslosky, Vice President
8.5. The substantive Laws of the State of Montana shall govern the
construction of this Agreement and the rights and remedies of the
parties hereto.
8.6. This Agreement shall inure to the benefit of, and shall be binding
upon, the respective successors and permitted assigns of the
parties hereto. The Borrower has no right to assign any of their
rights or obligations hereunder without the prior written consent
of the Bank. This Agreement, and the documents executed and
delivered pursuant hereto, constitute the entire agreement between
the parties, and may be amended only by a writing signed on behalf
of each party.
8.7. If any provision of this Agreement shall be held invalid under any
applicable Laws, such invalidity shall not affect any other
provision of this Agreement that can be given effect without the
invalid provision, and, to this end, the provisions hereof are
severable.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of
the day and year first above written.
Page 8 of 9
<PAGE>
ENERGY WEST, INCORPORATED NORWEST BANK GREAT FALLS,
NATIONAL ASSOCIATION
By: /s/ Larry D. Geske By: /s/ John Koslosky
---------------------------------- --------------------------------
Larry D. Geske, President and CEO John Koslosky, Vice President
By: /s/ William J. Quast
----------------------------------
William J. Quast, Vice President,
Treasurer and Controller
Page 9 of 9
<PAGE>
AMENDMENT TO CREDIT AGREEMENT
THIS AMENDMENT TO CREDIT AGREEMENT (the "Amendment") is entered into this 17 day
of April, 1996, by and between ENERGY WEST, INCORPORATED, formerly known as
Great Falls Gas Company, of P.O. Box 2229, No. 1 River Park Tower, Great Falls,
MT 59403-2229 (the "Borrower") and NORWEST BANK MONTANA, NATIONAL ASSOCIATION,
formerly known as Norwest Bank Great Falls, National Association, a national
banking association with offices located at 21 Third Street North, P.O. Box
5011, Great Falls, MT 59403-8200 (the "Bank").
A. Borrower and Bank entered into a Credit Agreement dated January 18, 1995
(the "Agreement"), pursuant to which the Bank made available to Borrower a
revolving credit line in the amount of $8,000,000.00 for working capital
purposes ("Credit 1"), loans to customers of Borrower in an amount not to
exceed $2,100,000.00 in the aggregate outstanding at any time ("Credit 2"),
loans to customers of Borrower whose applications had been previously
rejected in an amount not to exceed $100,000.00 in the aggregate
outstanding at any time ("Credit 3"), and a standby letter of credit
facility in the amount of $1,000,000.00 (the "LC Facility").
B. Borrower has requested Bank to make amendments to the Agreement, including
an increase of the maximum available under Credit 1 to $11,000,000.00, and
Bank, subject to the terms and conditions herein and in the Agreement, is
willing to make such amendments.
NOW, THEREFORE, in consideration of the premises and of other valuable
consideration the receipt and sufficiency of which are hereby acknowledged, the
Bank and the Borrower agree as follows:
1. In the first paragraph of the RECITALS and in Sections 1.6. and 2.1. of the
Agreement "EIGHT MILLION AND NO/100 DOLLARS ($8,000,000.00)" is hereby
changed to "ELEVEN MILLION AND NO/100 DOLLARS ($11,000,000.00)".
2. Sections 1.13., 2.6., 2.7., and 2.8., relating to issuance of standby
letters of credit are hereby deleted in their entirety.
3. Section 2.2. of the Agreement is deleted in its entirety and replaced with
the following:
2.2. Interest on the unpaid principal of the Note shall be calculated at an
annual rate of ONE QUARTER OF ONE percent (1/4%) less than the Base
Rate in effect from time to time on the basis of the actual number of
days elapsed in a year of 360 days. Each change in the Base Rate
shall take effect on the first day of the month immediately succeeding
such change. The foregoing notwithstanding, Borrower shall have the
option, in $1,000,000.00 minimum increments, to fix interest rates
for 30, 60, or 90 day periods at 250 basis points over the LIBOR for
such period. "LIBOR" means the average (rounded upward, if necessary,
to the nearest one-eighth of one percent) of offered rates for dollar
deposits in immediately available funds in the London market based on
quotations at five major banks for a period, and in an amount,
comparable to the interest period and principal amount of the portion
of the loan for which the LIBOR option has been chosen, as such rates
are published from time to time in the Money Rates section of the Wall
Street Journal.
4. In Section 2.3. of the Agreement, the date February 1, 1995, is hereby
changed to April 1, 1996.
5. There is hereby added at the end of Section 6.3. of the Agreement, the
following:
The foregoing notwithstanding, Borrower shall be permitted to incur
additional indebtedness to entities other than the Bank provided that, (i)
the Borrower notifies the Bank of its intention to do so prior to the
incurring of such additional indebtedness, (ii) the Borrower agrees hereby
to an
<PAGE>
immediate and permanent decrease in the Credit to a maximum of
$5,000,000.00 (the "New Credit Limit"), and (iii) the Borrower remits to
the Bank prior to the incurring of such additional indebtedness an amount
sufficient to eliminate the Credit balance, if any, in excess of the New
Credit Limit.
6. In Section 4.5 of the Agreement, the date June 30, 1994, is hereby changed
to June 30, 1995, and the date November 30, 1994, both times that it
appears in the section, is hereby changed to February 29, 1996.
7. Except as expressly amended hereby, the Agreement shall remain in full
force and effect.
8. This Amendment shall be governed by and interpreted in accordance with the
laws of the State of Montana.
Executed as of the date and year first above written.
NORWEST BANK MONTANA,
NATIONAL ASSOCIATION,
Formerly known as Norwest Bank Great Falls,
National Association
By: /s/ John A. Koslosky
---------------------------------------------
John A. Koslosky, Vice President
ENERGY WEST, INCORPORATED
By: /s/ Edward J. Bernica
--------------------------------------------
Edward J. Bernica, Vice President and CFO
By: /s/ William J. Quast
--------------------------------------------
William J. Quast, Vice President, Treasurer
and Controller
<PAGE>
AMENDMENT TO CREDIT AGREEMENT
THIS AMENDMENT TO CREDIT AGREEMENT (the "Agreement") is entered into this 7 day
of November, 1996, by and between ENERGY WEST, INCORPORATED, formerly known as
Great Falls Gas Company, of PO Box 2229, No. 1 River Park Tower, Great Falls, MT
59403-2229 (the "Borrower") and NORWEST BANK MONTANA, NATIONAL ASSOCIATION,
formerly known as Norwest Bank Great Falls, National Association, a national
banking association with offices located at 21 Third Street North, PO Box 5011,
Great Falls, MT 59403-8200 (the "Bank").
A. Borrower and Bank entered into a Credit Agreement dated January 18, 1995,
(the "Agreement"), pursuant to which the Bank made available to Borrower a
revolving credit line in the amount of $8,000,000.00 for working capital
purposes (Credit 1"), loans to customers of Borrower in an amount not to
exceed $2,100,000.00 in the aggregate outstanding at any time ("Credit 2"),
loans to customers of Borrower whose applications had been previously
rejected in an amount not to exceed $100,000.00 in the aggregate
outstanding at any time ("Credit 3"), and a standby letter of credit
facility in the amount of $1,000,000.00 (the "LC Facility").
B. Borrower has requested Bank to make amendments to the Agreement, including
an increase of the maximum available under Credit 1 to $13,000,000.00, and
Bank, subject to the terms and conditions herein and in the Agreement, is
willing to make such amendments.
NOW, THEREFORE, in consideration of the premises and of other valuable
consideration the receipt and sufficiency of which are hereby acknowledged, the
Bank and Borrower agree as follows:
1. In the first paragraph of the RECITALS and in Sections 1.6. and 2.1. of the
Agreement "ELEVEN MILLION AND NO/100 DOLLARS ($11,000,000.00)" is hereby
changed to THIRTEEN MILLION AND NO/100 DOLLARS ($13,000,000.00).
2. Sections 1.13., 2.6., 2.7., and 2.8., relating to issuance of standby
letters of credit and hereby deleted in their entirety.
3. Section 2.2. of the Agreement is deleted in its entirety and replaced with
the following:
2.2. Interest on the unpaid principal of the Note shall be calculated at an
annual rate of ONE QUARTER OF ONE percent (1/4%) less than the Base
Rate in effect from time to time on the basis of the actual number of
days elapsed in a year of 360 days. Each change in the Base Rate
shall take effect on the first day of the month immediately succeeding
such change. The foregoing notwithstanding, Borrower shall have the
option, in $1,000,000.00 minimum increments, to fix interest rates for
30, 60, or 90 day periods at 250 basis points over the LIBOR for such
period. "LIBOR" means the average (rounded upward, if necessary, the
nearest one-eighth of one percent) of offered rates for dollar
deposits in immediately available funds in the London market based on
quotations at five major banks for a period, and in an amount,
comparable to the interest period and principal amount of the portion
of the loan for which the LIBOR option has been chosen, as such rates
are published from time to time in the Money Rates section of the Wall
Street Journal.
4. In Section 2.3. of the Agreement, the date April 1, 1995, is hereby changed
to December 1, 1996.
5. There is hereby added at the end of Section 6.3. of the Agreement, the
following:
<PAGE>
The foregoing notwithstanding, Borrower shall be permitted to incur
additional indebtedness to entities other than the Bank provided that, (i)
the Borrower notifies the Bank of its intention to do so prior to the
incurring of such additional indebtedness, (ii) the Borrower agrees hereby
to an immediate and permanent decrease in the Credit to maximum of
$5,000,000.00 (the "New Credit Limit"), and (iii) the Borrower remits to
the Bank prior to the incurring of such additional indebtedness an amount
sufficient to eliminate the Credit balance, if any, in excess of the New
Credit Limit.
6. In Section 4.5 of the Agreement, the date June 30, 1995, is hereby changed
to June 30, 1996, and the date November 30, 1995, both times that it
appears in the section, is hereby changed to September 30, 1996.
7. Except as expressly amended hereby, the Agreement shall remain in full
force and effect.
8. This Amendment shall be governed by and interpreted in accordance with the
laws of the State of Montana.
Executed as of the date and year first above written.
NORWEST BANK MONTANA,
NATIONAL ASSOCIATION,
Formerly known as Norwest Bank Great Falls,
National Association
By: /s/ John A. Koslosky
-----------------------------------------------
John A. Koslosky, Vice President
ENERGY WEST, INCORPORATED
By: /s/ Edward J. Bernica
-----------------------------------------------
Edward J. Bernica, Vice President and CFO
By: /s/ William J. Quast
------------------------------------------------
William J. Quast, Vice President
Treasurer and Controller
<PAGE>
PROMISSORY NOTE
ENERGY WEST, INCORPORATED NOVEMBER 7, 1996
On March 15, 1997, for value received, the undersigned promises to pay to the
order of Norwest Bank Montana, National Association (the "Bank") at 21 Third
Street North, Great Falls, MT 59403-8200, or at any other place designated at
any time by the holder hereof, in lawful money of the United States of America,
the principal sum of THIRTEEN MILLION AND NO/100 DOLLARS ($13,000,000.00), or
so much thereof as is disbursed and remains outstanding hereunder on the due
date hereof, as shown by the Bank's liability record, together with interest
(calculated on the basis of actual days elapsed in a 360-day year) on the
unpaid balance hereof from the date hereof until this Note is fully paid,
payable at the times and calculated at the rate or rates as follow:
The Borrower shall pay interest monthly on the unpaid principal amount of
the Credit, at a rate per annum equal to ONE-FOURTH OF ONE percent (1/4%)
less than the Base Rate, commencing December 1, 1996, and continuing on the
same day of each succeeding month until March 15, 1997, when the entire
remaining balance of principal and interest shall be immediately due and
payable. The foregoing notwithstanding, Borrower shall have the option, in
$1,000,000.00 minimum increments, to fix interest rates for 30, 60 or 90
day periods at 250 basis points over the LIBOR for such period. "Base
Rate" means the rate of interest established by the Norwest Bank Minnesota,
National Association, from time to time as its "base" or "prime" rate of
interest and shall be subject to change as often as monthly, with each such
change to take effect as of the first day of the immediately succeeding
month. "LIBOR" means the average (rounded upward, if necessary, to the
nearest one-eighth of one percent) of offered rates for dollar deposits
in immediately available funds in the London market based on quotations
at five major banks for a period, and in an amount, comparable to the
interest period and principal amount of the portion of the loan for which
the LIBOR option has been chosen, as such rates are published from time to
time in the Money Rates section of the Wall Street Journal.
This note shall be subject to additional terms and conditions included in that
certain Credit Agreement, dated January 18, 1995, and all amendments thereto
(collectively, the "Agreement"), between the Bank or its successor in interest,
and the undersigned. The terms and conditions of the Agreement are incorporated
herein by reference. In the event that any provision in the Agreement is found
to be in conflict with any provision of this Note, the provision in the
Agreement shall control.
ENERGY WEST, INCORPORATED
By: /s/ Edward J. Bernica
-------------------------------------------
Edward J. Bernica, Vice President & CFO
By: /s/ William J. Quast
-------------------------------------------
William J. Quast, Vice President,
Treasurer and Controller
<PAGE>
CREDIT AGREEMENT
THIS CREDIT AGREEMENT, dated as of February 12, 1997, is by and
between ENERGY WEST INCORPORATED, a Montana corporation (the "Borrower"), and
FIRST BANK MONTANA, NATIONAL ASSOCIATION (the "Lender").
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
Section 1.1 DEFINED TERMS. As used in this Agreement the following
terms shall have the following respective meanings:
"ADJUSTED EURODOLLAR RATE": With respect to each Interest Period
applicable to a Eurodollar Rate Advance, the rate (rounded upward, if necessary,
to the next one hundredth of one percent) determined by dividing (i) the
Eurodollar Rate for such Interest Period by (ii) 1.00 minus the Eurodollar
Reserve Percentage.
"ADVANCE": Any portion of the principal balance of the Note as to
which the Borrower elected one of the available interest rate options and, if
applicable, an Interest Period. An Advance may be a Eurodollar Rate Advance or a
Reference Rate Advance.
"APPLICABLE MARGIN": With respect to any Eurodollar Rate Advance, 2%
per annum, PROVIDED, so long as the covenanted ratio described in Section 6.5 is
greater than 3.0 to 1.0, the Applicable Margin for any Eurodollar Rate Advance
shall be 1.75% per annum.
"BOARD": The Board of Governors of the Federal Reserve System or any
successor thereto.
"BUSINESS DAY": Any day (other than a Saturday, Sunday or legal
holiday in the State of where the Lender is located).
"CLOSING DATE": The date hereof; provided that all the conditions
precedent to the obligation of the Lender to make the initial Advance, as set
forth in Article III, have been or, on the Closing Date, will be, satisfied.
"COMMITMENT": The obligation of the Lender to make Advances to the
Borrower in an aggregate principal amount outstanding at any time not to exceed
the "COMMITMENT AMOUNT", defined in Section 2.1, upon the terms and subject to
the conditions and limitations of this Agreement.
"DEFAULT": Any event which, with the giving of notice (whether such
notice is required under Section 7.1, or under some other provision of this
Agreement, or otherwise) or lapse of time, or both, would constitute an Event of
Default.
"EBITDA": For any period of determination, the consolidated net income
of the Borrower and its subsidiaries before deductions for income taxes,
interest expense, depreciation and amortization, all as determined in accordance
with GAAP.
"EURODOLLAR BUSINESS DAY": A Business Day which is also a day for
trading by and between banks in United States dollar deposits in the interbank
Eurodollar market and a day on which banks are open for business in New York
City.
"EURODOLLAR RATE": With respect to each Interest Period applicable to
a Eurodollar Rate Advance the per annum Eurodollar interest rate (LIBOR) for
United States dollars displayed on the Reuters Screen LIBO page or, if such rate
is not so published, a rate determined for such amount and maturity based on
published composite quotations of interbank Eurodollar rates selected by the
Lender, in each case two Eurodollar Business Days prior to the first day of such
Interest Period and for a maturity comparable to the Interest Period; PROVIDED,
if Lender is unable to determine the rate in the foregoing manner, the Lender
may substitute the interest rate per annum (rounded upward, if necessary, to the
next one-sixteenth of one percent) at which United States dollar deposits are
offered to the Lender in the interbank Eurodollar market two Eurodollar Business
Days prior to the first day of such Interest Period for delivery in Immediately
Available Funds on the first day of such Interest Period and in an amount
approximately equal to the Advance by the Lender to which such Interest Period
is to apply as determined by the Lender. "Reuters Screen LIBO page" means the
display designated as page "LIBO" on the Reuters Monitor Money Rate Screen (or
such other page as may replace the LIBO page on such service) for the purpose of
displaying Reuters interbank offered rates of major banks for United States
dollar deposits. The "ONE MONTH EURODOLLAR RATE" shall be defined as provided in
Section 2.4.
<PAGE>
"EURODOLLAR RATE ADVANCE": An Advance with respect to which the
interest rate is determined by reference to the Adjusted Eurodollar Rate.
"EURODOLLAR RESERVE PERCENTAGE": As of any day, that percentage
(expressed as a decimal) which is in effect on such day, as prescribed by the
Board for determining the maximum reserve requirement (including any basic,
supplemental or emergency reserves) for a member lender of the Federal Reserve
System, with deposits comparable in amount to those held by the Lender, in
respect of "Eurocurrency Liabilities" as such term is defined in Regulation D of
the Board.
"EVENT OF DEFAULT": Any event described in Section 7.1.
"GAAP": Generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession, which are applicable to the circumstances as of any date of
determination.
"GUARANTORS": Rocky Mountain Fuels, Inc., Montana Sun, Inc., and
Energy West Resources, Inc.
"GUARANTY": The Guaranty of even date herewith executed by the
Guarantors.
"IMMEDIATELY AVAILABLE FUNDS": Funds with good value on the day and in
the city in which payment is received.
"INTEREST PERIOD": The period commencing on the date of a Eurodollar
Rate Advance and ending one, two, three, four, five or six months thereafter, as
the Borrower may elect in the manner provided in Sections 2.2 or 2.4 hereof;
PROVIDED THAT:
(1) Any Interest Period that would otherwise end on a day which
is not a Eurodollar Business Day shall be extended to the next succeeding
Eurodollar Business Day unless such Eurodollar Business Day falls in
another calendar month, in which case such Interest Period shall end on the
next preceding Eurodollar Business Day;
(2) Any Interest Period that begins on the last Eurodollar
Business Day of a calendar month (or 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 Eurodollar Business Day of a
calendar month; and
(3) Any Interest Period that would otherwise end after the
Maturity Date shall end on the Maturity Date.
"LOAN DOCUMENTS": This Agreement, the Note and the Guaranty.
"LIEN": With respect to any Person, any security interest, mortgage,
pledge, lien, charge, encumbrance, title retention agreement or analogous
instrument or device (including the interest of each lessor under any
capitalized lease), in, of or on any assets or properties of such Person, now
owned or hereafter acquired, whether arising by agreement or operation of law.
"MAXIMUM INTEREST BEARING DEBT RATIO": For any period of determination
with respect to the Borrower and its subsidiaries, the ratio on a consolidated
basis of (a) the sum of the aggregate principal amount of all outstanding
capitalized lease obligations of Borrower and its subsidiaries and that portion
of Total Liabilities bearing interest determined as of the last day of that
period TO (b) EBITDA in each case determined for said period in accordance with
GAAP.
"MATURITY DATE": As defined in Section 2.1.
"NOTE": As defined in Section 2.3.
"PERSON": Any natural person, corporation, partnership, limited
partnership, joint venture, firm, association, trust, unincorporated
organization, government or governmental agency or political subdivision or any
other entity, whether acting in an individual, fiduciary or other capacity.
"REFERENCE RATE": The rate of interest from time to time publicly
announced by First Bank National Association as its "reference rate."
"REFERENCE RATE ADVANCE": An Advance with respect to which the
interest rate is determined by reference to the Reference Rate.
"REGULATORY CHANGE": Any change after the date of this Agreement in
federal, state or foreign laws or regulations or the adoption or making after
such date of any interpretations, directives or requests applying to a class of
banks including the Lender under any federal, state or foreign laws or
- 2 -
<PAGE>
regulations (whether or not having the force of law) by any court or
governmental or monetary authority charged with the interpretation or
administration thereof.
"TOTAL LIABILITIES": At the time of any determination, the amount of
all items of Indebtedness of the Borrower and its subsidiaries on a consolidated
basis that would constitute "liabilities" for balance sheet purposes in
accordance with GAAP.
Section 1.2 ACCOUNTING TERMS AND CALCULATIONS. Except as may be
expressly provided to the contrary herein, all accounting terms used herein
shall be interpreted and all accounting determinations hereunder shall be made
in accordance with GAAP.
Section 1.3 OTHER DEFINITIONAL TERMS, TERMS OF CONSTRUCTION. The words
"hereof", "herein" and "hereunder" and words of similar import when used in this
Agreement shall refer to this Agreement as a whole, and not to any particular
provision of this Agreement. References to Sections, Exhibits, Schedules and the
like references are to Sections, Exhibits, Schedules and the like of this
Agreement unless otherwise expressly provided. The words "include", "includes"
and "including" shall be deemed to be followed by the phrase "without
limitation". Unless the context in which used herein otherwise clearly requires,
"or" has the inclusive meaning represented by the phrase "and/or". All
incorporations by reference of covenants, terms, definitions or other provisions
from other agreements are incorporated into this Agreement as if such provisions
were fully set forth herein, and include all necessary definitions and related
provisions from such other agreements. All covenants, terms, definitions and
other provisions from other agreements incorporated into this Agreement by
reference shall survive any termination of such other agreements until the
obligations of the Borrower under this Agreement and the Note are irrevocably
paid in full and the Commitment is terminated.
ARTICLE II
TERMS OF LENDING
Section 2.1 THE REVOLVING COMMITMENT. On the terms and subject to the
conditions hereof, the Lender agrees to make Advances to the Borrower on a
revolving basis at any time and from time to time from the Closing Date to
January 2, 1998 (the "Maturity Date"), during which period the Borrower may
borrow, repay and reborrow in accordance with the provisions hereof, PROVIDED,
that the unpaid principal amount of outstanding Advances shall not at any time
exceed $11,000,000 (the "Commitment Amount").
Section 2.2 PROCEDURE FOR ADVANCES. Any request for an Advance must be
given so as to be received by the Lender not later than 12:00 a.m. (Mountain
Time) two Eurodollar Business Days prior to the date of the requested Advance if
the Advance is requested as a Eurodollar Rate Advance and not later than 2:00
p.m. on the date of the requested Advance if the Advance is requested as a
Reference Rate Advance. Each request for an Advance shall specify (i) the date
of the Advance, (ii) the amount of the Advance to be made on such date, (iii)
whether such Advance is to be funded as a Reference Rate Advance or a Eurodollar
Rate Advance, and (iv) in the case of a Eurodollar Rate Advance fixed as
provided in Section 2.4, the duration of the initial Interest Period applicable
thereto; PROVIDED, that if Borrower fails to specify an interest rate for any
Advance, whether newly requested or outstanding, Lender shall fund such Advance
as a Reference Rate Advance.
Section 2.3 THE NOTE. The Advances shall be evidenced by a single
promissory note of the Borrower (the "Note"), substantially in the form of
Exhibit 2.3 hereto, in the amount of the Commitment Amount originally in effect.
The Lender shall enter in its ledgers and records the amount of each Advance
made and the payments made thereon, and the Lender is authorized by the Borrower
(but not required) to enter on a schedule attached to the Note a record of such
Advances and payments.
Section 2.4 INTEREST. Except as otherwise provided in this Section
2.4, the Note shall bear interest on the principal amount thereof remaining
outstanding from time to time, payable monthly in arrears on the first Business
Day of each month and on the Maturity Date, from the date of the Note until
payment thereof in full at a variable rate per annum of (A) the sum of (i) the
Adjusted Eurodollar Rate (based on the Eurodollar Rate for United States dollar
deposits with a maturity of 30 days in effect from time to time [the "One Month
Eurodollar Rate"]) plus (ii) the Applicable Margin, or (B) the sum of (i) the
Reference Rate minus (ii) 0.5% per annum, as Borrower may elect in the manner
- 3 -
<PAGE>
provided in Section 2.2. The interest rate hereunder or under the Note shall
change as and when the One Month Eurodollar Rate or Reference Rate change, as
the case may be. Notwithstanding the foregoing, the Borrower may at any time
elect to fix the interest rate on any new Advance or any portion of the
principal then outstanding under the Note for which the interest rate has not
been fixed for a specified Interest Period. If the Borrower makes the election
described in the preceding sentence, the interest rate on the Advance or that
portion of the outstanding principal of the Note designated by Borrower shall be
the Adjusted Eurodollar Rate corresponding to the Interest Period elected and
the principal amount designated shall thereafter be deemed a Eurodollar Rate
Advance for the purposes of this Agreement for the duration of the Interest
Period elected. The Borrower may exercise its option to fix the interest rate
payable on any portion of principal outstanding under the Note by giving the
Lender notice of the Borrower's election, specifying the Interest Period elected
and the amount of outstanding principal to be so converted, at least two
Eurodollar Business Days prior to commencement of the Interest Period elected.
Any principal or interest that is not paid when due under the Note, whether by
acceleration or otherwise, shall bear interest until paid in full at a per annum
rate equal to the sum of the rate applicable to the Note pursuant to this
Section 2.4 plus two percent per annum, payable on demand. Interest on the Note
shall be computed on the basis of actual days elapsed and a year of 360 days.
Section 2.5 INTEREST RATE NOT ASCERTAINABLE. If, on or prior to the
date for determining the Adjusted Eurodollar Rate in respect of the Interest
Period for any Eurodollar Rate Advance, the Lender reasonably and in its sound
business judgment determines (which determination shall be conclusive and
binding, absent error) that (a) deposits in dollars (in the applicable amount)
are not available to the Lender in the interbank Eurodollar market for such
Interest period, or (b) the Adjusted Eurodollar Rate will not adequately and
fairly reflect the cost to the Lender of funding or maintaining Eurodollar Rate
Advances for such Interest Period, the Lender shall forthwith give notice to the
Borrower of such determination, whereupon the obligation of the Lender to make
or continue, or to convert any Advances to, Eurodollar Rate Advances, as the
case may be, shall be suspended until the Lender notifies the Borrower that the
circumstances giving rise to such suspension no longer exist. While any such
suspension continues, all further Advances by the Lender shall be made as
Reference Rate Advances. No such suspension shall affect the interest rate then
in effect during the applicable Interest Period for any Eurodollar Rate Advance
outstanding at the time such suspension is imposed.
Section 2.6. ILLEGALITY. If any Regulatory Change shall make it
unlawful or impossible for the Lender to make, maintain or fund any Eurodollar
Rate Advances, the Lender shall notify the Borrower, whereupon the obligation of
the Lender to make or continue, or to convert any Advances to, Eurodollar Rate
Advances shall be suspended until the Lender notifies the Borrower that the
circumstances giving rise to such suspension no longer exist. If the Lender
determines that a Regulatory Change does not allow it to lawfully continue to
maintain any Eurodollar Rate Advances to the End of the applicable Interest
Periods, all of the affected Advances shall be automatically converted to
Reference Rate Advances as of the date of the Lender's notice and upon
conversion the Borrower shall indemnify the Lender in accordance with Section
2.7.
Section 2.7. FUNDING LOSSES; EURODOLLAR RATE ADVANCES. The Borrower
shall compensate the Lender, upon its written request, for actual losses,
expenses and liabilities (including any interest paid by the Lender to lenders
of funds borrowed by it to make or carry Eurodollar Rate Advances to the extent
not recovered by the Lender in connection with the reemployment of such funds)
which the Lender may sustain: (i) if a funding of a Eurodollar Rate Advance does
not occur as a result of Borrower's default on the date specified therefor in
the Borrower's request or notice as to such Advance under Section 2.2 or 2.4, or
(ii) if any repayment of a Eurodollar Rate Advance, or a conversion pursuant to
Section 2.6, occurs on any day prior to the last day of the Interest Period
applicable thereto. The Lender's request for compensation shall set forth the
basis for the amount requested and shall be final, conclusive and binding,
absent error.
Section 2.8. DISCRETION OF LENDER AS TO MANNER OF FUNDING. The Lender
shall be entitled to fund and maintain its funding of Eurodollar Rate Advances
in any manner it may elect, it being understood, however, that for the purposes
of this Agreement all determinations hereunder (including, but not limited to,
determinations under Section 2.7, but excluding determinations that the Lender
may
- 4 -
<PAGE>
elect to make from the Reuters screen) shall be made as if the Lender had
actually funded and maintained each Eurodollar Rate Advance during the Interest
Period for such Advance through the purchase of deposits having a maturity
corresponding to the last day of the Interest Period and bearing an interest
rate equal to the Eurodollar Rate for such Interest Period.
Section 2.9. REPAYMENT. Principal of the Note shall be payable in full
on the Maturity Date.
Section 2.10 OPTIONAL PREPAYMENTS. The Borrower may prepay Reference
Rate Advances, in whole or in part, at any time, without premium or penalty. Any
such prepayment must be accompanied by accrued and unpaid interest on the
amount prepaid. Each partial prepayment shall be in a minimum amount of
$100,000 or, if more, an integral multiple thereof. Except upon an acceleration
following an Event of Default or upon termination of the Commitment in whole,
the Borrower may pay Eurodollar Rate Advances only on the last day of the
Interest Period applicable thereto. Amounts paid (unless following an
acceleration or upon termination of the Commitment in whole) or prepaid on
Advances under this Section 2.10 may be reborrowed upon the terms and subject to
the conditions and limitations of this Agreement.
Section 2.11 USE OF PROCEEDS. The proceeds of any Advance hereunder
shall be used for the Borrower's general business purposes in a manner not in
conflict with any of the Borrower's covenants in this Agreement.
ARTICLE III
CONDITIONS PRECEDENT
Section 3.1 CONDITIONS OF INITIAL ADVANCE. The obligation of the
Lender to make the initial Advance hereunder shall be subject to the prior or
simultaneous fulfillment of each of the following conditions:
3.1(a) DOCUMENTS. The Lender shall have received the following:
(i) This Agreement and the Note executed by a duly authorized
officer (or officers) of the Borrower.
(ii) A copy of the corporate resolutions of the Borrower and the
Guarantors authorizing the execution, delivery and performance of the
respective Loan Documents and containing an incumbency certificate
showing the names and titles, and bearing the signatures of, the
officers of the Borrower authorized to execute Loan Documents,
certified as of the Closing Date by the Secretary or an Assistant
Secretary of the Borrower or the Guarantors as the case may be.
(iii) Copies of the articles of incorporation and bylaws of the
Borrower and Guarantors with all amendments thereto certified as of
the Closing Date by the Secretary or an Assistant Secretary of the
Borrower or Guarantors as the case may be.
(iv) A certificate of good standing for the Borrower and
Guarantors each in the jurisdiction of their incorporation together
with evidence of each entities' authority to do business in any other
jurisdiction the absence of which would materially affect the ability
of the Borrower or respective Guarantor to carry on its business
(specifically including, without limitation, Montana), in each case
certified by the appropriate governmental officials as of a date not
more than 10 days prior to the Closing Date.
(v) The opinion of counsel to the Borrower and Guarantors
covering such matters as the Lender may request.
(vi) The Guaranty.
3.1(b) OTHER MATTERS. The Lender shall have received such other
information, instruments and agreements in connection with the transactions
contemplated by this Agreement as it may reasonably request satisfactory in
scope, form and substance to the Lender and its counsel.
Section 3.2 CONDITIONS PRECEDENT TO ALL ADVANCES. The Lender shall not
have any obligation to make any Advance (including Advances after the initial
Advance) hereunder unless all
- 5 -
<PAGE>
representations and warranties of the Borrower made in this Agreement remain
true and correct and no Default or Event of Default exists.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Lender:
Section 4.1 ORGANIZATION, STANDING, ETC. The Borrower is a corporation
duly incorporated and validly existing and in good standing under the laws of
Montana and has all requisite corporate power and authority to carry on its
business as now conducted, to enter into this Agreement and to issue the Note
and to perform its obligations hereunder and thereunder. This Agreement and the
Note have been duly authorized by all necessary corporate action and when
executed and delivered will be the legal and binding obligations of the
Borrower, subject to the effect of any applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance, or similar law affecting
creditors' rights generally and to general principles of equity. The execution
and delivery of this Agreement and the Note will not violate the Borrower's
Articles of Incorporation or bylaws or any law, regulation, order or ruling
applicable to the Borrower. No governmental authorization, consent or exemption
is required in connection with the Borrower's execution and delivery of this
Agreement and the Note.
Section 4.2 FINANCIAL STATEMENTS AND NO MATERIAL ADVERSE CHANGE. The
audited financial statements attached to the Borrower's annual Form 10-K dated
as of June 30, 1996 and the unaudited financial statements contained in its
quarterly Form 10-Q dated as of September 30, 1996, as heretofore furnished to
the Lender, have been prepared in accordance with GAAP, except for normal
year-end adjustments and the absence of footnotes in the case of the unaudited
financial statements. The Borrower has no material obligation or liability not
disclosed in such financial statements, and there has been no material adverse
change in the condition of the Borrower since the dates of such financial
statements.
Section 4.3 LITIGATION. There are no actions, suits or proceedings
pending or, to the knowledge of the Borrower, threatened against or affecting
the Borrower which, if determined adversely to the Borrower, would have, a
material adverse effect on the condition of the Borrower. The Borrower is not in
violation of any law or regulation (including securities, environmental and
public utilities laws and regulations and laws and regulations relating to
employee benefit plans) where such violation could reasonably be expected to
impose a material liability on the Borrower.
Section 4.4 TAXES. The Borrower has filed all federal, state and local
tax returns required to be filed and has paid or made provision for the payment
of all taxes due and payable pursuant to such returns and pursuant to any
assessments made against it or any of its property (other than taxes, fees or
charges the amount or validity of which is currently being contested in good
faith by appropriate proceedings and with respect to which reserves in
accordance with GAAP have been provided on the books of the Borrower and except
where failure to file or pay would not have a material adverse effect on the
Borrower).
Section 4.5 SUBSIDIARIES. The Borrower has only three (3)
subsidiaries, the Guarantors.
ARTICLE V
AFFIRMATIVE COVENANTS
Until the Commitment shall have expired or been terminated and the
Note and all of the Borrower's other obligations to the Lender under this
Agreement shall have been paid in full, unless the Lender shall otherwise
consent in writing:
Section 5.1 FINANCIAL STATEMENTS AND REPORTS. The Borrower will
furnish to the Lender:
5.1(a) As soon as available after the end of each fiscal year of
the Borrower, the Borrower's Form 10-K, with the audited financial statements
attached thereto, certified without qualification by independent certified
public accountants of recognized national standing selected by
- 6 -
<PAGE>
the Borrower and acceptable to the Lender. The Lender acknowledges that Ernst &
Young LLP is an acceptable public accounting firm.
5.1(b) As soon as available after the end of each fiscal quarter,
Form 10Q for the Borrower.
5.1(c) As soon as practicable and in any event within 60 days
after the end of each fiscal quarter, a statement in the form of that attached
hereto as Exhibit 5.1 signed by the chief financial officer of the Borrower (i)
stating that as of the end of such quarter there did not exist any Default or
Event of Default or, if such Default or Event of Default existed, specifying the
nature and period of existence thereof and what action the Borrower proposes to
take with respect thereto and (ii) certifying compliance with Sections 6.4 and
6.5 hereof.
5.1(d) As soon as practicable and in any event within 90 days
before the end of each fiscal year, a projection of the Borrower's income and
expenses and capital expenditures for the next fiscal year.
5.1(e) From time to time, such other information regarding the
business, operation and financial condition of the Borrower as the Lender may
reasonably request.
Section 5.2 CORPORATE EXISTENCE. The Borrower will maintain for itself
and the Guarantors corporate existence in good standing under the laws of their
respective jurisdictions of incorporation and qualification to transact business
in each jurisdiction where failure so to qualify would have a material adverse
effect on the Borrower or the Guarantor.
Section 5.3 INSURANCE. The Borrower will maintain with financially
sound and reputable insurance companies such insurance as may be required by law
and such other insurance in such amounts and against such hazards as is
customary in the case of reputable corporations engaged in the same or similar
business and similarly situated.
Section 5.4 PAYMENT OF TAXES AND CLAIMS. The Borrower will file all
tax returns and reports which are required by law to be filed by it and will pay
before they become delinquent, all taxes, assessments and governmental charges
and levies imposed upon it or its property and all claims or demands of any kind
(including those of suppliers, mechanics, carriers, warehousemen, landlords and
other like Persons) which, if unpaid, might result in the creation of a Lien
upon its property unless the Borrower contests in good faith by appropriate
proceedings such taxes, assessments, charges, levies, claims or demands and
adequate reserves have been made in the financial statements as required under
GAAP.
Section 5.5 RECORDS AND INSPECTION. The Borrower will keep adequate
and proper records and books of account in which full and correct entries will
be made of its dealings, business and affairs. The Borrower will permit the
Lender or its designee to visit and inspect any of the properties, books and
financial records of the Borrower, to examine and to make copies of the books of
accounts and other financial records of the Borrower as the Lender may
reasonably request in connection with this Agreement and the loans made
hereunder, and to discuss the affairs, finances and accounts of the Borrower
with its officers at such reasonable times and intervals as the Lender may
designate. The Lender shall keep all such information confidential and will not
disclose such information to any third party except as may be required by law.
Section 5.6 COMPLIANCE. The Borrower will comply in all material
respects with all laws, rules and regulations to which it is subject.
Section 5.7 NOTICE OF LITIGATION. The Borrower will give prompt
written notice to the Lender of the commencement of any action, suit or
proceeding affecting the Borrower if in the Borrower's reasonable judgment, the
action will have a material adverse effect on the Borrower.
Section 5.8 PLANS. The Borrower and the Guarantors will maintain any
employee benefit plans in compliance with all material requirements of
applicable laws and regulations.
- 7 -
<PAGE>
ARTICLE VI
NEGATIVE COVENANTS
Until the Commitment shall have expired or been terminated and the
Note and all of the Borrower's other obligations to the Lender under this
Agreement shall have been paid in full, unless the Lender shall otherwise
consent in writing:
Section 6.1 MERGER. The Borrower will not merge or consolidate or
enter into any analogous reorganization or transaction with any Person or
liquidate, wind up or dissolve itself (or suffer any liquidation or
dissolution).
Section 6.2 SALE OF ASSETS. The Borrower will not sell, transfer,
lease or otherwise convey more than 10% of its assets in any calendar year
during the term of this Agreement except for sales and leases in the ordinary
course of business and sales and leases to any of the Guarantors.
Section 6.3 LIENS. The Borrower will not create, incur, assume or
suffer to exist any Lien, or enter into any arrangement for the acquisition of
any property through conditional sale, lease-purchase or other title retention
agreements except (a) Liens for taxes, fees, assessments, governmental charges
or governmental entitlements not delinquent (b) Liens incurred or deposits or
pledges made or given in connection with, or to secure payment of, indemnity,
performance or other similar bonds and (c) purchase money Liens for the
acquisition of any property by Borrower and equipment or capital leases for the
acquisition of personal property by the Borrower.
Section 6.4 CASH FLOW COVERAGE RATIO. The Borrower will not permit the
ratio of its EBITDA minus income taxes minus dividends plus proceeds from
issuance of new shares of common stock net of any retirement of common stock TO
the principal payments on consolidated long term debt plus total interest
expense, as of the last day of any fiscal quarter, for the four consecutive
fiscal quarters ending on that date, to be less than 1.5 to 1.
Section 6.5 MAXIMUM INTEREST BEARING DEBT RATIO. The Borrower will not
permit the Maximum Interest Bearing Debt Ratio, as of the last day of the fiscal
quarters ending on March 31 and June 30 to be less than 4.5 to 1 and ending
September 30 and December 31 to be less than 5.0 to 1.
ARTICLE VII
EVENTS OF DEFAULT AND REMEDIES
Section 7.1 EVENTS OF DEFAULT. The occurrence of any one or more of
the following events shall constitute an Event of Default:
7.1(a) The Borrower shall fail to make when due, whether by
acceleration or otherwise, any payment of principal of or interest on the Note
or any other obligations of the Borrower to the Lender pursuant to this
Agreement and such failure continues for a period of five consecutive days.
7.1(b) Any representation or warranty made by or on behalf of the
Borrower in this Agreement or by or on behalf of the Borrower in any
certificate, statement, report or document herewith or hereafter furnished to
the Lender pursuant to this Agreement shall prove to have been false or
misleading in any material respect on the date as of which the facts set forth
are stated or certified.
7.1(c) The Borrower shall fail to comply with Sections 5.2, 5.3,
6.1, 6.2 or 6.3.
7.1(d) The Borrower shall fail to comply with any other
agreement, covenant, condition, provision or term contained in this Agreement
(other than those hereinabove set forth in this Section 7.1 or Sections 6.4 or
6.5) and such failure to comply shall continue for 30 calendar days after
whichever of the following dates is the earliest: (i) the date the Borrower
gives notice of such failure to the Lender, (ii) the date the Borrower should
have given notice of such failure to the Lender pursuant to Section 5.1(c), or
(iii) the date the Lender gives notice of such failure to the Borrower.
7.1(e) The Borrower shall fail to comply with Sections 6.4 or 6.5
of this Agreement and such failure to comply shall continue for 90 calendar days
after whichever of the
- 8 -
<PAGE>
following dates is earliest: (i) the date the Borrower gives notice of such
failure to the Lender, (ii) the date the Borrower should have given notice of
such failure to the Lender pursuant to Section 5.1(c), or (iii) the date the
Lender gives notice of such failure to the Borrower.
7.1(f) The Borrower shall become insolvent or shall generally not
pay its debts as they mature or shall apply for, shall consent to, or shall
acquiesce in the appointment of a custodian, trustee or receiver of the Borrower
or for a substantial part of the property thereof or, in the absence of such
application, consent or acquiescence, a custodian, trustee or receiver shall be
appointed for the Borrower or for a substantial part of the property thereof and
shall not be discharged within 60 days, or the Borrower shall make an assignment
for the benefit of creditors.
7.1(g) Any bankruptcy, reorganization, debt arrangement or other
proceedings under any bankruptcy or insolvency law shall be instituted by or
against the Borrower and, if instituted against the Borrower, shall have been
consented to or acquiesced in by the Borrower or shall remain undismissed for 60
days, or an order for relief shall have been entered against the Borrower.
7.1(h) Any dissolution or liquidation proceeding shall be
instituted by or against the Borrower and, if instituted against the Borrower,
shall be consented to or acquiesced in by the Borrower or shall remain for 60
days undismissed.
7.1(i) A judgment or judgments for the payment of money in excess
of the sum of $250,000 in the aggregate shall be rendered against the Borrower
and either (i) the judgment creditor executes on such judgment or (ii) such
judgment remains unpaid or undischarged for more than 60 days from the date of
entry thereof or such longer period during which execution of such judgment
shall be stayed during an appeal from such judgment.
7.1(j) The maturity of any indebtedness of the Borrower exceeding
$250,000 in the aggregate (other than indebtedness under this Agreement) shall
be accelerated, or the Borrower shall fail to pay any such indebtedness when due
(after the lapse of any applicable grace period) or any event shall occur or
condition shall exist and shall continue for more than the period of grace, if
any, applicable thereto and shall have the effect of causing, or permitting the
holder of any such indebtedness to cause, such indebtedness to become due prior
to its stated maturity.
Section 7.2 REMEDIES. If (a) any Event of Default described in
Sections 7.1 (f), (g) or (h) shall occur with respect to the Borrower, the
Commitment shall automatically terminate and the Note and all other obligations
of the Borrower to the Lender under this Agreement shall automatically become
immediately due and payable, or (b) any other Event of Default shall occur and
be continuing, then the Lender may (i) declare the Commitment terminated,
whereupon the Commitment shall terminate, and (ii) declare the Note and all
other obligations of the Borrower to the Lender under this Agreement to be
forthwith due and payable, whereupon the same shall immediately become due and
payable, in each case without presentment, demand, protest or other notice of
any kind, all of which are hereby expressly waived, anything in this Agreement
or in the Note to the contrary notwithstanding. Upon the occurrence of any of
the events described in clauses (a) or (b) of the preceding sentence the Lender
may exercise all rights and remedies under this Agreement, the Note and any
related agreements and under any applicable law.
ARTICLE VIII
MISCELLANEOUS
Section 8.1 MODIFICATIONS. Notwithstanding any provisions to the
contrary herein, any term of this Agreement may be amended with the written
consent of the Borrower.
Section 8.2 COSTS AND EXPENSES. The Borrower agrees to reimburse the
Lender upon demand for all reasonable out-of-pocket expenses paid or incurred by
the Lender in connection with the amendment, modification, interpretation,
collection and enforcement of this Agreement and the Note. The obligations of
the Borrower under this Section shall survive any termination of this Agreement.
Section 8.3 WAIVERS, ETC. No failure on the part of the Lender or the
holder of the Note to exercise and no delay in exercising any power or right
hereunder shall operate as a waiver thereof; nor shall any single or partial
exercise of any power or right preclude any other or further exercise
- 9 -
<PAGE>
thereof or the exercise of any other power or right. The rights and remedies
of the Lender hereunder are cumulative and not exclusive of any right or remedy
the Lender otherwise has.
Section 8.4 NOTICES. Except when telephonic notice is expressly
authorized by this Agreement, any notice or other communication to any party in
connection with this Agreement shall be in writing and shall be sent by manual
delivery, telegram, telex, facsimile transmission, overnight courier or United
States mail (postage prepaid) addressed to such party at the address specified
on the signature page hereof, or at such other address as such party shall have
specified to the other party hereto in writing. All periods of notice shall be
measured from the date of delivery thereof if manually delivered, from the date
of sending thereof if sent by telegram, telex or facsimile transmission, from
the first Business Day after the date of sending if sent by overnight courier,
or from four days after the date of mailing if mailed; PROVIDED, HOWEVER, that
any notice to the Lender under Article II hereof shall be deemed to have been
given only when received by the Lender.
Section 8.5 SUCCESSORS AND ASSIGNS; DISPOSITION OF LOANS. This
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns, except that the Borrower may not
assign its rights or delegate its obligations hereunder without the prior
written consent of the Lender. The Lender may at any time sell, assign,
transfer, grant participations in, or otherwise dispose of any portion of the
Commitment and/or Advances to banks or other financial institutions. The Lender
may disclose any information regarding the Borrower in the Lender's possession
to any prospective buyer or participant unless such information has been
previously designated by the Borrower as confidential information, in which case
the Lender may not disclose such information without the written permission of
Borrower.
SECTION 8.6 GOVERNING LAW AND CONSTRUCTION. THE VALIDITY, CONSTRUCTION
AND ENFORCEABILITY OF THIS AGREEMENT AND THE NOTE SHALL BE GOVERNED BY THE
INTERNAL LAWS OF THE STATE OF MONTANA, WITHOUT GIVING EFFECT TO CONFLICT OF LAWS
PRINCIPLES THEREOF, BUT GIVING EFFECT TO FEDERAL LAWS OF THE UNITED STATES
APPLICABLE TO NATIONAL BANKS.
Section 8.7 CAPTIONS. The captions or headings herein and any table of
contents hereto are for convenience only and in no way define, limit or describe
the scope or intent of any provision of this Agreement.
Section 8.8 ENTIRE AGREEMENT. This Agreement and the other Loan
Documents embody the entire agreement and understanding between the Borrower and
the Lender with respect to the subject matter hereof and thereof. This Agreement
supersedes all prior agreements and understandings relating to the subject
matter hereof.
Section 8.9 COUNTERPARTS. This Agreement may be executed in any number
of counterparts, all of which taken together shall constitute one and the same
instrument, and either of the parties hereto may execute this Agreement by
signing any such counterpart.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the date first above written.
ENERGY WEST INCORPORATED
By /s/ Larry D. Geske
------------------------
Print Name LARRY D. GESKE
----------------
Title President
---------------------
Borrower's Address:
No. 1 First Avenue South
P. O. Box 2229
Great Falls, Montana 59403
Fax 406-___-____
- 10 -
<PAGE>
FIRST BANK MONTANA, NATIONAL ASSOCIATION
By
------------------------
Robert A. Butcher
Senior Vice President
Lender's Address:
300 Central Avenue
P.O. Box 5000
Great Falls, Montana 59403-3127
Fax 406-455-1009
- 11 -
<PAGE>
EXHIBIT 2.3 TO
CREDIT AGREEMENT
REVOLVING NOTE
$11,000,000.00
February 12, 1997
Great Falls, Montana
FOR VALUE RECEIVED, ENERGY WEST INCORPORATED, a Montana corporation,
hereby promises to pay to the order of FIRST BANK MONTANA, NATIONAL ASSOCIATION
(the "Lender") at its main office in Great Falls, Montana, in lawful money of
the United States of America in immediately available funds on the Maturity Date
(as such term and each other capitalized term used herein are defined in the
Credit Agreement hereinafter referred to) the principal amount of ELEVEN MILLION
AND NO/100 DOLLARS ($11,000,000.00) or, if less, the aggregate unpaid principal
amount of all Advances made by the Lender under the Credit Agreement, and to pay
interest (computed on the basis of actual days elapsed and a year of 360 days)
in like funds on the unpaid principal amount hereof from time to time
outstanding at the rates and times set forth in the Credit Agreement.
This note is the Note referred to in the Credit Agreement dated as of
February 12, 1997 (as the same may be hereafter from time to time amended,
restated or modified, the "Credit Agreement") between the undersigned and the
Lender. This note is subject to certain permissive and mandatory prepayments and
its maturity is subject to acceleration, in each case upon the terms provided in
said Credit Agreement.
In the event of default hereunder, the undersigned agrees to pay all
reasonable costs and expenses of collection, including reasonable attorneys'
fees. The undersigned waives demand, presentment, notice of nonpayment, protest,
notice of protest and notice of dishonor.
THE VALIDITY, CONSTRUCTION AND ENFORCEABILITY OF THIS NOTE SHALL BE
GOVERNED BY THE INTERNAL LAWS OF THE STATE OF MONTANA WITHOUT GIVING EFFECT
TO THE CONFLICT OF LAWS PRINCIPLES THEREOF, BUT GIVING EFFECT TO FEDERAL LAWS
OF THE UNITED STATES APPLICABLE TO NATIONAL BANKS.
ENERGY WEST INCORPORATED
By
----------------------
Title
-------------------
<PAGE>
EXHIBIT 5.1 to CREDIT AGREEMENT
[FORM OF COMPLIANCE CERTIFICATE]
To: First Bank Montana, National Association
THE UNDERSIGNED HEREBY CERTIFIES THAT:
(1) I am the duly elected chief financial officer (or deputy
thereof) of Energy West Incorporated (the "Borrower"), a Montana
corporation;
(2) I have reviewed the terms of the Credit Agreement dated as of
February 12, 1997 (the "Credit Agreement"), between the Borrower and First
Bank Montana, National Association (the "Bank") and I have made, or have
caused to be made under my supervision, a detailed review of the
transactions and conditions of the Borrower during the accounting period
covered by Attachment No. 1 hereto;
(3) The examinations described in paragraph (2) did not disclose,
and I have no knowledge, whether arising out of such examinations or
otherwise, of the existence of any condition or event which constitutes a
Default or an Event of Default (as such terms are defined in the Credit
Agreement) during or at the end of the accounting period covered by
Attachment No. 1 hereto or as of the date of this Certificate, except as
described below (or in a separate attachment to this Certificate), the
exceptions listing, in detail, the nature of the condition or event, the
period during which it has existed and the action which the Borrower has
taken, is taking, or proposes to take with respect to each such condition
or event:
The foregoing certifications, together with the computations set forth
in Attachment No. 1 hereto and the financial statements delivered with this
Certificate in support hereof, are made and delivered this __ day of __________,
19__, pursuant to Section 5.1(c) of the Credit Agreement.
ENERGY WEST INCORPORATED
By
-------------------------
Print Name
-----------------
Title
----------------------
<PAGE>
ATTACHMENT TO COMPLIANCE CERTIFICATE
AS OF __________, 199_
AND PERTAINS TO THE PERIOD FROM
__________, 19__ TO __________, 19__
1. CASH FLOW COVERAGE RATIO (ON A CONSOLIDATED BASIS) (SECTION 6.4).
(a) EBITDA (adjusted as provided in Section 6.4): $_____
(b) Principal payments on long term debt: $_____
(c) Total interest expense: $_____
(d) Ratio of (a) to (b) + (c): _____ to 1.0
(e) Required ratio: equal to or greater than 1.5 to 1.0
2. MAXIMUM INTEREST BEARING DEBT RATIO (ON A CONSOLIDATED BASIS)
(SECTION 6.5).
(a) Aggregate principal amount of outstanding capitalized lease
obligations of Borrower and its subsidiaries $_____
(b) Interest-bearing Total Liabilities: $_____
(c) EBITDA: $_____
(d) Ratio of (a) plus (b) to (c): _____ to 1.0
(e) Required ratio: less than or equal to 4.5 to 1.0 (as of March 31
and June 30) or 5.0 to 1.0 (as of September 30 and December 31)
<PAGE>
DELIVERED GAS PURCHASE CONTRACT
FEBRUARY 23, 1977
CASCADE GAS CO.
SELLER
THE MONTANA POWER COMPANY
BUYER
<PAGE>
DELIVERED GAS PURCHASE CONTRACT
Index
Page
Article Title Number
------- ----- ------
I Definitions 1
II Commitment of Gas Reserves 2
III Seller's Obligations 2
IV Quantity of Gas 6
V Determinations of Gas Reserves 10
VI Delivery Pressure and Delivery Points 13
VII Quality of Gas 14
VIII Measurement and Tests 15
IX Price and Payment 21
X Seller's Representations 27
XI Title to Gas 28
XII Force Majeure 29
XIII Term 31
XIV Miscellaneous 31
<PAGE>
DELIVERED GAS PURCHASE CONTRACT
(Montana)
THIS CONTRACT, EFFECTIVE and agreed to by the parties hereto this 23rd of
February, 1977, is by and between CASCADE GAS CO., P. O. Box 577, Shelby,
Montana, 59474 (hereinafter called "Seller") and THE MONTANA POWER COMPANY
(hereinafter called "Buyer").
WITNESSETH:
WHEREAS, Seller is the contract purchaser of gas produced from those lands
situated in the State of Montana, and described on Schedule "A" attached hereto,
on which gas production has been developed; and
WHEREAS, Buyer is willing to buy gas which may be purchased by Seller from
said lands in commercial quantities; and
WHEREAS, the parties hereto are desirous of entering into a contract
providing for the sale by Seller and purchase by Buyer of volumes of gas
delivered by Seller;
NOW, THEREFORE, in consideration of the premises and the covenants herein
contained, Seller agrees to sell and deliver to Buyer and Buyer agrees to
purchase and receive from Seller, pursuant to the terms and conditions
hereinafter set forth, all of the gas purchased, produced or otherwise obtained
by Seller from acreage described on Schedule "A" attached hereto.
-1-
<PAGE>
ARTICLE I
DEFINITIONS
For the purpose of the Contract, the following words and terms are defined
as follows:
1. "CONTRACT YEAR" means a calendar year except that the first "Contract
Year" is deemed to commence on the date of initial delivery of gas hereunder and
extending to, but not including the following January 1.
2. The "ANNIVERSARY DATE" of this Contract is deemed to be January l in
each Contract year.
3. "DAY" means a period of twenty-four (24) consecutive hours beginning and
ending at 8:00 a.m., Mountain Time. The reference date for any day shall be the
calendar date upon which said 24-hour period shall commence.
4. "MONTH" means the period of time beginning at 8:00 a.m., Mountain Time
on the first day of a calendar month and ending at 8:00 a.m., Mountain Time on
the first day of the next calendar month.
5. "GAS" means either natural gas obtained from the wells or the residue
remaining after the natural gas has been treated by Seller for the removal of
any of its constituent parts other than methane and the removal of methane to
such extent as is necessary in removing other constituents, as the context may
require, but not including casinghead gas.
6. "CASINGHEAD GAS" means gas which has its rate of production controlled
by the amount of oil simultaneously produced therewith.
-2-
<PAGE>
7. "RECOVERABLE GAS RESERVES" means the quantity of gas which is determined
or redetermined at a future date to be economically recoverable and deliverable
during the initial term of this Contract from all Gas Production Units connected
to Seller's gathering system and available for delivery as of the date of
initial delivery hereunder after processing, if any, to satisfy the quality
specifications hereof, less the quantities of gas reserved by the Seller
hereunder. Such reserves shall be computed by accepted reservoir engineering and
geological procedures, and shall consist of only those reserves controlled by
Seller and underlying or attributable to the lands listed on Schedule "A", but
shall not include casinghead gas.
8. "RESERVOIR" means stratigraphic trap, or pool, from which gas is
produced, and one (1) or more "reservoirs" may be produced by means of a single
well.
9. "CUBIC FOOT OF GAS" is the unit of volume for purposes of measurement
hereunder, except for gross heating value, and means one cubic foot of gas at a
temperature of 60 DEG. F. and at a pressure of 14.73 pounds per square inch
absolute. For purposes of measurement, the atmospheric pressure shall be assumed
to remain constant at 13 pounds per square inch absolute.
10. "MCF" means one thousand (1,000) cubic feet.
11. "BTU" means British Thermal Unit. "GROSS HEATING VALUE" means the total
calorific value expressed in BTU's obtained by the complete combustion at
constant pressure of the amount of gas which would occupy a volume of one cubic
foot at
-3-
<PAGE>
a temperature of 60 DEG. F. if saturated with water vapor and under a pressure
equivalent to that of 30 inches of mercury at 32 DEG. F. and under standard
gravitational force (980.665 c.m. per sec. sec.) with air of the same
temperature and pressure as the gas, when the products of combustion are cooled
to the initial temperature of gas and air and when the water formed by
combustion is condensed to the liquid state.
12. "DCQ" means Daily Contract Quantity, and is defined in Article IV,
Section 1, of this agreement.
13. "ANNUAL CONTRACT VOLUME" means the DCQ multiplied by the number of
calendar days in the Contract Year.
ARTICLE II
COMMITMENT OF GAS RESERVES
Seller hereby commits to the performance of the Contract all of the gas
purchased, produced or otherwise obtained by Seller from the lands specified and
described on Schedule "A".
ARTICLE III
SELLER'S OBLIGATION
SECTION 1:
GAS TO BE PURCHASED AND SOLD. Subject to the provisions of this Agreement,
during the term hereof the Seller shall gather, compress, dehydrate, sell and
deliver to Buyer, and the Buyer shall purchase and receive from the Seller at
the delivery point the natural gas purchased, produced or otherwise obtained by
Seller from wells on the lands described in Schedule "A".
-4-
<PAGE>
SECTION 2:
(a) SELLER'S OBLIGATION TO DELIVER. Seller shall available for delivery
all volumes requested by not to exceed 125% of the DCQ, provided however,
Seller shall not be required to demand that the owners produce any wells in
excess of the legal of such wells as may be fixed from time to time
regulatory bodies or in excess of any rate which, judgment of the well
owners, may damage the well.
(b) LIMITATION ON SELLER'S OBLIGATIONS.
(i) RATE OF DELIVERY. Seller shall not be obligated to demand delivery
of gas from any well at a rate which in the opinion of the well owner,
acting as a reasonably prudent operator, would be injurious to such well or
to the reservoir or reservoirs from which such well is produced.
(ii) RESERVATION OF GAS BY THE SELLER. The Seller reserves the
following rights:
(1) the right to retain or allow others to retain title and
possession to such quantities of gas produced from the lands described
in Schedule "A" as may be required to fulfill the obligations of the
Seller under the terms of the Agreement or other document by which
Seller derives its right to sell the gas to be sold hereunder;
(2) the right to use such quantities of gas as may be needed or
required for delivery of gas for
-5-
<PAGE>
sale under this Contract from the lands described in Schedule "A";
(3) the right to process or allow others to process gas produced
from any one or more of the wells located on the lands described in
Schedule "A" for the removal of any component other than methane prior
to delivery of such gas to the Buyer, which components so removed
shall belong to the Seller or other processor; provided however, that
the gas which is delivered to Buyer after such processing shall meet
the quality requirements of Article VII hereof.
ARTICLE IV
QUANTITY OF GAS
SECTION 1
VOLUME OBLIGATION. Commencing on the date that Seller notifies Buyer in
writing that Seller is prepared, pursuant to the terms of this Delivered Gas
Purchase Contract, to deliver gas to Buyer at the discharge side of Seller's
plant and facilities located in the NW1/4 NW1/4 NE1/4 of Section 34, Township 34
North, Range 2 West, Toole County, Montana, (Delivery Point), the volume of gas
which Buyer shall be obligated to take and pay for, or pay for if available and
not taken, and which Seller shall be obligated to have available for delivery,
shall be the Daily Contract Quantity (DCQ).
-6-
<PAGE>
Until such time as Seller has available for delivery to Buyer in excess of
ten million (10,000,000) cubic feet of gas per day, the DCQ shall be eighty
percent (80%) of the daily volume available for delivery by Seller, whether or
not taken by Buyer. However, at such time as the DCQ so computed equals or
exceeds eight million (8,000,000) cubic feet per day, the DCQ shall be one
million (1,000,000) cubic feet per day for each five billion five hundred
million (5,500,000,000) cubic feet of Recoverable Gas Reserves as defined
herein.
The parties have agreed that, at the date of inception of Buyer's
obligation to take or pay for gas under the terms of this Contract, and until
initial delivery of gas to Buyer, the DCQ shall equal one million two hundred
thousand (1,200,000) cubic feet of gas per day.
SECTION 2:
CASINGHEAD GAS. Subject to the Quality Provisions of Article VII, Seller
may deliver to Buyer, in addition to the volumes of gas determined under Section
1 of the Article IV, Casinghead Gas purchased by Seller from the lands described
in Schedule "A". Buyer shall be obligated to accept delivery of such
Casinghead Gas only to the extent that the daily volume delivery thereof does
not exceed the DCQ (that is the total daily volume delivered does not exceed
two times the DCQ). Buyer, at its option, may accept Casinghead volumes in
excess of the DCQ.
SECTION 3:
DRAINAGE. If a reservoir producing gas delivered to Buyer under this
Contract is produced by anyone other than a well owner
-7-
<PAGE>
selling to Seller at a rate which makes imminent, in Seller's judgment, the
drainage of gas from land under Seller's purchase contracts, then Seller shall
immediately notify Buyer in writing of the existence of such situation and may
request that Buyer, to the extent reasonabley possible, increase its takes from
Seller by a volume sufficient to protect Seller and Seller's well owners from
drainage of the reservoir.
SECTION 4:
MAKE-UP OF DEFICIENCIES IN PURCHASE.
(a) Beginning with initial delivery hereunder, all volumes of gas taken by
Buyer during a contract year in excess of the Annual Contract Volume up to
a total quantity having a total value (calculated at the price being paid
hereunder at the time such gas is so made up) equal to the payments
theretofore made by Buyer to Seller for gas not taken shall be credited to
the make-up of take or pay deficiencies limited to the five (5) contract
years immediately following the later of: (1) the contract year in which
the deficiency occurred, or (2) the contract year in which all take or pay
deficiencies which occurred prior to initial delivery have been recouped.
Nothing contained in this Section 4 shall reduce Buyer's obligation to take
and pay for, or nevertheless pay for if available and not taken, the Annual
Contract Volume during each contract year.
(b) In the event that this Contract terminates for any
-8-
<PAGE>
reason other than the breach of the terms hereof by Buyer prior to the
Buyer's recovery of any volumes paid for but not taken hereunder, and
Seller begins deliveries of gas to another purchaser, Seller shall pay to
Buyer one-third (1/3) of the then current sales value of such gas each
month until the Buyer has recovered in full the sums paid by Buyer for gas
not taken.
SECTION 5:
LIMITATIONS UPON BUYER'S OBLIGATION TO PURCHASE GAS.
(a) DELIVERY CAPACITY OF SELLER. Buyer's obligation to purchase the Annual
Contract Volume during each contract year is conditioned upon Seller having
the capability at all times of delivering a daily volume of gas equal to at
least 125% of the DCQ.
(b) FAILURE TO DELIVER CONTRACT VOLUME. If the Seller fails for any
calendar month to deliver to Buyer the daily quantity of gas requested by
Buyer up to 125% of the DCQ, Buyer may notify Seller in writing of such
failure. Seller shall have such time as may be necessary, but in no event
more than twelve (12) months from the date of receipt by Seller of Buyer's
notice, in which period the DCQ shall be reduced temporarily to a volume
equal to 80% of the average daily volume of gas Seller delivered to Buyer
during the calendar month on which Buyer's notice was based. In the event
Seller's attempts to restore its ability to deliver 125% of the DCQ
-9-
<PAGE>
in effect prior to such notice are unsuccessful, as evidenced by Seller's
failure to deliver such quantity on each day of a calendar month test
conducted by Seller and Buyer for the period commencing on the day
following the end of said twelve (12) month period, or at such earlier time
as Seller may request, Buyer shall have the right to reduce the DCQ to a
volume equal to 80% of the average daily volume of gas delivered to Buyer
during the calendar month of said delivery test.
ARTICLE V
DETERMINATION OF GAS RESERVES
At such time as the DCQ is equal to eight million (8,000,000) cubic feet
per day, and thereafter, from time to time as new wells are completed or
discoveries of gas are made for which Seller is the contract purchaser, Seller
will provide Buyer with the basic geological, engineering, production and other
data within Seller's possession which would be needed in making a determination
of gas reserves and deliverability of each well.
SECTION 1:
RECOVERABLE GAS RESERVE DETERMINATION: One (1) month prior to the expected
initial delivery of gas from any such new well hereunder, Buyer shall furnish
Seller an estimate of Recoverable Gas Reserves. The estimate shall not include
nor be based in any manner upon volumes of casinghead gas.
-10-
<PAGE>
Within fifteen (15) days after Buyer's furnishing its estimate of the
Recoverable Gas Reserves, Seller shall advise Buyer whether Buyer's estimate is
acceptable. If Buyer's estimate of such Recoverable Gas Reserves is not
acceptable to Seller, and Seller and Buyer are unable to negotiate an agreeable
settlement, then the matter shall be determined by arbitration as provided in
this Article V. The Recoverable Gas Reserves when determined will form the basis
for determining the DCQ and take or pay obligations. Such DCQ shall be effective
until superseded by a subsequent redetermination of Recoverable Gas Reserves or
until changed under the provisions of Article IV, Section 5.
The fact that Buyer and Seller cannot agree on the Recoverable Gas Reserves
for any well and find it necessary to submit such matter to arbitration shall
not prevent the connection of such well and the commencement of production
therefrom. The Recoverable Gas Reserves as finally determined by arbitration
shall be used to determine the DCQ retroactive to the date of initial delivery
from such well.
SECTION 2:
SUBSEQUENT REDETERMINATIONS OF RECOVERABLE GAS RESERVES. Either party may
request a redetermination of Recoverable Gas Reserves during the month of July
of every second contract year hereof. Upon request Buyer shall, between July 1
and September 1 of each such year, estimate the quantity of Seller's Recoverable
Gas Reserves and promptly provide Seller with a statement thereof.
-11-
<PAGE>
Within fifteen (15) days after Buyer's furnishing its estimate of such
reserves, Seller shall advise Buyer whether Buyer's estimate of such reserves is
acceptable. If Seller and Buyer reach agreement on Recoverable Gas Reserves,
then such reserve agreement shall form the basis for determining the DCQ
effective the following January 1, unless limited by the provisions of Article
IV, Section 5. If Buyer's estimate of such reserves is not acceptable to Seller,
and Seller and Buyer are unable to negotiate an agreeable settlement, then the
matter shall be determined by arbitration as provided in this Article V.
SECTION 3:
ARBITRATION OF RESERVES. If Seller and Buyer are unable to agree upon the
Recoverable Gas Reserves in any of the foregoing instances and such disagreement
cannot be resolved by negotiation within sixty (60) days after Buyer has
submitted its determination of Recoverable Gas Reserves, then the determination
of such reserves will, at the request of either party, be submitted to
arbitration as hereinafter set forth.
Upon written demand of either party, the parties shall meet and attempt to
appoint a single arbitrator. If the parties fail to name an arbitrator within
ten (10) days from such demand, then the arbitrator shall be appointed by the
American Arbitration Society.
The arbitrator selected to act hereunder shall be qualified by education,
training and experience to determine gas reserves.
The arbitrator so chosen shall proceed immediately to hear
-12-
<PAGE>
and determine Recoverable Gas Reserves. The decision of the arbitrator shall be
made within thirty (30) days after his appointment, subject to any reasonable
delay due to unforeseen circumstances. Notwithstanding the foregoing, in the
event the arbitrator fails to make a decision within sixty (60) days after his
appointment, then either party may elect to have a new arbitrator chosen in like
manner as if none had previously been selected. If such election is made, the
decision of the previous arbitrator shall be null and void.
The decision of the arbitrator shall be in writing and signed by the
arbitrator and shall be final and binding upon the parties hereto as to
Recoverable Gas Reserves hereunder, until such time as a redetermination may be
made as herein provided.
The compensation and expenses of the arbitrator shall be paid in equal
proportions by Buyer and Seller.
An initial determination of a redetermination of Recoverable Gas Reserves
rendered by an arbitrator shall form the basis of determining the DCQ effective
January 1 of the year following the year in which such arbitration was
requested, subject to the provisions of Article IV, Section 5.
ARTICLE VI
DELIVERY PRESSURE AND DELIVERY POINTS
SECTION 1:
DELIVERY PRESSURE. Delivery by Seller of gas shall be made at a pressure
that is sufficient to effect delivery of gas into
-13-
<PAGE>
Buyer's pipeline but not in excess of one thousand (1,000) pounds
per square inch. Maintenance by Seller of sufficient pressure to
enter Buyer's pipeline shall be a condition of Buyer's obligation
to purchase and receive from Seller the quantities of gas specified
in Article III hereof.
SECTION 2:
DELIVERY POINT. Delivery of natural gas hereunder shall be
at the discharge side of Seller's plant and facilities located in
the NW 1/4 NW 1/4 NE 1/4 of Section 34, Township 34 North, Range 2 West,
Toole County, Montana.
SECTION 3:
TITLE: Title to all gas shall pass at the point of delivery.
ARTICLE VII
QUALITY OF GAS
SECTION 1:
Seller agrees that the gas delivered hereunder shall be
merchantable natural gas, at all times complying with the following
quality requirements:
(a) The gas shall be in its natural state as produced, including all
hydrocarbon constituents therein contained, except gas from which Seller
has removed liquid hydrocarbons under the provisions of Article III,
Section 2(b)(ii)(3) hereof. Seller shall also have the right to remove
nonhydrocarbon constituents and hydrocarbons as required to
-14-
<PAGE>
remove other constituents. Seller may enrich the gas to the extent required
to meet the gross heating requirement set forth in Paragraph (b) below, and
may subject the gas, or permit the gas to be subjected, to compression,
cooling, cleaning and other processes.
(b) The weighted average gross heating value of gas delivered to Buyer
hereunder shall not be less than nine hundred (900) British Thermal Units
per cubic foot, and shall not be more than one thousand two hundred (1,200)
British Thermal Units per cubic foot. Buyer may reject delivery of gas
having a weighted average gross heating value of less than nine hundred
(900) British Thermal Units or more than one thousand two hundred (1,200)
British Thermal Units.
(c) The gas shall be commercially free from sand, dust, gums, liquid water,
crude oil, impurities and other objectionable substances and shall have
been dehydrated by Seller for removal of water present therein in a vapor
state, and in no event contain more than four (4) pounds of water vapor per
one million (1,000,000) cubic feet of gas, and shall be free from
hydrocarbons liquifiable at temperatures in excess of fifteen degrees
(15 DEG) Fahrenheit at pressures up to 800 psig.
(d) The gas shall not contain more than one-quarter (1/4) grain of hydrogen
sulphide per one hundred (100) cubic feet of gas.
-15-
<PAGE>
(e) The gas shall not contain in excess of three percent (3%) by volume of
carbon dioxide.
(f) The temperature of the gas at the delivery point or delivery points
shall not be in excess of one hundred twenty degrees (120 DEG) Fahrenheit.
ARTICLE VIII
MEASUREMENT AND TESTS
SECTION l:
UNIT OF VOLUME. The unit of volume for all gas hereunder shall be one (l)
cubic foot of gas, and the term "Cubic foot of Gas" wherever used in the
Contract shall mean a cubic foot of gas at a temperature of sixty degrees
(60 DEG) Fahrenheit and at a pressure of 14.73 pounds per square inch absolute.
SECTION 2:
SALES UNIT. The sales unit of the gas delivered hereunder shall be one
thousand (1,000) cubic feet.
SECTION 3.
OWNERSHIP OF MEASURING EQUIPMENT. All measuring devices and materials
required at the point or points of delivery shall be installed, maintained, and
operated or furnished by Buyer at Buyer's expense. Seller may install and
operate check measuring equipment provided it does not interfere with the use of
Buyer's equipment in determining the volumes of gas delivered by Seller to Buyer
at the points of delivery.
SECTION 4:
METERING AND COMPUTATION OF VOLUME. The gas shall be
-16-
<PAGE>
metered by orifice meters or other measurement facilities constructed,
installed, and maintained by Buyer at or near the point or points of delivery.
Such measurement facilities of Buyer shall be constructed and installed in
accordance with the applicable provisions of the American Gas Association's "Gas
Measurement Committee Report No. 3, dated April, 1955". The volumes of gas
delivered to Buyer shall be computed from the meter records and converted into
the units of measurement specified herein in accordance with the methods
prescribed in Gas Measurement Committee Report No. 3 of the American Gas
Association, including the appendix thereto, as published April, 1955, or any
subsequent revision thereof acceptable to Buyer and Seller. Corrections shall be
made for deviation from the Ideal Gas Laws at the pressure and temperature at
which the gas is metered. To determine the factors for such correction a
quantitative analysis of the gas shall be made at reasonable intervals with such
apparatus as shall be agreed upon by Buyer and Seller, and such factors shall be
obtained from data contained in "Supercompressibility Factors for Natural Gas",
Volumes 1 through 6, inclusive, or in "Tables for Determination of
Supercompressibility Factors for Natural Gas Containing Nitrogen and/or Carbon
Dioxide", Volume 7, as published by the American Gas Association in 1955, or any
subsequent revision thereof acceptable to Buyer and Seller. For the purpose of
measurement and meter calibration, the atmospheric pressure shall be assumed to
be 13 pounds per square inch, irrespective of variations in natural atmospheric
pressure from time to time. Seller agrees
-17-
<PAGE>
to provide sufficient pulsation dampening equipment so that measurement at the
point of delivery will not be affected by pulsation.
SECTION 5:
SPECIFIC GRAVITY. The specific gravity of the gas flowing through the well
meter, or meters, shall be determined by Buyer, or, at Seller's election, by
joint tests, at intervals of appoximately twelve (12) months as may be
practicable under the circumstances. All such determinations of specific gravity
shall be made by a standard gravity balance or by a gravitometer employing the
"Momentum Method" of specific gravity determinations as described in Chapter
VII, "Determination of Specific Gravity", of the American Gas Association Gas
Measurement Manual, 1963 edition. The specific gravity of the gas flowing
through each meter determined by either of the above-mentioned methods shall be
used in computing the volume of gas delivered through such meter. The specific
gravity determined by any test shall apply from the date the test was taken
until the date of the next test.
SECTION 6.
TEMPERATURE. The temperature of the gas delivered at the points of delivery
hereunder shall be determined by means of an indicating thermometer. The
arithmetic average of readings taken at the beginning and end of each chart
period shall be used in computing the volumes delivered hereunder.
SECTION 7:
EQUIPMENT TESTING. The accuracy of Buyer's measuring equipment shall be
verified by test, using means and methods
-18-
<PAGE>
generally acceptable in the gas industry, at least annually or upon the written
request of Seller. Notice of the time and nature of each test shall be given by
Buyer to Seller sufficiently in advance to permit convenient arrangement for
Seller's representative to be present. Measuring equipment found to be
registering inaccurately shall be adjusted to read as accurately as possible.
If, after notice, Seller fails to have a representative present, the results of
the test shall nevertheless be considered accurate until the next test. All
tests of such measuring equipment shall be made at Buyer's expense, except that
Seller shall bear the expense of tests made at its request if the inaccuracy is
found to produce an error of two percent (2%) or less in the measurement of gas.
SECTION 8:
MEASURING EQUIPMENT OUT OF REPAIR. If, for any reason any measuring
equipment is inoperative or inaccurate so that the volume of gas delivered is
not correctly indicated by the reading thereof, and if such reading is in error
by more than two percent (2%) in the measurement of gas, then the volume of gas
delivered, during the period such measuring equipment is inoperative or
inaccurate, shall be determined by the parties hereto on the basis of the best
date available using the first of the following methods which is feasible:
(a) By using the registration of any check measuring equipment installed
and accurately registering;
(b) By correcting the error if the percentage of error is ascertainable by
calibration, test, or mathematical
-19-
<PAGE>
calculations; or
(c) By comparing deliveries made during preceding periods under similar
delivery conditions when the meter was registering accurately.
An adjustment based on such determination shall be made for such period of
inaccuracy as may be definitely known, or if not known, then for one-half the
period since the date of the last meter test. In no event, however, shall any
adjustment extend back beyond six months from the date the error was first made
known by one party hereunder to the other.
SECTION 9:
INSPECTION OF EQUIPMENT. Buyer and Seller shall have the right to inspect
equipment installed or furnished by the other party, and the charts and other
measurement or test data of the other party, at all times during business hours;
but the reading, calibration, and adjustment of such equipment and changing of
charts shall be done only by the party installing and furnishing the same.
Unless the parties otherwise agree, each party shall perserve all original test
data, charts, and other similar records in such party's possession for a period
of at least five (5) years.
SECTION 10:
GROSS HEATING VALUE. The gross heating value per cubic foot of gas shall be
determined from time to time by the Buyer at the Buyer's expense, using an
accurately calibrated Culter-Hammer calorimeter from samples of the gas taken at
the delivery point or points. The Seller shall have the right to witness any and
all tests of gross heating value made by the Buyer. The Seller
-20-
<PAGE>
shall have the right at any time to make or to require the Buyer to make a
special test of the gross heating value of gas delivered hereunder, but the
Seller shall bear the expense of any special tests made at its request. Tests of
gross heating value of gas delivered hereunder shall be made by the Buyer after
giving Seller ten (10) days written notice thereof.
SECTION 11:
HYDROGEN SULPHIDE. Tests to determine hydrogen sulphide content shall be
made whenever necessary, but not oftener than two (2) times during any calendar
year, to determine whether the gas meets the requirements of Article VII,
Section 1 (d) hereof. Such test shall be made at the expense of the Buyer.
Seller shall have the right to witness and verify all tests.
SECTION 12:
DATA TO BE PROVIDED TO SELLER. Buyer shall provide Seller with all
information, data, test results, reservoir information, etc, immediately upon
receipt of same by Buyer, to the end that at all times Seller shall have all
information relative to its wells that is available to Buyer.
-21-
<PAGE>
ARTICLE IX
PRICE AND PAYMENT
SECTION 1:
(a) Buyer shall pay the Seller on or before the 25th day of each month for
gas volumes delivered and actually taken in the preceding month. If during
any calendar month Seller has available for delivery 125% of the DCQ and
Buyer does not take a total volume of gas equal to the DCQ multiplied by
the number of days in said calendar month, then, on or before the 25th day
of the succeeding month Buyer shall pay Seller, as take-or-pay payment, the
value of such volume of gas not taken. If Buyer shall have taken a total
volume of gas in excess of the DCQ multiplied by the number of days in any
calendar month, and if said excess has not been credited to make up of
deficiencies pursuant to Article IV, Section 4(a) hereof, then Buyer shall
be entitled to credit such excess against any deficiency in take occurring
in any subsequent month in the same calendar year.
(b) The price to be paid by the Buyer to the Seller for gas delivered to
the Buyer at the delivery point or for take or pay payments shall be in
U. S. funds and shall be at all times equivalent to the Canadian Border
price for gas produced in Alberta and delivered to Buyer at the
Canadian-Montana border at Aden, Alberta. Proper adjustments shall be made
monthly for Pressure Base,
-22-
<PAGE>
BTU Content, (none required at present since this Contract and the Canadian
Border price are both stated at 14.73 psia and 1000 BTU), and currency
adjustment between Canandian and U. S. currency. The currency adjustment
shall be based on the arithmetic average of the daily exchange rate of
Canadian currency and United States currency as published at Twelve O'clock
(12:00) noon by the Royal Bank of Canada at the City of Ottawa.
In the event deliveries of gas produced in Alberta at the Aden border
export point cease but Buyer continues to import gas produced in Alberta at
the Carway border export point, then the Canadian Border price at Carway
will determine the price hereunder.
(c) If the gas delivered hereunder has a gross heating value of less than
one thousand (1,000) BTU per cubic foot, then the price payable for such
gas shall be reduced. If the gas has a gross heating value of more than one
thousand (1,000) BTU per cubic foot, then the price payable for such gas
shall be increased. Such reduced or increased price shall be determined by
multiplying the price otherwise payable by a fraction, the numerator of
which is the actual gross heating value of the gas delivered, express in
BTU per cubic foot, and the denominator of which is one thousand (1,000);
provided, however, such fraction shall not exceed 12/10 even though the
gross heating value of the gas is found to be in excess of one thousand two
hundred (1,200) BTU per cubic foot.
-23-
<PAGE>
SECTION 2:
(a) If Buyer ceases to import gas produced in the Province of Alberta, then
the price per MCF to be paid pursuant to Section 1 of this Article IX
shall, upon demand by either party, be renegotiated, effective the day
Canadian gas produced in Alberta ceases to flow into Buyer's Montana
system, pursuant to the provisions of this Section. Either party shall also
have the right to demand renegotiation, pursuant to this Section, on the
second (2nd) anniversary date following the date on which gas produced in
Alberta ceases to flow into Buyer's Montana system and on each second
anniversary date thereafter.
(b) Upon demand made at least six (6) months but not more than ten (10)
months prior to the second (2nd) "anniversary date", and/or at least six
(6) months but not more than ten (10) months prior to the "anniversary
date" of each second (2nd) year thereafter, as appropriate, the parties
shall renegotiate the price to be paid pursuant to this Contract. Failure
to make the demand within the times allowed shall be deemed a waiver of the
right to renegotiate.
(c) Such renegotiation shall arrive at the fair market price of the gas
hereunder based upon similar sales of gas, irrespective of whether such
sales are delivered or wellhead sales, for ultimate delivery to pipeline
transmission companies or upon sales of gas derived from field sales of gas
to pipeline transmission companies, produced
-24-
<PAGE>
from fields and reservoirs located in the State of Montana. In determining
the fair market price, all pertinent factors, such as point of delivery,
cost of gathering, quality, quantity and delivery pressure, shall be
considered and given due weight.
If the parties are successful in negotiating a price, as provided
above, said price shall become effective on the "anniversary date" for which
such price renegotiation is requested.
If the parties are unable to agree upon such fair market price by sixty
(60) days prior to the appropriate "anniversary date", then either party shall
have the right to refer the matter to arbitration to determine the price of gas
to be delivered hereunder.
Upon written demand of either party, the parties shall meet and attempt to
appoint a single arbitrator. If the parties are unable to agree on a single
arbitrator, then upon written demand of either party and within ten (10) days of
such demand, each party shall name an arbitrator; and the two arbitrators so
named shall within ten (10) days therafter choose a third. If either party shall
fail to name an arbitrator within ten (10) days from the date of such demand,
then the second arbitrator shall be appointed by the American Arbitration
Society. If the two arbitrators shall fail within ten (10) days from their
appointment to agree upon and appoint the third arbitrator, then upon written
application by either party such third arbitrator shall be appointed by the
American Arbitration Society.
The arbitrator or arbitrators selected to act hereunder shall be qualified
by education and training to determine the appropriate price for gas delivered
hereunder.
-25-
<PAGE>
The single arbitrator or the arbitrators so chosen shall proceed
immediately to determine the price for gas delivered hereunder. The cecision of
the single arbitrator shall be made within thirty (30) days after his
appointment, subject to any reasonable delay due to unforeseen circumstances.
The decision of the arbitrators, or a majority of them, shall be made within
forty-five (45) days after the appointment of the third arbitrator, subject to
any reasonable delay due to unforeseen circumstances. Notwithstanding the
foregoing, in the event the single arbitrator fails to make a decision within
sixty (60) days after his appointment or if the arbitrators, or a majority of
them, fail to make a decision within sixty (60) days after the appointment of
the third arbitrator, then either party may elect to have a new single
arbitrator or arbitrators chosen in like manner as if none had previously been
selected.
The decision of the single arbitrator or the decision of the arbitrators,
or a majority of them shall be drawn up in writing and signed by the single
arbitrator or by the arbitrators, or a majority of them and shall be final and
binding upon the parties as to the price of gas delivered hereunder, effective
on the "anniversary date" for which such price renegotiation was requested.
The compensation and expenses of the single arbitrator shall be paid in
equal proportions by Buyer and Seller.
If each party has named an arbitrator, and the third has been appointed as
provided herein, the compensation and expenses of such arbitrator shall be paid
by the party appointing him or
-26-
<PAGE>
in whose behalf such arbitrator was appointed, and the compensation and expenses
of the third arbitrator shall be paid in equal proportions by Buyer and Seller.
SECTION 3:
On or before the fifteenth (15th) day of each calendar month after
deliveries of gas are commenced hereunder, the Buyer shall render to Seller a
statement showing the amount of gas delivered during the preceding calendar
month, together with sufficient information to explain and support any
adjustment by the Buyer with respect to the value of gas delivered in
determining the amounts stated to be due. Payment shall be made by Buyer to
Seller on or before the twenty-fifth (25th) day of said month.
SECTION 4:
Seller shall have, upon request within one (l) year after receipt of the
statement referred to in Section 3 of this Article IX, the right to examine the
meter charts and computations upon which such statements are based. If the
Seller deems such charts for computations to be inaccurate, Seller may protest
the statement within one (l) year of the examination thereof, and may request a
check to be made of the meter installed pursuant to Article VIII hereof. Any
statement not protested within one (l) year of the examination of meter charts
and computations thereof shall be deemed to be correct. The Buyer shall make
current meter charts available to the Seller for examination.
ARTICLE X
SELLER'S REPRESENTATIONS
-27-
<PAGE>
SECTION 1:
AGREEMENT. Seller represents and warrants that it is the purchaser of and
has the right to sell gas to be produced from the land described in Schedule "A"
and agrees to maintain its purchase contracts in full force and effect, at its
own expense.
SECTION 2:
WELLS. Seller's gathering system and the wells connected thereto shall be
equipped and operated as required to meet the Quality provisions of Article VII
hereof and shall be maintained in good operating condition, in accordance with
approved practices, without cost to Buyer. In the event liquids exist, requiring
separation from the gas, then Seller agrees to install, operate, and maintain,
without cost to Buyer, such liquid removal equipment operated at normal
temperatures, as may be necessary to separate such liquids from the gas.
SECTION 3:
NOTICE TO BUYER. Seller will advise Buyer, at the earliest possible date,
its best estimate of the initial delivery date of gas from any new wells
connected to Seller's gathering system.
ARTICLE XI
TITLE TO GAS
Seller warrants that it has title to all gas delivered to Buyer under this
Contract and that Seller has authority to sell the same, and Seller agrees to
indemnify and save Buyer harmless from any and all suits, claims, and liens of
whatsoever nature
-28-
<PAGE>
relating to such gas or the title thereto. If the title to any property or
interest in any property from which gas is purchased by Seller and sold to Buyer
hereunder shall at any time be involved in litigation, Buyer shall have the
right to withhold (invested in certificates of deposit, short-term government
securities or similar obligations or deposited in an interest bearing account,
such interest to be paid along with the principal sum) the proceeds payable for
the gas produced from the particular property or interest in property in
litigation during the period of such litigation or until Seller shall furnish a
bond, in form and with sureties acceptable to Buyer, conditioned to save Buyer
harmless.
If it should be finally determined that there is a defect in Seller's right
to or ownerhsip of the gas to be sold hereunder, Seller shall, with reasonable
promptness, attempt to remedy such defect. Until the defect to such title shall
have been remedied, Buyer shall have the right either to refuse to accept
deliveries of gas hereunder and withhold (invested in certificates of deposit,
short-term government securities or similar obligations or deposited in an
interest bearing account, such interest to be paid along with the principal sum)
the proceeds otherwise payable to Seller hereunder.
Title to the gas delivered hereunder shall pass to the Buyer at the
Delivery Point.
ARTICLE XII
FORCE MAJEURE
If either party to this Contract shall fail to perform any
-29-
<PAGE>
obligation hereby imposed upon it and such failure shall be caused, or
materially contributed to by acts of God, strikes, lockouts, or other industrial
disturbances in the operation of Seller or Buyer or their customers, acts of
enemies of the State, sabotage, wars, blockades, insurrections, riots,
epidemics, landslides, lightning, earthquakes, floods, storms, fires, washouts,
arrests and restraints of rulers and people, civil disturbances, explosions,
breakage of or accident to machinery or lines of pipe, hydrate obstructions to
lines of pipe, temporary failure of gas supply, freezing of wells or delivery
facilities, well blowouts, craterings, inability to obtain pipe, materials or
equipment, the order of any court or governmental authority, or by any act or
omission which is occasioned by any event or occurrence of the character
described in this Article XII as constituting force majeure, or by the necessity
for making repairs to or reconditioning wells, a gas processing plant,
machinery, equipment, or pipe lines, not resulting from the fault or negligence
of such party, or by any other cause, whether of the kind herein enumerated or
otherwise, all such causes being beyond control of the party invoking this
Article and being such that by the exercise of due diligence such party could
not have prevented, such failure shall not give rise to any cause of action
based on breach of the obligations to such party hereunder, but such party shall
use reasonable diligence to put itself again in a position to carry out its
obligations hereunder. Nothing contained herein shall be construed to require
either party to settle a strike or lockout by acceding against its judgment to
the demands of opposing parties.
-30-
<PAGE>
No such cause affecting the performance of the Contract by either party
shall continue to avoid a cause of action after the expiration of a reasonable
period of time within which by the use of due diligence such party could have
remedied the situation preventing its performance, nor shall any such cause
relieve either party from its obligation to make payment of amounts then due
hereunder for gas already delivered nor shall any such cause avoid a cause of
action unless such party shall give notice of such cause in writing to the other
party with reasonable promptness; and like notice shall be given upon
termination of such cause.
For purposes of determining the occurrence of performance of obligations
under this agreement, it is mutually agreed that, during a period of force
majeure, the party affected shall be deemed to have performed all of its
obligations as if it had delivered or purchased the gas required to be delivered
or purchased during said period.
ARTICLE XIII
TERM
SECTION 1:
This Contract shall become effective on the Effective Date hereof and shall
continue in effect for a period of fifteen (15) Contract Years (initial term)
from the date of initial delivery of gas hereunder and thereafter from year to
year until cancelled by one (1) year's written notice from one party to the
other.
-31-
<PAGE>
ARTICLE XIV
MISCELLANEOUS
SECTION 1:
NOTICES. Notices to Buyer shall be addressed to:
The Montana Power Company
40 East Broadway
Butte, Montana 59701
Notices to Seller shall be addressed to:
Cascade Gas Co.
P. O. Box 577
Shelby, Montana 59474
Either party may change its address under this Section at any time upon
written notice.
SECTION 2:
REGULATORY JURISDICTION. This Contract is subject to all valid legislation
and to all valid present and future orders, rules, and regulations of duly
constituted authorities having jurisdiction.
Should Buyer propose to transport, sell or use gas purchased hereunder in
such a manner that would, in Seller's opinion, subject Seller to jurisdiction of
the Federal Power Commission with respect to Seller's performance of this
Agreement, Seller may terminate this Agreement prior to consummation of such
proposals of Buyer upon written notice of such termination to Buyer. Such notice
must be given to Buyer not more than thirty (30) days after Buyer provides
Seller with written notice of any such proposal; provided Buyer shall not
inaugurate any such proposals prior to the effective date of any termination
Seller may elect pursuant to this paragraph. After any
-32-
<PAGE>
such termination, Seller shall not sell or contract to sell such gas under
circumstances which would render Seller subject to jurisdiction of the Federal
Power Commission respecting such sale or contract without first offering the gas
to Buyer on the same terms, which offer shall be in writing and shall be open
for thirty (30) days after given. Thereafter, unless such offer is accepted
within said time, Seller may sell or contract to sell such gas to any person.
SECTION 3.
This Contract shall bind and inure to the benefit of the parties hereto,
their successors and assigns.
SECTION 4:
EASEMENTS. Seller hereby grants and assigns to Buyer all requisite
easements and rights-of-way over, across and under any of the land covered
hereby that Seller has the right so to do under the terms of the Agreement
covering such lands, and the right to perform thereon any acts necessary or
convenient in carrying out the terms of this Contract and Buyer's obligations
hereunder.
SECTION 5.
TITLES. The numbering and titling of particular provisions of the Contract
is for the purpose of facilitating administration and shall not be construed as
having any substantive effect on the terms of this Contract.
SECTION 6.
INTERPRETATION. The terms of this Contract shall be construed according to
the laws of the State of Montana.
-33-
<PAGE>
SECTION 7.
The effective date of this Contract is the day and date first above
written.
SECTION 8.
SEVERABILITY. The various articles, sections, provisions and clauses of
this Contract are severable. The invalidity of any portion hereof shall not
affect the validity of any other portion of nor the entire Contract.
SECTION 9.
TIME. Time is of the essence in this Agreement.
SECTION 10.
PAYMENT. All take-or-pay payments or payments for gas taken shall be made
to:
Cascade Gas Co.
P. O. Box 577
Shelby, Montana 59474
SECTION 11:
EXECUTED at Butte, Montana, the day and year first above written.
THE MONTANA POWER COMPANY
By /s/ [ILLEGIBLE]
-----------------------
ATTEST:
/s/ F.A. McElwain
- -----------------------------------
ASSISTANT SECRETARY
BUYER
-34-
<PAGE>
EXECUTED at Shelby, Montana, as of the day and year first
above written.
CASCADE GAS CO.
ATTEST: By /s/ Jerry L. Branch
--------------------------
/s/ [ILLEGIBLE]
- ---------------------------
ASSISTANT SECRETARY
SELLER
-35-
<PAGE>
SCHEDULE A
A part of the Delivered Gas Purchase
Contract dated February 23, 1977,
between The Montana Power Company as
Buyer and Cascade Gas Co. as Seller.
DESCRIPTION OF LANDS
Toole County, Montana
Township 34 North, Range 2 West
Section 14, 15, 16, 20, 21, 22, 23, 26,
27, 28, 29, 32, 34 and 35
Township 33 North, Range 2 West
Sections 3 and 4
<PAGE>
[LETTERHEAD]
LETTER AGREEMENT AMENDING
GAS PURCHASE CONTRACT
March 9, 1982
Cascade Gas Company
P. O. Box 577
Shelby, MT 59474
Gentlemen:
Please refer to that certain Delivered Gas Purchase Contract dated February 23,
1977 (hereinafter called the "Contract") by and between The Montana Power
Company (hereinafter called "Buyer") and Cascade Gas Company (hereinafter called
"Seller").
Because Cascade Gas Company has obtained the rights to produce gas from
lands not originally covered by the Contract, and as a consequence The
Montana Power Company will receive an additional gas supply, The Montana
Power Company hereby proposes to amend the Contract as follows, subject to
the terms and conditions hereinafter set forth:
1. SCHEDULE A
Add T33N-R2W - All Sections
Add T33N-R3W - Sections 23, 24, 25, 26, 35, 36
2. Whenever Seller's deliverability reaches 1000 MCFD or more under the
Contract then whenever it appears in the Contract, Seller's obligation
to deliver 125% of the DCQ shall be changed to 150% and Buyer's right
to reduce the DCQ to 80% of average daily volume of gas shall be
changed to 66-2/3%.
3. Whenever Seller's deliverability is less than 1000 MCFD under the
Contract then Seller's obligation to deliver 125% of the DCQ and
Buyer's right to reduce the DCQ to 80% of average daily volume of gas
shall be reinstated. In this case Buyer will use its best efforts to
take delivery of all the gas Seller is capable of delivering.
<PAGE>
Page Two
LETTER AGREEMENT AMENDING
GAS PURCHASE CONTRACT
4. Under no circumstances will the Buyer be required to conduct a
deliverability test during the month of June, July and August under
the Contract.
5. These contract amendments will be effective October 1, 1981. These
amendments make no changes to the Contract other than those specified
herein.
If these contract amendments are satisfactory, please signify your acceptance by
signing in the space provided and return the "Montana Copy" to me.
THE MONTANA POWER COMPANY
BY: /s/ R.P. Madison
-----------------------
TITLE: MGR, GAS SUPPLY
--------------------
AGREED TO AND ACCEPTED
CASCADE GAS COMPANY
BY: /s/ Jerry L. Branch
-----------------------------
TITLE: Manager
--------------------------
DATE: April 23, 1982
---------------------------
<PAGE>
AMENDMENT TO
DELIVERED GAS PURCHASE CONTRACT
Dated February 23, 1977
Cascade Gas Co. - Seller
The Montana Power Company - Buyer
THE UNDERSIGNED, CASCADE GAS CO. (hereinafter SELLER) and THE MONTANA POWER
COMPANY (hereinafter BUYER), in consideration of the mutual benefits to accrue
to each Party, do hereby agree that that certain Delivered Gas Purchase Contract
between the Parties hereto, dated February 23, 1977, is hereby amended as
follows:
I.
The amendments herein set forth shall be applicable as of 8:00 o'clock A.M.
on March 20, 1986.
II.
Section 1, Delivery Pressure, of Article VI, Delivery Pressure and Delivery
Points, appearing on pages 13 and 14 of said Contract of February 23, 1977 shall
be deleted in its entirety and the following inserted in place thereof:
"Section 1:
DELIVERY PRESSURE. Delivery by Seller of gas shall be made at a pressure
that is sufficient to effect delivery of gas into Buyer's pipeline but not in
excess of one thousand (1,000) pounds per square inch. However, Buyer agrees
that it will not operate its pipeline at a pressure greater than eight hundred
(800) pounds per square inch unless Buyer gives Seller one (1) year's advance
written notice of the need to increase the pipeline pressure to more than eight
hundred (800) pounds per square inch (but not more than one thousand (1,000)
pounds per square inch) and, pursuant to such written notice Buyer does, in
fact, at the stated time increase its pipeline pressure to the pressure set
forth in the written notice. Maintenance by Seller of sufficient pressure to
enter Buyer's pipeline shall be a condition of Buyer's obligation to purchase
and receive from Seller the quantities of gas specified in Article III hereof."
1
<PAGE>
III.
Sections 1 and 2 of Article IX, Price and Payment, beginning on page 22 and
continuing to page 27 of said Contract of February 23, 1977, shall be deleted in
their entirety and the following inserted in place thereof:
"SECTION 1:
(a) Buyer shall pay the Seller on or before the 25th day of each month
for gas volumes delivered and actually taken in the preceding month.
If during any calendar month Seller has available for delivery 125% of
the DCQ and Buyer does not take a total volume of gas equal to the DCQ
multiplied by the number of days in said calendar month, then, on or
before the 25th day of the succeeding month Buyer shall pay Seller, as
take-or-pay payment, the value of such volume of gas not taken. If
Buyer shall have taken a total volume of gas in excess of the DCQ
multiplied by the number of days in any calendar month, and if said
excess has not been credited to make up of deficiencies pursuant to
Article IV, Section 4(a) hereof, then Buyer shall be entitled to
credit such excess against any deficiency in take occurring in any
subsequent month in the same calendar year.
(b) The price to be paid by the Buyer to the Seller for gas delivered
to Buyer at the delivery point or for take-or-pay payments, for the
period of time expiring on December 31, 1987, shall be Two Dollars and
25/lOOths ($2.25) in U.S. funds per MCF.
(c) If the gas delivered hereunder has a gross heating value of less
than one thousand (1,000) BTU per cubic foot, then the price payable
for such gas shall be reduced. If the gas has a gross heating value of
more than one thousand (1,000) BTU per cubic foot, then the price
payable for such gas shall be increased. Such reduced or increased
price shall be determined by multiplying the price otherwise payable
by a fraction, the numerator of which is the actual gross heating
value of the gas delivered, expressed in BTU per cubic foot, and the
denominator of which is one thousand (1,000); provided, however,
2
<PAGE>
such fraction shall not exceed 12/10 even though the gross heating
value of the gas is found to be in excess of one thousand two hundred
(1,200) BTU per cubic foot.
SECTION 2:
(a) Either party shall have the right to demand renegotiation of the
price to be paid for gas hereunder as hereinafter provided.
(b) Upon demand made at least six (6) months but not more than ten
(10) months prior to the anniversary date of January 1, 1988, and/or
at least six (6) months but not more than ten (10) months prior to
each second anniversary date thereafter (i.e., January 1, 1990, et
seq.), the parties shall renegotiate the price to be paid pursuant to
this Contract. Failure to make the demand within the times allowed
shall be deemed a WAIVER OF THE right to renegotiate.
(c) Such renegotiation shall arrive at the fair market price of the
gas hereunder based on similar sales of gas, irrespective of whether
such sales are delivered or wellhead sales, for ultimate delivery to
pipeline transmission companies or upon sales of gas derived from
field sales of gas to pipeline transmission companies, produced from
fields snd reservoirs located in the State of Montana. In determining
the fair market price, all pertinent facts, such as point of delivery,
cost of gathering, quality, quantity and delivery pressure, shall be
considered and given due weight.
If the parties are successful in negotiating a price, as provided
above, said price shall become effective on the "anniversary date" for
which such price renegotiation is requested.
If the parties are unable to agree upon such fair market price by
sixty (60) days prior to the appropriate "anniversary date", then either
party shall have the right to refer the matter to arbitration to determine
the price of gas to be delivered hereunder. If written demand for
arbitration is not delivered or mailed, certified mail with postage
prepaid, on or before November 15 prior to such "anniversary date", the
right shall be deemed waived, and the price in effect on the "anniversary
date" shall remain in effect.
3
<PAGE>
Upon written demand of either perty, the parties shall meet end
attempt to appoint a single arbitrator. If the parties are unable to agree
on a single arbitrator, then upon written demand of either party and within
ten (10) days of such demand, each party shall name an arbitrator; and the
two arbitrators so named shall within ten (10) days thereafter choose a
third. If either party shall fail to name an arbitrator within ten (10)
days from the date of such demand, then the second arbitrator shall be
appointed by the American Arbitration Society. If the two arbitrators shall
fail within ten (10) days from their appointment to agree upon and appoint
the third arbitrator, then upon written application by either party such
third arbitvator shall be appointed by the American Arbitration Society.
The arbitrator or arbitrators selected to act hereunder shall be
qualified by education and training to determine the appropriate price for
gas delivered hereunder.
The single arbitrator or the arbitrators so chosen shall proceed
immediately to determine the price for gas delivered hereunder. The
decision of the single arbitrator shall be made within thirty (30) days
after his appointment, subject to any reasonable delay due to unforeseen
circumstances. The decision of the arbitrators, or a majority of them,
shall be made within forty-five (45) days after the appointment of the
third arbitrator, subject to any reasonable delay due to unforeseen
circumstances. Notwithstanding the foregoing, in the event the single
arbitrator fails to make a decision within sixty (60) days after his
appointment or if the arbitrators, or a majority of them, fail to make a
decision within sixty (60) days after the appointment of the third
arbitrator, then either party may elect to have a new single arbitrator or
arbitrators chosen in like manner as if none had previously been selected.
The decision of the single arbitrator or the decision of the
arbitrators, or a majority of them, shall be drawn up in writing and signed
by the single arbitrator or by the arbitrators, or a majority of them and
shall be final and binding upon the parties as to the price of gas
delivered hereunder, effective on the "anniversary date" for which such
price renegotiation was requested.
4
<PAGE>
The compensation and expenses of the single arbitrator shall be paid
in equal proportions by Buyer and Seller.
If each party has named an arbitrator, and the third has been
appointed as provided herein, the compensation and expenses of such
arbitrator shall be paid by the party appointing him or in whose behalf
such arbitrator was appointed, and the compensation and expenses of the
third arbitrator shall be paid in equal proportions by Buyer and Seller."
IV.
Section 1 of Article XIII, Term, appearing on page 31 of said Contract of
February 23, 1977, shall be deleted in its entirety and the following inserted
in place thereof:
"SECTION 1:
This Contract shall become effective on the Effective Date hereof and
shall continue in effect for a period of twenty-five (25) Contract Years
(initial term) from the date of initial delivery of gas hereunder and
thereafter from year to year until canceled by one (1) year's written
notice from one party to the other. The twenty-five (25) Contract Years
(initial term) shall expire on December 31, 2001."
V.
Schedule A attached to said Contract of February 23, 1977 shall be deleted
in its entirety and the following inserted in place thereof:
"SCHEDULE A
A part of the Delivered Gas Purchase Contract
dated February 23, 1977 between The Montana
Power Company as Buyer and Cascade Gas Co. as
Seller
DESCRIPTION OF LANDS
Toole County, Montana
TOWNSHIP 34 NORTH, RANGE 1 WEST
Sections: All (being 1 through 36 inclusive)
TOWNSHIP 34 NORTH, RANGE 2 WEST
Sections: All (being 1 through 36 inclusive)
5
<PAGE>
TOWNSHIP 34 NORTH, RANGE 3 WEST
Sections E1/2 (being Sections 1, 2, 3, 10, 11, 12, 13
14, 15, 22, 23, 24, 25, 26, 27, 34, 35, 36
TOWNSHIP 33 NORTH, RANGE 1 WEST
Sections: All (being 1 through 36 INCLUSIVE)
TOWNSHIP 33 NORTH, RANGE 2 WEST
Sections: All (being 1 through 36 inclusive)
TOWNSHIP 33 NORTH. RANGE 3 WEST
SECTIONS E1/2 (being Sections 1, 2, 3, 10, 11, 12, 13,
14, 15, 22, 23, 24, 25, 26, 27, 34, 35, 36
TOWNSHIP 32 NORTH, RANGE 1 WEST
Sections: N1/2 (being Sections 1 through 18 inclusive)
TOWNSHIP 32 NORTH. RANGE 2 WEST
Sections: N1/2 (being sections 1 through 18 inclusive)
TOWNSHIP 32 NORTH, RANGE 3 WEST
Sections: NE1/4 (being Sections 1, 2, 3, 10, 11, 12,
13, 14 & 15 inclusive)"
VI.
With respect to Articles III, IV and IX of the Delivered Gas Purchase
Contract dated February 23, 1977, whenever reference is made to Seller's
obligation to deliver 125% OF DCQ, SAID reference shall be changed to 150% of
the DCQ. Likewise, whenever reference is made to Buyer's right to reduce the DCQ
to 80% of average daily volume of gas, said reference shall be changed to 66
2/3%. The changes hereinabove specified shall be effective to and including
December 31, 1987. Commencing January 1, 1988 and thereafter during the term of
said Delivered Gas Purchase Contract, whenever reference is made to Seller's
obligation to deliver 125% of the DCQ, said reference shall be changed to 133
1/3% of the DCQ and, likewise, whenever reference is made to Buyer's right to
reduce the DCQ to 80% of AVERAGE DAILY volume of gas, said reference shall be
changed to 75%.
VII.
Except as herein specifically modified, the terms and conditions of that
certain Delivered Gas Purchase Contract, dated February 23, 1977, between the
Parties hereto are hereby ratified and confirmed in all respects as being and
remaining in full force and effect.
6
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have caused execution of this
Amendment to Delivered Gas Purchase Contract to be made as of the date
hereinafter specified beside the execution of each party, but effective as
provided in Paragraph I hereof.
CASCADE GAS CO.
DATED:
May 2, 1986 By /s/ Billy Froman
- -------------------------- ---------------------------------
Billy Froman, President
SELLER
THE MONTANA POWER COMPANY
DATED:
5-12-86 By /s/ David A. Johnson
- -------------------------- ---------------------------------
David A. Johnson
Vice President, Gas Operations
BUYER
7
<PAGE>
State of Montana )
: ss
County of Toole )
On this 2nd day of May, 1986, before me, the undersigned, a Notary Public
in and for the State of Montana, personally appeared BILLY FROMAN known to me to
be the President of CASCADE GAS CO., and acknowledged to me that he executed the
foregoing document for and on behalf of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my Notarial
Seal the day and year first hereinabove written.
/s/ Loretta J. Schoenduller
--------------------------------------
Notary Public for the State of Montana
Residing at Shelby, MT
My Commission expires 1/22/89
State of Montana )
: ss
County of Silver Bow )
On this 12th day Of May, 1986, before me, the undersigned, a Notary Public
in and for the State of Montana, personally appeared DAVID A. JOHNSON, known to
me to be the Vice President, Gas Operations, of THE MONTANA POWER COMPANY, a
corporation, and acknowledged to me that he executed the foregoing document for
and on behalf of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my Notarial
Seal the day and year first hereinabove written.
/s/ Terrence O. Wisner
- --------------------------------------
Notary Public for the State of Montana
Residing at Butte, Montana
My Commission expires 11-13-87
8
<PAGE>
RELEASE AND SETTLEMENT AGREEMENT
THIS AGREEMENT, Made, entered into and effective as of the date hereinafter
provided is by and between CASCADE GAS CO. hereinafter FIRST PARTY, and THE
MONTANA POWER COMPANY, hereinafter SECOND PARTY,
WITNESSETH:
WHEREAS, a controversy exists between the Parties as to amounts of money
allegedly owed by Second Party to First Party, said controversy having arisen by
differences in interpretation of the effect of the provisions of Section 110 of
the Natural Gas Policy Act of 1978 when applied to the terms of that certain
Delivered Gas Purchase Contract dated February 23, 1977 (wherein First Party
appears as Seller and Second Party appears as Buyer), and
WHEREAS, without admission by either Party of the validity of the position
advanced by the other, the Parties hereto have agreed to compromise and resolve
all of said disputed issues in the manner hereinafter set forth,
NOW, THEREFORE, in consideration of the payments and performances
hereinafter provided to be made, and the mutual agreements and releases as
hereinafter set forth, the Parties do hereby agree as follows:
I.
Second Party agrees to pay to First Party the sum of Five Hundred
Sixty-five Thousand Nine Hundred Seventy-five and no/lOOths Dollars
($565,975.00) payable as follows:
(A) The sum of One Hundred Twenty-three Thousand Seven Hundred Twenty-five
and no/lOOths Dollars ($123,725.00) payable simultaneously with
execution hereof, receipt of which is hereby acknowledged;
(B) The sum of Four Hundred Forty-two Thousand Two Hundred Fifty and
no/lOOths Dollars ($442,250.00) payable in nineteen (19) monthly
installments, without interest, beginning with an installment due June
15, 1986, with subsequent installments due on the 15th day of each
month thereafter, through and including November 15, 1987, and the
final installment due December 27, 1987. Each of the first eighteen
(18) monthly installments shall be calculated as follows:
(i) Fifty cents ($.50) per mof times the first 1,450 mcfd of gas
delivered to Second Party by First
1
<PAGE>
Party during the preceding calendar month; provided, however,
that in the event total deliveries during any calendar month
shall be less than an average of 1,450 mcfd for said month, then
the payment shall be calculated upon the DCQ then in effect or
1,450 mcfd, whichever is the lesser.
In the further event that any monthly payment so calculated
should be less than an amount calculated at the rate of fifty
cents (5.50) per mcf times 1,450 mcfd, then the underpayment
shall be carried forward into the next succeeding month or
months, as necessary, so that said underpayment will be made up
against gas delivered in each subsequent month or months wherein
deliveries exceed the average of 1,450 mcfd.
(ii) Any remaining unpaid balance of said sum of Four Hundred
Forty-two Two Hundred Fifty Dollars and no/lOOths Dollars
($442,250.00) will be paid in the final monthly installment due
December 27, 1987.
(iii) Recoupment of underpayments pursuant to subparagraphs (i) and
(ii) above shall be permitted only so long as First Party
complies with the best efforts provisions of Paragraph II
hereinafter set forth. In the event First Party does not comply
with the provisions of Paragraph II hereof, Second Party shall
not be obligated to pay the underpayment amounts referred to in
subparagraphs (i) and (ii) above.
II.
First Party agrees that, during the period of time from effective date
hereof to and including December 31, 1987, it will manage and operate the
Cascade Gas Go. compressor ano related facilities in a good and workmanlike
manner, in accordance with accepted oil and gas field practices, to the end
that it shall exercise absolute good faith to attempt to deliver to Second as
Second Party, from time to time, the rights granted Second Party under the
terms of the Delivered Gas Purchase Contract dated February 23, 1977. It is
the intent of this Paragraph II that First Party will exercise all good faith
in delivery of volumes of properly requested gas and will not unilaterally
attempt, by any means, to reduce the volumes of delivered gas below those
properly requested by Second Party pursuant to said Delivered Gas Purchase
Contract. Both Parties recognize that mechanical breakdowns, shutdowns for
normal maintenance and repair, factors
2
<PAGE>
that constitute items of force majeure under said contract or other similar
causes can or might interrupt delivery of requested gas volumes by First Party.
Such type of interruptions shall not be deemed to be in contravention of First
Party's good faith obligations herein set forth.
III.
Second Party shall, simultaneously with execution hereof, assign and convey
unto First Party, without warranty of title and without warranty of fitness for
use, all right, title and interest in and to that portion of a certain gas
pipeline, together with attendent rights-of-way or easements, more particularly
described as follows, to-wit:
The portion of a certain gas pipeline which originates in
Section 30, Township 34 North, Range 2 West; thence
proceeding southeasterly through Sections 29, 32 and 33,
Township 34 North, Range 2 West; thence proceeding on into
Sections 3, 4 and 10 of Township 33 North, Range 2 West,
Toole County, Montana.
First Party shall be solely responsible for payment of personal property
taxes for the year 1986 and all years subsequent thereto attributable to the
above referenced portion of said gas pipeline, or if appropriate, will reimburse
Second Party for such taxes for the year 1986.
First Party further agrees to hold harmless and indemnify Second Party of
and from any and all liability of whatsoever nature arising from or attributable
to First Party's usage of said gas pipeline from and after the effective date
hereof.
IV.
Except for the payments and performances herein above set forth to be made
and performed by each respective Party hereto, the Parties do hereby agree that
all of the claims heretofore existing by either Party against the other arising
by virtue of the application of the provisions of Section 110 of the Natural Gas
Policy Act of 1978 to the Delivered Gas Purchase Contract dated February 23,
1977 are hereby fully and finally compromised and settled in all respects. Each
Party does hereby relieve, release and discharge the other Party of and from any
and all claims heretofore existing or alleged to exist, contingent or accrued,
of any nature whatsoever relative to or arising under or out of the application
of the provisions of Section 110 of the Natural Gas Policy Act of 1978 to the
Delivered Gas Purchase contract dated February 23, 1977, and each Party agrees
to indemnify and hold the other Party harmless of and from any and all liability
arising from any such claims.
3
<PAGE>
V.
This Release and Settlement Agreement shall be effective as of the date of
execution hereof by the last of the Parties signatory hereto.
IN WITNESS WHEREOF, the Parties hereto have caused execution of this
Release and Settlement Agreement to be made as of the date hereinafter specified
beside the execution of each Party.
CASCADE GAS CO.
DATED:
May 2, 1986 By /s/ Billy Froman
- -------------------------- ---------------------------------
Billy Froman, President
FIRST PARTY
THE MONTANA POWER COMPANY
DATED:
5-12-86 By /s/ David A. Johnson
- -------------------------- ---------------------------------
David A. Johnson
Vice President, Gas Operations
SECOND PARTY
4
<PAGE>
State of Montana )
: ss
County of Toole )
On this 2nd day of May, 1986, before me, the undersigned, a Notary Public
in and for the State of Montana, personally appeared BILLY FROMAN, known to me
to be the President of CASCADE GAS CO. and acknowledged to me that he executed
the foregoing document for and on behalf of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my Notarial
Seal the day and year first hereinabove written.
/s/ Loretta J. Schoenduller
--------------------------------------
Notary Public for the State of Montana
Residing at Shelby, MT
My Commission expires 1/22/89
State of Montana )
: ss
County of Silver Bow )
On this 12th day Of May, 1986, before me, the undersigned, a Notary Public
in and for the State of Montana, personally appeared DAVID A. JOHNSON, known to
me to be the Vice President, Gas Operations, of THE MONTANA POWER COMPANY, a
corporation, and acknowledged to me that he executed the foregoing document for
and on behalf of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my Notarial
Seal the day and year first hereinabove written.
/s/ Terrence O. Wisner
--------------------------------------
Notary Public for the State of Montana
Residing at Butte, Montana
My Commission expires 11-13-87
5
<PAGE>
[LETTERHEAD]
December 18, 1986
Cascade Gas Company
P. O. Box 488
Cut Bank, MT 59427
Gentlemen:
Please refer to that certain Gas Purchase Contract dated February 23, 1977,
as amended (hereinafter referred to as the "Contract") by and between The
Montana Power Company (hereinafter referred to as "Buyer") and Cascade Gas
Company (hereinafter referred to as "Seller").
Buyer and Seller have agreed to amend the Price and Quantity sections of
the Contract as the result of an agreement between the parties whereby Seller
buys gas from Buyer and redelivers said gas to Buyer at the Contract delivery
point.
AGREEMENT
In consideration of the representations and promises stated in this Letter
Agreement, Seller and Buyer agree to amend the Contract effective October 1,
1986 as follows:
1. ARTICLE IV QUANTITY OF GAS
Add the following Section 6:
Section 6:
LIMITATION UPON GAS GATHERED BY SELLER FOR BUYER.
Seller has agreed by separate Gathered Gas Purchase Contract dated
October 1, 1986 (hereinafter referred to as "Gathered Contract") to
gather and compress gas for the Buyer from the Buyer's existing
gathering system in the Kevin area. This gas is to be delivered to
Buyer in a common stream with Seller's gas under the Contract. The gas
delivered to the Buyer by the Seller that was originally delivered to
the Seller by the Buyer under the Gathered Contract will not be viewed
as production by Seller at anytime, including production test periods
and the subsequent calculation of the Contract DCQ.
<PAGE>
Cascade Gas Company
Gas Purchase Contract
Dated February 23, 1977
2. ARTICLE IX. PRICE AND PAYMENT
Delete Section 1, paragraph (b) of the Contract amendment that was
effective on March 20, 1986 and replace it with the following:
b. PRICE
(i) AMOUNT TO BE PAID FOR BUYER'S GAS DELIVERED BY SELLER. From
the effective date hereof, and thereafter as specified in
the Gathered Contract, the price to be paid by the Buyer to
the Seller for gas originally sold to the Seller under said
Gathered Contract and subsequently redelivered to the Buyer
at the Contract delivery point shall be (in U.S. funds) the
amount specified in Article V of the Gathered Contract.
This gas will always represent the first increment that is
purchased and payment will be based on Buyer's meters in
accordance with the Gathered Contract.
(ii) AMOUNT TO BE PAID FOR SELLER'S PRODUCTION.
From the effective date hereof, and thereafter until January
1, 1988, the price to be paid by the Buyer to the Seller for
gas from Seller's production delivered to the Buyer at the
delivery point or for take-or-pay payment shall be (in U.S.
funds) two dollars and twenty five cents ($2.25) per Mcf.
These contract amendments will become effective on October 1, 1986.
Please signify your acceptance by signing in the space provided below and
return the fully executed "Montana Copy" to John Smith.
THE MONTANA POWER COMPANY
BY /s/ David A. Johnson
-----------------------------------
Vice President, Gas Supply
AGREED TO AND ACCEPTED
CASCADE GAS COMPANY
BY /s/ [ILLEGIBLE]
----------------------------------------
DATE September 18, 1987
--------------------------------------
<PAGE>
[LETTERHEAD]
April 12, 1988
Adobe Gas Gathering & Processing Co.
300 West Texas, Suite 1100
Midland, Texas 79701-9990
Gentlemen:
Please refer to that certain Gas Purchase Contract dated February 23, 1977,
as amended (hereinafter referred to as the "Contract") between The Montana Power
Company (hereinafter referred to as "Buyer") and Adobe Gas Gathering &
Processing Company (hereinafter referred to as "Seller").
Buyer and Seller have agreed to amend the Seller's Obligations, Quantity of
Gas, Price and Payment and Schedule A Sections of the Contract as the result of
a price renegotiation that is effective January 1, 1988.
AGREEMENT:
In consideration of the representations and promises stated in this Letter
Agreement, Buyer and Seller agree to amend the Contract effective January 1,
1988 as follows:
1. ARTICLES III, IV AND IX
With respect to Articles III, IV and IX of the Contract, whenever reference
is made to Seller's obligation to deliver 133-1/3% of DCQ, said reference shall
be changed to 125% of the DCQ. Likewise, whenever reference is made to Buyer's
right to reduce the DCQ to 75% of average daily volume of gas, said reference
shall be changed to 80%. The changes hereinabove specified shall be effective
from January 1, 1988 to and including December 31, 1989. Commencing January 1,
1990 and thereafter during the term of said Contract, whenever reference is made
to Seller's obligation to deliver 125% of the DCQ, said reference shall be
changed to 133-1/3% of the DCQ and, likewise, whenever reference is made to
Buyer's right to reduce the DCQ to 80% of average daily volume of gas, said
reference shall be changed to 75%.
2. ARTICLE IV
Add the following paragraph to Section 5:
(c) MONTHLY NOMINATIONS. Buyer shall nominate monthly for a volume of gas
to be delivered by Seller at the delivery point. When calculating whether
Buyer has complied with the obligation to purchase the Annual Contract
Volume under this Contract, Buyer will take credit for the greater of the
volume of gas nominated by Buyer or the volume of gas delivered by Seller.
The determination as to whether the Seller has delivered the volume of gas
requested by Buyer is done on a monthly basis.
<PAGE>
3. ARTICLE IX
Delete paragraphs (a) and (b) of Section 1 and replace them with the
following:
SECTION 1:
(a) Buyer shall pay the Seller monthly for gas volumes delivered and
actually taken in the preceding month. Buyer shall pay Seller for all deficiency
volumes on or before the 25th day of February in the year following the year in
which a deficiency volume occurred. The payment shall equal the deficiency
volumes times the average unit price applicable in the preceding year. A
deficiency volume is calculated by subtracting the greater of purchased volumes
or nominated volumes from the Annual Contract Volume. If the nominated volume or
purchased volume exceeds the Annual Contract Volume, a deficiency has not
occurred.
(b) The price to be paid by the Buyer to the Seller for gas delivered to
the Buyer at the delivery points or for take-or-pay payment shall be two dollars
and ten cents ($2.10) per MCF with no escalation. No adjustment to this price
will be made to provide for reimbursement of production-related taxes or any
other NGPA Section 110 add-ons.
4. SCHEDULE A.
Add the following lands to Schedule A:
Township 35 North, Range 2 West: All Sections
Township 35 North, Range 1 West: All Sections
Township 35 North, Range 1 East: All Sections
Township 34 North, Range 1 East: All Sections
Delete the following lands from Schedule A:
Township 32 North, Range 2 West, Sections: N 1/2
(being sections 1 through 18 inclusive).
Township 32 North, Range 3 West, Sections: NE 1/4
(being sections 1, 2, 3, 10, 11, 12, 13, 14, and 15 inclusive).
THE MONTANA POWER COMPANY
BY: /s/ David A. Johnson
---------------------------------
Vice President, Gas Operations
AGREED TO AND ACCEPTED:
Adobe Gas Gathering & Processing Company
BY /s/ [ILLEGIBLE]
-------------------------
TITLE President
----------------------
DATE: 4-23-88
----------------------
<PAGE>
Northland Royalty Operating Company
[GRAPHIC] 3030 4th Avenue North
Billings, Montana 59101
(406) 259-5400
Fax(406) 259-7345
April 28, 1992
Mr. Douglas R. Mann
Great Falls Gas Company
P.O. Box 2229
Great Falls, MT 59403-2229
Dear Mr. Mann,
Please refer to that certain Gas Purchase Contract dated February 23, 1977,
as amended, (hereinafter referred to as the "Contract") between the Montana
Power Company as Buyer and Cascade Gas Gathering Company as Seller, to which
Great Falls Gas Company (hereinafter referred to as "Buyer") has become the
successor in the Buyer's interest and to which Northland Royalty Operating
Company (hereinafter referred to as "Seller") has become the successor in the
Seller's interest.
Buyer and Seller have agreed to amend Article II-Commitment of Gas Reserves
and Article IX-Price and Payment as the result of a price renegotiation that is
effective on January 1st, 1992.
AGREEMENT
In consideration of the representations and promises stated in this Letter
Agreement, Buyer and Seller agree to amend the Contract effective January 1,
1992 as follows:
1. ARTICLE II. COMMITMENT OF GAS RESERVES
Delete Article II and replace it with the following:
ARTICLE II. COMMITMENT OF GAS RESERVES
With respect to all of the gas purchased, produced or otherwise obtained by
Seller from the lands specified and described on Schedule A, Buyer shall
have the right to all such gas except as follows:
In each month of the contract period, Seller shall have the right to
sell gas it produces, in excess of that required by Buyer, to third
parties on an interruptible basis. Nothing herein shall limit Buyer
from its right to purchase the total production of Seller at any time.
Furthermore, in months when Seller makes such third party sales,
Buyer's volumes for the month shall be considered the first volumes
through the meter, on a daily basis.
<PAGE>
2. ARTICLE IX. PRICE AND PAYMENT
Delete Section 1 and replace it with the following:
SECTION 1:
The price to be paid by Buyer to Seller for gas delivered to Buyer at the
delivery points shall be one dollar and ninety cents ($1.90) per mcf with
no escalation. No adjustment to this price will be made to provide for
reimbursement of production-related taxes or any other costs.
Signed this 29th day of April, 1992.
Agreed to and accepted by:
Northland Royalty Operating Company Great Falls Gas Company
By: /s/ W.F. Sheehan, III By: /s/ Larry D. Geske
---------------------------- ---------------------------
Title: Secretary Title: President
------------------------- ------------------------
<PAGE>
Northland Royalty Operating Company
[GRAPHIC] 3030 4th Avenue North
Billings, Montana 59101
(406) 259-5400
Fax(406) 259-7345
March 14, 1996
Lynn F. Hardin
Assistant Vice President
Great Falls Gas Company
Energy West, Incorporated
P.O. Box 2229
Great Falls, MT 59403-2229
RE: Cascade Gas Contract Price Negotiations
Dear Mr. Hardin,
Please find enclosed an executed original of your gas price offer to
Northland Royalty Operating Company on the Cascade gas System Contract.
Since we have been unable to arrive at a mutually acceptable and beneficial
"Pre-Buy" purchase and development program, Northland has no other alternative
at this time with Great Falls Gas Company than to execute the enclosed offer and
return it to you.
Northland will be willing to meet with Great Falls Gas Company at a
mutually convenient time to have what we believe could be a jointly profitable
and beneficial contract for the sale of summertime gas and for delivering a
larger quantity of gas in the winter peak months.
Yours Truly,
Northland Royalty Operating Company
/s/ W. F Sheehan, III
W. F. Sheehan, III
<PAGE>
[LETTERHEAD]
December 7, 1995
Mr. William Sheehan III
Northland Royalty Operating Company
3030 4th Ave. N.
Billings, MT 59101
Re: Requested Price Renegotiation
Dear Mr. Sheehan:
Great Falls Gas Company, agrees that arbitration in determining a price for your
Cascade gas would be costly and should be unnecessary. I have little doubt that
such arbitration would result in a two year price of $1.60. This is the price
that we have contracted for with other suppliers on MPC's system. Please
consider the following proposal.
1. For Jan, Feb, Mar, Nov & Dec of 1996 and 1997, $1.80/MMBtu.
2. For Apr through Oct of 1996 and 1997, the monthly Aeco Storage Hub Index
(US/MMBtu) plus transport to Carway (currently $.09 US/MMBtu) plus a premium of
$.05/MMBtu, but not less than $1.40/MMBtu.
3. Prior to each of these months (Apr-Oct), if seller has a higher offer from
another buyer, Great Falls Gas will have the option to match the offer or to
release the deliverability for that month. Any released deliverability will
apply to the ACQ. Seller would have the option to shut-in for any of these
months.
At 1029 Btu/cf, $1.80/MMBtu is the same as $1.85/Mcf @ 14.9#.
The above should guarantee seller a floor average price of over $1.60/MMBtu with
the ability to improve that average price by taking advantage of stronger market
conditions as they develop.
If the above meets with your approval, please indicate so by your signature
below, return an original to us and keep one for your records.
Very truly yours,
/s/ Lynn F. Hardin
Lynn F. Hardin
Assistant Vice President
Agreed to this 14th day of March, 1996
Northland Royalty Operating Company
By: /s/ W. F. Sheehan III
-------------------------------
<PAGE>
[LETTERHEAD]
April 15, 1996
Mr. W.F. Sheehan III
Northland Royalty Company
3030 4th Avenue North
Billings, Montana 59101
Dear Mr. Sheehan,
This letter is intended to resolve the arbitration of the contract between
Northland Royalty Company and Great Falls Gas Company held by Great Falls Gas
Company by assignment from Montana Power Company. If the contents of this letter
adequately reflect your understanding of our settlement please sign both copies
of this letter and return one for our records. This settlement is intended to
supersede and replace any of the conditions and terms of the contract which was
entered into between Northland Royalty Company (NRC) and Montana Power Company
(MPC) and which has subsequently been assigned to Great Falls Gas Company, a
division of ENERGY WEST Incorporated (GFG). That contract will be referred to
throughout this agreement as the "Contract". The terms of that contract will
continue in full force and effect except when a provision of this agreement is
inconsistent with the terms of the Contract. In that event the terms of this
agreement are intended to prevail as the binding agreement of the parties.
1. GFG will prepay for gas in the amount of $500,000 upon final execution by
both parties of the settlement agreement. The $500,000 has been placed in escrow
at Norwest Investment Management & Trust Company (Norwest). NRC may receive
disbursement of the funds so placed according to the following instruction which
GFG agrees to include in it's escrow agreement with Norwest:
Upon execution of this agreement, NRC will receive a disbursement of
$250,000. After copies of paid invoices are presented that exceed $250,000
in aggregate, the remaining escrow balance will be available for the
funding of expenditures directly related to increasing the deliverability
of natural gas from the fields identifiecl in the Contract between NRC and
GFG. Norwest is hereby instructed to disburse to NRC amounts corresponding
to expenditures which have been submitted to and approved by GFG which
approval shall not be unreasonably denied.
2. The DCQ under Article IV Section I will be reduced to 50% of the daily
contract quantity available for delivery by NRC, but will increase to 62.5%
should the outstanding prepayment
<PAGE>
balance be extinguished by NRC. Quantities of gas available for delivery but not
taken by GFG are hereby released to NRC for resale to third parties.
3. The price paid for gas delivered would be the monthly AECO Storage Hub Index
(US/MMBtu) plus transport to Carway (currently $.09 US/MMBtu) plus a premium of
$.05 per MMBtu, but not less than $1.40/MMBtu for the months of April through
September and $1.80 per MMBtu for the months of October through March. This
pricing provision will be in effect from January 1, 1996 until January 1, 1998
or until such time as any outstanding prepayment has been extinguished whichever
occurs latest in time.
4. GFG would pay NRC for 60% of the delivered gas at prices established in
paragraph 3, above, 40% of the gas taken each year will be credited against the
prepayment. Payments will be apportioned each month between the gas credited
against prepayment and the gas paid in cash until such time as the prepayment
amount is extinguished when the entire amount shall be paid in cash. NRC may
elect from time to time to make cash payments to GFG to be applied against the
prepayment balance.
5. GFG would have the option to prepay for additional gas each six months of the
contact beginning six months from the date of the first prepayment. GFG will
notify NRC within 30 days of the six month anniversary of its desire to prepay.
If GFG prepays, its prepayment will be limited to an amount equal to $1.60
multiplied by 50% of the gas taken by GFG during the previous six months. GFG
may elect to make such prepayments (which would be paid pursuant to the pricing
provisions of #4 above) until such time as the Contract expires. At the
expiration of the Contract, GFG would be entitled to an amount of gas equivalent
to the amount of prepayment balance divided by $1.60. If in any six month period
GFG does not elect to prepay, either party will have the option to continue
according to the provisions of this agreement or to notify the other party of
its intention to renegotiate the contract terms pursuant to provisions of
Article IX of the Contract. However, such notice must be received by the other
party by July 1 of ANY calendar year. When notice is so given the parties agree
that the effective date of the price renegotiated pursuant to such notice shall
be January 1 of the year following the giving of such notice.
This agreement is subject to satisfactory review by GFG of appropriate financial
statements of NRC.
Agreed to this 17th day of April, 1996.
Great Falls Gas Company Northland Royalty Company
By: /s/ [ILLEGIBLE] By: /s/ W.F. Sheehan III
----------------------- -------------------------
<PAGE>
[LETTERHEAD]
April 15, 1996
Mr. William F. Sheehan III
Northland Royalty Company
3030 4th Avenue North
Billings, Mt. 59101
Dear Mr. Sheehan,
This letter when signed by you is intended to constitute an agreement between
Northland Royalty Company (NRC) and Energy West Resources, Incorporated.
1. NRC agrees to sell 100% of its released output from its contract with Great
Falls Gas Company (GFG) to Energy West Resources (EWR). EWR agrees to purchase
100% of such gas at a price 10% under the monthly Aeco Storage Hub Index
(US/MMBtu) plus transport to Carway (currently $.09 US/MMBtu) index at Empress
as published in the Canadian Gas Price Reporter.
2. Northland will produce its fields at full capability, (which is interpreted
to mean 90% of the ACQ, as that term is defined in the contract between Great
Falls Gas Company and NRC for the term of this agreement. This is intended to
mean that NRC will shut in its wells only for required maintenance and not for
economic considerations. Further, NRC will conduct its scheduled maintenance in
the months of June, July or August to allow for the utilization of the gas when
it will be in greatest demand by EWR customers.
3. The term of this agreement is effective on the date of NRC's settlement
agreement with GFG and will continue for the term of that settlement agreement.
Agreed to this 17th day of April, 1996
Energy West Resources, Incorporated Northland Royalty Company
By: /s/ [ILLEGIBLE] By: /s/ W.F. Sheehan III
----------------------- -------------------------
<PAGE>
Northland Royalty Operating Company
[GRAPHIC] 3030 4th Avenue North
Billings, Montana 59101
(406) 259-5400
Fax(406) 259-7345
Energy West Incorporated
No.1 First Avenue South
P.O. Box 2229
Great Falls, MT 59403-2229
Attention: Mr. Lynn Hardin, Assistant Vice President
Fax: 406-791-7560
February 18, 1997
Dear Mr. Hardin,
Pursuant to Gas Contract Between Great Falls Gas and the Northland Royalty
Operating Company (MPC #93) we hereby request that future payment for gas sold
under this contract be made to the Northland Royalty Company rather than
Northland Royalty Operating Company. A recent change in our accounting
procedure requires us to make this change.
Thank you for your assistance and if you have any questions concerning this
request please contact me in our Billings offfice.
Sincerely,
/s/ Peter C. Sheehan
Peter C. Sheehan
Northland Royalty Operating Company
<PAGE>
[LETTERHEAD]
April 1, 1997
VIA FEDERAL EXPRESS: 8830183283
Energy West Resources
No. 1 First Avenue South
P.O. Box 2229
Great Falls, MT 59403-2229
ATTN: Jim Morin
RE: Northland Royalty Company and Northland Royalty Operating Company; KeyBank
of Wyoming
Dear Mr. Morin
This firm represents KeyBank of Wyoming (the "Bank") with respect to loans
which it has made to Northland Royalty Company and Northland Royalty Operating
Company ("Northland"). Pursuant to the enclosed Mortgage, Assignment of
Proceeds, Security Agreement and Financing Statement ("Mortgage") between the
Bank and Northland, the Bank is the assignee of the production and proceeds from
the properties encumbered by the Mortgage which are therefore the property of
the Bank. In addition, pursuant to the enclosed Notice of Assignment ("Notice"),
Northland has directed any purchaser of oil or gas pertaining to the lands or
contracts described in the Notice to pay all proceeds attributable to the
interests of Northland to the Bank. Please note that the lands and contracts set
forth in the Notice correlate with the lands and contracts set forth in each
respective Exhibit A to the Mortgage.
The purpose of this letter is to place you on notice of the Bank's claim of
first priority to payment of proceeds attributable to the interests of Northland
arising from the purchase and sale of oil or gas attributable to the lands or
contracts described in the Mortgage and/or the Notice and located in the
following counties within the State of Montana:
5. Glacier; and
6. Toole.
<PAGE>
Energy West Resources
Page two
April 1, 1997
Please make payment directly to the following address:
KeyBank of Wyoming
1800 Carey Avenue
P.O. Box 924
Cheyenne, WY 82001
ATTN: Cathy Ford, Assistant Vice-President
Special Assets Department
If for whatever reason funds are placed in suspense and not paid directly
to the Bank as set forth above, please contact the undersigned directly.
Very truly yours,
POULSON, ODELL & PETERSON, LLC
/s/ William F. Leonard
William F. Leonard
WFL/kak
Enclosures
xc: KeyBank of Wyoming
ATTN: Cathy Ford
<PAGE>
NOTICE OF ASSIGNMENT
NOTICE IS HEREBY GIVEN, that effective February 26, 1993, Northland Royalty
Company and Northland Royalty Operating Company have assigned to Key Bank of
Wyoming all right, title and interest in:
A. All proceeds of production from oil and gas wells located on the
following described lands:
1. Glacier County, Montana
Township 36 North, Range 6 West, MPM
Sections: 11, 13, 14, 22, 23, 24, 25, 26, 27, and 34.
2. Toole County, Montana
Township 34 North, Range 2 West, MPM
Sections: 4, 9, 10, 14, 15, 16, 17, 19, 20, 21, 22, 23, 26, 27,
28, 32, 33, 34, and 35.
Township 33 North, Range 2 West, MPM
Sections: 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 14, 15, 16, 17,
19, 20, 21, 22, 23, 26, 27, 28, and 30.
B. That certain Gathered Gas Purchase Contract, dated December 18,
1979, MPC Contract No. 327, wherein originally Fourem Company is "Seller" and
The Montana Power Company is "Buyer" and Northland Royalty Operating Company
is now "Seller", together with all prior amendments, as well as all future
renewals, modifications, amendments, substitutions or replacements thereof
pertaining to the lands described above and those referenced in said contract.
C. That certain Delivered Gas Purchase Contract, dated February 23,
1977, wherein originally Cascade Gas Co. is "Seller" and The Montana Power
Company is "Buyer" and Northland Royalty Operating Company is now "Seller"
and Great Falls Gas Company is now "Buyer", together will all prior
amendments, as well as all future renewals, modifications, amendments,
substitutions or replacements thereof pertaining to the lands described above
and those referenced in said contract.
IT IS HEREBY DIRECTED that all rights, benefits and privileges pertaining
to the above described items are hereby transferred to Key Bank of Wyoming and
any purchaser of oil or gas pertaining to the lands or contracts described above
is to pay all proceeds attributable to the interests of Northland Royalty
Company or Northland Royalty Operating Company to:
Key Bank of Wyoming
Attention: Cary E. Brus
1130 Sheridan Avenue
Cody, Wyoming 82414
<PAGE>
until further notice from Key Bank of Wyoming.
DATED this 26th day of February, 1993.
NORTHLAND ROYALTY COMPANY
By /s/ W. F. Sheehan, Jr.
---------------------------
Name: William F. Sheehan, Jr.
-------------------------
Title: President
--------------------------
NORTHLAND ROYALTY OPERATING COMPANY
By /s/ W. F. Sheehan, Jr.
---------------------------
Name: William F. Sheehan, Jr.
-------------------------
Title: President
--------------------------
CORPORATE ACKNOWLEDGMENT
STATE OF MONTANA )
) SS.
COUNTY OF YELLOWSTONE )
On this 26th day of February, 1993, before me Joseph R. Glennon, a
notary public personally appeared William F. Sheehan, Jr. known to me to be
the President of Northland Royalty Company and Northland Royalty Operating
Company and acknowledged to me that he executed the within instrument on
behalf of such corporations.
Given under my hand and notarial seal this 26th day of February, 1993.
/s/ Joseph R. Glennon
--------------------------------------
NOTARY PUBLIC
My Commission Expires:
10-27-95
- --------------------------------
- -------------------------------------------------------------------------------
ACKNOWLEDGMENT
The undersigned hereby acknowledges receipt of a copy of the above and
foregoing Notice of Assignment and consents to the terms thereof.
DATED this ______________ day of __________________, 199__.
Company Name
--------------------------
By
------------------------------------
Name
----------------------------------
Title
---------------------------------
<PAGE>
DELIVERED GAS PURCHASE CONTRACT
The contract, dated December 1, 1985 effective upon the date designated
herein, is by and between:
GATEWAY ENERGY CORPORATION
P. O. Box 524
Englewood, Colorado 80151
(hereinafter called "Seller" whether one or more) and THE MONTANA POWER COMPANY
(hereinafter called "Buyer").
W I T N E S S E T H:
WHEREAS, Seller owns or otherwise controls the rights to produce natural
gas from certain lands located in the State of Montana, on which Seller has
developed gas production; and
WHEREAS, Buyer is willing to buy gas which may be produced by Seller in
commercial quantities; and
WHEREAS, Seller has available commercial quantities of gas which Seller is
willing to sell to Buyer; and
WHEREAS, the parties hereto are desirous of entering into a contract
providing for the sale by Seller and purchase by Buyer of volumes of gas
developed by Seller;
NOW, THEREFORE, in consideration of the promises and the covenants herein
contained, Seller agrees to sell and deliver to Buyer and Buyer agrees to
purchase and receive from Seller, pursuant to the terms and conditions
hereinafter set forth, all of the gas produced by Seller from Seller's lands.
ARTICLE I. GENERAL PROVISIONS
SECTION 1 - TERM. This contract shall become effective on the effective
date hereof and shall continue in effect for
-1-
<PAGE>
a period of twenty (20) contract years and thereafter from year to year until
canceled by one (1) year's written notice from one party to the other.
SECTION 2 - EFFECTIVE DATE. The effective date of this contract is December
1, 1985.
SECTION 3 - TYPE OF CONTRACT. This contract is a Delivered Gas Purchase
Contract.
SECTION 4 - NOTICES. Notices to Buyer shall be addressed to:
The Montana Power Company
40 East Broadway
Butte, Montana 59701
Notices to Seller shall be addressed to:
Gateway Energy Corporation
P. O Box 524
Englewood, Colorado 80151
Either party may change its address under this section at any time upon
written notice to the other party.
ARTICLE II. QUANTITY OF GAS
SECTION 1 - VOLUME OBLIGATION. Commencing with the initial delivery of gas
hereunder, the volume of gas which Buyer shall be obligated to take and pay for,
or pay for if available and not taken, shall be the daily contract quantity
(DCQ). The DCQ shall equal one million (1,000,000) cubic feet for each 7.3 Bcf
(7,300,000,000 cubic feet) of recoverable gas reserves, with a minimum DCQ of
two million (2,000,000) cubic feet per day, subject to Seller having available
for delivery 150 percent of the DCQ.
-2-
<PAGE>
SECTION 2 - INITIAL DCQ. The DCQ shall equal 66-2/3 percent of the daily
volume available for delivery by Seller up to a maximum of two million
(2,000,000) cubic feet, except as hereinafter provided.
The initial DCQ shall be established as soon as practical, but not more
than three months after initial delivery allowing Seller sufficient time to
solve any start-up problems. Seller shall notify Buyer when Seller is ready,
and a monthly production period will be used as a production test provided,
however, that under no circumstances will Buyer be required to conduct a
production test during the months of June, July or August. The initial DCQ
shall be equal to 66-2/3 percent of the average daily delivery during the
production test. For the period from initial delivery to the first day of the
initial production test, Buyer's take-or-pay obligation shall be equal to the
volume actually delivered and accepted.
Should Seller increase his deliverability and desire to increase the DCQ,
Seller may request a new production test for that purpose, provided that such
new production test shall be not less than six (6) months from the last
production test and provided further that under no circumstances will Buyer
be required to conduct a production test during the months of June, July or
August.
Establishment of DCQ based on 66-2/3 percent of deliverability during a
production test shall be applicable only for DCQ's up to two million (2,000,000)
cubic feet.
-3-
<PAGE>
SECTION 3 - ALTERNATIVE DCQ BASED UPON DETERMINATION OF RESERVES. At such
time as 66-2/3 percent of deliverability exceeds two million (2,000,000)
cubic feet, the DCQ shall be one million (1,000,000) cubic feet for each 7.3
Bcf (7,300,000,000 cubic feet) of recoverable gas reserves or two million
(2,000,000) cubic feet, whichever is greater.
SECTION 4 - LIMITATIONS UPON BUYER'S OBLIGATION TO PURCHASE GAS.
(a) DELIVERY CAPACITY OF SELLER. After commencement of initial delivery,
Buyer's obligations to purchase the annual contract volume during each contract
year is conditioned upon Seller having the capability at all times of delivering
a daily volume of gas equal to at least 150 percent of the DCQ.
(b) FAILURE TO DELIVER CONTRACT VOLUME. If the Seller fails for any
calendar month to deliver to Buyer the daily quantity of gas requested by Buyer
up to 150 percent of the DCQ, Buyer may notify Seller in writing of such
failure. Seller shall have such time as may be necessary, but in no event more
than twelve (12) months from the date of receipt by Seller of Buyer's notice, in
which to restore its ability to deliver such quantity, during which period the
DCQ shall be reduced to 66-2/3 percent of the average daily volume of gas Seller
delivered to Buyer during the calendar month on which Buyer's notice was based.
After Seller attempts to restore its ability to deliver 150 percent of the DCQ
in effect prior to such notice and reduction and after Seller
-4-
<PAGE>
gives written notice to Buyer that it is ready for a test, or following the end
of said twelve (12) month period, Buyer shall conduct a production test using a
monthly production period in which Seller must demonstrate delivery of 150
percent of the DCQ in effect prior to such notice and reduction on each day,
provided, however, that under no circumstances will Buyer be required to conduct
a production test during the months of June, July or August. In the event
Seller's efforts to restore its ability to deliver 150 percent of the DCQ in
effect prior to such notice are unsuccessful, as evidenced by said production
test, Buyer shall have the right to reduce the DCQ to a volume equal to 66-2/3
percent of the average daily volume of gas delivered to Buyer during the
calendar month of said delivery test. If 66-2/3 percent of deliverability
results in a DCQ less than l00 MCFD, the DCQ shall be assigned a value of zero.
If a zero DCQ is assigned, Seller shall nonetheless continue to produce and
deliver gas to Buyer and Buyer shall take and pay for gas delivered on a best
efforts basis.
ARTICLE III. RESERVES AND DELIVERABILITY
SECTION 1 - COMMITMENT OF GAS RESERVES. Seller hereby commits to the
performance of this contract all of the gas produced by Seller from the lands
specified and described on Schedule "A."
SECTION 2 - DETERMINATION OF GAS RESERVES. After the execution of this
contract, and thereafter from time to time as new wells are completed or
discoveries of gas are made on
-5-
<PAGE>
Seller's lands, Seller will provide Buyer with the basic geological,
engineering, production and other data within Seller's possession which would be
needed in making a determination of gas reserves and deliverability of each
well.
One (1) month after Buyer has received said data, Buyer shall furnish
Seller an estimate of recoverable gas reserves. Within fifteen (15) days after
Buyer's furnishing its estimate of the recoverable gas reserves, Seller shall
advise Buyer whether Buyer's estimate is acceptable. If Buyer's estimate of such
recoverable gas reserves is not acceptable to Seller, and Seller and Buyer are
unable to negotiate an agreeable settlement, then the matter shall be determined
by arbitration as provided in Article XII. The recoverable gas reserves when
determined will form the basis for determining the DCQ and take-or-pay
obligations subject, however, to the provisions of Article II.
SECTION 3 - SUBSEQUENT REDETERMINATIONS OF RECOVERABLE GAS RESERVES. Either
party may request, in writing, a redetermination of recoverable gas reserves
between March 1 and June 30, inclusive, of every second contract year hereof.
After such request, Buyer shall, between July 1 and September 1, estimate the
quantity of Seller's recoverable gas reserves and promptly provide Seller with a
statement thereof. Within fifteen (15) days after Buyer's furnishing its
estimate of such reserves, Seller shall advise Buyer whether Buyer's estimate of
such reserves is acceptable. If Seller and Buyer reach agreement on Seller's
recoverable gas
-6-
<PAGE>
reserves, or the matter is determined by arbitration, then such reserve
agreement or determination shall form the basis for determining the DCQ
effective the following January 1, subject, however, to the provisions of
Article II.
SECTION 4 - RECOVERABLE GAS RESERVES. In making the determination of
recoverable gas reserves, all pertinent factors shall be considered and given
due weight, including but not limited to the production-pressure decline curve,
if sufficient data is available, and a volumetric determination of reserves
which is based upon the thickness of the gas bearing sands, the acres in which
the production occurs, the porosity and water saturation of said sands, the
pressures occurring in the formation and at which the gas is produced, and the
recovery factor.
SECTION 5 - ARBITRATION OF RESERVES. If Seller and Buyer are unable to
agree upon the Recoverable Gas Reserves and such disagreement cannot be resolved
by negotiation within sixty (60) days after Buyer has submitted its
determination of recoverable gas reserves, then the determination of such
reserves will, at the request of either party, be submitted to arbitration as
provided in Article XII.
ARTICLE IV. DELIVERY
SECTION 1 - DELIVERY PRESSURE. Delivery by Seller of gas shall be made at a
pressure that is sufficient to effect delivery of gas into Buyer's pipeline at
existing working pressure maintained therein from time to time not to exceed
-7-
<PAGE>
one thousand (1,000) pounds per square inch gauge. Maintenance by Seller of
sufficient pressure to enter Buyer's pipeline shall be a condition of Buyer's
obligation to purchase and receive from Seller the quantities of gas specified
in Article II hereof.
SECTION 2 - DELIVERY POINT. Delivery of natural gas hereunder shall be at a
mutually agreeable single point on Buyer's transmission line in the NE NE of
Section 20, T33N, RlW, Toole County, Montana. Additional delivery points may be
used upon the written agreement of the parties hereto.
SECTION 3 - NOTICE TO BUYER. Seller will advise Buyer at the earliest date
possible after Seller has determined it will connect a well of its best estimate
of the initial delivery date.
SECTION 4 - TITLE. Title to all gas shall pass at the point of delivery.
ARTICLE V. PRICE
SECTION 1 - AMOUNT. The price to be paid by the Buyer to the Seller for the
gas delivered to the Buyer at the delivery points or for take-or-pay payments
shall be the lesser of:
a) Two dollars and seventy-five cents ($2.75) per Mcf. This price will be
redetermined at two year intervals with the first price renegotiation effective
January 1, 1988. Price renegotiation shall be conducted as per Article V,
-8-
<PAGE>
Section 5 hereof. No adjustment will be made to this price for reimbursement of
production related taxes or any other NGPA Section 110 add ons; or
b) The applicable maximum lawful price established by the Natural Gas
Policy Act (NGPA) and the regulations promulgated thereunder (weighted according
to the respective volumes of gas subject to different maximum lawful prices) up
to a ceiling price of the maximum lawful price under Section 102 of the NGPA.
Proper adjustments shall be made monthly for pressure base and BTU content.
In the event Seller does not furnish Buyer with the statement required by
Article XI, Section 1(b), the price to be paid by Buyer shall be the applicable
maximum lawful price established by Section 109 of the NGPA without an allowance
for state severance taxes borne by the Seller.
SECTION 2 - BTU ADJUSTMENT. If the gas delivered hereunder has a gross
heating value of less than one thousand (1,000) BTU per cubic foot, then the
price payable for such gas shall be reduced. If the gas has a gross heating
value of more than one thousand (1,000) BTU per cubic foot, then the price
payable for such gas shall be increased. Such reduced or increased price shall
be determined by multiplying the price otherwise payable by a fraction, the
numerator of which is the actual gross heating value of the gas delivered,
expressed in BTU per cubic foot, and the denominator of which is one thousand
(1,000); provided, however such fraction
-9-
<PAGE>
shall not exceed 12/10 even though the gross heating value of the gas is found
to be in excess of one thousand two hundred (1,200) BTU per cubic foot.
SECTION 3 - TAKE-OR-PAY OBLIGATION. If during any calendar year Seller has
available for delivery 150 percent of the DCQ and Buyer does not take a total
volume of gas equal to the ACQ in said calendar year, then, on or before the
25th day of the following January Buyer shall mail payment to Seller, as a
take-or-pay payment, the value of such volume of gas not taken below the ACQ;
calculated with a unit price representing the average unit price applicable in
the preceding year. There shall be no BTU adjustment when calculating payment
for gas available but not taken.
SECTION 4 - MAKE-UP OF DEFICIENCIES IN PURCHASE.
(a) Beginning with initial delivery hereunder, all volumes of gas taken by
Buyer during a contract month in excess of the monthly contract quantity, up to
a total quantity having a total value (calculated at the price being paid
hereunder at the time such gas is so made up) equal to the payments theretofore
made by Buyer to Seller for gas not taken, shall be credited to the make-up of
take-or-pay deficiencies incurred in any of the contract years following the
contract year in which the deficiency occurred. Nothing contained in this
Section 4 shall reduce Buyer's obligation to take and pay for, or nevertheless
pay for, if available and not taken, the annual contract volume during each
contract year.
-10-
<PAGE>
(b) Gas taken in excess of the annual contract volume in any year shall
first be credited against amounts of gas paid for but not taken in any prior
year, and the balance, if any, shall be carried forward as a credit against
annual contract volume deficiencies occurring in any subsequent year; provided,
however, that no credit shall exist for a period longer than five (5) years.
(c) In the event that this contract terminates for any reason other than
the breach of the terms hereof by Buyer prior to the Buyer's recovery of any
volumes paid for but not taken hereunder, or if a zero DCQ is assigned, Seller
shall pay to Buyer 100 percent of the outstanding sums paid by Buyer for gas not
taken.
SECTION 5 - RENEGOTIATION OF PRICE. Either party shall have the right to
demand renegotiation, pursuant to this Article between March 1 and June 30,
inclusive, prior to the anniversary date of each second contract year. Failure
to make the demand in writing within the times allowed shall be deemed a waiver
of the right to renegotiate. The first price renegotiation hereunder will be
effective January 1, 1988.
SECTION 6 - FAIR MARKET PRICE. The price redetermined shall be the fair
market price of the gas which is subject to this agreement. The fair market
price of the gas is the price paid or value obtained for natural gas produced in
Montana under similar delivery conditions, or adjusted for similar delivery
conditions, on sales to, or for ultimate delivery to pipeline transmission
companies, or wellhead
-11-
<PAGE>
sales. In determining the fair market price, all, pertinent factors, such as
point of delivery, cost of gathering, quality, quantity and delivery pressure,
shall be considered and given due weight.
If the parties are successful in negotiating a price, as provided above, or
if the price is determined by arbitration, said price shall become effective on
the "anniversary date" for which such price negotiation is requested.
SECTION 7 - ARBITRATION DEMAND. If the parties are unable to agree upon the
fair market price by sixty (60) days prior to the appropriate "anniversary date"
then either party shall have the right to demand that the matter of
redetermination of price be submitted to arbitration as provided in Article XII,
provided that if no such demand is made and delivered within ten (10) days of
the date the right to invoke arbitration arises, the right shall be deemed
waived, and the price in effect on the "anniversary date" shall remain in
effect.
ARTICLE VI. DEFINITIONS
For the purpose of this contract, the following words and terms are defined
as follows:
1. The first "CONTRACT YEAR" means that period of time commencing on the
effective date hereof and extending to, but not including the following January
l, which date shall constitute the anniversary date of this contract.
Thereafter, each subsequent "contract year" shall mean that period of
-12-
<PAGE>
time commencing with an anniversary date of this contract and extending to, but
not including the following anniversary date.
2. The "ANNIVERSARY DATE" of this contract is deemed to be January l in
each contract year.
3. "DAY" means a period of twenty-four (24) consecutive hours beginning and
ending at 8:00 a.m., Mountain Standard Time. The reference date for any day
shall be the calendar date upon which said 24-hour period shall commence.
4. "MONTH" means the period of time beginning at 8:00 a.m., Mountain
Standard Time, on the first day of a calendar month and ending at 8:00 a.m.,
Mountain Standard Time, on the first day of the next calendar month.
5. "SELLER'S LANDS" means the real property and all natural gas production
from the real property described in Schedule "A" attached to this contract,
including all geologic zones and horizons underlying the property unless
otherwise limited on Schedule "A."
6. "LEASE" means any right of Seller to drill for, produce, and dispose of
gas in, under and from Seller's lands, and includes any document evidencing such
right now or hereafter acquired.
7. "GAS" means either natural gas obtained from the wells or the residue
remaining after the natural gas has been treated by Seller for the removal of
any of its constituent parts other than methane and the removal of methane to
such
-13-
<PAGE>
extent as is necessary in removing other constituents, as the context may
require, but not including casinghead gas.
8. "RECOVERABLE GAS RESERVES" means the total quantity of gas which is
determined or redetermined at a future date to be economically recoverable from
each gas production unit and available for delivery as of the date of initial
delivery hereunder after processing, if any, to satisfy the quality
specifications hereof, less the quantities of gas reserved by the Seller
hereunder. Such reserves shall be computed by accepted reservoir engineering and
geological procedures, and shall consist of only those reserves owned or
controlled by Seller and underlying or attributable to Seller's lands listed on
Schedule "A." Recoverable gas reserves means original, NOT remaining,
recoverable reserves.
9. "RESERVOIR" means stratigraphic trap, or pool, from which gas is
produced, and one (1) or more "reservoirs" may be produced by means of a single
well.
10. "GAS PRODUCTION UNIT" means one governmental section (640 acres more or
less), unless otherwise agreed between the parties or established by the Montana
Oil and Gas Conservation Commission. As to the units on which there are wells
completed in more than one producing formation, each such formation shall be
considered as a separate gas production unit.
11. "CUBIC FOOT OF GAS" is the unit of volume for purposes of measurement
hereunder, except for gross heating value, and means one cubic foot of gas at a
temperature of
-14-
<PAGE>
60 DEGREES F and at a pressure of 14.73 per square inch absolute. For
purposes of measurement, the atmospheric pressure shall be assumed to remain
constant at 13.0 pounds per square inch absolute.
12. "MCF" means one thousand (1,000) cubic feet.
13. "BTU" means British thermal unit.
14. "GROSS HEATING VALUE" means the total calorific value expressed in
Btu's obtained by the complete combustion at constant pressure of the amount
of gas which would occupy a volume of one cubic foot at a temperature of 60
DEGREES F if saturated with water vapor and under a pressure equivalent to
that of 30 inches of mercury at 32 DEGREES F and under standard gravitational
force (980.665 cm. per sec., per sec.) with air of the same temperature and
pressure as the gas, when the products of combustion are cooled to the
initial temperature of gas and air and when the water formed by combustion is
condensed to the liquid state.
15. "DCQ" means the Daily Contract Quantity and is defined in Article II of
this agreement.
16. "MONTHLY CONTRACT QUANTITY" or "MCQ" means the DCQ times the number of
days in any particular contract month.
17. "ANNUAL CONTRACT QUANTITY" or "ACQ" means the DCQ times the number of
days applicable to that DCQ within that particular contract year.
18. "INITIAL DELIVERY" means the date on which Buyer first receives gas
produced from a well on Seller's land.
-15-
<PAGE>
19. "DELIVERABILITY" means the average volume of gas
available for delivery.
ARTICLE VII. SELLER'S REPRESENTATIONS
SECTION 1 - LEASES. Seller represents and warrants that it is the owner of
valid oil and gas leases or other documents of title which grant to Seller the
right to produce and dispose of Seller's share of the natural gas from the land
described in Schedule "A" and agrees to maintain all of such right to produce
and sell gas in full force and effect, at its own expense; provided, that Seller
shall not be required to retain by payment of delay rentals any acreage which,
in Seller's judgment, will not be productive of gas in commercial quantities.
SECTION 2 - WARRANTY OF TITLE. Seller warrants that, to extent of
Seller's interest as indicated on Schedule "A," it has the right to produce
and sell to Buyer, and that Seller has merchantable title to, and that Seller
has authority to sell, Seller's share of gas which is produced from the wells
on Seller's lands. Seller agrees to indemnify and save Buyer harmless from
any and all suits, claims and liens of any nature relating to such gas or the
title thereto.
If there is a defect in Seller's title, Seller shall, with reasonable
promptness, attempt to remedy said defect. If Seller's title shall at any
time be questioned, or involved in litigation, Buyer shall have the right to
(1) refuse to accept deliveries of gas hereunder, or (2) withhold (without
interest) the proceeds payable for the
-16-
<PAGE>
gas produced from the particular property in litigation or dispute during the
period of such litigation or until said title is freed from such question, or
until Seller shall furnish a bond, in form and with sureties acceptable to
Buyer, conditioned to save Buyer harmless.
Seller agrees, upon the reasonable request of Buyer, to furnish for
examination all abstracts of title which Seller has or may have covering acreage
committed hereunder, authentic copies of Seller's leases, delay rental receipts
covering such acreage, and any other title information pertaining to such
acreage which Seller may have.
ARTICLE VIII. BUYER'S & SELLER'S OBLIGATION
SECTION 1 - GAS TO BE PURCHASED AND SOLD. Subject to the provisions of this
agreement, during the term hereof the Seller shall gather, compress, sweeten, if
necessary, dehydrate, sell and deliver to the Buyer, and the Buyer shall
purchase and receive from the Seller at the delivery point the natural gas
produced from the Seller's lands described in Schedule "A."
(a) SELLER'S OBLIGATION TO DELIVER. Subject to the provisions of this
Article, the Seller shall deliver gas to Buyer's transmission system as provided
in Article IV hereof, in such volume and at such times as requested by Buyer,
provided that Seller shall not be required to produce gas from wells in excess
of the lesser of (1) the legal capacity of each well as may be fixed from time
to time by law or regulatory bodies, or (2) the delivery capacity of each well.
-17-
<PAGE>
(b) LIMITATION ON SELLER'S OBLIGATIONS. Seller shall not be obligated to
deliver gas hereunder from any well at a rate which in the opinion of the
Seller, acting as a reasonably prudent operator, would be injurious to such well
or to the reservoir or reservoirs from which such well is produced.
(c) RESERVATION OF GAS BY THE SELLER: The Seller reserves the following
rights:
(1) the right, at Seller's option, to retain or allow others to retain such
quantities of gas produced from the lands described in Schedule "A" as the
Seller may need or require to fulfill the obligations of the Seller under the
terms of its lease or other document under which it derives title to its gas
rights;
(2) the right at Seller's option to such quantities of gas produced from
Seller's lands as Seller may need or require for development, production and
delivery of gas for sale under this contract.
(3) the right at Seller's option to process gas produced from Seller's
lands for the removal of any component, other than methane, prior to delivery of
such gas to the Buyer, which components so removed shall belong to the Seller;
provided, however, that the gas which is delivered to Buyer after such
processing shall meet the quality requirements of Article IX hereof.
-18-
<PAGE>
SECTION 2 - SELLER'S OBLIGATION TO MAINTAIN WELLS. Seller shall use
diligence in maintaining said wells and the appliances and machinery appurtenant
thereto in good and efficient working order at all times and in such manner that
each of said wells will at all times be able to produce the amounts of gas
required to be delivered by Seller under this contract. The obligations of
Seller hereunder are subject to the ability of Seller's wells to produce without
waste and in accordance with prudent oil and gas field practice. Seller reserves
the right, subject to this agreement, to control the Seller's lands and
leaseholds and the operations thereon producing gas to be sold to Buyer; such
reserved rights include, but are not limited to, the right to unitize or pool
its leases with its own or others, the right to determine when, where, or
whether to drill new wells, to repair and rework old wells, and to abandon any
well or surrender any lease when no longer deemed by Seller to be capable of
producing gas in paying quantities under normal methods of operation.
SECTION 3 - WELLS. The gas wells connected under this contract shall be
equipped and maintained in good operating condition, in accordance with approved
practices, without cost to Buyer. In the event liquids exist, requiring
separation from the gas, then Seller agrees to install, operate, and maintain,
without cost to Buyer, such liquid removal equipment operated at normal
temperature, as may be necessary to separate such liquids from the gas.
-19-
<PAGE>
SECTION 4 - SELLER'S OBLIGATION TO MAINTAIN THE GATHERING SYSTEM. Seller
shall diligently maintain the facilities used to produce and deliver the gas
from Seller's lands as described on Schedule "A" up to the point of delivery.
Seller shall be, at no expense to Buyer, responsible for the installation and
operation of all equipment, piping and Seller's gathering system up to the point
of delivery.
SECTION 5 - DRAINAGE. If a reservoir producing gas delivered to Buyer under
this contract is produced by anyone other than Seller at a rate which makes
imminent, in Seller's judgment, the drainage of gas from Seller's lands, then
Seller shall immediately notify Buyer in writing of the existence of such
situation and may request that Buyer, to the extent reasonably possible,
increase its takes from Seller by a volume sufficient to protect Seller from
drainage of the reservoir. If Buyer is unable to increase takes sufficiently to
protect Seller from drainage, Buyer agrees to permit Seller to seek another
purchaser for those volumes needed to avoid drainage.
ARTICLE IX. QUALITY OF GAS
SECTION 1 - GENERAL STANDARDS. Seller agrees that the gas delivered
hereunder shall be merchantable natural gas, at all times complying with the
following quality requirements:
(a) The gas shall be in its natural state as produced, including all
hydrocarbon constituents therein contained,
-20-
<PAGE>
except gas from which Seller has removed liquid or liquifiable hydrocarbons.
Seller shall also have the right to remove nonhydrocarbon constituents and
hydrocarbons as required to remove other constituents. Seller may enrich the gas
to the extent required to meet the gross heating requirements set forth in
paragraph (b) below, and may subject the gas, or permit the gas to be subjected
to compression, cooling, cleaning and other processes.
(b) The weighted average gross heating value of gas delivered to Buyer
hereunder shall not be less than nine hundred (900) Btu's per cubic foot, and
shall not be more than twelve hundred (1,200) Btu's per cubic foot as defined in
Article VI, Section 14. Buyer may reject delivery of gas having a weighted
average gross heating value of less than nine hundred (900) Btu's or more than
twelve hundred (1,200) Btu's.
(c) The gas shall be merchantable and usable by the ultimate consumers
thereof without further treatment. The terms merchantable and usable shall mean
conforming to the seven specifications stated below. In particular, the gas
delivered hereunder at the delivery point shall be commercially free of dust,
gum, gum-forming constituents, gasoline, and other solid or liquid matter that
may become separated from the gas during transportation thereof and shall
conform to the following specifications:
-21-
<PAGE>
1. Dust, rust or other solids None
2. Carbon dioxide Not more than 2% by volume
3. Oxygen Not more than 1% by volume
4. Hydrogen sulfide Not more than 1/4 grain per
100 cubic feet
5. Total sulfur Not more than 20 grains per
100 cubic feet
6. Liquid water None
7. Temperature Not more than 120 DEGREES F
SECTION 2 - DELIVERED CONTRACT QUALITY STANDARDS. In addition to the
quality standards set forth above in Section 1 of this Article, the gas
delivered by Seller under this Delivered Gas Purchase Contract shall have
been dehydrated by Seller for removal of water present therein in a vapor
state, and shall in no event contain more than four (4) pounds of water
vapor per one million (1,000,000) cubic feet of gas, and shall be free from
hydrocarbons liquifiable at temperatures in excess of fifteen degrees
Fahrenheit (15 DEGREES F) at pressures up to eight hundred (800) psig.
SECTION 3 - BUYER'S OPTION TO TREAT. Buyer, at its option, may refuse to
accept delivery of any gas not meeting the quality specifications set out in
this Article. Thereafter, Seller shall have the right to conform the gas to the
above specifications. If Seller does not elect to conform the gas to said
specifications, then Buyer may, at its option, accept gas tendered by Seller
hereunder which does not meet the specifications above, treat same to conform to
said specifications and charge Seller for the actual cost of such treating,
including (but not limited to) amortization, fuel and shrinkage.
-22-
<PAGE>
ARTICLE X. MEASUREMENT AND TESTS
SECTION 1 - UNIT OF VOLUME. The unit of volume for all gas hereunder shall
be one (1) cubic foot of gas as defined in Article VI, Section 11.
SECTION 2 - SALES UNIT. The sales unit of the gas delivered hereunder shall
be one thousand (1,000) cubic feet.
SECTION 3 - OWNERSHIP OF MEASURING EQUIPMENT. All measuring devices, and
materials required at the point or points of delivery shall be installed,
maintained, and operated, or furnished by Buyer at Buyer's expense. Seller may
install and operate check measuring equipment provided it does not interfere
with the use of Buyer's equipment in determining the volumes of gas delivered by
Seller to Buyer at the points of delivery.
SECTION 4 - METERING AND COMPUTATION OF VOLUME. The gas shall be metered by
orifice meters or other measurement facilities constructed, installed and
maintained by Buyer at or near the point or points of delivery. Such measurement
facilities of Buyer shall be constructed and installed in accordance with the
applicable provisions of the American Gas Association's "Gas Measurement
Committee Report No. 3," as revised March, 1978 and reprinted June, 1979. The
volumes of gas delivered to Buyer shall be computed from the meter records and
converted into the units of measurement specified herein in accordance with the
methods prescribed in Gas Measurement Committee Report No. 3 of the American Gas
Association, including the appendix thereto, as revised
-23-
<PAGE>
March, 1978 and reprinted June 1979, or any subsequent revision thereof
acceptable to Buyer and Seller. Corrections shall be made for deviation from the
Ideal Gas Laws at the pressure and temperature at which the gas is metered. To
determine the factors for such correction, a quantitative analysis of the gas
shall be made at reasonable intervals with such apparatus as shall be agreed
upon by Buyer and Seller, and such factors shall be obtained from data contained
in Report NX-19, as published by the American Gas Association in December, 1962,
or any subsequent revision thereof acceptable to Buyer and Seller. For the
purpose of measurement and meter calibration, the atmospheric pressure shall be
assumed to be 13.0 pounds per square inch, irrespective of variations in natural
atmospheric pressure from time to time.
SECTION 5 - SPECIFIC GRAVITY. The specific gravity of the gas flowing
through the delivery meter, or meters, shall be determined by Buyer, or, at
Seller's election, by joint tests, at monthly intervals. All such determinations
of specific gravity shall be made by a standard gravity balance or by a
gravitometer employing the "Momentum Method" of specific gravity determinations
as described in Chapter VII, "Determination of Specific Gravity," of the
American Gas Association Gas Measurement Manual, 1963 edition. The specific
gravity of the gas flowing through each meter determined by either of the
above-mentioned methods shall be
-24-
<PAGE>
used in computing the volume of gas delivered through such meter. The specific
gravity determined by any test shall apply from the date the test was taken
until the date of the next test.
SECTION 6 - TEMPERATURE. The temperature of the gas delivered at the points
of delivery hereunder shall be determined by means of a recording thermometer.
The arithmetic average of readings taken while gas is flowing during each chart
period shall be used in computing the volumes delivered hereunder.
SECTION 7 - EQUIPMENT TESTING. The accuracy of Buyer's measuring equipment
shall be verified by test, using means and methods generally acceptable in the
gas industry, at least annually or otherwise as agreed to by Buyer and Seller.
Seller shall have the right to witness and verify all tests of Buyer's measuring
equipment. Measuring equipment found to be registering inaccurately shall be
adjusted to read as accurately as possible. If Seller fails to witness any test,
the results of the test shall nevertheless be considered accurate until the next
test. All tests of such measuring equipment shall be made at Buyer's expense,
except that Seller shall bear the expense of tests made at its request if the
inaccuracy is found to produce an error of two percent (2%) or less in the
measurement of gas.
SECTION 8 - MEASURING EQUIPMENT OUT OF REPAIR. If, for any reason, any
measuring equipment is inoperative or inaccurate so that the volume of gas
delivered is not correctly
-25-
<PAGE>
indicated by the reading thereof, and if such reading is in error by more than
two percent (2%) in the measurement of gas, then the volume of gas delivered,
during the period such measuring equipment is inoperative or inaccurate, shall
be determined by the parties hereto on the basis of the best data available
using the first of the following methods which is feasible:
(a) By using the registration of any check measuring equipment installed
and accurately registering;
(b) By correcting the error if the percentage of error is ascertainable by
calibration, test or mathematical calculations; or
(c) By comparing deliveries made during preceding periods under similar
delivery conditions when the meter was registering accurately.
An adjustment based on such determination shall be made for such period of
inaccuracy as may be definitely known, or if not known, then for one-half the
period since the date of the last meter test. In no event, however, shall any
adjustment extend back beyond six months from the date the error was first made
known by one party hereunder to the other.
SECTION 9 - INSPECTION OF EQUIPMENT. Buyer and Seller shall have the right
to inspect equipment installed or furnished by the other party, and the charts
and other measurement or test data of the other party, at all times during
business hours; but the reading, calibration, and
-26-
<PAGE>
adjustment of such equipment and changing of charts shall be done only by the
party installing and furnishing the same. Unless the parties otherwise agree,
each party shall preserve all original test data, charts, and other similar
records in such party's possession for a period of at least five (5) years.
SECTION 10 - GROSS HEATING VALUE. The gross heating value per cubic foot of
gas shall be determined at least monthly by the Buyer at the Buyer's expense,
using an accurately calibrated Cutler-Hammer recording calorimeter, from samples
of the gas taken at the delivery point or points. The Seller shall have the
right to witness any and all tests of gross heating value made by the Buyer. The
Seller shall have the right at any time to make or to require the Buyer to make
a special test of the gross heating value of gas delivered hereunder, but the
Seller shall bear the expense of any special tests made at its request.
SECTION 11 - HYDROGEN SULPHIDE. Tests to determine hydrogen sulphide
content shall be made whenever necessary to determine whether the gas meets the
requirements of Article IX hereof. Such tests shall be made at the expense of
the Buyer. Seller shall have the right to witness and verify all tests.
SECTION 12 - DATA TO BE PROVIDED TO SELLER. Buyer shall provide Seller with
all information, data, test results, reservoir information, etc., immediately
upon receipt of same
-27-
<PAGE>
by Buyer, to the end that at all times Seller shall have all information
relative to its wells that is available to Buyer.
ARTICLE XI. STATEMENT AND PAYMENT
SECTION 1 - STATEMENTS.
(a) BUYER'S STATEMENT. On or before the fifteenth (15th) day of each
calendar month after deliveries of gas are commenced hereunder, the Buyer shall
render to Seller a statement showing the amount of gas delivered during the
preceding calendar month, together with sufficient information to explain and
support any adjustment by the Buyer with respect to the BTU value of gas
delivered in determining the amounts stated to be due.
(b) SELLER'S STATEMENT. On or before the fifteenth (15th) day of each
calendar month after deliveries of gas are commenced hereunder, the Seller shall
render to Buyer a statement showing the total volume of gas delivered to Buyer
during the preceding calendar month, together with sufficient information to
explain and support the application of particular NGPA maximum lawful prices to
particular volumes of gas, and to explain and support the amount of allowable
state severance taxes borne by the Seller. If Seller fails to render such
statement, Buyer shall nonetheless make payment under this Article at the
alternative price established by Article V, Section 1(b).
-28-
<PAGE>
SECTION 2 - PROTEST OF STATEMENT.
(a) Seller shall have, upon request made within one year after receipt of
the Buyer's statement referred to in the previous section the right to examine
the meter charts and computations upon which such statements are based. If the
Seller deems such charts or computations to be inaccurate, Seller may protest
the statement within ninety (90) days of the receipt of the meter charts and
computations, and may request a check to be made of the meter installed,
pursuant to Article X hereof. Any statement not protested within ninety (90)
days of the receipt thereof shall, together with the underlying charts and
computations upon which statements are based, be deemed to be correct. The Buyer
shall make current charts available to the Seller for examination.
(b) Buyer shall have upon request the right to examine the meter charts,
records and computations upon which Seller's statement as to the application of
particular NGPA maximum lawful prices to particular volumes of gas and as to the
allowable state severance taxes borne by the Seller. If the Buyer deems such
charts, records and computations to be incorrect or inaccurate, Buyer may
protest and elect to receive a refund for any amount improperly or incorrectly
paid to Seller, under the procedures established by the NGPA and regulations
thereunder, or under the process of state law, whichever is applicable.
-29-
<PAGE>
SECTION 3 - PAYMENT DUE DATE. For gas actually taken, Buyer shall mail
payment to Seller monthly, on or before the 25th day of the month in which the
statement was issued. If Buyer's statement is protested, Buyer shall nonetheless
render payment on the basis of the statement. If the protest is resolved in
favor of the Seller, payment shall be mailed within twenty-five (25) days of
resolution.
SECTION 4 - PAYMENT. All payments for gas shall be made to the Seller
designated in Section 4 of Article I for its own account.
ARTICLE XII. ARBITRATION
SECTION 1 - SCOPE OF ARBITRATION. Under the terms of this contract, only
the factual determinations involving the size and amount of "recoverable gas
reserves," and the "fair market price" can be submitted to arbitration. No legal
issues may be arbitrated. This arbitration provision does not preclude
consideration of law questions in connection with decisions on "recoverable gas
reserves" or "fair market price," provided that nothing in this contract shall
be construed as making final or binding the decision of the arbitrator or
arbitrators on a question of law, and further provided that the arbitrator or
arbitrators explain fully, in writing in the decision, the consideration given
to a question of law.
SECTION 2 - QUALIFICATIONS OF ARBITRATORS. In an arbitration involving the
determination of "recoverable gas reserves," the arbitrator or arbitrators
selected hereunder
-30-
<PAGE>
shall be qualified by education, training and experience to determine gas
reserves.
In an arbitration involving the determination of "fair market price," the
arbitrator or arbitrators selected hereunder shall be qualified by education,
training and experience to determine the "fair market price" (as defined
hereunder) of the gas purchased hereunder.
The qualifications of any arbitrator or arbitrators selected hereunder
shall be subject to judicial review in accordance with the laws of Montana.
SECTION 3 - SELECTION OF ARBITRATOR(S). Upon the timely written demand of
either party, the parties shall meet and attempt to appoint a single arbitrator.
If the parties are unable to agree on a single arbitrator, then upon written
demand of either party and within ten (10) days of such demand, each party shall
name an arbitrator and the two arbitrators so named shall within ten (10) days
of their appointment choose a third arbitrator. If either party shall fail to
timely name an arbitrator, the American Arbitration Association shall be
requested to appoint the second arbitrator. If the two arbitrators shall fail
within ten (10) days from their appointment to appoint the third arbitrator,
then the American Arbitration Association shall be requested to appoint the
third arbitrator. The American Arbitration Association shall be bound, in any
event, to select an arbitrator in accordance with the provisions of Section 2 of
this Article.
-31-
<PAGE>
SECTION 4. - ARBITRATION PROCESS. The arbitrator or arbitrators shall
proceed immediately to hear and determine either the "recoverable gas reserves"
or the "fair market price," as is appropriate. In making the determination of
"recoverable gas reserves," the arbitrator or arbitrators shall consider and
give due weight to the factors denominated in Section 4 of Article III. In
making the determination of "fair market price," the arbitrator or arbitrators
shall consider and give due weight to the factors denominated in Section 6 of
Article V.
SECTION 5 - ARBITRATOR(S) DECISION. The arbitrator or arbitrators shall
render a decision as soon as is reasonably possible following the submission of
the issue by the parties. The arbitrator or arbitrators shall decide only the
factual issue before them; that is, either the "recoverable gas reserves" or the
"fair market price," and no legal issues may be determined. The decision of the
arbitrator or a majority of the arbitrators shall be in writing, explain the
reasons therefore, and signed by the arbitrator or a majority of them. Only the
decision of the arbitrator, or a majority of the arbitrators, as to the factual
issue before he or them shall be final and binding upon the parties.
SECTION 6 - ARBITRATION EXPENSES. The compensation and expenses of the
single arbitrator shall be paid in equal proportions by Buyer and Seller. The
compensation and expenses of the arbitrators, be there more than one, shall be
-32-
<PAGE>
paid by the party in whose behalf such arbitrator was appointed, and the
compensation and expenses of the third arbitrator shall be paid in equal
proportions by Buyer and Seller.
ARTICLE XIII. FORCE MAJEURE
If either party to this contract shall fail to perform any obligation
hereby imposed upon it and such failure shall be caused, or materially
contributed to by acts of God, strikes, lockouts, or other industrial
disturbances in the operation of Seller or Buyer or Buyer's customers, acts of
enemies of the State, sabotage, war, blockades, insurrections, riots, epidemics,
landslides, lightning, earthquakes, floods, storms, fires, washouts, arrests and
restraints of rulers and people, civil disturbances, explosions, breakage
or accident to machinery or lines of pipe, hydrate obstructions of line of pipe,
temporary failure of gas supply, freezing of wells or delivery facilities, well
blowouts, craterings, inability to obtain pipe, materials or equipment, lack of
market, the order of any court or governmental authority, or by any act or
omission which is occasioned by any event or occurrence of the character
described in this Article as constituting force majeure, or by the necessity for
making repairs to or reconditioning wells, a gas processing plant, machinery,
equipment, or pipelines, not resulting from the fault or negligence of such
party, or by any other cause, whether of the kind herein
-33-
<PAGE>
enumerated or otherwise, all such causes being beyond the control of the party
invoking this Article and being such that by the exercise of due diligence such
party could not have prevented, such failure shall not give rise to any cause of
action based on breach of the obligation to such party hereunder, but such party
shall use reasonable diligence to put itself again in a position to carry out
its obligations hereunder. Nothing contained herein shall be construed to
require either party to settle a strike or lockout by acceding against its
judgment to the demands of opposing parties.
No such cause affecting the performance of this contract by either party
shall continue to avoid a cause of action after the expiration of a reasonable
period of time within which by the use of due diligence such party could have
remedied the situation preventing its performance, nor shall any such cause
relieve either party from its obligation to make payment for amounts then due
hereunder for gas already delivered, nor shall any such cause avoid a cause of
action unless such party shall give notice of such cause in writing to the other
party with reasonable promptness; and like notice shall be given upon
termination of such cause.
For purposes of determining the occurrence of performance of obligations
under this agreement, it is mutually agreed that, during a period of force
majeure the party affected shall be deemed to have performed all of its
-34-
<PAGE>
obligations as if it had delivered or purchased the gas required to be delivered
or purchased during said period.
ARTICLE XIV. MISCELLANEOUS
SECTION 1 - REGULATORY JURISDICTION. This contract is subject to all valid
legislation and to all valid present and future orders, rules and regulations of
duly constituted authorities having jurisdiction.
SECTION 2 - ASSIGNMENT. This contract shall bind and inure to the benefit
of the parties hereto, their successors and assigns, and shall constitute a
covenant running with the land and leasehold estates covered hereby. Buyer shall
not be considered as notified of any transfer by Seller of any interest in the
leases, wells, or property referred to on Schedule "A" hereof until Buyer shall
have been furnished with the original or certified copy of such conveyance or
transfer evidencing such transfer or an abstract of title to said property
showing such transfer of interest, and the effective date of such transfer shall
be considered to be the first day of the month following the day Buyer receives
such evidence of transfer.
SECTION 3 - EASEMENTS. Seller hereby grants and assigns to Buyer all
requisite easements and rights-of-way over, across and under any of the land
covered hereby that Seller has the right so to do under the terms of its Oil and
Gas Lease covering such lands, and the right to perform thereon any acts
necessary or convenient in carrying out the terms of this Contract and Buyer's
obligations hereunder.
-35-
<PAGE>
SECTION 4 - TITLES. The numbering and titling of particular provisions of
this contract is for the purpose of facilitating administration and shall not be
construed as having any substantive effect on the terms of this contract
SECTION 5 - INTERPRETATION. The terms of this contract shall be construed
according to the laws of the State of Montana.
SECTION 6 - SEVERABILITY. The various articles, sections, provisions and
clauses of this contract are severable. The invalidity of any portion hereof
shall not affect the validity of any other portion of, nor the entire contract.
SECTION 7 - COUNTERPART EXECUTION. This Agreement may be signed in
counterpart, no one of which need be signed by all parties hereto.
IN WITNESS WHEREOF, this instrument is executed as of the day and dates as
noted below:
"BUYER"
ATTEST: THE MONTANA POWER COMPANY
/s/ ILLEGIBLE BY: /s/ David A. Johnson
- ----------------------------- ------------------------------------
Vice President
DATE: December 12, 1985
----------------------------------
"SELLER"
GATEWAY ENERGY CORPORATION
---------------------------------------
ATTEST:
/s/ Ronald L. Groom BY: /s/ Alan R. Ramer
- ----------------------------- ------------------------------------
DATE: December 10, 1985
----------------------------------
-36-
<PAGE>
SCHEDULE "A"
(Part of the Gas Purchase Contract dated December 1, 1985, between The Montana
Power Company, as Buyer, and Gateway Energy Corporation as Seller.)
DESCRIPTION OF SELLER'S LANDS
Seller dedicates to the performance of this contract 100 percent of Seller's
interest in the natural gas produced, purchased or otherwise obtained from the
following described lands:
SELLER'S
DESCRIPTION INTEREST
- ----------- --------
T32N - R1W
- ----------
Sections 4 through 9 - All 100%
Sections 16 through 19 - All 100%
T32N - R2W
- ----------
Sections 1 through 12 - All 100%
Sections 15 through 22 - All 100%
Sections 25 through 36 - All 100%
T33N - R1W
- ----------
Sections 2 through 11 - All 100%
Sections 14 through 22 - All 100%
Sections 28 through 33 - All 100%
T33N - R2W
- ----------
Sections 12 through 14 - All 100%
Sections 22 through 29 - All 100%
Sections 31 through 36 - All 100%
230212
-37-
<PAGE>
[LETTERHEAD]
July 1, 1986
Mr. Alan R. Ramer
Gateway Energy Corporation
P.O. Box 524
Englewood, CO 80151
Re: Gas Purchase Contract Dated December 1, 1985; MPC
No. 156 (Contract)
Dear Mr. Ramer:
The Montana Power Company (hereinafter referred to as "Buyer") and Gateway
Energy Corporation (hereinafter referred to as "Seller") entered into the above
mentioned contract which provides for the sale and purchase of natural gas from
lands located in the State of Montana.
Buyer has requested that Seller amend the Contract to move the delivery
point. Buyer has also requested that Seller construct the transmission line
necessary to facilitate this move of the delivery point. Seller has requested
that Buyer assign its rights in certain easements or rights of way that cross
the interstate highway in Toole County, Montana. The following proposed
amendments are intended to accommodate these requests.
RECITALS
1. Seller intends to sell certain quantities of natural gas produced from
lands located in the State of Montana to Buyer under the terms and
conditions of the Gas Purchase Contract dated December 1, 1985
(Contract).
2. Buyer intends to purchase certain quantities of this natural gas from
Seller under the terms and conditions of the Contract.
3. Buyer and Seller intend to modify the existing delivery provisions in
the Contract to allow Buyer's meter installation to be located in a
location that is accessible all year. Seller agrees to install the
transmission pipeline necessary to facilitate this change in the
delivery point. Seller further agrees that this section of
transmission pipeline will be constructed in accordance with Buyer's
transmission
<PAGE>
MPC No. 156 (Contract)
July 1, 1986
Page 2
system specifications. Buyer and Seller agree that once this section
of transmission pipeline is completed it will become the property of
the Buyer.
4. Buyer has agreed to assign to Seller its rights in certain easements
or rights of way that cross the interstate highway in Section 3 of
Township 32 North, Range 2 West in Toole County, Montana.
5. The Contract must be amended to accomplish this intent.
AGREEMENT
In consideration of the promises and covenants stated in this Letter
Agreement, Seller and Buyer agree to amend the Contract and to perform as
follows:
1. ARTICLE IV. DELIVERY
a. Delete Section 2 and replace it with the following:
SECTION 2 - DELIVERY POINT. Delivery of natural gas hereunder
shall be at a mutually agreeable single point on Buyer's
transmission line in the SE SE SE of Section 19, Township 33
North, Range 1 West, Toole County, Montana. This delivery point
is adjacent to the Bronken Road. Additional delivery points may
be used upon the written agreement of the parties hereto.
b. Add the following Section 5:
SECTION 5 - CONSTRUCTION OF ADDITIONAL TRANSMISSION LINE. Seller
agrees to construct an additional section of transmission line
between the original delivery point in the NE NE of Section 20,
T33N, R1W to the delivery point stated in Article IV, Section 2
hereof. Seller agrees that this line will be constructed to
Buyer's specifications and that Buyer has the right to inspect
said line. When completed, this section of transmission line will
become the property of the Buyer. Buyer agrees that Buyer will
be responsible for the operation and maintenance of this section
of transmission line after said line becomes the property of the
Buyer.
<PAGE>
MPC No. 156 (Contract)
July 1, 1986
Page 3
2. ARTICLE XIV. MISCELLANEOUS
Add the following Section 8:
SECTION 8 - ASSIGNMENT OF INTERSTATE HIGHWAY CROSSING. Buyer hereby
agrees to assign to Seller all of Buyer's rights in certain easements
or rights of way, hereinafter referred to as "Buyer's Easement," and
described as follows:
From St. Paul Oil Co. to Hope Engineering (Montana Power
successor in interest) crossing the N 1/2 NW 1/4 of Section 3,
Township 32 North, Range 2W, recorded Book 13, Page 141 records
of Toole County, Montana.
The assignment of easement is attached hereto.
These Contract amendments will become effective on July 1, 1986. Please
signify your acceptance in the space provided below and return the "Montana
Copy" to John Smith's attention.
THE MONTANA P0WER COMPANY
By /s/ David A. Johnson
--------------------------------
Vice President, Gas Operations
AGREED TO AND ACCEPTED:
Gateway Energy Corporation
By: /s/ Alan R. Ramer
------------------------
Title: President
------------------------
Date: 8/7/86
------------------------
<PAGE>
[LETTERHEAD]
November 19, 1987
CERTIFIED MAIL
Mr. Alan R. Ramer
Gateway Energy Corporation
P.O. Box 524
Englewood, CO 80151
W.C. #156
Dear Mr. Ramer:
Please refer to that certain Gas Purchase Contract dated December 1, 1985
as amended, (hereinafter referred to as the "Contract") between The Montana
Power Company (hereinafter referred to as "Buyer") and Gateway Energy
Corporation (hereinafter referred to as "Seller").
Buyer and Seller have agreed to amend the Price Section and the Schedule A
of the Contract as the result of a price renegotiation that is effective on
January 1, 1988.
AGREEMENT
In consideration of the representations and promises stated in this Letter
Agreement, Buyer and Seller agree to amend the Contract effective January 1,
1988 as follows:
1. ARTICLE V. PRICE
Delete Section 1 and replace it with the following:
SECTION 1:
The price to be paid by Buyer to Seller for gas delivered to Buyer at
the delivery points or for take-or-pay payments shall be two dollars
and ten cents ($2.10) per Mcf with no escalation. No adjustments to
this price will be made to provide for reimbursement of
production-related taxes or any other costs.
<PAGE>
Gateway Energy Corporation
GPC Dated December 1, 1985
2. SCHEDULE A.
Add the following lands to the Contract Schedule A.
TOWNSHIP 33 NORTH, RANGE 3 WEST
Sections 25 through 27
Sections 34 through 36
Toole County, Montana
TOWNSHIP 32 NORTH, RANGE 3 WEST
Sections 1 through 3
Sections lO through 15
Sections 22 through 27
Toole County, Montana
These Contract amendments will become effective January 1, 1988. Please
signify your acceptance by signing in the space provided below and return the
"Montana Copy" to John Smith.
THE MONTANA POWER COMPANY
/s/ David A. Johnson
---------------------------------
Vice President Gas Operations
AGREED TO AND ACCEPTED:
GATEWAY ENERGY CORPORATION
BY: /s/ Alan R. Ramer
-----------------------
TITLE: President
-----------------------
DATE: December 3, 1987
-----------------------
<PAGE>
[LETTERHEAD]
December 1, 1988
CERTIFIED MAIL
Mr. Alan R. Ramer
Gateway Energy Corporation
P. O. Box 524
Englewood, CO 80151
Re: W. C. #156
Dear Mr. Ramer:
Please refer to that certain Gas Purchase Contract dated December 1 1985 as
amended, (hereinafter referred to as the "Contract") between The Montana Power
Company (hereinafter referred to as "Buyer") and Gateway Energy Corporation
(hereinafter referred to as "Seller").
Buyer and Seller have agreed to amend the Schedule A of the Contract
effective on December 1, 1988.
AGREEMENT
In consideration of the representations and promises stated in this Letter
Agreement, Buyer and Seller agree to amend the Contract effective December 1,
1988 as follows:
SCHEDULE A.
Add the following lands to the Contract Schedule A.
TOWNSHIP 33 NORTH, RANGE 2 WEST
S.E. Qtr. of Section 1
This Contract amendment will become effective December 1, 1988. Please
signify your acceptance by signing in the space provided below and return the
"Montana Copy" to John Smith.
THE MONTANA POWER COMPANY
/s/ David A. Johnson
---------------------------------
Vice President, Natural Gas Utility
AGREED TO AND ACCEPTED:
GATEWAY ENERGY CORPORATION
BY: /s/ Alan R. Ramer
-----------------------
TITLE: President
-----------------------
DATE: December 14, 1988
-----------------------
<PAGE>
[LETTERHEAD]
July 30, 1992
Mr. Alan Ramer
Gateway Energy Corporation
5568 Willow Springs Drive
Morrison, CO 80465
Dear Mr. Ramer:
Please refer to that certain Gas Purchase Contract dated December 1, 1985 as
amended, (hereinafter referred to as the "Contract") between The Montana Power
Company Buyer and Gateway Energy Corporation (hereinafter referred to as
"Seller"), to which Great Falls Gas Company (hereinafter referred to as "Buyer")
has become the successor in the Buyer's interest.
Buyer and Seller have agreed to amend the Price Section of the Contract
effective on June 1,1992.
AGREEMENT
In consideration of the representations and promises stated in this Letter
Agreement, Buyer and Seller agree to amend the Contract effective June 1,1992 as
follows:
1. ARTICLE V. PRICE
Delete Section 1 and replace it with the following:
SECTION 1:
The price to be paid by Buyer to Seller for gas delivered to Buyer at
the delivery points or for take-or-pay payments shall be one dollar
and ninety cents ($1.90) per Mcf with no escalation. No adjustments
to this price will be made to provide for reimbursement of
production~related taxes or any other costs. Price renegotiation
shall be conducted as per Article V, Section 5 hereof.
2. SCHEDULE A.
Add the following lands to the Contract Schedule A.
<PAGE>
TOWNSHIP 32 NORTH, RANGE 2 WEST
Section 14: W/2
23: W/2, SE/4, S/2 NE/4
24: S/2, S/2 N/2
The addition of these lands to Schedule A can be used to maintain the current
(as of 1 /1/92) Annual Contract Quantity (ACQ) or the Daily Contract Quantity
(DCQ). The addition of these lands to Schedule A will not increase (prior to
1/1/94) the Annual Contract Quantity (ACQ) or the Daily Contract Quantity (DCQ)
from those levels present on 1/1/92.
This Contract amendment will become effective June 1, 1992. The effective date
(June 1, 1992) of this amendment in no way alters or affects other dates or
schedules contained in the Contract.
Please signify your acceptance by signing in the space provided below and return
both copies to Doug Mann.
GREAT FALLS GAS COMPANY
BY /s/ Larry D. Geske
-------------------
President and CEO
DATE: 8/6/92
-----------------
AGREED TO AND ACCEPTED:
GATEWAY ENERGY CORPORATION
BY: /s/ Alan R. Ramer
-------------------
TITLE: President
-----------------
DATE: July 31, 1992
-----------------
<PAGE>
ASSIGNMENT, CONVEYANCE AND BILL OF SALE
GATEWAY GATHERING FACILITY
THIS ASSIGNMENT, CONVEYANCE AND BILL OF SALE (this "Assignment"), dated
effective as of January 1, 1993 (the "Effective Time"), is from GATEWAY ENERGY
CORPORATION, a Colorado corporation ("Assignor"), and SHELBY GATHERING PARTNERS,
a Colorado General Partnership composed of Interenergy Corporation and Nielson &
Associates, Inc. ("Assignee").
FOR TEN DOLLARS ($10.00), and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged by the parties hereto,
Assignor hereby transfers, grants, bargains, sells, conveys and assigns to
Assignee all of Assignor's rights in the following interests (collectively, the
"Interests"):
1. The personal property, fixtures and improvements (the "Gas Gathering
Facilities") described in Exhibit "A" including, without limitation, all
processing, refining and treatment plants, compression and metering equipment,
pipelines and gathering systems, electrical equipment, buildings, machinery,
piping, tanks, fencing, valves, tools, and all other equipment, appurtenances,
appliances and property of every kind and character, moveable or immovable,
located on the Land (as defined hereinafter), appurtenant thereto, or used or
obtained in connection therewith.
<PAGE>
2. The gas agreements (the "Gas Agreements") described in Exhibit "B".
3. The pipeline easements, surface lease agreements, licenses and permits
(the "Pipeline Rights") described in Exhibit "C".
4. The operating licenses, permits and applications and agreements for
utilities and related services (the "Other Agreements") described in Exhibit
"D".
5. All rights, claims, titles, interests, estates and privileges granted
or conferred by the Surface Lease Agreements, Pipeline Easements, Operating
Licenses, Utility agreements, Gas Agreements or Gas Processing Facilities, or
the Land (as hereinafter defined), or appurtenant thereto, used or obtained in
connection therewith, or in any way relating thereto.
For purposes of this Assignment, the "Land" shall mean the lands covered by
the Surface Lease Agreements and Pipeline Easements described on Exhibit "C" to
this Assignment, including the recording information therefor. For a full and
complete description of the land, the legal description of the Land contained in
the Surface Lease Agreements and Pipeline Easements is hereby incorporated by
reference herein as if fully set forth in this Assignment.
TO HAVE AND TO HOLD the Interests unto Assignee, its successors and assigns
forever.
-2-
<PAGE>
Assignee hereby accepts this assignment, and agrees to assume the
obligations of Assignor with respect to the Interests.
Assignor also hereby grants and transfers to Assignee, its successors and
assigns, to the extent so transferable, the benefit of and the right to enforce
the covenants and warranties, if any, which Assignor is entitled to enforce with
respect to the Interests against Assignor's predecessors in title to the
Interests.
Assignor hereby warrants and agrees to defend title to the Interests
against all defects, burdens, liens and claims arising by, through and under
Assignor, but not otherwise.
This Assignment shall not constitute an assignment of any Gas Contract,
Utility Agreement, Operating License or other agreement which, by its terms or
as a matter of law, is not assignable without the consent of a third party,
unless and until such third party shall have consented to such assignment.
This Assignment may be executed in any number of counterparts, and each
counterpart hereof shall be deemed to be an original instrument, but all such
counterparts shall constitute but one Assignment. Assignor and Assignee have
each retained a counterpart of this Assignment with complete Exhibits attached.
-3-
<PAGE>
This Assignment shall be binding upon and inure to the benefit of Assignor
and Assignee, and their respective successors and assigns.
EXECUTED this 24th day of February, 1993, to be effective for all purposes
as of the Effective Date.
GATEWAY ENERGY CORPORATION
WITNESS: Assignor:
/s/ Ronald L. Groom By: /s/ Alan R. Ramer
- --------------------- ---------------------------
Name: Alan R. Ramer
-------------------------
Title: President
------------------------
SHELBY GATHERING PARTNERS
By: Interenergy Corporation, its
Managing General Partner
ATTEST: Assignee:
/s/ James P. Rode By: /s/ Patrick R. McDonald
- --------------------- -------------------------
Secretary
Name: Patrick R. McDonald
-------------------------
Title: President
------------------------
-4-
<PAGE>
STATE OF COLORADO )
CITY AND COUNTY OF DENVER )
Before me, the undersiqned, a Notary Public, in and for said County and
State on the 24th day of February, 1993, personally appeared Alan R. Ramer to me
known to be the identical person who subscribed the name of GATEWAY ENERGY
CORPORATION to the foregoing as its President, and acknowledged to me that he
executed the same as his free and voluntary act and deed and as the free and
voluntary act and deed of such corporation, for the uses and purposes therein
set forth.
Given under my hand and seal the day and year last above written.
/s/ Marie J. Reinhardt
------------------------------
Notary Public
My commission expires: 2/19/95
-------
(SEAL)
STATE OF COLORADO )
CITY AND COUNTY OF DENVER )
Before me, the undersiqned, a Notary Public, in and for said County and
State on the 24th day of February, 1993, personally appeared Patrick R. McDonald
to me known to be the identical person who subscribed the name of INTERENERGY
CORPORATION, as the Managing General Partner of Shelby Gathering Partners, to
the foregoing as its President, and acknowledged to me that he executed the same
as his free and voluntary act and deed and as the free and voluntary act and
deed of such corporation, as managing general partner, for the uses and purposes
therein set forth.
Given under my hand and seal the day and year last above written.
/s/ Marie J. Reinshardt
--------------------------------
Notaty Public
My commission expires: 2/19/95
---------
(SEAL)
gateway\assignmt.bos
revised 2/19/93
-5-
<PAGE>
EXHIBIT "A" TO
ASSIGNMENT, CONVEYANCE AND BILL OF SALE
THE GATEWAY PIPELINE FACILITY LOCATED IN
TWP 33N, RGES 1W AND 2W,
AND TWP 32N, RGES 1W AND 2W,
TOOLE COUNTY, MONTANA
Compressor facility
- building 32' x 24'
- 2 Barton recording meters
- scrubber 16" x 7'
- Superior W-63 compressor with White 6G825 gas 650 HP engine,
with 18 1/2 x 9 3/4 x 5 3/4 Cylinders
Refrigeration plant
Dehydration plant
- building 10' x 16'
Meterhouses - 30 houses with concrete floors, Barton meters, catalytic heaters,
methanol drips with tanks
Materials - miscellaneous tubing, fittings, valves and regulators
- polyethylene pipe: 2000' of 3", 3000' of 2"
Pipeline Right-of-Way Easements, 30 miles, see Exhibit "C"
Pipeline - 47,400' 2" polyethylene
- 54,100' 3" polyethylene
- 32,800' 4" polyethylene
- 11,900' 6" polyethylene
- 14,800' 3-1/2" steel
- 8,000' 3-1/2" prime steel (assigned to Montana Power)
Tanks - 3 pipeline drips
- pressurized condensate, 210 barrel
- water disposal, 25 barrel concrete tank
EQUIPMENT EXCLUDED FROM INVENTORY
Worthington Cub OF-5HU-3 Compressor package, including 14 1/2, 6 and 5 inch
cylinders, Air exchanger, Westinghouse electric motor, and separate circuit
breaker panel.
<PAGE>
EXHIBIT "B" TO
ASSIGNMENT, CONVEYANCE AND BILL OF SALE
DATED THE 24TH DAY OF FEBRUARY, 1993,
BY AND BETWEEN GATEWAY ENERGY CORPORATION, SELLER
AND SHELBY GATHERING PARTNERS, BUYER
1. Wellhead Gas Purchase Agreements
a. Agreement dated the 1st day of December, 1985, by and between Inland
Energy, Seller, and Gateway Energy Corporation, Buyer
(i) Amendment dated November 15, 1988
b. Agreement dated the 1st day of December, 1985, by and between Crescent
Oil & Gas Corporation, Seller, and Gateway Energy Corporation, Buyer
(i) Amendment dated June 6, 1987
(ii) Amendment dated November 15, 1988
(iii) Amendment dated February 10, 1989
c. Agreement dated the 1st day of December, 1985, by and between
Frederick Operating Co., Inc., Seller, and Gateway Energy Corporation,
Buyer
d. Agreement dated the lst day of September, 1987, by and between Branch
Oil & Gas, Seller, and Gateway Energy Corporation, Buyer
(i) Amendment dated October 2, 1987
(ii) Amendment dated March 1, 1990
e. Agreement dated the 1st day of November, 1987, by and between Cavalier
Petroleum, Inc., Seller, and Gateway Energy Corporation, Buyer
(i) Amendment dated November 6, 1987
(ii) Amendment dated November 18, 1987
(iii) Amendment dated September 1, 1988
f. Agreement dated the 1st day of January, 1988, by and between CDM Oil &
Gas, Seller, and Gateway Energy Corporation, Buyer
<PAGE>
g. Agreement dated the 1st day of November, 1988, by and between Keesun
Partners, a Wyoming partnership, Seller, and Gateway Energy
Corporation, Buyer
h. Agreement dated the 1st day of September, 1989, by and between
Trelexploration Limited, Seller, and Gateway Energy Corporation, Buyer
(i) Amendment dated February 19, 1990
(ii) Amendment dated August 18, 1992
i. Agreement dated the 1st day of October, 1989, by and between Keesun
Partners, a Wyoming partnership, Seller, and Gateway Energy
Corporation, Buyer
(i) Amendment dated July 30, 1991
(ii) Amendment dated July 21, 1992
2. Gas Sales Agreement
a. Agreement dated the 1st day of December, 1985, by and between Gateway
Energy Corporation, Seller, and Montana Power Company, Buyer
(i) Amendment dated July 1, 1986, between Montana Power Company,
Buyer, and Gateway Energy Corporation, Seller
(ii) Amendment dated November 19, 1987, made effective January 1,
1988, between Montana Power Company, Buyer, and Gateway
Energy Corporation, Seller
(iii) Amendment dated December 1, 1988, between Montana Power
Company, Buyer, and Gateway Energy Corporation, Seller
(iv) Assignment dated the 1st day of November, 1991, between
Montana Power Company, Assignor, and Great Falls Gas
Company, Assignee
(v) Amendment dated June 1, 1992, between Great Falls Gas
Company, Buyer, and Gateway Energy Corporation, Seller
<PAGE>
EXHIBIT "C" TO
ASSIGNMENT, CONVEYANCE AND BILL OF SALE
DATED THE 24TH DAY OF FEBRUARY, 1993,
BY AND BETWEEN GATEWAY ENERGY CORPORATION, SELLER
AND SHELBY GATHERING PARTNERS, BUYER
RIGHT-OF-WAY EASEMENTS
Toole Co. MT
Recording
Grantor Date Description Book & Page
- ------- ---- ----------- -----------
Leo H. & Wilma Flesch 2/27/91 133N-R2W:Sec. 27 86M/134
SESW, SWSE
Howard & James Welker 9/ 7/90 T32N-R2W:Sec. 2 86M/133
Lot 1
Julius & Tom Hasquet 9/ 7/90 T32N-R2W:Sec. 1 86M/132
Lots 1-4
Robert Wolfe, Trustee 9/10/90 T32N-RlW:Sec. 6 86M/131
Lot 4
Robert P. & Juanita 9/23/90 T33N-R2W:Sec. 32 86M/130
Hasquet E/2SE, 33 W/2SW
T32N-R2W:Sec. 4
Lot 4
John G. Nesbo 6/18/90 T33N-R2W:Sec. 26 84M/664
SESE
Edward O. & Harriet 11/18/88 T32N-RlW:Sec. 5 83M/960
Gagner SW
Howard & James Welker 11/10/88 T32N-RlW:Sec. 6 83M/961
S/2NE, SENW
T32N-R2W:Sec. 2
SENE
Robert Wolfe, Trustee 11/10/88 T32N-RlW:Sec. 6 83M/962
Lot 5
Julius T. Hasquet 11/10/88 T32N-R2W:Sec. 1 84M/11
S/2N/2
John G. Nesbo 12/14/89 T33N-R2W:Sec. 25 86M/137
SW, 26 SESE
Howard & James Welker 12/14/89 T33N-R2W:Sec. 35 86M/129
E/2E/2
<PAGE>
Edward O. & Harriet 10/20/89 T32N-RlW:Sec. 5 86M/128
Gagner NESW
Howard & James Welker 10/20/89 T32N-RlW:Sec. 5 86M/127
S/2NE, NWSE
Adolph Ansay & David 11/17/89 T32N-RlW:Sec. 4 86M/125,126
Gronik Lot 4, 5 Lot 1
T33N-RlW:Sec. 32
E/2SE
Evelyn Wolfe Kinyon 11/21/89 T33N-RlW:Sec. 32 86M/124
SWNE, W/2SE
Donald F. & Frances A. 11/28/88 T33N-R2W:Sec. 12 NE 83M/955
Fischer
Leo H. & Wilma Flesch 11/18/88 T33N-R2W:Sec. 12 83M/954
NWSE
Cook & Sons Farm 11/19/88 T33N-R2W:Sec. 1 83M/953
SESE
Robert Wolfe, Trustee 2/14/89 T32N-RlW:Sec. 6 84M/12
Lots 4, 5
Leo H. & Wilma Flesch 9/30/88 T33N-R2W:Sec. 34 83M/950
SENE
Howard & James Welker 10/ 4/88 T33N-R2W:Sec. 34 83M/951,952
E/2SE
Leo H. & Wilma Flesch 11/25/88 T33N-R2W:Sec. 13 83M/958
SWNE
Ethel M. Benjamin, 11/25/88 T33N-R2W:Sec. 13 83M/957
a widow; and Gary A. - S/2NW
Wolfe and Harry Lee
Wolfe
Flesch Farms, Inc. 11/25/88 T33N-R2W:Sec. 14 83M/956
SENE
Ethel Benjamin, 5/20/92 T33N-RlW:Sec. 18 86M/135
a widow; and Gary A. NW/4
Wolfe and Harry Lee
Wolfe
Allen J. Flesch 7/12/92 T33N-RlW:Sec. 7 86M/136
S/2SW/4
<PAGE>
Ethel M. Benjamin, 11/16/87 T33N-R2W:Sec. 24 NE 83M/230
a Widow; and Gary A.
Wolfe and Harry Lee
Wolfe
Leo & Wilma Flesch 10/29/87 T33N-R2W:Sec. 12 SE, 83M/228
13 NE, 23 NWNE
Robert P. & Juanita 10/29/87 T32N-R2W:Sec. 4 83M/229
Hasquet Lots 2-4, 5 Lot 1
Chas. G. Houdek, et al 9/15/87 T33N-R2W:Sec. 24 83M/226
NESE
John F. & Arlene Lager 10/29/87 T33N-R2W:Sec. 23 83M/227
NENE, 24 N/2NW
Chas. G. Houdek, et al 12/ 4/86 T33N-R2W:Sec. 24 82M/815
SE, 25 NE
John G. Nesbo 12/ 9/86 T33N-R2W:Sec. 25 SE 82M/816
Douglas Mintenko & 9/21/86 T32N-R2W:Sec. 4 82M/743
Arlene Avery Lot 1, NESE
Ethel Benjamin, 8/28/86 T33N-RlW:Sec. 30 82M/745
a widow; and Gary A. NE, W/2
Wolfe and Harry Lee
Wolfe
John F. & Arlene Lager 8/15/86 T32N-R2W:Sec. 3 82M/746
E/2SE
Robert P. & Juanita 9/02/86 T33N-R2W:Sec. 33 82M/748
Hasquet E/2SW, W/2SE
T32N-R2W:Sec. 4
W/2E/2, SENW,
9 N/2N/2
Margo Hasquet Trust 9/02/86 T32N-R2W: Sec. 2 82M/744
S/2, 3 Lot 4,
10 E/2NE,
11 E/2NE
Howard & James Welker 8/15/86 T33N-R2W:Sec. 34 82M/747
S/2, 35 S/2
T32N-R2W:Sec. 2
E/2NE
Howard & James Welker 5/31/85 T33N-R2W:Sec. 34 82M/709
NWSW
<PAGE>
Leo H. & Wilma Flesch 5/30/85 T33N-R2W:Sec. 27 82M/710
S/2, 34 NWSW,
E/2NW
State of Montana 9/10/87 T33N-R2W:Sec. 13 83M/231
NWSE, S/2SE
State of Montana 10/ 7/86 T33N-R2W:Sec. 36 82M/749
NENE, S/2NE,
NESW, S/2SW, NWSE
Montana Power Company 7/31/86 T32N-R2W:Sec. 3 NR
N/2NW
SURFACE LEASE - FOR PLANT
Howard & James Welker 9/19/88 T33N-R2W:Sec. 35 82M/643
1 acre in SESE
OFF CONVEYANCE OF RIGHT-OF-WAY EASEMENT
Gateway Energy Corp. 12/10/88 SE/4, SE/4, S19-T33N-R2W 82M/870
NE/4 and W/2 S20-T33N-R2W
<PAGE>
EXHIBIT "D" TO
ASSIGNMENT, CONVEYANCE AND BILL OF SALE
DATED THE 24TH DAY OF FEBRUARY, 1993,
BY AND BETWEEN GATEWAY ENERGY CORPORATION, SELLER
AND SHELBY GATHERING PARTNERS, BUYER
1. Agreement dated the ______ day of _________ , 19___, between Seller and
Keesun pertaining to special gathering fees for recovery of cost of
gathering installation, to be executed.
<PAGE>
[LETTERHEAD]
[LOGO]
March 8, 1993
Great Falls Gas Company
P. O. Box 2229
Great Falls, MT 59403-2229
Attention: Mr. Lynn Hardin
RE: Gateway Gathering System
Dear Mr. Hardin:
On February 24, 1993, Shelby Gathering Partners, a Colorado Partnership
composed of Interenergy Corporation, Managing Partner, and Nielson & Associates,
Inc., acquired the interest of Gateway Energy Corporation (being a 100%
interest) in and to the Gateway Gathering System.
The purchase was effective January 1, 1993 and the system will now be
operated under the name of Shelby Gathering Partners.
This letter shall constitute notice of assignment of any contract between
Gateway Energy Corporation and your company to Shelby Gathering Partners,
effective January 1, 1993.
Any questions concerning system operation should be addressed to: Mr. Bret
F. Ketcham, Facilities Superintendent, 210 South Seventh Street, Worland, WY
82401, telephone 307/347-2491, facsimile 307/347-2493. Any questions concerning
contract administration matters should be addressed to James P. Rode, Executive
Vice President and General Counsel, Interenergy Corporation, P. O. Box 1612,
Owensboro, KY 42302-1612. Should you have any questions or comments concerning
the above, please do not hesitate to contact us.
Sincerely,
INTERENERGY CORPORATION
By: /s/ James P. Rode
------------------------------
James P. Rode, Executive Vice
President and General Counsel
JPR:kde
<PAGE>
[LETTERHEAD]
[LOGO]
October 21, 1993
Mr. Lynn Hardin
ENERGY WEST, INC.
One River Park Tower
P. O. Box 2229
Great Falls, MT 59403-2229
RE: Delivered Gas Purchase Contract dated December 1, 1985 by and between
Gateway Energy Corporation, "Seller" and Montana Power Company, "Buyer", as
Amended by Letter Amendment dated July 30, 1992, Subsequently Assigned by
the Montana Power Company to Great Falls Gas Company Effective November 1,
1991, and Subsequently Assigned by Gateway Energy Corporation to Shelby
Gathering Partners, Effective January 1, 1993
Dear Mr. Hardin:
This letter, when signed by the appropriate representative of Energy
West, Inc. ("EWI"), formerly known as Great Falls Gas Company, shall constitute
a letter amendment to the above captioned agreement currently between Great
Falls Gas Company and Interenergy Corporation ("Interenergy") under the
following terms and conditions:
1. It is acknowledged by and between the parties hereto as of this
amendment that Seller is Shelby Gathering Partners, a Colorado general
partnership composed of Interenergy Corporation, Managing Partner, and Nielson &
Associates, Inc., and that Buyer is Energy West, Inc.;
2. Insert new Article II, "Quantity of Gas", Section 5, "Base Load":
"Notwithstanding anything to the contrary contained herein in this
Article II, and subject to the price renegotiation provisions set
forth in Article V, Section 5, effective January 1, 1994, it is agreed
by and between the parties hereto that the minimum DCQ shall be equal
to 1,500 MMBtu per day averaged per month. Seller may deliver to Buyer
the DCQ volumes aforesaid from any on-system mainline
<PAGE>
Mr. Lynn Hardin
October 21, 1993
Page 2
Montana Power delivery point, provided that Seller gives Buyer
reasonable notice in the event Seller desires to change the delivery
points herein. Nothing herein contained shall limit Buyer's ability to
make-up deficient take or pay purchase obligations as set forth in
Article V of the above captioned Delivered Gas Purchase Contract."
3. Delete in its entirety Section 1 of Article V, "Price", and insert
in its place the following:
"Section 1. AMOUNT. The price to be paid by the Buyer to the Seller
for gas delivered to Buyer at the delivery points or for take or pay
payments shall be:
a. $2.00 per MMBtu dry. This price will be redetermined at one year
intervals, with the first price renegotiation effective October 1,
1994. Price renegotiation shall be conducted as per Article V, Section
5 hereof. No adjustment will be made to this price for reimbursement
of production related taxes or any other NGPA Section 110 add-ons."
4. Delete in its entirety Section 5 of Article V, "Price", and insert
in its place the following:
"Section 5. RENEGOTIATION OF PRICE. Either party shall have the right
to demand renegotiation, pursuant to this Article V, between August 1
and September 30, inclusive, prior to the anniversary date of each
contract year. Failure to make the demand in writing within the time
allowed shall be deemed a waiver of the right to renegotiate. The
first price renegotiation hereunder will be effective October 1,
1994."
5. To the extent of any conflicts between the terms and conditions of
this letter amendment and the terms and conditions of the above captioned
Delivered Gas Purchase Contract and previous amendments thereto, the terms and
conditions of this letter amendment shall prevail.
<PAGE>
Mr. Lynn Hardin
October 21, 1993
Page 3
If you are in agreement with the foregoing, please signify your
acceptance by returning one fully executed original of this letter amendment to
us, retaining the other for your files.
Sincerely,
INTERENERGY CORPORATION
By: /s/ James P. Rode
------------------------------
James P. Rode, Executive Vice President
and General Counsel
ACCEPTED AND AGREED TO, this
28 day of OCTOBER, 1993
ENERGY WEST, INC.
By: Larry S. Geske
---------------
Its President; CEO
--------------
<PAGE>
GAS SALES CONTRACT
------------------
DATE: October 1, 1993
CONTRACT NUMBER: 2-93-10-066
SELLER: Interenergy Resources Corporation
BUYER: Energy West, Inc.
TRANSPORTER: Montana Power Company
EFFECTIVE DATE: October 1, 1993
CONTRACT TERM: October 1, 1993 - September 30, 1998 and year to
year thereafter, subject to annual price
renegotiation
DELIVERY POINT: Into Mainline facilities of Montana Power Company
at the following points:
MPC / Carway
Interenergy / Shelby system
Interenergy / Aloe system
WBI / Warren
CIG / Grizzley
NNG / Blaine County #3
UNITS OF MEASUREMENT: One million (1,000,000) Btu, (MMBtu) dry.
1 MMBtu = 1 Decatherm (Dkt)
PURCHASE AND SALE
OBLIGATION: Firm
MAXIMUM DAILY
QUANTITY (MDQ): Up to 3,000 MMBtu per day. Minimum Annual
Quantity of 2,000 MMBtu per day from November 1
through February 28 of each year.
PRICE PER MMBtu: The price per MMBtu (dry) shall be the first issue
published during the month of delivery of Canadian
Gas Price Reporter "Canadian Natural Gas Supply
Prices - Alberta Border Spot Interruptible Avg."
price, converted to U.S. dollars, plus $.15. The
U.S./Canadian exchange rate to be used to convert
to U.S. dollars shall be the exchange rate first
published by THE WALL STREET JOURNAL during the
month of delivery.
Either party hereto shall have the right to demand
price renegotiation between August 1 and September
30, inclusive, prior to the Anniversary Date of
each contract year. The first Anniversary Date
hereunder shall be October 1, 1994. In the event
that the parties hereto are unable to agree upon a
renegotiated price during the period so specified,
then upon 30 days notice following the Anniversary
Date of each year, either party may terminate this
agreement.
NOMINATIONS: Buyer and Buyer's agent shall contact Seller, as
needed, by telephone or facsimile, as to Buyer's
estimated daily natural gas requirements.
BILLING AND PAYMENT: Buyer shall pay Seller on or before two (2) days
prior to the end of the month following the month
of deliveries via wire transfer to Seller's
account.
SELLER -
NOTICES: Interenergy Resources Corporation
1700 Broadway - Suite 1150
Denver, CO 80290
TELEPHONE: 303/860-8949 FAX: 303/860-9128
PAYMENTS: WIRE TRANSFER INSTRUCTIONS
Norwest Bank Denver ABA # 102-00-0076
For credit to:
Interenergy Resources Corporation
Acct. #101-8169612
BUYER -
NOTICES AND
INVOICES: Great Falls Gas Company
P.O. Box 2229
Great Falls, MT 59403-2229
Attention: Mr. Lynn Hardin
TELEPHONE: 406/791-7504 FAX: 406/791-7560
OTHER PROVISIONS: To any given month hereunder, if Seller fails to
deliver to Buyer the MDQ as herein provided, or
Buyer fails to take the Minimum Annual Quantity as
herein provided, then the party so failing to
perform shall pay to the performing party $.25 per
MMBtu multiplied by the MMBtu's not delivered by
Seller or not taken by Buyer in that given month
(as the case may be) a liquidated damages for such
non-performance. In the event of conflict between
the provisions of this cover page and the
provisions of the General Terms and Conditions
attached hereto, the provisions of this cover page
shall prevail.
<PAGE>
THIS CONTRACT CONSISTS OF TWO SUMMARY PAGES AND THE ATTACHED GENERAL TERMS AND
CONDITIONS.
ACCEPTED
Buyer: Seller:
Energy West, Inc. Interenergy Resources Corporation
/s/ James P. Rode
- ------------------------------ ----------------------------------------
By: /s/ Larry D. Geske By: James P. Rode
-------------------------
Its: President & CEO Its: Executive Vice President
-------------------------
Date: 10/28/93 Date: 10/20/93
------------------------- -----------------------------------
Federal Tax I.D. No.
38-2495425
<PAGE>
GAS SALES CONTRACT
GENERAL TERMS AND CONDITIONS
1. TRANSPORTATION: Seller shall arrange and pay for transportation to the
Delivery Point(s) and Buyer shall arrange and pay for transportation
subsequent to the Delivery Point(s). Buyer's obligation to purchase and
take delivery of Seller's gas, and Seller's obligation to sell and deliver
gas to buyer, is on a firm basis.
2. QUANTITIES: If Buyer desires to purchase and receive gas in excess of the
Maximum Daily Quantities ("MDQ") listed in the Contract Summary section,
then Buyer shall notify Seller of the amount of additional gas required and
Seller will, on a best efforts basis, secure the gas and transportation
capacity to meet Buyer's requirements. Buyer and Seller must mutually
agree to the pricing of such incremental gas and this Contract shall be
amended to reflect any price changes and to increase the MDQ.
3. QUALITY: All deliveries made under this Contract are subject to
Transporter(s) pipeline specifications and therefore, cannot be regulated,
changed or altered in any way, shape or form. Any gas delivered by Seller
of a quality which is acceptable for transmission by transporter(s) shall
be conclusively deemed to be gas that is acceptable to Buyer.
4. METERS AND COMPUTATION OF VOLUMES SOLD: The unit of measurement of gas
delivered to Buyer at the Delivery Point shall be specified in the Contract
summary section. The parties agree that the volumes of gas sold to Buyer
shall be the volume of gas which Transporter(s) reports to Seller or buyer
for Transporter(s) meters installed, maintained and operated by
Transporter(s) at the Delivery Point and the parties shall accept the
reports of such volumes for all purposes. Seller and Buyer agree that
either party may request special meter tests, install check meters and
exercise such other rights as allowed under Transporter(s) tariff or
transportation service agreement with Seller.
5. BILLING AND PAYMENTS: Transporter(s) shall furnish Seller with monthly
statements detailing the volume of gas delivered to Buyer at the Delivery
Point(s). Seller shall prepare a statement showing the amount of payment
due from buyer directly to Seller, for said gas, based upon the price and
one-half (1.5%) per month shall accrue on payments not received by the due
date. If any payment has not been received by Seller within thirty (30)
days after the date of the statement, the Seller at its option, in addition
to all of the other remedies it may have, may at any time cease delivery of
gas to Buyer without breach of this Contract until such payment, together
with accrued interest, has been paid in full. Seller shall be entitled to
reasonable attorney's fees incurred by it in collecting all late payments.
6. FINANCIAL RESPONSIBILITY:
(a) It is agreed that if Seller, acting in good faith, shall have any
reason to doubt Buyer's financial responsibility, Seller may decline to
make delivery under this Agreement except for cash payable on delivery or
Letter of Credit acceptable in form and content to Seller. Seller shall so
advise Buyer in writing, whereupon buyer shall have the right to satisfy
Seller as to Buyer's financial responsibility by providing Letter of Credit
or other satisfactory assurance to Seller. If Seller is satisfied,
delivery may be resumed hereunder pursuant to the terms provided. Seller
may exercise its right under this paragraph at any time and from time to
time during the continuation of this Agreement.
(b) Buyer hereby grants Seller a security interest in and to (1) the
accounts receivable generated by Buyer's resale of the gas; and (2) any
proceeds received by Buyer in payment for Buyer's resale of the gas.
(c) Buyer hereby assigns to Seller all accounts receivable which are
generated from Buyer's resale of the gas to the extent required to pay
Seller the purchase price of the gas sold.
7. WARRANTIES: Seller warrants the title to the gas delivered pursuant to the
terms of this Contract and warrants that it has the right and lawful
authority to sell the same. Seller further warrants that it will indemnify
Buyer and save it harmless from suits, actions, debts, accounts, damages,
costs, losses and expenses arising from or out of adverse claims of any and
all persons to said gas or to royalties, production taxes, license fees or
charges thereon.
8. TITLE: Title to gas and risk of loss hereunder shall pass from Seller to
Buyer at the Delivery Point(s) and Buyer shall be responsible for the gas
after delivery at said point(s). Buyer shall have no responsibility to pay
for any gas hereunder until it is actually received at the Delivery
Point(s) unless otherwise agreed.
9. LIABILITIES: Seller and Buyer each assume full responsibility for the
operation and maintenance of their respective equipment and facilities and
each party shall indemnify and hold harmless the other party, its officers,
employees and agents from and against any and all claims, suits, causes of
action, damages, liability, costs and expenses, including attorney's fees,
incurred as a result of or related to the operation and maintenance of such
equipment and facilities by the responsible party.
10. DEFAULT: If either party fails to perform under the Contract except a
otherwise provided for in the contract, the other party may at its option
terminate this Contract. To terminate, the other party shall send written
notification stating specific reasons for termination. The party in
default shall have thirty-five (35) days to respond and notify the other
party of the remedies which will be made to remedy or remove the causes for
default. If the party in default does not remedy or indemnify the party
giving the notice within thirty (30) days, this contract shall become null
and void after the thirty (30) days. Any cancellation will also require
Seller to deliver to Buyer any gas for which it paid but did not receive.
A waiver by either party of a default in the performance of nay provision
of this Contract shall not operate or be construed as a waiver of any
future default, whether of a like or different kind.
11. FORCE MAJEURE: Neither party is liable to the other for any failure to
perform any provision or obligation to this Contract (except Buyer's
obligation to pay for gas previously delivered) if such failure is caused
or results directly or indirectly from any act of God; Federal, State or
Local legislation or regulation; fires, floods, storms or other natural
occurrences; strikes, was or accidents; the unwillingness of any pipeline
to accept gas for delivery or any other cause beyond the control of the
party failing to perform including, but not limited to, partial, or total
failure of gas supply.
12. APPLICABLE LAW AND REGULATIONS: This Contract shall be construed under the
laws of the State of Montana. In the event any provision of this Contract
is declared to be unlawful by a court of competent jurisdiction, the
remainder of this Contract shall remain in full force and effect. This
Contract is also subject to al governmental laws, orders, directives, rules
and regulations.
<PAGE>
13. ASSIGNMENT: The rights or obligations of the parties under this Contract
may not be assigned without the written permission of the other party,
which permission shall not be unreasonably withheld. This Contract shall
bind and inure to the benefit of the parties hereto, and their respective
successors and assigns.
14. NOTICE: Any notice required herein shall be deemed to have been properly
served upon receipt if telecopied, delivered personally or sent by regular
or certified mail to the addresses stated o the face hereof.
15. TAXES: Buyer is responsible for paying any taxes, fees, tariffs and/or
charges imposed upon the sale of gas under this Contract, regardless of
which party hereto may be required to collect and pay such by law or
tariff. If Buyer is exempt from the obligation to pay certain taxes, then
Buyer shall provide Seller with documentation establishing that exemption.
16. INSPECTION OF BOOKS AND RECORDS: Each party hereto shall have, at his
expense, the right during normal business hours to examine the books and
records of the other party to the extent necessary to verify the accuracy
of any statement, charge, computation, or demand made upon or pursuant to
any of the provisions of this Contract. Any statement shall be final as to
both parties unless questioned within ninety (90) days from the date of
discovery of any error and in any event within two(2) years from the date
of the delivery of such statement. As to information furnished by
Transporters, any statement shall be final as of the date set forth in
Transporter tariffs. Statements shall be subject to adjustment based upon
adjustments made by Transporters. All books or accounts and records of
either party relating to this Contract, deliveries of gas hereunder and the
amount hereunder, or microfilm or microfiche copies thereof, shall be
preserved for a period of at least three (3) years.
17. ENTIRE AGREEMENT: This Contract supersedes, amends and modifies any prior
agreements, representations, warranties or contracts between the parties
for the purchase and sale of gas and contains all of the agreements of the
parties. Any and all prior representations, agreements, warranties or
contract shall conclusively be deemed to have been merged herein. This
Contract shall not be modified or amended except by a written instrument
specifically referencing this Contract which has been executed by the
parties hereto.
18. CONFIDENTIALITY: The terms of this agreement, including but not limited
to, the price paid for gas, term, volumes and all other material terms of
this Contract shall be kept confidential by the parties hereto, except to
the extent that the information which must be disclosed to a third party
for the purpose of effectuating transportation of the gas or which must be
disclosed to regulatory bodies.
<PAGE>
INTERENERGY CORPORATION
[LOGO]
P.O. Box 1612
Owensboro, KY 42302-1612
Tel. (502) 926-4185
Fax (502) 683-7786
October 18, 1994
ENERGY WEST, INC.
P. O. Box 2229
Great Falls, MT 59403-2229
Attention: Mr. Lynn Hardin
RE: Gas Sales Contract #2-93-10-066 dated October 1, 1993 by and between
Interenergy Resources Corp. "Seller" and Energy West, Inc. "Buyer"
Dear Mr. Hardin:
This letter, when signed by the appropriate representative of
Energy West, Inc. ("Buyer"), shall constitute a letter amendment to the
above referenced Gas Sales Contract between Interenergy Resources Corp.
("Seller") and Buyer, under the following terms and conditions:
1. Delete existing paragraph entitled "MDQ" and insert in its
place the following:
"Up to 3,000 MMBtu per day. From October 1, 1994
through September 30, 1995 there is no minimum
daily quantity. If Montana Power Company
designates a "System Stress Day", Buyer has the
right to call on 100% of Seller's daily gas
delivery available from the Aloe system during the
period of November 1, 1994 through February 28,
1995 only."
2. Delete existing paragraph entitled "Price per MMBtu" and
insert in its place the following:
"Deliveries from the Aloe system shall be priced
in U.S. Dollars per MMBtu on a daily basis at the
AECO C & N.I.T. Spot Price, Average, as reported
in the Canadian Gas Price Reporter, Natural Gas
Market Report plus twelve (12) cents. For any
other deliveries, the price will be negotiated at
the time of sale."
<PAGE>
ENERGY WEST, INC.
October 18, 1994
Page 2
3. Delete existing paragraph entitled "Other Provisions" and
insert in its place the following:
"If Buyer needs incremental supply on a monthly or
daily basis, Buyer agrees to contact Seller to
request a quote on providing such incremental
supply."
4. In the event of a conflict between the terms and conditions
of this letter amendment and the terms and conditions of the above
referenced Gas Sales Contract, the terms and conditions of this letter
amendment shall prevail. To the extent that the above captioned Gas Sales
Contract has not been amended by this letter amendment, same shall be
ratified in all particulars.
If the foregoing is acceptable, please return one fully executed
original of this letter amendment, retaining the other for your records.
Interenergy appreciates the opportunity of being of service to Energy West,
Inc. Should you have any questions or comments, please do not hesitate to
contact me.
Very truly yours,
INTERENERGY RESOURCES CORP.
By: /s/ James P. Rode
-----------------------------------
James P. Rode
Executive Vice President
ACCEPTED AND AGREED TO, this
_____ day of _______________, 1994.
ENERGY WEST, INC.
By: /s/ Larry D. Geske
-----------------------------------
Its: President & CEO
------------------------------
<PAGE>
INTERENERGY CORPORATION
[LOGO]
P.O. Box 1612
Owensboro, KY 42302-1612
Tel. (502) 926-4185
Fax (502) 683-7786
January 30, 1995
Mr. Lynn Hardin
ENERGY WEST, INC.
One River Park Tower
P. O. Box 2229
Great Falls, MT 59403-2229
RE: Delivered Gas Purchase Contract dated December 1, 1985 by and between
Gateway Energy Corporation, "Seller" and Montana Power Company,
"Buyer", Subsequently Assigned to Shelby Gathering Partners, "Seller"
and Great Falls Gas Company, Successor in Title to Energy West, Inc.
"Buyer"
Dear Mr. Hardin:
This letter, when signed by the appropriate representative of
Energy West, Inc. ("EWI"), formerly known as Great Falls Gas Company, shall
constitute a letter amendment to the above captioned Contract currently EWI
and Shelby Gathering Partners under the following terms and conditions:
1. It is acknowledged by and between the parties hereto as of
this amendment that Seller is Shelby Gathering Partners, a Colorado general
partnership composed of Interenergy Corporation, Managing Partner, and
Nielson & Associates, Inc., and that Buyer is Energy West, Inc.
2. To the extent that the above captioned Delivered Gas
Purchase Contract dated December 1, 1985 is not amended by this Letter
Amendment, same is ratified in full in all particulars. Any conflict
between the terms of the aforedescribed Delivered Gas Purchase Contract
and subsequent amendments (with the exception of this Amendment), the terms
and conditions of the aforedescribed Delivered Gas Purchase Contract shall
prevail. In the event of any conflict between the terms of the Delivered
Gas Purchase Contract and this Letter Amendment, the terms and conditions
of this Letter Amendment shall prevail.
3. EFFECTIVE DATE. This amendment shall be effective from
October 1, 1994.
<PAGE>
Mr. Lynn Hardin
January 30, 1995
Page 2
4. QUANTITY OF GAS. Effective October 1, 1994, the Daily
Contract Quantity ("DCQ") shall equal 839 MMBtu, resulting in an Annual
Contract Quantity ("ACQ") of 306,293 MMBtu. Upon thirty (30) days notice to
Buyer, Seller shall have the right to request a new production test for
purposes of establishing a new DCQ, which may result in a revised ACQ per
the above captioned Delivered Gas Purchase Contract.
5. RELEASE FOR VOLUMES NOT TAKEN. Within five (5) days prior to
the beginning of the month, Buyer shall provide written notice to Seller if
Buyer anticipates not taking gas during the upcoming month. Buyer agrees to
allow Seller to sell gas to third parties during periods where Buyer is not
taking gas. Buyer accordingly releases Seller on a temporary basis to
accomplish these sales.
6. PRICE PER MMBtu. $1.85 per MMBtu.
7. DELIVERY POINT. At the interconnection between Seller's
facilities and the Montana Power Company's transmission line in Toole
County, Montana, or other mutually agreeable delivery points.
8. RENEGOTIATION OF PRICE. Either party shall have the right to
demand renegotiation pursuant to Article V of the above captioned Delivered
Gas Purchase Contract between August 1 and September 30, inclusive, prior
to the anniversary date of each contract year. Failure to make the demand
in writing within the time allowed shall be deemed a waiver of the right to
renegotiate. The first price renegotiation hereunder will be effective
October 1, 1995.
9. Pursuant to a Letter Amendment dated October 21, 1993 and
effective January 1, 1994, to the above captioned Delivered Gas Purchase
Contract, the DCQ was amended to 1,500 MMBtu per day. Through September 30,
1994, Buyer accumulated a purchase deficiency of take or pay purchases of
approximately 60,000 MMBtu. As further consideration of the price to be
paid by Buyer to Seller for the term herein set forth, Seller does
<PAGE>
Mr. Lynn Hardin
January 30, 1995
Page 3
hereby forever waive the purchase deficiency accumulated under said Letter
Amendment dated October 21, 1993.
Sincerely,
INTERENERGY CORPORATION
By: /s/ James P. Rode
-----------------------------------
James P. Rode, Executive Vice
President and General Counsel
ACCEPTED AND AGREED TO, this
____ day of _________________, 1995
ENERGY WEST, INC.
By: /s/ Larry D. Geske
------------------------------
Its
------------------------------
<PAGE>
INTERENERGY CORPORATION
[LOGO]
P.O. Box 1612
Owensboro, KY 42302-1612
Tel. (502) 926-4185
Fax (502) 683-7786
August 30, 1995
ENERGY WEST, INC.
P. O. Box 2229
Great Falls, MT 59403-2229
Attention: Mr. Lynn Hardin
RE: Letter Amendment to that certain Natural Gas Supply Contract by and
between Cody Gas Company, as Buyer, and Interenergy Resources
Corporation, as Seller, dated May 1, 1995
Gentlemen:
Please accept this letter (Letter Amendment) as amending the
above-named agreement. Specifically, the parties agree to amend said
agreement as follows:
1. For the period April 1, 1996 through October 31, 1996, Seller
agrees to sell and deliver and Buyer agrees to purchase and
receive five hundred thousand (500,000) MMBtu, ratably over said
seven (7) month period.
2. In consideration therefor, Buyer agrees to prepay Seller an
amount equal to $695,000.00, which, on an MMBtu basis, shall be
comprised of $1.00 gas commodity charge, and $.39 charge for
transportation, storage and fuel. Said payment shall be made in
three equal installments which shall be due on or before August
31, 1995, September 30, 1995 and October 31, 1995.
3. In the event Buyer does not receive from Seller, for reasons
other than force majeure that are within the control of Buyer, at
least 71,400 MMBtu during any month during the above mentioned
seven month period, the parties shall meet in an effort to
negotiate a revised repayment schedule. Notwithstanding the
foregoing, Seller is obligated hereunder to supply 71,400 MMBTU
per month each month of the seven month period.
All other provisions set out in the May 1, 1995 Agreement not in
conflict with this Letter Agreement shall remain in full force and effect.
<PAGE>
ENERGY WEST, INC.
August 30, 1995
Page 2
If the above reflects accurately your understanding of the transaction
contemplated, please so indicate by executing in the space provided below
and return one copy of this Letter Agreement to the undersigned.
Very truly yours,
INTERENERGY RESOURCES CORPORATION
By: /s/ James P. Rode
-----------------------------------
James P. Rode
Executive Vice President
AGREED AND ACCEPTED, this
____ day of August, 1995.
ENERGY WEST, INC.
By: /s/ Larry D. Geske
------------------------------
Title: President
----------------------------
<PAGE>
INTERENERGY CORPORATION
[LOGO]
P.O. Box 1612
Owensboro, KY 42302-1612
Tel. (502) 926-4185
Fax (502) 683-7786
October 3, 1995
Mr. Lynn Hardin
ENERGY WEST, INC.
One River Park Tower
P. O. Box 2229
Great Falls, MT 59403-2229
RE: Delivered Gas Purchase Contract dated December 1, 1985 by and between
Gateway Energy Corporation, "Seller" and Montana Power Company,
"Buyer", Subsequently Assigned to Shelby Gathering Partners, "Seller"
and Great Falls Gas Company, Successor in Title to Energy West, Inc.
"Buyer"
Dear Lynn:
This will confirm our understanding that the above captioned
agreement shall remain in full force and effect on a month to month basis
until either Energy West or Shelby Gathering Partners notifies the other of
its desire to negotiate a long-term price or to arbitrate per the terms of
the Agreement. The price for the month of October for gas delivered from
Shelby Gathering Partners' Shelby System in Toole County, Montana, shall be
$1.30 per MMBtu. If you are in agreement, please return one fully executed
version of this letter agreement to me, retaining the other for your files.
Sincerely,
INTERENERGY CORPORATION
By: /s/ James P. Rode
-----------------------------------
James P. Rode, Executive Vice
President and General Counsel
ACCEPTED AND AGREED TO, this
____ day of__________________, 1995.
ENERGY WEST, INC.
By: /s/ Larry D. Geske
------------------------------
It: President & CEO
-------------------------
<PAGE>
INTERENERGY CORPORATION
[LOGO]
P.O. Box 1612
Owensboro, KY 42302-1612
Tel. (502) 926-4185
Fax (502) 683-7786
October 31, 1995
Mr. Lynn Hardin
ENERGY WEST, INC.
One River Park Tower
P. O. Box 2229
Great Falls, MT 59403-2229
RE: Delivered Gas Purchase Contract dated December 1, 1985 by and between
Gateway Energy Corporation, "Seller" and Montana Power Company,
"Buyer", Subsequently Assigned to Shelby Gathering Partners, "Seller"
and Great Falls Gas Company, Successor in Title to Energy West, Inc.
"Buyer"
Dear Lynn:
This will confirm our understanding that the above captioned
agreement shall remain in full force and effect on a month to month basis
until either Energy West or Shelby Gathering Partners notifies the other of
its desire to negotiate a long-term price or to arbitrate per the terms of
the Agreement. The price for the month of November for gas delivered from
Shelby Gathering Partners' Shelby System in Toole County, Montana, shall be
$1.60 per MMBtu. If you are in agreement, please return one fully executed
version of this letter agreement to me, retaining the other for your files.
Sincerely,
INTERENERGY CORPORATION
By: /s/ James P. Rode
-----------------------------------
James P. Rode, Executive Vice
President and General Counsel
ACCEPTED AND AGREED TO, this
____ day of _________________, 1995.
ENERGY WEST, INC.
By: /s/ Larry D. Geske
------------------------------
Its: President & CEO
-------------------------
<PAGE>
INTERENERGY CORPORATION
[LOGO]
P.O. Box 1612
Owensboro, KY 42302-1612
Tel. (502) 926-4185
Fax (502) 683-7786
December 21, 1995
Mr. Lynn Hardin
ENERGY WEST, INC.
One River Park Tower
P. O. Box 2229
Great Falls, MT 59403-2229
RE: Delivered Gas Purchase Contract dated December 1, 1985 by and between
Gateway Energy Corporation, "Seller" and Montana Power Company,
"Buyer", Subsequently Assigned to Shelby Gathering Partners, "Seller"
and Great Falls Gas Company, Successor in Title to Energy West, Inc.
"Buyer"
Dear Lynn:
This will confirm our understanding that the above captioned
agreement shall remain in full force and effect on a month to month basis
until either Energy West or Shelby Gathering Partners notifies the other of
its desire to negotiate a long-term price or to arbitrate per the terms of
the Agreement. The price for the period of January 1, 1996 through March
31, 1996 for gas delivered from Shelby Gathering Partners' Shelby System in
Toole County, Montana, shall be $1.80 per MMBtu. If you are in agreement,
please return one fully executed version of this letter agreement to me,
retaining the other for your files.
Sincerely,
INTERENERGY CORPORATION
By: /s/ James P. Rode
-----------------------------------
James P. Rode, Executive Vice
President and General Counsel
ACCEPTED AND AGREED TO, this
____ day of _________________, 1995.
ENERGY WEST, INC.
By: /s/ Larry D. Geske
------------------------------
Its: President & CEO
-------------------------
<PAGE>
INTERENERGY CORPORATION
Post Office Box 1612
Owensboro, Kentucky 42302-1612
[LOGO]
502 926-4185
502 683-7786 Fax
April 25, 1996
Mr. Lynn Hardin
ENERGY WEST, INC.
One River Park Tower
P. O. Box 2229
Great Falls, MT 59403-2229
RE: Delivered Gas Purchase Contract dated December 1, 1985 by and between
Gateway Energy Corporation, "Seller" and Montana Power Company, "Buyer",
Subsequently Assigned to Shelby Gathering Partners, "Seller" and Great
Falls Gas Company, Successor in Title to Energy West, Inc. "Buyer"
Dear Lynn:
This will confirm our understanding that the price to be paid pursuant
to the above captioned agreement for the period of May 1, 1996 through September
30, 1996 for gas delivered from Shelby Gathering Partners' Shelby System in
Toole County, Montana, shall be $1.60 per MMBtu. Energy West agrees to take the
balance of the ACQ during this period. If you are in agreement, please return
one fully executed version of this letter agreement to me, retaining the other
for your files.
Sincerely,
INTERENERGY CORPORATION
By: /s/ James P. Rode, (KDE)
-----------------------------------
James P. Rode, Executive Vice
President and General Counsel
ACCEPTED AND AGREED TO, this
2 day of May, 1996.
ENERGY WEST, INC.
By: /s/ Larry D. Geske
-----------------------------------
Its President & CEO
------------------------------
<PAGE>
INTERENERGY CORPORATION
Post Office Box 1612
Owensboro, Kentucky 42302-1612
[LOGO]
502 926-4185
502 683-7786 Fax
January 29, 1997
Mr. Lynn Hardin
ENERGY WEST, INC.
One River Park Tower
P. O. Box 2229
Great Falls, MT 59403-2229
RE: Delivered Gas Purchase Contract dated December 1, 1985 by and between
Gateway Energy Corporation, "Seller" and Montana Power Company, "Buyer",
Subsequently Assigned to Shelby Gathering Partners, "Seller" and Great
Falls Gas Company, Successor in Title to Energy West, Inc. "Buyer"
Dear Lynn:
This will confirm our understanding that the price to be paid pursuant
to the above captioned agreement for the period beginning January 1, 1997
through December 31, 1997 for gas delivered from Shelby Gathering Partners'
Shelby System in Toole County, Montana, shall be $1.75 per MMBtu. Buyer shall
purchase 100% of Seller's deliverability from January 1, 1997 through May 31,
1997 and from October 1, 1997 through December 31, 1997 in satisfaction of the
ACQ for the year. To the extent of any inconsistencies between the above
captioned Contract and this letter agreement, the terms and conditions of this
letter agreement shall prevail. If you are in agreement, please return one fully
executed version of this letter agreement to me, retaining the other for your
files.
Sincerely,
INTERENERGY CORPORATION
By: /s/ James P. Rode
-----------------------------------
James P. Rode, Executive Vice
President and General Counsel
ACCEPTED AND AGREED TO, this
____ day of ________________, 1997.
ENERGY WEST, INC.
By: /s/ Larry D. Geske
-----------------------------------
Its President & CEO
------------------------------
<PAGE>
INTERENERGY CORPORATION
1700 Broadway, Suite 1150
Denver, Colorado 80290-1101
[LOGO]
303 860-8949
303 860-9128 Fax
April 11, 1997
ENERGY WEST, INC.
a/k/a Great Falls Gas Company
One River Park Tower
P. O. Box 2229
Great Falls, MT 59403-2229
Attention: Mr. Lynn Hardin
RE: Shelby Gathering Partners
Dear Lynn:
Effective March 1, 1997, Shelby Gathering Partners sold the Shelby
Natural Gas Gathering System and associated assets to T&O, LLC. The following is
a list of names and addresses of various contact people in the T&O organization
with which you will be dealing in the future:
T&O, LLC
4455 E. Camelback, Suite E-160
Phoenix, AZ 85018
602/912-9006
602/9124840 (FAX)
Attn: Charles Taylor, President
Pursuant to that certain Delivered Gas Purchase Contract dated
December 1,1985 by and between Gateway Energy Corporation, "Seller", and the
Montana Power Company, "Buyer", subsequently assigned to Great Falls Gas Company
as Buyer and Shelby Gathering Partners as Seller, specifically Article XIV,
Section 2 - "Assignment", enclosed herewith please find an original or certified
copy of the conveyance document transferring the assets of Shelby Gathering
Partners to T&O, LLC.
Should you have any questions regarding this acquisition and future
operations, please contact T&O, LLC.
Very truly yours,
SHELBY GATHERING PARTNERS,
by Interenergy Corporation,
Managing Partner
By: /s/ Joseph L. Schmid
-----------------------------------
Its Vice President
-----------------------------------
<PAGE>
EXHIBIT "A" TO THAT CERTAIN ASSET PURCHASE AGREEMENT
BY AND BETWEEN SHELBY GATHERING PARTNERS,
A COLORADO GENERAL PARTNERSHIP, INTERENERGY CORPORATION,
MANAGING PARTNER, "SELLER", AND
T&O, LLC, "BUYER"
I. GAS SALES AGREEMENT
1. Agreement dated December 1, 1985 by and between Gateway Energy
Corporation, "Seller" and Montana Power Company, "Buyer", subsequently
assigned to Shelby Gathering Partners, "Seller" and Great Falls Gas
Company, Successor in Title to Energy West, Inc. "Buyer", and as most
recently amended by Amendment dated January 29, 1997.
II. WELLHEAD GAS PURCHASE AGREEMENTS
1. Agreement dated December 1, 1985 by and between Inland Energy,
"Seller", and Gateway Energy Corporation, "Buyer"
2. Agreement dated December 1, 1985 by and between Crescent Oil & Gas
Corporation, "Seller", and Gateway Energy Corporation, "Buyer"
3. Agreement dated December 1, 1985 by and between Frederick Operating
Co., Inc., "Seller", and Gateway Energy Corporation, "Buyer"
4. Agreement dated September 1, 1987 by and between Branch Oil & Gas,
"Seller", and Gateway Energy Corporation, "Buyer"
5. Agreement dated November 1, 1987 by and between Cavalier Petroleum,
Inc., "Seller", and Gateway Energy Corporation, "Buyer"
6. Agreement dated January 1, 1988 by and between CDM Oil & Gas,
"Seller", and Gateway Energy Corporation, "Buyer"
7. Agreement dated November 1, 1988 by and between Keesun Partners, a
Wyoming partnership, "Seller", and Gateway Energy Corporation, "Buyer"
8. Agreement dated September 1, 1989 by and between Trelexploration
Limited, "Seller", and Gateway Energy Corporation, "Buyer"
9. Agreement dated October 1, 1989 by and between Keesun Partners, a
Wyoming partnership, "Seller", and Gateway Energy Corporation, "Buyer"
- 13 -
<PAGE>
III. FACILITY DATA - SHELBY GATHERING SYSTEM
PLANT EQUIPMENT:
Dew Point Control Unit
Glycol Dehydration Unit
COMPRESSORS:
<TABLE>
<CAPTION>
Unit# Location Compressor Engine BHP Cylinders
- ----- -------- ---------- ------ --- ---------
<S> <C> <C> <C> <C> <C>
1 Sales Superior W-64 Superior 6G-825 650 (1)5.75x6(1)9.75x6
2 Gathering Gardner RLC Ford 300 50 (1)18.50x6
---
Total: 700
</TABLE>
PIPELINE EQUIPMENT:
Type Size Miles
- ---- ---- -----
Gathering
Steel 3" 3
Poly 6" 2
Poly 4" 8
Poly 3" 13
Poly 2" 8
--
Total 34
THROUGHPUT CAPACITY: 2,000 Mcf per day (Sales Compression
Limitation)
CATHODIC: Yes
SALES GAS DELIVERY PIPELINE: Montana Power Company
DELIVERY INTERCONNECT LOCATION: SEC19-T33N-R1W
- 14 -
<PAGE>
METER STATIONS:
Master: 2
Gathering: 38
Fuel 1
--
Total: 41
DEHYDRATORS: 1
PIG LAUNCHERS/RECEIVERS: 0
VEHICLES: 0
NUMBER OF WELLS: 38
- 15 -
<PAGE>
EXHIBIT B
GENERAL CONVEYANCE
KNOW ALL MEN BY THESE PRESENTS:
THAT, the undersigned, SHELBY GATHERING PARTNERS, a Colorado general
partnership, Interenergy Corporation, Managing Partner, with an address at 1700
Broadway - Suite 1150, Denver, CO 80290, (herein "Assignor") for and in
consideration of Ten Dollars ($10.00) and other good and valuable
consideration, the receipt of which is hereby acknowledged, does hereby sell,
assign, transfer and convey unto T&O, LLC, (herein "Assignee"), with an address
of 4455 E. Camelback, Suite E-160, Phoenix, AZ 85018, all of Assignor's right,
title and interest in and to the following properties, assets, contracts and
other rights, both real and personal, all of which together are herein called
the "Assets":
a. All of the right, title and interest in and to that certain
Shelby Gas Gathering System and Gas Processing Facility, located
in Toole County, Montana (the "System"), together with all
improvements, equipment, equipment leases, easements, permits,
licenses, servitude, rights-of-way, surface leases and other
surface rights used in connection with the System, all as more
particularly described on Exhibit "A";
b. All files, books, records, papers, and instruments, including all
of the Seller's counterparts of all conveyed contracts, all
documents of title relating to the Assets, blueprints,
specifications, plats, maps, surveys, accounting and financial
records and sales and property tax records directly related to
the System;
c. To the extent transferable, all licenses, certificates,
approvals, registrations, variances, exemptions, rights-of-way,
privileges, immunities, grants, permits, franchises, consents,
authorizations or other rights of every kind and character held
by Seller and directly related to the ownership or operation of
the Assets; and,
d. All other or additional privileges, rights, interests,
properties, contracts, agreements and assets of the Seller of
every kind and description and located upon the Assets that are
used or intended for use in connection with the continued conduct
of the Assets as presently being conducted.
- 16 -
<PAGE>
This Assignment is made expressly subject to and in accordance with
the terms and conditions of that certain Asset Purchase Agreement between
Assignor and Assignee, dated March 25, 1997 (the "Agreement") and all covenants,
indemnities and obligations of the parties under the Agreement shall survive the
execution and delivery of this Assignment strictly in accordance, and only in
accordance with the terms of the Agreement, it being expressly understood that
any and all representations or warranties of the parties contained in the
Agreement are terminated, extinguished and of no further force or effect upon
the delivery of this Assignment except to the extent expressly stated as
surviving the delivery of this Assignment. By acceptance hereof, Assignee agrees
to take and receive the Assets in accordance with the Agreement, including,
without limitation all assumptions of liabilities contained therein.
ASSIGNOR IS MAKING NO REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS
OR IMPLIED, BEYOND THOSE EXPRESSLY GIVEN HEREIN, AND IT IS UNDERSTOOD THAT WITH
RESPECT TO EQUIPMENT AND PERSONAL PROPERTY COMPRISING PORTIONS OF THE ASSETS,
ASSIGNEE SHALL TAKE THOSE "AS IS" AND "WHERE IS," WITH ALL FAULTS. WITHOUT
LIMITING THE GENERALITY OF THE IMMEDIATELY FOREGOING, ASSIGNOR HEREBY (I)
EXPRESSLY DISCLAIMS AND NEGATES ANY REPRESENTATION OR WARRANTY, EXPRESSED OR
IMPLIED, AT COMMON LAW, BY STATUTE OR OTHERWISE, RELATING TO (A) THE CONDITION
OF THE SYSTEM (INCLUDING WITHOUT LIMITATION ANY IMPLIED OR EXPRESS WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, OR OF CONFORMITY TO MODELS
OR SAMPLES OF MATERIALS) (B) THE ENVIRONMENTAL CONDITION OF ANY OF THE ASSETS,
(C) TITLE TO ANY OF THE ASSETS, OR (D) ANY INFRINGEMENT BY ASSIGNOR OR ANY OF
ITS AFFILIATES OF ANY PATENT OR PROPRIETARY RIGHT OF ANY THIRD PARTY; AND (II)
NEGATES ANY RIGHTS UNDER STATUTES TO CLAIM DIMINUTION OF CONSIDERATION AND ANY
CLAIMS FOR DAMAGES BECAUSE OF HIDDEN OR LATENT DEFECTS, WHETHER KNOWN OR
UNKNOWN, IT BEING THE INTENTION OF ASSIGNOR AND ASSIGNEE THAT THOSE PROPERTIES
ARE TO BE ACCEPTED BY ASSIGNEE IN THEIR PRESENT CONDITION AND STATE OF REPAIR.
All of the provisions of this Assignment shall be available to and
binding upon the respective successors and assigns of Assignor and Assignee
herein.
Assignor hereby warrants title to the Assets against all lawful claims
of persons claiming by, through, or under Assignor, but not otherwise.
EXECUTED this 25th day of March, 1997, but effective for all purposes
as of 7:00 a.m., MST on March 1, 1997.
- 17 -
<PAGE>
ASSIGNOR:
SHELBY GATHERING PARTNERS,
a Colorado general partnership,
Interenergy Corporation, Managing Partner
By: /s/ Joseph L. Schmid
-----------------------------------
Joseph L. Schmid
Vice President
ASSIGNEE:
T&O, LLC
By: /s/ Charles Taylor
-----------------------------------
Name: Charles Taylor
---------------------------------
Title: President
---------------------------------
This is a true and correct copy of the original.
/s/ Janice C. Hoft 4/11/97
- ----------------------------------------
Notary Public
My Commission Expires 12-24-97
- 18 -
<PAGE>
THE STATE OF COLORADO )
--------
)
COUNTY OF DENVER )
------
The foregoing instrument was acknowledged before me this 25th day of
March, 1997, by Joseph Schmid, the Vice President of SHELBY GATHERING PARTNERS,
a Colorado general partnership, Interenergy Corporation, Managing Partner.
Witness my Hand and Official Seal.
My Commission expires: My Commission Expires 12-24-97
-----------------------------------
/s/ Janice C. Hoft
----------------------------------------
Notary Public
THE STATE OF ARIZONA )
-------
)
COUNTY OF MARICOPA )
--------
The foregoing instrument was acknowledged before me this 25th day of
March, 1997, by Charles Taylor, the President of T&O, LLC.
Witness my Hand and Official Seal.
My Commission expires: 8/19/2000
---------------
[NOTARY SEAL] /s/ Meredith A. Lightcap
----------------------------------------
Notary Public
- 19 -
<PAGE>
NATURAL GAS SALE AND PURCHASE AGREEMENT
BETWEEN:
SHELL CANADA LIMITED, A Canadian Corporation with
head office in Calgary, Alberta, Canada.
(hereinafter referred to as "Seller")
and
GREAT FALLS GAS COMPANY, A Montana Corporation
with head offices in Great Falls, Montana USA
(hereinafter referred to as "Buyer")
<PAGE>
INDEX
ARTICLE PAGE
I Interpretation. . . . . . . . . . . . . . . . . . . . . . . . 1
II Conditions. . . . . . . . . . . . . . . . . . . . . . . . . . 4
III Delivery and Ownership. . . . . . . . . . . . . . . . . . . . 5
IV Gas Specifications and Measurement. . . . . . . . . . . . . . 5
V Contract Volumes. . . . . . . . . . . . . . . . . . . . . . . 6
VI Term and Price. . . . . . . . . . . . . . . . . . . . . . . . 8
VII Payment . . . . . . . . . . . . . . . . . . . . . . . . . . .12
VIII Force Majeure . . . . . . . . . . . . . . . . . . . . . . . .15
IX Covenants, Warranties and Indemnities by Seller . . . . . . .18
X Arbitration . . . . . . . . . . . . . . . . . . . . . . . . .19
XI Default and Remedies. . . . . . . . . . . . . . . . . . . . .21
XI General Provisions. . . . . . . . . . . . . . . . . . . . . .22
<PAGE>
NATURAL GAS SALE AND PURCHASE AGREEMENT
This Agreement dated the 20th day of July, 1992 is made between:
SHELL CANADA LIMITED, A Canadian Corporation with
head office in Calgary, Alberta, Canada.
(hereinafter referred to as "Seller")
and
GREAT FALLS GAS COMPANY, A Montana Corporation
with head offices in Great Falls, Montana USA
(hereinafter referred to as "Buyer")
WHEREAS, Seller has available for sale certain supplies of natural gas, and
Seller desires to sell and deliver to Buyer such natural gas supplies in the
quantities and under the terms and conditions hereinafter provided; and
WHEREAS, Buyer and it's subsidiaries desire to receive and purchase such
natural gas in the quantities and under the terms and conditions hereinafter
provided;
NOW THEREFORE, in consideration of the premises and mutual covenants and
agreements herein set forth, Seller and Buyer contract and agree as follows:
ARTICLE I - INTERPRETATION
1.01 DEFINITIONS
As used in this Agreement:
(a) "ANNUAL CONTRACT QUANTITY" OR "ACQ" means the volume obtained when
multiplying the number of Days in the Contract Year by the Maximum
Daily Quantity in effect for that Contract Year;
(b) "BUSINESS DAY" means all calendar days excluding:
(i) Saturdays and Sundays;
(ii) All statutory holidays under the laws of Alberta, Montana,
Canada or the United States of America; and,
<PAGE>
- 2 -
(iii) All calendar days on which the head office of Seller or Buyer
is not open for business, provided however that all such
calendar days during each calendar year shall be identified
by notice from Seller to Buyer and vice versa on or before
February 15 of the calendar year in question;
(c) "BRITISH THERMAL UNIT" OR "BTU" means the amount of heat required to
raise the temperature of one (1) pound of water from fifty-nine degrees
Fahrenheit (59 DEG F) to sixty degrees Fahrenheit (60 DEG F) at a
constant pressure of fourteen and seventy-three hundredths pounds per
square inch absolute (14.73) psia). Total BTU's shall be determined by
multiplying the total volume of Gas delivered times the Gas Heating
Value expressed in BTU's per cubic foot of Gas adjusted on a dry basis;
(d) "MAXIMUM DAILY QUANTITY" or "MDQ" means the specified volume of Gas
which Buyer contracts to purchase each Day under this Agreement as set
out in section 5.02 herein, or as otherwise provided in this Agreement;
(e) "DAY" means a period of 24 consecutive hours, beginning and ending at
0800 hours MST;
(f) "DELIVERY POINT" has the meaning as set forth in section 3.01;
(g) "INTERRUPTIBLE DAILY QUANTITY" or "IDQ" means the specified volume of
Gas which Buyer may purchase on an interruptible basis, as set forth in
section 5.06;
(h) "Mcf" means the quantity of Gas occupying a volume of one thousand
(1,000) cubic feet at a temperature of sixty degrees Fahrenheit (60 DEG
F) and at a pressure of fourteen and seventy-three hundredths pounds
per square inch absolute (14.73 psia);
(i) "MONTH" means a period beginning at 0800 hours MST on the first Day of
a calendar month and ending 0800 hours MST on the first Day of the next
succeeding calendar month;
(j) "GAS" means natural gas and or residue gas comprised primarily of
methane;
(k) "NOVA" means Nova Corporation of Alberta or any successor thereof;
(1) "PARTY" means a party to this Agreement;
(m) "YEAR" or "CONTRACT YEAR" means a period of 12 consecutive months
commencing on November 1, 1992 and on each subsequent anniversary
thereof;
<PAGE>
- 3 -
(n) "HEATING VALUE" means the quantity of heat, measured in Btu, produced
by combustion in air of one (1) cubic foot of anhydrous Gas at a
temperature of sixty degrees Fahrenheit (60 DEG F) and a constant
pressure of fourteen and seventy-three hundredths pounds per square
inch absolute (14.73 psia), the air being at the same temperature and
pressure as the Gas, after the products of combustion are cooled to the
initial temperature of the Gas and air, and after condensation of the
water formed by combustion;
(o) "CANADIAN REGULATORY AUTHORITIES" means the federal, provincial or
local governmental agencies or other authorities in Canada, which have
jurisdiction over the sale, export or transportation of Gas or other
matters in question, including, without limitation, the National Energy
Board of Canada ("NEB"), the Energy Resources Conservation Board of
Alberta ("ERCB"), the Alberta Petroleum Marketing Commission ("APMC"),
and the federal and provincial Governors-in-Council; and,
(p) "U.S. REGULATORY AUTHORITIES" means the federal, state or local
government agencies or other authorities in the United States of
America which have jurisdiction over the sale, import, transportation
of Gas or other matters in question, including, without limitation,
the Office of Fossil Fuels of the United States Department of Energy
("OFE"), the Federal Energy Regulatory Commission ("FERC") and the
Montana Department of Public Service Regulation ("PSR").
1.02 CUSTOM
In this Agreement, words, phrases or expressions which are not defined
herein, and which, in the usage or custom of the business of the exploration,
production, transportation, distribution or sale of Gas, have an accepted
meaning, shall have that meaning.
1.03 SCHEDULES
Any and all schedules appended hereto shall constitute part of, and be
incorporated into this Agreement.
1.04 CURRENCY
All conversions from Canadian currency to currency of the United States or
vice-versa, shall be done by the parties using the average Bank of Canada
posted noon spot exchange rates for the conversion of Canadian funds into
United States funds or vice-versa, as quoted for the calendar month in which
the transaction occurred.
<PAGE>
- 4 -
ARTICLE II - CONDITIONS
2.01 CONDITIONS PRECEDENT
This Agreement is subject to the satisfaction of the following conditions
precedent on terms and conditions satisfactory to the Party, acting
reasonably, entering into or obtaining same:
(a) Seller entering into firm, non-interruptible transportation agreements
with NOVA and Seller and NOVA obtaining all necessary certificates,
permits, licenses and authorizations from Canadian Regulatory
Authorities for the transactions contemplated by this Agreement,
including without limitation, the sale and removal of the Maximum Daily
Quantity from Alberta, the export of the Maximum Daily Quantity from
Canada and the firm, non-interruptible transportation of the Maximum
Daily Quantity in Canada from Seller's facilities through the
facilities of NOVA;
(b) Buyer entering into firm, non-interruptible transportation agreements
with Montana Power Company and Buyer and Montana Power Company
obtaining all necessary certificates, permits licenses and
authorizations from U.S. Regulatory Authorities for the transactions
contemplated by this Agreement for the full term of this Agreement,
including without limitation, the purchase and importation of the
Maximum Daily Quantity from Canada and for the firm, non-interruptible
transportation of the Maximum Daily Quantity in the United States
through the facilities of Montana Power Company.
2.02 FULFILLING CONDITIONS
(a) If by October 15, 1992, any condition precedent referred to in section
2.01 has not been satisfied, or with respect to subsection 2.01(a)
waived by written notice provided by Seller or with respect to
subsection 2.01(b) waived by written notice provided by Buyer then
either Party may thereafter, at any time, provide written notice to the
other Party of its election to terminate this Agreement and unless such
conditions precedent are so satisfied or waived within ninety (90) Days
after the receipt of such notice, this Agreement shall thereupon
terminate.
(b) Both Buyer and Seller shall act with due diligence and exercise all
reasonable efforts to fulfill all such conditions precedent.
(c) Buyer and Seller shall notify each other forthwith in writing upon the
conditions precedent in section 2.01 having been met.
(d) Seller and Buyer shall cooperate with each other so as to assist each
other in fulfilling the conditions precedent set forth in section 2.01
in order that the delivery of Gas hereunder may commence on a timely
basis.
<PAGE>
- 5 -
ARTICLE III - DELIVERY AND OWNERSHIP
3.01 DELIVERY POINT
The Delivery Point for all Gas delivered hereunder shall be that point on the
Canada/United States of America border at the interconnection of the pipeline
systems of NOVA and Montana Power Company near Carway, Alberta.
3.02 TITLE AND POSSESSION
Property in and title to the Gas and all risk of loss respecting all Gas
delivered hereunder shall pass from Seller to Buyer and shall vest in Buyer at
the Delivery Point. As between Seller and Buyer, until delivery of the Gas at
the Delivery Point, Seller shall be deemed to be in control and possession of
the Gas and shall be responsible for all costs, losses, damages, injuries to
persons or property or liabilities arising from or out of Seller's title,
possession, custody or control of Gas hereunder prior to title to the Gas
passing to Buyer at the Delivery Point. As between Seller and Buyer, after
delivery of the Gas at the Delivery Point, Buyer shall be deemed to be in
control and possession of the Gas and shall be responsible for all costs,
losses, damages, injuries to persons or property or liabilities arising from or
out of Buyer's title, possession, custody or control of Gas hereunder after
title to the Gas passes to Buyer at the Delivery Point.
3.03 ROYALTIES AND TAXES
Seller shall pay or cause to be paid and shall be solely responsible for all
royalties, overriding royalties and payments out of production, together with
all applicable federal, provincial, municipal and local taxes, levies or
surcharges imposed by authorities that are applicable on Gas delivered
hereunder before title to such Gas passes to Buyer at the Delivery Point.
Buyer shall be solely responsible for the above enumerated payments, taxes,
levies or surcharges that are applicable on Gas delivered hereunder when and
after title to such Gas passes to Buyer at the Delivery Point.
ARTICLE IV - GAS SPECIFICATIONS & MEASUREMENT
4.01 GAS SPECIFICATIONS
Buyer and Seller each agree that Gas delivered hereunder will be in a
commingled stream and shall be at the pressure and meet or exceed the minimum
quality specifications required by NOVA and Montana Power Company.
<PAGE>
- 6 -
4.02 MEASUREMENT
It is understood and agreed that neither Buyer nor Seller owns or operates
measuring and testing equipment at the Delivery Point. Therefore, all Gas
delivered to Buyer hereunder shall be measured at the Delivery Point as to
volume and Heating value by Montana Power Company, in accordance with its
filed and approved tariffs and standard Industry practice. All such
measurements made (including all correction thereof) shall be final and
binding upon Seller and Buyer as to the Gas delivered under this Agreement.
Seller or Buyer may at their sole cost, risk and expense witness such
measuring and the testing of measuring equipment if they so desire.
ARTICLE V - CONTRACT VOLUMES
5.01 SUPPLY COMMITMENT
Subject to Article VIII, Force Majeure, Seller has, or shall have and shall
maintain at all times throughout the term of this Agreement, sufficient Gas
reserves and deliverability with respect to the delivery of Gas to the
Delivery Point, so as to enable Seller to meet its obligations hereunder.
5.02 MAXIMUM DAILY QUANTITY
The Maximum Daily Quantity shall be equal to 5,000 MMBtu/day (140
10(3)m(3)/d). On each Day during the term of this Agreement, Buyer may
nominate its Gas requirement and Seller shall be obligated to deliver the
amount so nominated by Buyer up to the MDQ.
5.03 CATEGORIES OF GAS
The quantities of Gas to be purchased by Buyer hereunder shall consist of
Tier I Gas and Tier II Gas which shall bear different prices as set forth in
Article VI below.
5.04 TIER I GAS
Commencing with each Contract Year, Buyer will purchase the initial
sixty-five percent (65%) of the ACQ ("Tier I Gas") at the then applicable
price for Tier I Gas, as set forth in section 6.02 herein. If and when the
Tier I Gas is taken by Buyer, the remainder of gas taken by Buyer in that
Contract Year will be Tier II Gas.
5.05 TIER II GAS
Commencing with the completion of the Tier I Gas Volume (defined as the
product of the MDQ and the number of Days in the Contract Year multiplied by
0.65), all Gas taken thereafter by Buyer in that Contract Year will be Tier
II Gas.
<PAGE>
- 7 -
5.06 INTERRUPTIBLE DAILY QUANTITY ("IDQ")
On any Day Buyer may request, over and above the MDQ, up to an additional
5,000 MMBtu/day (140 10(3)m(3)/d) and subject to agreement upon price, Seller
shall endeavor, on an interruptible basis, to supply the difference between
the IDQ and the MDQ. The price for the volume of gas that is the difference
between the IDQ and the MDQ shall be established on a monthly basis by
negotiation between Buyer and Seller.
5.07 GAS TAKE LEVELS
If, during any Contract Year, Buyer does not purchase at least eighty percent
(80%) of the then applicable ACQ, a "Shortfall Year" will exist. The
difference between eighty percent (80%) of the then applicable ACQ and the
amount actually taken by the Buyer will be the "Shortfall Amount". Within
ninety (90) Days of the commencement of the Contract Year following the end
of the Shortfall Year (the "Make-up Year"), Seller may elect to provide
notice to Buyer stating the Shortfall Amount and the proportionate reduction
in the ACQ and MDQ that will be in effect at the commencement of the Contract
Year following the Make-up Year. Subject to the limitation created by the MDQ
and ACQ applicable during the Make-up Year, buyer may elect to avoid all or
part of this reduction by first purchasing eighty percent (80%) of the
applicable ACQ in the Make-up Year and then purchasing all or a portion of
the Shortfall Amount prior to the end of the Make-up Year. The Commodity
Charge for the Shortfall Amount will be the applicable rate (depending upon
whether the Shortfall Amount being purchased represents Tier I Gas or Tier II
Gas) in effect during the Make-up Year.
The ACQ and MDQ in the Contract Year following the Make-up Year will be
proportionately reduced by the remaining Shortfall Amount, unpurchased, if
any, at the end of the Make-up Year.
5.08 NOMINATIONS
Buyer or Buyer's nominee shall nominate to Seller or Seller's nominee, by
written telecommunication each and every Day by 1200 hours MST, Buyer's daily
requirements for Gas for the following Day. Failure to so nominate to Seller
shall cause continuation of the last received nomination.
5.09 FAILURE TO TAKE NOMINATION
In the event that Buyer nominates quantities and Seller delivers such
quantities into the NOVA pipeline system and Buyer is unable or unwilling for
whatever reason to take delivery of such quantities at the Delivery Point,
then Buyer shall pay the price calculated on a per MMBtu on a 100% Load
Factor basis for such volumes so nominated and delivered to NOVA, including
the actual associated transportation and inventory penalty incurred by Seller
for such quantities of Gas, provided that Seller makes reasonable efforts to
mitigate such transportation penalties.
<PAGE>
- 8 -
5.10 FAILURE TO DELIVER
If Seller is unable to meet Buyer's nomination, Seller shall promptly notify
Buyer of Seller's inability to deliver Gas, whether or not such inability
covers all or part of Buyer's nomination. Seller shall use its reasonable
efforts to obtain and supply from other sources the volumes of Gas that
Seller is obligated but unable to deliver to Buyer at the Delivery Point
("Replacement Gas"). Seller shall endeavor to arrange for delivery of
Replacement Gas, to the Delivery Point on the same Day at a price which shall
not exceed the delivered cost to Buyer of Gas that Seller was obligated to
deliver in accordance with Buyer's nomination ("Buyer's Cost of Gas").
Notwithstanding the foregoing, if Seller is unable to deliver Replacement Gas
hereunder, Buyer may purchase Replacement Gas and Seller shall reimburse
Buyer for any unabsorbed demand charges incurred on the Montana Power Company
system and the price of Replacement Gas, in excess of the price hereunder,
that Buyer is required to pay to any other producer or local distribution
company as a result of Seller's failure to deliver Gas nominated by Buyer,
adjusted for transportation, if applicable. Buyer shall make reasonable
efforts to mitigate the cost of Replacement Gas. Seller's sole liability and
Buyer's sole remedy with respect to Seller's failure to supply Gas shall be
limited to such cost of Replacement Gas. In no event shall Seller, it's
directors, trustees, agents, officers or employees be liable to Buyer, it's
directors, trustees, agents, officers or employees for any incidental,
special, indirect or consequential damages of any nature including without
limitation any claims of customers of Buyer, connected with or resulting from
Seller's failure to supply Gas under this Agreement.
ARTICLE VI - TERM AND PRICE
6.01 TERM
(a) Subject to the satisfaction or waiver of the conditions precedent set
forth in section 2.01, deliveries of Gas under this Agreement shall
commence on November 1, 1992 ("Commencement Date") and shall except as
otherwise specifically provided for herein continue for a term of
fifteen (15) Contract Years after November 1, 1992.
(b) The Term of the Agreement shall consist of three (3) segments of five
(5) Contract Year periods as follows:
Segment 1 November 1, 1992 - October 31, 1997;
Segment 2 November 1, 1997 - October 31, 2002;
Segment 3 November 1, 2002 - October 31, 2007.
(c) Unless either Party gives notice to the other Party at least
twenty-seven (27) Months prior to the end of Segment 1 specifying its
intention to terminate this Agreement at the end of Segment 1 the term
shall continue into Segment 2.
<PAGE>
- 9 -
(d) Anytime on or after August 1, 1995, either Party may give notice to the
other Party of at least twenty-seven (27) Months to terminate this
Agreement prior to the end of the Term.
6.02 PRICE
The Price to be paid by Buyer to Seller for Gas purchased and sold and the
service provided hereunder for the period of time commencing with the
Commencement Date will consist of the sum of the four (4) components identified
hereunder. The Price will be in U.S. dollars.
(a) Each Month, Buyer shall pay Seller a "Demand Charge" equal to Seller's
actual cost for that Month of reserving the firm transportation
required to transport the MDQ on NOVA to the Delivery Point.
(b) Each Month, Buyer shall pay Seller a "Reservation Charge" equal to the
product of the MDQ times the number of days in the Month times the
Reservation Charge. The Reservation Charge for the first two years of
this Agreement shall be $0.06 U.S./MMBtu.
(c) Each Month, Buyer shall pay Seller for each MMBtu of Tier I Gas
delivered and received at the Delivery Point, a "Commodity Charge"
equal to a per MMBtu price fixed for at least one year by agreement of
the Parties in advance. The Commodity Charge for Tier I Gas for the
first two Years of this Agreement shall be $1.31 U.S./MMBtu on a dry
basis.
(d) Commencing with the completion of Tier I Gas purchases in each Contract
Year, the Commodity Charge for Tier II Gas will be negotiated and
agreed to by the Parties prior to the end of each previous Month. The
Parties will take into consideration the prepaid Demand Charge when
arriving at the Commodity Charge for the following month. Failing
agreement by the Parties, the Commodity Charge for the applicable Month
will equal the price published by NATURAL GAS WEEK in their Canadian
Price Report Section, under the Empress Border - Contract Subsection.
In the event that such price is no longer published or such publication
is no longer published then, failing agreement by the parties, the
Commodity Charge or a method of determining it shall be determined by
arbitration pursuant to Article X hereof. The prepaid Demand Charge
will be subtracted from the published price to arrive at the Commodity
Charge. Each Month Buyer shall pay Seller for each MMBtu of Tier II Gas
delivered and received at the Delivery Point, the above applicable
Commodity Charge.
If Buyer elects not to take gas during a Tier II Gas Month, Seller will be
allowed to sell that gas on an interruptible basis to third party purchasers.
The Demand Charge and the Reservation Charge shall be paid each Month
regardless of the quantity of Gas purchased and sold hereunder, except to the
extent that Seller fails to deliver Gas nominated.
<PAGE>
- 10 -
6.03 FUTURE PRICE DETERMINATION
(a) The Parties agree that they will meet from time to time to negotiate
the Tier I Commodity Charge and Reservation Charge components of the
Price payable hereunder for subsequent Contract Years. In any such
negotiations or resulting arbitration with respect to Price during the
Term of this Agreement only the Tier I Commodity Charge and Reservation
Charge components of the Price shall be redetermined and the Demand
Charge component of the Price shall not be subject to redetermination.
(b) Subject to 6.03 (a) The Parties agree, to establish a new Price for the
next Contract Year at least one hundred and twenty (120) Days prior to
the termination date of the current Contract Year and the Parties will
commence procedures for such redetermination no later than one hundred
and eighty (180) Days prior to the termination date of the current
Contract Year by either Party giving fifteen (15) Days written notice
to the other, to meet and negotiate. Such Price, and the various
components making up that Price, will be effective for a period of
time, as then agreed to, and will become effective on the commencement
of the next Contract Year. If neither Party has given written notice
to the other to renegotiate at least one hundred and eighty (180) Days
prior to the termination date of the current Contract Year, then the
Price for the current Contract Year shall continue in effect for the
next Contract Year.
6.04 FAILURE TO REACH AGREEMENT ON PRICE
In the event that the Parties are unable to reach agreement on the Price, or
the Price components at least one hundred and twenty (120) Days prior to the
termination date of the current Contract Year, as provided pursuant to
section 6.03 herein, either Party may, upon not less than fifteen (15) days
written notice to the other Party, have the Price determined pursuant to the
Arbitration provisions contained in Article X herein and exclusively in
accordance with the principles set forth in section 6.05 herein. Should no
notice for Arbitration be given at least ninety (90) days prior to the
termination date of the current Contract Year, the Price for the next
Contract Year shall continue to be the Price in effect for the current
Contract Year.
6.05 PRICING PRINCIPLES
For each Contract Year subsequent to the Contract Year for which the Price of
Gas to be sold and purchased hereunder has been established and specified,
the Parties agree to determine Price by negotiation or by arbitration. If the
Price for Gas delivered in any Contract Year is to be determined by
arbitration, the arbitrators shall determine a Price that, under the
prevailing market circumstances for long term firm Gas Supply and in the
opinion of the arbitrators, is fair and reasonable to both Buyer and Seller.
In making such determination, the arbitrators shall limit
<PAGE>
- 11 -
their consideration to the evidence which is presented by the Parties, and to
the extent that evidence is presented, shall base their determination upon
and shall give due consideration to each of the following criteria:
(i) The weighted average cost of gas paid by Buyer during the next
Contract Year for firm gas supplies with a term of two (2) years
or more;
(ii) The prices being paid during the next Contract Year for other firm
gas supplies by local distribution companies with a term of two
(2) years or more in the state of Montana; and,
(iii) The prices being paid during the next Contract Year for other
firm gas supplies by local distribution companies with a term
of two (2) years or more in the province of Alberta;
provided that the arbitrators shall consider the above matters in light of the
following:
(a) To the extent that evidence with respect to Prices for the next
Contract Year is not available or is insufficient, prices for the
current Contract Year will be considered;
(b) The times at which the prices were agreed to between the respective
buyers and sellers;
(c) Differences in transportation costs relevant to establishing a point of
comparison at the Delivery Point;
(d) The similarities and dissimilarities between the service provided
hereunder and the sales and transportation arrangements under which
other gas is being sold for consumption in Buyer's market area and in
Alberta, including in particular but not limited to the similarities
and dissimilarities between the quality of service and the security of
supply provided hereunder and provided under such other arrangements;
and,
(e) Any other considerations in respect of which relevant evidence is
adduced by the Parties and which is relevant to the determination of
such matters.
In the event that a negotiated or arbitrated Price is determined for a
Contract Year after commencement thereof, Seller shall retroactively adjust
its invoices to Buyer to the first Day of that Contract Year, to take into
account the revised Price. Until a new Price is concluded and retroactively
implemented, the previous Price shall remain in effect. If the Price
settlement date exceeds sixty (60) Days past the Contract Year commencement,
the retroactive invoice shall be adjusted for interest at the prime rate
pursuant to section 7.04.
<PAGE>
- 12 -
6.06 REGULATORY INTERVENTION
If Canadian Regulatory Authorities or U.S. Regulatory Authorities take action
by rule, order or other official means which materially and fundamentally
alters the operation of this Article VI such that Gas cannot be sold and
purchased hereunder at a market based price for long term firm Gas supply,
then either Buyer or Seller may notify the other Party by the means
identified in Article XII hereof of its intention to terminate this Agreement
This Agreement shall then terminate in all respects one hundred and eighty
(180) days after the provision of such notice unless within such one hundred
and eighty (180) day period the regulatory action has been modified or
revoked such that the operation of Article VI has been restored. The Parties
shall use due diligence and exercise all reasonable efforts to oppose any
regulatory action which might trigger the operation of this section 6.06.
ARTICLE VII - PAYMENT
7.01 MONTHLY BILLING
Once service or deliveries of Gas have commenced hereunder, Seller shall send
by facsimile to Buyer on or before the fifteenth (15th) Day of each Month
(the "Billing Month") with the original to follow by mail:
(a) A statement for the preceding Month showing the daily and total amount
of Gas delivered hereunder or, if such information is not available by
that Day, an estimate of such daily and total amounts; and,
(b) A bill in U.S. dollars with respect to the preceding Month together
with information sufficient to explain and support the amount billed.
7.02 PAYMENT DATE
Buyer shall pay Seller in U.S. dollars by direct electronic transfer to the
account of Seller designated herein, within ten (10) Days of receipt of
Seller's bill, the amount due to Seller with regard to Gas sold or reasonably
estimated to have been sold hereunder and service provided in the preceding
Month in accordance with the provisions of this Agreement as follows:
The Chase Manhattan Bank, N.Y.
Fedwire #0210-0002-1
Account: 001-1-146305
Bank of Montreal, Montreal
For Transfer to: Calgary Main Office
For Credit Account: 00109-4604-211
<PAGE>
- 13 -
In addition, Buyer shall send a copy of payment record by facsimile to
Seller. In the event that the tenth (10th) Day after receipt of Seller's bill
is not a Business Day, then Buyer shall pay Seller as aforesaid on or before
the Business Day immediately before such tenth (10th) Day. If Seller's bill
for any Month is based on an estimate of the Gas sold in the previous Month,
then the Parties shall make all necessary adjustments in the Month following
the billing Month to reflect the actual volumes of Gas Sold.
7.03 EXAMINATION OF RECORDS
Subject to the confidentiality provisions of this Agreement, Seller and Buyer
shall have the right, at any reasonable time and from time to time during the
term of this Agreement, to examine the books, records and accounts of the
other to the extent reasonably necessary to verify the accuracy of any
statement, billing, computation or procedure made under or pursuant to the
provisions of this Agreement.
7.04 REMEDIES FOR NON-PAYMENT
(a) Should Buyer fail to pay all of the amount of the bill as herein
provided when such amount is due, then commencing on the date such
payment is due, late payment charges shall accrue daily on the unpaid
part of such bill and be paid at a rate of interest per annum which is
equal to the prime rate charged from time to time by The Chase
Manhattan Bank of New York for loans to commercial borrowers, plus 1%
compounded monthly until paid. All such late payment charges shall be
payable on demand by Buyer to Seller. If either principal or late
payment interest charges are due, any payments thereafter received
shall first be applied to late payment charges due, then to the
previously outstanding principal due and lastly, to the most current
principal due.
(b) In the event of any such failure to pay, Seller may, in addition to any
other remedies that it may have under the terms of this Agreement, upon
10 Days written notice via facsimile and courier to Buyer, suspend
further delivery of Gas hereunder until such amount is paid. During the
period of any such suspension, Buyer shall continue to be liable to
Seller for the amounts set forth in section 6.02 with respect to the
Reservation Charge and Demand Charge attributable to such suspended
deliveries and such suspended deliveries shall not be considered to be
a failure by Seller to deliver gas under section 5.10
(c) Notwithstanding the foregoing, if Buyer shall in good faith dispute the
amount of any such bill or any part thereof, if Buyer shall pay to
Seller such amounts as it concedes to be correct and if Buyer at any
time within ten (10) Days after a demand made upon it by Seller for a
letter of credit with respect to the amount in dispute shall furnish
security by way of a letter of credit in a form reasonably satisfactory
to Seller assuring payment to Seller of the amount ultimately found to
be due to Seller upon such bill by agreement or
<PAGE>
- 14 -
by a decision of a court of competent jurisdiction, as the case may be,
then Seller shall not be entitled to suspend further delivery of Gas
hereunder as a result of any such nonpayment unless and until a default
occurs in relation to the conditions of any such letter of credit or
any renewal thereof. If it is determined that Buyer owes Seller the
disputed amount, Buyer shall pay Seller the disputed amount within five
(5) Days of the determination thereof.
(d) Notwithstanding the provisions of subsection 7.04 (b), if Buyer does
not in good faith dispute the payment of the amount of any such bill
or any part thereof not paid, Seller, in addition to any other remedies
that it may have under the terms of this Agreement, at law or in
equity, may on written notice of at least thirty (30) Days, elect to
terminate this Agreement. Such notice may only be given after the
suspension of Gas deliveries referred to in subsection 7.04 (b) has
commenced.
7.05 ADJUSTMENTS
Subject to the provisions of section 7.02, if it shall be found that at any
time Buyer has been overcharged by Seller in relation to this Agreement and
Buyer shall have actually paid the bills containing such overcharge, then
within thirty (30) Days after the final determination thereof, Seller shall
refund the amount of any such overcharge and if such overcharge was the
result of Seller's error, then interest shall be paid by Seller on the amount
in question on the same basis as interest is charged under the provisions of
section 7.04 from the date the overcharge was paid to the date Buyer is
reimbursed for the overcharge. If any such overcharge is not a result of an
error on the part of Seller, then no interest shall be charged to Seller.
Similarly, if it shall be found that at any time Buyer has been undercharged
under the provisions of this Agreement, then within thirty (30) Days after
the final determination thereof, Buyer shall pay the amount undercharged. No
interest shall be payable by Buyer on the amount of any undercharge unless
Buyer shall fail to pay the amount thereof within such thirty (30) Day
period, in which event interest shall be calculated and payable thereon on
the same basis as is described in section 7.04 from the first Day after such
thirty (30) Day period to the date of payment of the undercharge by Buyer.
7.06 EXTENSION OF TIME FOR PAYMENT WHEN BILL DELAYED
If presentation of the bill to Buyer is delayed after the fifteenth (15th)
Day of the billing Month, then the time of payment shall be extended
accordingly unless Buyer is responsible for such delay.
7.07 DISPUTES
Notwithstanding anything herein contained to the contrary, neither Party
hereto shall be entitled to dispute the volume of Gas delivered, or the
amount paid or payable with respect thereto, unless such dispute is raised by
notice to the other Party within two years after the end of the Month in
question.
<PAGE>
- 15 -
7.08 CREDIT APPROVAL
Upon Seller's request at any time prior to commencement of Gas deliveries or
during the Term of this Agreement, Buyer shall provide Seller with evidence
satisfactory to Seller of Buyer's ability to perform its financial
obligations under this Agreement. If Seller is not so satisfied, Seller may,
acting reasonably, having provided Buyer written notice of suspension in
accordance with section 7.04(b), suspend deliveries of Gas hereunder. During
the period of any such suspension, Buyer shall continue to be liable to
Seller for the amounts set forth in section 6.02 with respect to the
Reservation Charge and Demand Charge attributable to such suspended
deliveries and such suspended deliveries shall not be considered to be a
failure by Seller to deliver Gas under section 5.10. Deliveries shall
recommence upon Buyer providing to Seller an irrevocable stand-by letter of
credit from a banking institution which is satisfactory to Seller. The letter
of credit shall be a dollar amount reasonably specified by Seller which will
cover the full Price for two (2) Months worth of Gas purchases at the MDQ or
such other assurance as is acceptable to Seller. The letter of credit shall
provide that it will be automatically renewed every twelve (12) Months unless
notice of the issuer's intent to cancel the letter of credit as of any
anniversary date of the issuance thereof is received by Seller no later than
sixty (60) Days prior to such proposed expiration date.
ARTICLE VIII - FORCE MAJEURE
8.01 SUSPENSION
Subject to section 8.03 hereof, to the extent that either Party to this
Agreement fails to observe or perform any of the covenants or obligations
herein imposed upon it and such failure shall have been solely caused by
Force Majeure, then such failure shall be deemed not to be a breach of such
covenants or obligations and such covenants and obligations to the extent
affected by such Force Majeure shall be suspended during the continuance of
the event of Force Majeure.
8.02 FORCE MAJEURE
(a) For the purposes of this Agreement, the term "Force Majeure" shall mean
any acts of God, lightning, earthquakes, storms, strikes, lockouts or
other industrial disturbances, acts of the Queen's or country's
enemies, sabotage, wars, blockades, insurrections, riots, epidemics,
landslides, floods, fires, washouts, arrests and restraints of
governments and people, civil disturbances, explosions, breakages of or
accidents to machinery or lines of pipe, interruptions in
transportation service on any of the pipeline facilities required for
delivery of Gas not reasonably within the control of Seller or Buyer,
the orders of any court or government authority, agency or tribunal, or
any other extraordinary cause, whether of the kind herein enumerated or
otherwise, not within the reasonable control of the Party claiming
suspension and which, by the exercise of due diligence, such Party
could not have prevented or is unable to overcome.
<PAGE>
- 16 -
(b) For the purposes of this Agreement, the term "Force Majeure" shall also
mean any action not caused by and beyond the reasonable control of
either Party hereto which results in the interruption of deliveries or
which prevents totally or partially the exportation of Gas from Canada
by Seller or the importation of Gas into the U.S. by Buyer, or its
transportation by NOVA or Montana Power Company, provided however, that
where the exportation, importation or transportation is only partially
prevented by the action, the parties' obligations hereunder shall be
suspended only to the extent prevented by such action.
8.03 NO RELIEF
(a) Neither Party shall be entitled to the benefit of the provisions of
section 8.01 under any of the following circumstances:
(i) to the extent that the failure was caused by the negligence
or contributory negligence of the Party claiming suspension;
(ii) to the extent that the failure was caused by the Party
claiming suspension having not made reasonable efforts to
remedy the condition and remove the cause or circumstances of
Force Majeure in an adequate manner, or having failed to
resume with all reasonable dispatch the performance of such
covenants or obligations;
(iii) if the event of Force Majeure was caused by lack of finances
or was related to the payment of any amount or amounts due
hereunder;
(iv) to the extent that the failure was caused by the
insufficiency of Seller's Gas supply as opposed to an event
of the nature described in section 8.02;
(v) to the extent that the failure was caused by the failure of
Buyer or Buyer's market to require Gas;
(vi) unless as soon as reasonably possible after the happening of
the occurrence relied upon, or as soon as possible after
determining that the occurrence was in the nature of Force
Majeure and would affect the claiming Party's ability to
observe or perform any of its covenants or obligations under
this Agreement, the Party claiming suspension shall have
given to the other Party hereto notice to the effect that by
reason of Force Majeure (the nature whereof shall be therein
specified) the claiming Party is unable to perform the
particular covenants or obligations.
(b) (i) Buyer's obligation to pay the Demand Charge and Reservation
Charge as set forth in section 6.02, shall be suspended in
the event and to the extent that a claim of Force Majeure by
Seller hereunder reduces the quantity of Gas delivered
<PAGE>
- 17 -
hereunder by Seller, however, in the event of a claim of
Force Majeure by Buyer hereunder, Buyer's Demand Charge and
Reservation Charge payment obligation shall not be suspended
but shall remain its responsibility and obligation provided
that it shall be reduced to the extent of any reduction in
the actual demand charges paid by Seller.
(ii) In the event of a claim of Force Majeure hereunder by Seller,
Seller shall not be liable for Replacement Gas costs or
unabsorbed demand charges as described in section 5.10,
provided however, that Seller will use reasonable efforts to
locate replacement natural gas supplies for the quantity of
Gas not delivered hereunder as a result of Seller's Force
Majeure, which replacement natural gas, upon and subject to
the negotiation and agreement between Seller and Buyer as to
the terms and conditions of the sale thereof from Seller to
Buyer, shall be sold and delivered by Seller and purchased by
Buyer.
(iii) In the event of and during a claim of Force Majeure hereunder
by Seller, Buyer shall have the right to locate an
alternative supply of gas and direct Seller to use on Buyer's
behalf Seller's firm NOVA transportation covered by this
Agreement to move such gas, to the extent of any reduction in
the quantity of Gas and/or replacement natural gas pursuant
to subsection 8.03(b)(ii), delivered by Seller under this
Agreement, which reduction results from Seller's Force
Majeure. Notwithstanding subsection 8.03(b)(i) hereof, to the
extent that Seller uses any such NOVA transportation on
Buyer's behalf, Buyer shall pay the Demand Charge relating
thereto.
8.04 END OF SUSPENSION
The party claiming suspension by reason of Force Majeure shall give notice to
the other Party, as soon as possible after the event of Force Majeure shall
have been remedied, to the effect that the same has been remedied and that
such Party has resumed, or is then in a position to resume, the performance
of the suspended covenants or obligations under this Agreement.
8.05 STRIKES OR LOCKOUTS
Notwithstanding anything to the contrary in this Article VIII expressed or
implied, the settlement of strikes, lockouts and other industrial
disturbances shall be entirely within the discretion of the Party involved
therein and such Party may make settlement thereof at such time and on such
terms and conditions as it may deem to be advisable and no delay in making
such settlement shall deprive such Party of the benefit of section 8.01.
<PAGE>
- 18 -
8.06 LIMITATION ON SUSPENSION OF OBLIGATIONS
If at any time during the Term hereof, either Buyer or Seller (the "Party
Claiming Force Majeure") has claimed Force Majeure and (i) such Force Majeure
remains in effect for at least one hundred and eighty (180) consecutive Days
or (ii) such Force Majeure remains in effect for at least thirty (30)
consecutive Days during which time such Party fails to deliver or take at
least 10% of the Maximum Daily Quantity as a daily average over such thirty
(30) day period, then so long as the Force Majeure event is still continuing,
the other party hereto may by notice to the Party Claiming Force Majeure,
terminate this Agreement effective as of the date of such notice. The Party
Claiming Force Majeure shall not manipulate its performance under this
Agreement in order to avoid the application of this section 8.06.
ARTICLE IX - COVENANTS, WARRANTIES AND INDEMNITIES BY SELLER
9.01 WARRANTIES
With respect to the Gas sold hereunder, Seller hereby covenants, warrants and
represents to Buyer that:
(i) Seller shall at the Delivery Point have good right or title
to all Gas delivered hereunder, free and clear of all liens
and adverse claims whatsoever, except those being contested
in good faith by Seller, and,
(ii) Seller shall at the Delivery Point have the right to sell the
Gas delivered or tendered for delivery hereunder.
9.02 INDEMNITY
Seller shall indemnify Buyer and hereby agrees to save Buyer harmless from
and in respect of all suits, actions, debts, accounts, damages, costs, losses
and expenses of every nature and kind whatsoever arising from or in
connection with any adverse claims of any or all persons to the Gas or to
royalties, taxes, license fees or charges thereon, which are applicable
before the title to the Gas passes to Buyer at the Delivery Point. In the
event that any such adverse claim is prosecuted against Buyer in respect of
any of the Gas as aforesaid, Buyer may retain the Price thereof up to the
amount of such claim, until such claim has been finally determined, as
security for the performance of Seller's obligations hereunder with respect
to such claim or until Seller shall have furnished a surety bond or other
form of security satisfactory to Buyer in connection with the subject claim.
Buyer shall invest any amount withheld from Seller at any short term rate of
interest available to the Buyer, acting reasonably, until the amount withheld
is released to the Seller, at which time all interest earned thereon shall be
paid to Seller.
<PAGE>
- 19 -
9.03 PAYMENTS BY SELLER
Seller shall at all times pay all fees, rentals and royalties due and
payments due to all mineral and all royalty owners and all amounts due under
all documents, as may appear of record or otherwise to be binding upon
Seller, and shall pay all other persons having any interests in the Gas sold
and delivered hereunder, which interests arise prior to the Delivery Point.
ARTICLE X - ARBITRATION
10.01 PRICING DISPUTES
All disputes arising out of or in connection with the determination of the
Price for Gas sold hereunder shall be referred to and finally resolved in a
manner which shall be final and binding on the Parties hereto, by an
arbitration pursuant to the principles outlined herein and subject to the
criteria set forth in section 6.05 and pursuant to the International
Commercial Arbitration Act, of the Province of Alberta, except to the extent
that the provisions of such Act are contrary to the principles outlined
herein.
10.02 APPOINTMENT OF ARBITRATORS
The Party hereto initiating the arbitration (the "Initiating Party") shall in
its written notice of request to arbitrate, which notice shall be sent to the
other Party hereto (the "Receiving Party"), name one arbitrator. Within
twenty-one (21) Days after receipt of such notice, the Receiving Party shall
serve notice on the Initiating Party, which notice shall contain the name of
a second arbitrator.
10.03 ARBITRATION BOARD
If the Receiving Party fails to name a second arbitrator, then the Initiating
Party's arbitrator shall function as a single arbitrator. In the event that
both Parties appoint their own arbitrator, the two arbitrators so appointed
shall name a third arbitrator, or, if they fail to do so within ten (10) Days
of the second arbitrator's appointment, the Parties hereto shall promptly
meet and attempt to agree upon and appoint such third arbitrator. If the
parties hereto are unable to agree within ten (10) Days on the choice of the
third arbitrator, then, on the request of either Party hereto, the third
arbitrator shall be appointed by the consulting firm of Stone & Webster
Engineering Corporation. If for any reason the third arbitrator is not
appointed by the Consulting Firm or otherwise agreed upon by the Parties or
the two arbitrators within thirty (30) Days of the second arbitrator's
appointment then on the request of either Party hereto the third arbitrator
shall be appointed by any Justice of the Court of Queen's Bench of Alberta.
<PAGE>
- 20 -
10.04 QUALIFICATIONS OF ARBITRATORS
The single arbitrator (the "Arbitrator") or the three arbitrators (the
"Board") appointed hereunder shall be qualified by education or experience to
decide the particular pricing matters in dispute, and shall not be employees
or agents of either Party hereto or any of their affiliates.
10.05 PROCEDURE
The Arbitrator or the Board shall proceed immediately to hear and determine
the pricing question or questions in dispute. The decision of the Arbitrator
shall be made within forty-five (45) Days after his or her appointment,
subject to any reasonable delay due to unforeseen circumstances. The decision
of the Board, or the majority thereof, shall be made within forty-five (45)
Days after the appointment of the third arbitrator, subject to any reasonable
delay due to unforeseen circumstances. Notwithstanding the foregoing, in the
event the Arbitrator fails to make a decision within sixty (60) Days after
his or her appointment or if the Board, or the majority thereof, fails to
make a decision within sixty (60) Days after the appointment of the third
arbitrator then either Party may elect to have a new Arbitrator or Board
chosen in like manner as if none had previously been selected.
10.06 BINDING DECISION
The decision of the Arbitrator or the decision of the Board, or the majority
thereof, shall be drawn up in writing and signed by the Arbitrator or by the
Board members, or the majority thereof, and shall adopt the last position put
forward in writing by Seller or Buyer in the negotiations preceding the
request for arbitration and shall be final and binding upon the Parties
hereto as to any pricing question or questions so submitted to arbitration,
and the Parties shall be bound by such decision and perform the terms and
conditions thereof.
10.07 COMPENSATION OF ARBITRATORS
Each Party shall pay the compensation and expenses of the Arbitrator
appointed by that Party and the compensation and expenses of the third
Arbitrator (unless otherwise determined by the Arbitrator or the Board) shall
be paid in equal proportions by Buyer and Seller.
10.08 PLACE OF ARBITRATION
The place of arbitration shall be determined by the Arbitrator or the Board.
10.09 PRICING CRITERIA
Notwithstanding anything to the contrary contained in this Agreement, in any
pricing arbitration the Arbitrator or the Board, as the case may be, shall
use the criteria contained in section 6.05 in making a determination of the
Price along with such other criteria, if any, as may then be agreed upon by
Seller and Buyer and submitted to the Arbitrator or the Board.
<PAGE>
- 21 -
10.10 OPERATIONS CONTINUED
Whenever there is an arbitration proceeding, operations under this Agreement
shall continue in the same fashion as they were conducted before the
arbitration proceeding was commenced, without prejudice to either Party,
pending a decision in the arbitration proceeding.
ARTICLE XI - DEFAULT AND REMEDIES
11.01 EVENT OF DEFAULT
An Event of Default under this Agreement shall be deemed to exist upon the
occurrence of any one or more of the following events:
(a) Failure by either Party to make payment of any amounts due to the other
Party under this Agreement, and that failure continues for a period of
thirty (30) days after written notice of non-payment; or
(b) Failure by either Party to perform fully any other material provision
of this Agreement, and (i) such failure continues for a period of
thirty (30) days after written notice of such non-performance from the
other Party is received, or (ii) if within such thirty (30) day period
the non-performing Party commences and proceeds with due diligence to
cure the failure and the failure is not cured within ninety (90) days
after written notice of nonperformance from the other Party is received
or such longer period of time agreed to by the Parties in writing as
being necessary for the Party to cure the failure with all due
diligence; or
(c) If by order of a court of competent jurisdiction, a receiver or
liquidator or trustee of either Party or of all or any of the property
of either Party shall be appointed, and such receiver or liquidator or
trustee shall not have been discharged within a period of sixty (60)
days after its appointment; or if by decree of such a court, either
Party shall be adjudicated bankrupt or insolvent or any substantial
part of the property of such Party shall have been sequestered, or such
decree shall have continued undischarged and unstayed for a period of
sixty (60) days after the entry thereof; or if a petition to declare
bankruptcy or to reorganize Buyer or Seller pursuant to any of the
provisions of any Canadian or United States federal, provincial or
state bankruptcy law shall be filed against such Party and shall not be
dismissed within sixty (60) days after such filing; or
(d) If either Party shall file a voluntary petition in bankruptcy under any
provision of any Canadian or United States federal, provincial or state
bankruptcy law or shall consent to the filing of any bankruptcy or
reorganization petition against it under any similar law; or if either
Party shall make an assignment for the benefit of its creditors; or if
either Party
<PAGE>
- 22 -
shall admit in writing its inability to pay its debts generally as they
become due; or if either Party shall consent to the appointment of a
receiver or receivers, or trustee or trustees, or liquidator or
liquidators of it or of all or of any part of its property.
11.02 TERMINATION
Upon the occurrence and during the continuance of an Event of Default, the
Party not in default shall have the right to terminate this Agreement upon
ten (10) days' written notice to the defaulting Party.
ARTICLE XII - GENERAL PROVISIONS
12.01 NOTICES
Any notice, request, consent, direction, demand, waiver of condition, invoice
or other instrument required or permitted to be given under the provisions of
this Agreement shall be in writing. Written communications as aforesaid may
be given by delivering same in person or by prepaid courier or sending same
by facsimile, in each case addressed as follows:
TO BUYER: GREAT FALLS GAS COMPANY
(i) General P.O. Box 2229
Great Falls, Montana 59403 or,
#1 First Avenue South
Great Falls, Montana 59401
Attention: Director, Gas Supply
and Industrial Marketing
Facsimile: (406) 791-7560
Telephone: (406) 791-7504
(ii) Nominations GREAT FALLS GAS COMPANY
P.O. Box 2229
Great Falls, Montana 59403
Attention: Director, Gas Supply and Industrial
Marketing
Facsimile: (406) 791-7560
Telephone: (406) 791-7504
(iii) Billings GREAT FALLS GAS COMPANY
P.O. Box 2229
Great Falls, Montana 59403
Attention: Director, Accounting
Facsimile: (406) 791-7560
Telephone: (406) 791-5206
<PAGE>
- 23 -
TO SELLER: SHELL CANADA LIMITED
(i) General Natural Gas Business Centre
400 - 4th Avenue S.W.
Calgary, Alberta
T2P 0J4
Attention: Manager, Direct Marketing
Facsimile: (403) 269-7818
Telephone: (403) 691-3189
(ii) Billings 400 - 4th Avenue S.W.
Calgary, Alberta
T2P 0J4
Attention: Supervisor, Natural Gas Accounting
Facsimile: (403) 269-7818
Telephone: (403) 691-4069
(iii) Nominations 400 - 4th Avenue S.W.
Calgary, Alberta
T2P 0J4
Attention: Operations Analyst
Facsimile: (403) 269-7818
Telephone: (403) 691 -3044 or (403) 691-3878
Any written communication as aforesaid, if delivered in person or SENT BY
facsimile, shall be deemed to have been given or made on the Business Day on
which it was received as aforesaid, and, if delivered by prepaid courier,
shall be deemed to have been given or made on the second Business Day
following the Day on which it is so received. Any Party may give written
notice of change of address in the same manner, in which event any written
communication as aforesaid shall thereafter be given to it as above provided
at such changed address.
12.02 FURTHER ASSURANCES
Each Party shall from time to time and at all times hereafter upon reasonable
written request so to do, make, do, execute and deliver, or cause to be made,
done, executed and delivered all such further acts, deeds, assurances and
things as may be reasonably required for more effectually implementing and
carrying out the true intent and meaning of this Agreement.
12.03 MORTGAGES
Notwithstanding anything to the contrary contained in this Agreement, either
Party shall have the right to mortgage, pledge, hypothecate or otherwise
encumber its interest in and to this Agreement as security for its
indebtedness to any other person.
<PAGE>
- 24 -
12.04 WAIVERS
Either Party hereto in its sole discretion may waive, without thereby
prejudicing such Party's right to rely on any other conditions inserted
herein for such Party's sole benefit, a breach or default of any covenant or
condition inserted herein for the benefit or protection of such Party. No
such waiver, however, shall operate as a waiver of any future breach or
default, whether of a like or different character.
12.05 INTERPRETATIONS
In the event that Buyer or Seller are in disagreement as to the
interpretation to be placed on any term, condition, covenant or agreement
contained in this Agreement or the performance or satisfaction thereof by any
such Party, or any such Party asserts that the other Party has committed a
breach of this Agreement, Buyer or Seller, as the case may be, may give
written notice of such disagreement or asserted breach to the other such
Party. If Buyer and Seller are unable to settle the controversy or claim
within (thirty) 30 Days of the delivery of such notice, the Parties may then
agree to submit with all reasonable dispatch, such disagreement or asserted
breach to a competent court of law for determination.
12.06 APPLICABLE LAWS
This Agreement for all purposes shall be construed in accordance with and
governed by the laws of the Province of Alberta. The Courts of the Province
of Alberta shall have exclusive jurisdiction in relation to any legal
proceedings arising in connection with this Agreement. The Parties hereby
expressly and exclusively submit to the jurisdiction of the courts of the
said Province.
The Parties agree to share equally all travel and hotel expenses incurred in
connection with disputes raised under this Agreement.
12.07 INVALIDITY OF PROVISIONS
The intention of the Parties to this Agreement is to comply fully with all
applicable laws, and this Agreement shall be construed consistently with such
laws to the extent possible. If and to the extent that any court of competent
jurisdiction determines it is impossible to construe any provision of this
Agreement consistently with any applicable law and consequently holds that
provision to be invalid, such holding shall in no way affect the validity of
the other provisions of this Agreement, which shall remain in full force and
effect.
<PAGE>
- 25 -
12.08 FULL UNDERSTANDING
The terms of this Agreement represent the full understanding between the
Parties and replaces all other contracts, agreements or representations
whether written or oral. No amendments to this Agreement shall be made or be
binding on either Party unless made in writing and signed by each Party.
12.09 GENDER AND NUMBER REFERENCES
Whenever the singular, masculine or neuter is used in this Agreement the same
shall be construed as being the plural or feminine or body corporate or vice
versa where the context or reference so require.
12.10 CONFIDENTIALITY
All data, documents and information of a confidential nature concerning the
business or assets of either Party to this Agreement which is made available
or disclosed to either other Party hereto pursuant to the terms of this
Agreement (the "Confidential Information"), shall be kept and maintained on a
confidential basis by the Party hereto which is the recipient thereof. Each
Party hereto shall implement such measures and shall take such precautions as
may be reasonably necessary to endeavor to ensure the confidentiality of all
Confidential Information. Notwithstanding the foregoing, either Party hereto
may, without consultation with or notice to the other Party hereto, from time
to time disclose Confidential Information to any court, government,
governmental agency, regulatory body or quasijudicial agency ("Regulatory
Agency") at any time and from time to time and may thereby cause the
Confidential Information to become public if and to the extent that may be
required by any Regulatory Agency or the rules, regulations, procedures,
requirements or practices of any Regulatory Agency.
12.11 REQUESTS FOR CONSENT
Whenever a request is made hereunder by one Party hereto to the other for a
consent, approval or authorization, such request shall be deemed to have been
refused or declined if it is not granted in writing within thirty (30) Days
after the request is made.
12.12 SUCCESSORS AND ASSIGNMENT
This Agreement shall inure to the benefit of and be binding upon the
successors and assigns of the Parties, but no assignment shall release either
Party from such Party's obligations hereunder without the written consent of
the other Party to such release, which consent shall not be unreasonably
withheld.
<PAGE>
- 26 -
IN WITNESS WHEREOF the parties hereto have duly executed and delivered this
Agreement as of the Day and year first above written.
SHELL CANADA LIMITED GREAT FALLS GAS COMPANY
Per: /s/ illegible Per: /s/ Larry D. Geske
------------------------ ------------------------
92-07-29 8/6/92
Per: Per:
------------------------ ------------------------
<PAGE>
[LOGO]
[LETTERHEAD]
August 23, 1993
VIA COURIER
Mr. Lynn Hardin
Director, Gas Supply and Industrial Marketing
TransEnergy
#1 First Avenue South
Great Falls, Montana
59401
Dear Mr. Hardin
RE: LETTER AGREEMENT FOR THE SHORT TERM AMENDMENT TO
SECTION 6.02 OF ARTICLE VI OF
THE NATURAL GAS SALE AND PURCHASE AGREEMENT
BETWEEN SHELL CANADA LIMITED ("SHELL") AND
GREAT FALLS GAS COMPANY ("GFG") DATED JULY 20, 1992
- --------------------------------------------------------------------------------
The parties do hereby agree to temporarily amend the referenced Agreement
pursuant to the following terms and conditions:
1. TERM
The term of this Letter Agreement shall commence on November 1,
1993 and continue until October 31, 1995.
2. DEMAND CHARGE (6.02 (a))
The Demand Charge component of the Price, as defined in section
6.02 of the referenced Agreement shall not change. The Demand
Charge shall be paid each Month regardless of the quantity of Gas
purchased and sold hereunder, except to the extent that Shell
fails to deliver Gas nominated.
3. RESERVATION CHARGE (6.02(b))
The Reservation Charge component of the Price, as defined in
section 6.02 of the referenced Agreement shall be deleted for the
term of this Letter Agreement.
<PAGE>
Page 2 [LOGO]
August 23, 1993
4. PRICING ELECTION
On or before September 15, 1993, GFG will have the option of
choosing a fixed or variable pricing mechanism for each of the
four periods pursuant to the following paragraph 5 of this Letter
Agreement.
5. COMMODITY CHARGE (6.02(c))
The Commodity Charge component of the Price, as defined in section
6.02 of the referenced Agreement shall be deleted for the term of
this Letter Agreement and replaced with the following:
(a) For the time period commencing November 1, 1993, for the
first 755,000 MMBtus of Gas delivered:
(i) A fixed price of $2.10 US dollars per MMBtu, less the
Demand Charge on a US dollar per MMBtu basis; or
(ii) A rolling three Month "average" of the Canadian Gas
Price Reporter mid month index of "Alberta Short-Term
Spot Prices at the Alberta Border (Empress)" converted
to US dollars per MMBtu plus $0.25 US dollar per MMBtu,
less the Demand Charge on a US dollar per MMBtu basis.
(b) After the fulfillment of 5(a) hereof, for the balance of the
1993 Contract Year:
(i) A fixed price of $ 1.75 US dollar per MMBtu, less the
Demand Charge on a US dollar per MMBtu basis; or
(ii) A rolling three Month "average" of the Canadian Gas
Price Reporter mid month index of "Alberta Short-Term
Spot Prices at the Alberta Border (Empress)" converted
to US dollars per MMBtu, less the Demand Charge on a US
dollar per MMBtu basis.
(c) For the time period commencing November 1, 1994, for the
first 755,000 MMBtus of Gas delivered:
(i) A fixed price of $2.20 US dollars per MMBtu less the
Demand Charge on a US dollar per MMBtu basis; or
(ii) A rolling three Month "average" of the Canadian Gas
Price Reporter mid month index of "Alberta Short-Term
Spot Prices at the Alberta Border (Empress)" converted
to US dollars per MMBtu plus $0.25 US dollar per MMBtu,
less the Demand Charge on a US dollar per MMBtu basis.
<PAGE>
Page 3 [LOGO]
August 23, 1993
(d) After the fulfillment of 5(c) hereof, for the balance of the
1994 Contract Year:
(i) A fixed price of S1.85 US dollars per MMBtu, less the
Demand Charge on a US dollar per MMBtu basis; or
(ii) A rolling three Month "average" of the Canadian Gas
Price Reporter mid month index of "Alberta Short-Term
Spot Prices at the Alberta Border (Empress)" converted
to US dollars per MMBtu, less the Demand Charge on a US
dollar per MMBtu basis.
6. PRICING DATA
Pursuant to paragraph 5 of the Letter Agreement, in the event that
such pricing data is no longer published or such publication is no
longer published then, failing agreement by the parties, the
Commodity Charge or a method of determining it shall be determined
by arbitration pursuant to Article X of the referenced Agreement.
7. OTHER TERMS AND CONDITIONS
All other terms and conditions of the referenced Agreement shall
remain in full force and effect.
8. REGULATORY APPROVALS
This Letter Agreement is subject to all applicable American and
Canadian federal, provincial and state regulatory approvals.
If you are in agreement with the foregoing, please indicate your acceptance in
the space provided below and return one copy of this Letter Agreement to our
office.
Yours truly,
/s/ S. MacCulloch
- ------------------------
S. D. (Sandy) MacCulloch
Coordinator, Market Development
GREAT FALLS GAS COMPANY
Accepted and Agreed to this day of , 1993
---- ------------
Per: /s/ Larry D. Geske
------------------------------------------------
Title: President
-----------------------------------------------
<PAGE>
AMENDING AGREEMENT
BETWEEN:
SHELL CANADA LIMITED ("SELLER")
AND
GREAT FALLS GAS COMPANY ("BUYER")
<PAGE>
- 2 -
THIS AMENDING AGREEMENT is made effective as of November 1, 1994.
WHEREAS, Seller and Buyer are parties to a Natural Gas Sale and
Purchase Agreement dated July 20, 1992 (the "Contract"), as temporarily
amended by a Letter Agreement dated August 23, 1993, (the "Letter Agreement")
regarding the long term firm supply of Canadian natural Gas from Seller to
Buyer, and
WHEREAS, Seller and Buyer wish to further amend the Contract and
Letter Agreement so as to provide for a different pricing mechanism under the
Contract effective November 1, 1994.
NOW THEREFORE, in consideration of the premises and the mutual
covenants herein contained, Seller and Buyer agree as follows:
1. All words and phases as used in this Amending Agreement shall have
the same meaning as attributed to them in the Contract.
2. The Letter Agreement is hereby amended so as to reduce the term
thereof to a one (1) year period by deleting from Article 1 thereof the words
"October 31, 1995" and replacing them with the words "November 1, 1994", and
by deleting paragraphs 5(c) and 5(d) thereof.
3. The Contract is amended by adding thereto the following definition;
"Pricing Period" means that period of time as set forth in Schedule "A"
hereto for which a Price has been agreed to or otherwise established, and
which shall not be less than one (1) Contract Year.
4. The Contract is amended by deleting in their entirety Sections 5.03,
5.04 and 5.05, without changing the numbering of any other Sections of the
Contract.
5. The Contract is hereby amended by deleting from the second last line
of paragraph 1 in Section 5.07 the words "(depending upon whether the
Shortfall Amount being purchased represents Tier I Gas or Tier II Gas)".
6. Article VI of the Contract is amended by deleting therefrom Sections
6.02, 6.03, 6.04 and 6.05 in their entirety and replacing them with the
following:
"6.02 PRICE
The price to be paid by Buyer to Seller for Gas purchased and sold
and the service provided hereunder for the period of time commencing with the
Commencement Date will consist of the sum of the three (3) components
identified hereunder. The Price will be in U.S. dollars.
(a) Each Month, Buyer shall pay Seller a "Demand Charge" equal to
Seller's actual cost for that Month of reserving the firm
transportation required to transport the MDQ on NOVA to the Delivery
Point.
<PAGE>
- 3 -
(b) Each Month, Buyer shall pay Seller a "Reservation Charge" equal to the
product of the MDQ times the number of days in the Month times the
Reservation Charge. The Reservation Charge shall be as set forth from
time to time in Schedule "A" hereto.
(c) Each Month, Buyer shall pay Seller for each MMBtu of Gas delivered and
received at the Delivery Point, a "Commodity Charge" equal to a per
MMBtu price on a dry basis as set forth from time to time in Schedule
"A" hereto.
In the event the parties utilize index data in determining the
Commodity Charge component and such index data is no longer
ascertainable, for whatever reason, then, failing agreement between
Seller and Buyer on a new Commodity Charge within forty-five (45) days
of such event, the new Commodity Charge shall be determined by
arbitration pursuant to Article X hereof. Until a new Commodity Charge
has been determined the parties agree to use the last ascertainable
Commodity Charge. The new Commodity Charge shall be retroactive to the
date the index data became unascertainable and any necessary
adjustments shall be dealt with in accordance with Section 7.05 hereof.
If Buyer elects not to take Gas during any Month, Seller will be allowed to
sell that gas on an interruptible basis to third party purchasers.
The Demand Charge and the Reservation Charge shall be paid each Month
regardless of the quantity of Gas purchased and sold hereunder, except to the
extent that Seller fails to deliver Gas nominated.
6.03 FUTURE PRICE DETERMINATION
(a) The Parties agree that they will meet from time to time to
negotiate the Commodity Charge and Reservation Charge components
of the Price payable hereunder for subsequent Pricing Periods.
In any such negotiations or resulting arbitration with respect to
Price during the Term of this Agreement only the Commodity Charge
and Reservation Charge components of the Price shall be
redetermined and the Demand Charge component of the Price shall
not be subject to redetermination.
(b) Subject to 6.03 (a), the Parties agree to establish a new Price
for the next Pricing Period at least one hundred and twenty (120)
Days prior to the termination date of the current Pricing Period
and the Parties will commence procedures for such redetermination
no later than one hundred and eighty (180) Days prior to the
termination date of the current Pricing Period by either Party
giving fifteen (15) Days written notice to the other, to meet and
negotiate. Such Price, and the various components making up that
Price, will be effective for a period of time, as then agreed to,
and will become effective on the commencement of the next Pricing
Period. If neither Party has given written notice to the other to
renegotiate at least one hundred and eighty (180) Days prior to
the termination date of the current Pricing Period, then the LAST
Price in effect for the current Pricing Period shall continue in
effect for the next one year period which shall then become the
next Pricing Period.
<PAGE>
- 4 -
6.04 FAILURE TO REACH AGREEMENT ON PRICE
In the event that the Parties are unable to reach agreement on the
Price, or the Price components at least one hundred and twenty (120) Days
prior to the termination date of the current pricing period, as provided
pursuant to section 6.03 herein, either Party may, upon not less than fifteen
(15) days written notice to the other Party, have the Price determined
pursuant to the Arbitration provisions contained in Article X herein and
exclusively in accordance with the principles set forth in section 6.05
herein. Should no notice for Arbitration be given at least ninety (90) days
prior to the termination date of the current Pricing Period, the Price for
the next one year period, which shall then become the next Pricing Period,
shall continue to be the last Price in effect for the current Pricing Period.
6.05 PRICING PRINCIPLES
For each Pricing Period subsequent to the Pricing Period for which
the price of gas to be sold and purchased hereunder has been established and
specified, the Parties agree to determine Price by negotiation or, if
unsuccessful, by arbitration. If the Price for Gas delivered in any Pricing
Period is to be determined by arbitration, the arbitrators shall determine a
Price that, under the prevailing market circumstances for long term firm Gas
Supply and in the opinion of the arbitrators, is fair and reasonable to both
Buyer and Seller. In making such determination, the arbitrators shall limit
their consideration to the evidence which is presented by the Parties, and to
the extent that evidence is presented, shall base their determination upon
and shall give due consideration to each of the following criteria:
(i) The weighted average cost of gas paid by Buyer during the
next one year period for firm gas supplies with a term of two
(2) years or more;
(ii) The prices being paid during the next one year period for
other firm gas supplies by local distribution companies with
a term of two (2) years or more in the state of Montana; and,
(iii) The prices being paid during the next one year period for
other firm gas supplies by local distribution companies with
a term of two (2) years or more in the province of Alberta;
provided that the arbitrators shall consider the above matters in light of
the following:
(a) To the extent that evidence with respect to Prices for the next one
year period is not available or is insufficient, prices for the current
Pricing Period will be considered;
(b) The times at which the prices were agreed to between the respective
buyers and sellers;
(c) Differences in transportation costs relevant to establishing a point of
comparison at the Delivery Point;
(d) The similarities and dissimilarities between the service provided
hereunder and the sales and transportation arrangements under which
other gas is being sold for consumption in Buyer's market area and in
Alberta, including in particular but not limited to the similarities
and
<PAGE>
- 5 -
dissimilarities between the quality of service and the security of
supply provided hereunder and provided under such other arrangements;
and,
(e) Any other considerations in respect of which relevant evidence is
adduced by the Parties and which is relevant to the determination of
such matters.
In the event that a negotiated or arbitrated Price is determined for
a Pricing Period after commencement thereof, Seller shall retroactively
adjust its invoices to Buyer to the first Day of that Pricing Period, to take
into account the revised Price. Until a new Price is concluded and
retroactively implemented, the previous Price shall remain in effect. If the
Price settlement date exceeds sixty (60) Days past the Pricing Period
commencement, the retroactive invoice shall be adjusted for interest at the
prime rate pursuant to section 7.04."
7. The Contract is hereby amended by incorporating Schedule "A" attached
hereto as Schedule "A" to the Contract.
8. As amended by this Amending Agreement, the Contract is hereby
ratified and confirmed and shall continue in full force and effect.
IN WITNESS WHEREOF this Amending Agreement has been executed by the
parties hereto effective as of the day and year first above written.
SHELL CANADA LIMITED GREAT FALLS GAS COMPANY
Per: /s/ Eric Le Dain Per: /s/ Larry D. Geske
-------------------------- --------------------------
Name: ERIC LE DAIN Name: LARRY D. GESKE
------------------------- -------------------------
Title: MANAGER MARKETING - Title: PRESIDENT & CEO
------------------------ ------------------------
NE/MIDWEST U.S.
<PAGE>
SCHEDULE A
SCHEDULE A INCORPORATED INTO AND FORMING A PART OF THAT NATURAL GAS SALE AND
PURCHASE AGREEMENT BETWEEN SHELL CANADA LIMITED ("SELLER") AND GREAT FALLS
GAS COMPANY ("BUYER") DATED THE 20TH DAY OF JULY, 1992 AS AMENDED FROM TIME
TO TIME (THE "AGREEMENT")
All words and phrases used in this Schedule "A" shall have the same meaning
as provided for in the Agreement.
PRICING PERIOD: November 1, 1994 to November 1, 1996
RESERVATION CHARGE: During this Pricing Period the Reservation Charge as
defined in Section 6.02 of the Agreement shall be set at
$0.00 US./MMBtu.
COMMODITY CHARGE:
During this Pricing Period, the Commodity Charge component of the Price, as
defined in Section 6.02 of the Agreement shall be as follows:
1. For the period November 1, 1994 to November 1, 1995:
For 50% of the volume of Gas delivered each Month up to 50% of the MDQ,
the Commodity Charge shall be $1.58 US/MMBtu on a dry basis at the
Delivery Point, less the Demand Charge calculated on a US dollar per
MMBtu basis at a 100% load factor.
For 50% of the volume of Gas delivered each Month up to 50% of the MDQ,
the Commodity Charge shall be the Average Alberta Border (Empress) Spot
(one month) Firm (100% LF) price for such Month as reported in the
Canadian Gas Price Reporter published by Canadian Enerdata Ltd. plus
$0.25 US/MMBtu for the period November 1, 1994 to April 1, 1995; and
plus $0.05 US/MMBtu for the period April 1, 1995 to November 1, 1995,
less the Demand Charge calculated on a US dollar per MMBtu basis at a
100% load factor.
2. For the period November 1, 1995 to November 1, 1996;
For 100% of the volume of Gas delivered each Month, up to the MDQ, the
Commodity Charge shall be the Average Alberta Border (Empress) Spot
(one month) Firm (100% LF) price for such Month as reported in the
Canadian Gas Price Reporter published by Canadian Enerdata Ltd. plus
$0.05 US/MMBtu, less the Demand Charge calculated on a US dollar per
MMBtu basis at a 100% load factor.
Accepted and agreed to as of the 1st day of November, 1994.
SHELL CANADA LIMITED GREAT FALLS GAS COMPANY
Per: /s/ Eric Le Dain Per: /s/ Larry D. Geske
------------------------ ---------------------------
Name: ERIC LE DAIN Name: LARRY D. GESKE
----------------------- ---------------------------
Title: MANAGER MARKETING - Title: PRESIDENT & CEO
---------------------- --------------------------
NE/MIDWEST U.S.
<PAGE>
SCHEDULE "A"
SCHEDULE A INCORPORATED INTO AND FORMING A PART OF THAT NATURAL GAS SALE AND
PURCHASE AGREEMENT BETWEEN SHELL CANADA LIMITED ("SELLER") AND GREAT FALLS
GAS COMPANY ("BUYER") DATED THE 20TH DAY OF JULY, 1992 AS AMENDED FROM TIME
TO TIME (THE "AGREEMENT")
All words and phrases used in this Schedule "A" shall have the same meaning
as provided for in the Agreement.
PRICING PERIOD: November 1, 1996 to November 1, 1997
RESERVATION CHARGE: During this Pricing Period, the Reservation Charge as
defined in Section 6.02 of the Agreement shall be set at
$0.00 US./MMBtu.
COMMODITY CHARGE: During this Pricing Period, the Commodity Charge
component of the Price, as defined in Section 6.02 of
the Agreement shall be as follows:
$1.19 US/MMBtu on a dry basis at the Delivery Point.
FURTHER AMENDMENTS:
During the above Pricing Period, in place of the provisions dealing with
incurring a Shortfall Amount as set forth in Section 5.07 of the Agreement,
if on any Day Buyer does not purchase one hundred percent (100%) of the then
applicable MDQ, a Deficit will exist. The difference between the MDQ and the
amount actually taken by Buyer on any Day will be the Deficit for that Day.
On a Monthly basis, in accordance with Article VII of the Agreement, Buyer
shall pay Seller, at the Commodity Charge rate then in effect, for the
Deficit incurred on each Day during the preceding Month, regardless of
whether or not Buyer has been able to take, as hereinafter provided, the
Deficit Gas after it has been incurred. Buyer shall have the opportunity to
nominate and take Deficit Gas on any Day after it has been incurred, provided
however, that:
(i) Buyer shall first purchase 100% of the MDQ;
(ii) Seller's obligation to deliver Deficit Gas shall only be on
an interruptible basis;
(iii) Buyer shall pay Seller for any additional transportation
charges Seller incurs in delivering the Deficit Gas to the
Delivery Point; and
(iv) the maximum amount of Deficit Gas (or any Gas) that Seller
shall be obligated to deliver on any Day above the MDQ shall
be the IDQ limit set out in Section 5.06 of the Agreement.
If a Shortfall Amount was incurred in the Contract Year preceding the first
above referenced Pricing Period, the provisions of Section 5.07 regarding
Buyer's purchase of the Shortfall Amount in the Make-up Year shall apply in
that Pricing Period, however, subject to the same conditions as outlined
above in (i) through (iv) with respect to Deficit Gas, and further provided
that any Gas taken above the MDQ shall first be applied to Deficit Gas, then
to the Shortfall Amount and finally to any agreed upon interruptible gas
<PAGE>
pursuant to Section 5.06 of the Agreement. The Commodity Charge for the
Shortfall Amount shall be as specified in Section 5.07 of the Agreement.
Accepted and agreed to as of the day of , 1996.
--- -----------
SHELL CANADA LIMITED GREAT FALLS GAS COMPANY
Per: /s/ James Chunn Per: /s/ Larry D. Geske
-------------------------- -------------------------
Name: James Chunn Name: LARRY D. GESKE
------------------------- ------------------------
Title: MGR. - BC & WESTERN U.S. Title: President & CEO
------------------------ ------------------------
<PAGE>
GREAT FALLS GAS COMPANY
1992 STOCK OPTION PLAN
1. PURPOSE OF PLAN.
This Plan shall be known as the "GREAT FALLS GAS COMPANY 1992 STOCK
OPTION PLAN" and is hereinafter referred to as the "Plan". The purpose of the
Plan is to aid in maintaining and developing personnel capable of assuring the
future success of Great Falls Gas Company, a Montana corporation (the
"Company"), to offer such personnel additional incentives to put forth maximum
efforts for the success of the business, and to afford them an opportunity to
acquire a proprietary interest in the Company through stock options. Options
granted under this Plan may be either incentive stock options ("Incentive Stock
Options") within the meaning of Section 422 of the Internal Revenue Code of 1986
(the "Code"), or options which do not qualify as Incentive Stock Options.
2. STOCK SUBJECT TO PLAN.
Subject to the provisions of Section 12 hereof, the stock to be
subject to options under the Plan shall be the Company's authorized Common
Shares, $.15 par value per share. Such shares may be either authorized but
unissued shares, or issued shares which have been reacquired by the Company.
Subject to adjustment as provided in Section 12 hereof, the maximum number of
shares on which options may be exercised issued under this Plan shall be 50,000
shares. If an option under the Plan expires, or for any reason is terminated or
unexercised with respect to any shares, such shares shall again be available for
options thereafter granted during the term of the Plan.
<PAGE>
3. ADMINISTRATION OF PLAN.
(a) The Plan shall be administered by a committee (the "Committee") of
two or more directors of the Company, none of whom shall be officers or
employees of the Company and all of whom shall be "disinterested persons" with
respect to the Plan within the meaning of Rule 16b-3 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), or any successor rule or
regulation thereto.
(b) The Committee shall have plenary authority in its discretion, but
subject to the express provisions of the Plan: (i) to determine the purchase
price of the Common Stock covered by each option, (ii) to determine the
employees to whom and the time or times at which such options shall be granted
and the number of shares to be subject to such options, (iii) to determine the
terms of exercise of each option, (iv) to accelerate the time at which all or
any part of an option may be exercised, (v) to amend or modify the terms of any
option with the consent of the optionee, (vi) to interpret the Plan, (vii) to
prescribe, amend and rescind rules and regulations relating to the Plan, (viii)
to determine the terms and provisions of each option agreement under the Plan
(which agreements need not be identical), including the designation of those
options intended to be Incentive Stock Options, and (ix) to make all other
determinations necessary or advisable for the administration of the Plan,
subject to the exclusive authority of the Board of Directors under Section 13
herein to amend or terminate the Plan. The
-2-
<PAGE>
Committee's determinations on the foregoing matters, unless otherwise
disapproved by the Board of Directors of the Company, shall be final and
conclusive.
(c) The Committee shall select one of its members as its Chairman and
shall hold its meetings at such times and places as it may determine. A majority
of its members shall constitute a quorum. All determinations of the Committee
shall be made by not less than a majority of its members. Any decision or
determination reduced to writing and signed by all of the members of the
Committee shall be fully effective as if it had been made by a majority vote at
a meeting duly called and held. The grant of an option shall be effective only
if a written agreement shall have been duly executed and delivered by and on
behalf of the Company following such grant. The Committee may appoint a
Secretary and may make such rules and regulations for the conduct of its
business as it shall deem advisable.
4. ELIGIBILITY.
Incentive Stock Options may only be granted under this Plan to any
full or part-time employee (which term as used herein includes, but is not
limited to, officers and directors who are also employees) of the Company and of
its present and future subsidiary corporations within the meaning of Section
424(f) of the Code (herein called "subsidiaries"). Full or part-time employees,
directors who are not also employees, consultants or independent contractors to
the Company or one of its subsidiaries shall be eligible to receive options
which do not qualify as Incentive Stock Options. In determining the persons to
whom options shall be granted and the number of shares subject to such options,
the Committee may take into account
-3-
<PAGE>
the nature of services rendered by the respective employees or consultants,
their present and potential contributions to the success of the Company and such
other factors as the Committee in its discretion shall deem relevant. A person
who has been granted an option under this Plan may be granted additional options
under the Plan if the Committee shall so determine; provided, however, that for
Incentive Stock Options granted after December 31, 1986, to the extent the
aggregate fair market value (determined at the time the Incentive Stock Option
is granted) of the Common Shares with respect to which all Incentive Stock
Options are exercisable for the first time by an employee during any calendar
year (under all plans described in subsection (d) of Section 422 of the Code of
his employer corporation and its parent and subsidiary corporations) exceeds
$100,000, such options shall be treated as options which do not qualify as
Incentive Stock Options. Nothing in the Plan or in any agreement thereunder
shall confer on any employee any right to continue in the employ of the Company
or any of its subsidiaries or affect, in any way, the right of the Company or
any of its subsidiaries to terminate his or her employment at any time.
5. PRICE.
The option price for all Incentive Stock Options granted under the
Plan shall be determined by the Committee but shall not be less than 100% of the
fair market value of the Common Shares at the date of grant of such option. The
option price for options granted under the Plan which do not qualify as
Incentive Stock Options shall also be determined by the Committee but shall not
be less than 100%
-4-
<PAGE>
of the fair market value of the Common Shares at the date of grant of such
option. For purposes of the preceding two sentences and for all other valuation
purposes under the Plan, the fair market value of the Common Shares shall be (i)
the closing price of the Common Stock as reported for composite transactions if
the Common Stock is then traded on a national securities exchange, (ii) the last
sale price if the Common Stock is then quoted on the NASDAQ National Market
System, or (iii) the average of the closing representative bid and asked prices
of the Common Stock as reported on NASDAQ on the date as of which the fair
market value is being determined. If on the date of grant of any option
hereunder the Common Shares are not traded on an established securities market,
the Committee shall make a good faith attempt to satisfy the requirements of
this Section 5 and in connection therewith shall take such action as it deems
necessary or advisable.
6. TERM.
Each option and all rights and obligations thereunder shall expire on
the date determined by the Committee and specified in the option agreement. The
Committee shall be under no duty to provide terms of like duration for options
granted under the Plan, but the term of an Incentive Stock Option may not extend
more than ten (10) years from the date of grant of such option and the term of
options granted under the Plan which do not qualify as Incentive Stock Options
may not extend more than ten (10) years from the date of granting of such
option.
-5-
<PAGE>
7. EXERCISE OF OPTION.
(a) The Committee shall have full and complete authority to determine
whether an option will be exercisable in full at any time or from time to time
during the term thereof, or to provide for the exercise thereof in such
installments, upon the occurrence of such events (such as termination of
employment for any reason) and at such times during the term of the option as
the Committee may determine and specify in the option agreement.
(b) The exercise of any option granted hereunder shall only be
effective at such time that the sale of Common Shares pursuant to such exercise
will not violate any state or federal securities or other laws. Only to the
extent required in order to comply with Rule 16b-3 under the Exchange Act, in
the case of an option or other award granted to a person considered by the
Company as one of its officers or directors for purposes of Section 16 of the
Exchange Act, the terms of the option or other award will require that such
shares are not disposed of by such officer or director for a period of at least
six months from the date of grant.
(c) An optionee or grantee electing to exercise an option shall give
written notice to the Company of such election and of the number of shares
subject to such exercise. The full purchase price of such shares shall be
tendered with such notice of exercise. Payment shall be made to the Company in
cash (including bank check, certified check, personal check, or money order),
or, at the discretion of the Committee and as specified by the Committee, (i) by
delivering certificates for the Company's Common Shares already owned by the
optionee or grantee having a fair
-6-
<PAGE>
market value as of the date of grant equal to the full purchase price of the
shares, or (ii) by delivering the optionee's or grantee's promissory note, which
shall provide for interest at a rate not less than the minimum rate required to
avoid the imputation of income, original issue discount or a below-market-rate
loan pursuant to Sections 483, 1274 or 7872 of the Code or any successor
provisions thereto, or (iii) a combination of cash, the optionee's or grantee
promissory note and such shares. The fair market value of such tendered shares
shall be determined as provided in Section 5 herein. The optionee's or grantee's
promissory note shall be a full recourse liability of the optionee and may, at
the discretion of the Committee, be secured by a pledge of the shares being
purchased. Until such person has been issued the shares subject to such
exercise, he or she shall possess no rights as a shareholder with respect to
such shares.
8. INCOME TAX WITHHOLDING AND TAX BONUSES.
(a) In order to comply with all applicable federal or state income tax
laws or regulations, the Company may take such action as it deems appropriate to
ensure that all applicable federal or state payroll, withholding, income or
other taxes, which are the sole and absolute responsibility of an optionee or
grantee under the Plan, are withheld or collected from such optionee or grantee.
In order to assist an optionee or grantee in paying all federal and state taxes
to be withheld or collected upon exercise of an option which does not qualify as
an Incentive Stock Option hereunder, the Committee, in its absolute discretion
and subject to such additional terms and conditions as it may adopt, shall
permit the optionee or
-7-
<PAGE>
grantee to satisfy such tax obligation by (i) electing to have the Company
withhold a portion of the shares otherwise to be delivered upon exercise of such
option with a fair market value, determined in accordance with Section 5 herein,
equal to such taxes or (ii) delivering to the Company Common Shares other than
the shares issuable upon exercise of such option with a fair market value,
determined in accordance with Section 5, equal to such taxes.
(b) The Committee shall have the authority, at the time of grant of an
option under the Plan or at any time thereafter, to approve tax bonuses to
designated optionees or grantees to be paid upon their exercise of options
granted hereunder. The amount of any such payments shall be determined by the
Committee. The Committee shall have full authority in its absolute discretion to
determine the amount of any such tax bonus and the terms and conditions
affecting the vesting and payment thereafter.
9. ADDITIONAL RESTRICTIONS.
The Committee shall have full and complete authority to determine
whether all or any part of the Common Shares of the Company acquired upon
exercise of any of the options granted under the Plan shall be subject to
restrictions on the transferability thereof or any other restrictions affecting
in any manner the optionee's or grantee's rights with respect thereto, but any
such restriction shall be contained in the agreement relating to such options.
10. TEN PERCENT SHAREHOLDER RULE.
-8-
<PAGE>
Notwithstanding any other provision in the Plan, if at the time an
option is otherwise to be granted pursuant to the Plan the optionee owns
directly or indirectly (within the meaning of Section 424(d) of the Code) Common
Shares of the Company possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or its parent or
subsidiary corporations, if any (within the meaning of Section 422(b)(6) of the
Code), then any Incentive Stock Option to be granted to such optionee pursuant
to the Plan shall satisfy the requirements of Section 422(c)(5) of the Code, and
the option price shall be not less than 110% of the fair market value of the
Common Shares of the Company determined as described herein, and such option by
its terms shall not be exercisable after the expiration of five (5) years from
the date such option is granted.
11. NON-TRANSFERABILITY.
No option granted under the Plan shall be transferable by an optionee
or grantee, otherwise than by will or the laws of descent or distribution.
Except as otherwise provided in an option agreement, during the lifetime of an
optionee or grantee, the option shall be exercisable only by such optionee or
grantee.
12. DILUTION OR OTHER ADJUSTMENTS.
If there shall be any change in the Common Shares through merger,
consolidation, reorganization, recapitalization, dividend in the form of stock
(of whatever amount), stock split or other change in the corporate structure,
appropriate adjustments in the Plan and outstanding options shall be made by the
Committee. In the event of any such changes, adjustments shall include, where
-9-
<PAGE>
appropriate, changes in the aggregate number of shares subject to the Plan and
the number of shares and the price per share subject to outstanding options, in
order to prevent dilution or enlargement of option rights.
13. AMENDMENT OR DISCONTINUANCE OF PLAN.
The Board of Directors may amend or discontinue the Plan at any time.
Subject to the provisions of Section 12 no amendment of the Plan, however, shall
without shareholder approval: (i) increase the maximum number of shares under
the Plan as provided in Section 2 herein, (ii) decrease the minimum price
provided in Section 5 herein, (iii) extend the maximum term under Section 6, or
(iv) modify the eligibility requirements for participation in the Plan. The
Board of Directors shall not alter or impair any option theretofore granted
under the Plan without the consent of the holder of the option.
14. TIME OF GRANTING.
Nothing contained in the Plan or in any resolution adopted or to be
adopted by the Board of Directors or by the shareholders of the Company, and no
action taken by the Committee or the Board of Directors (other than the
execution and delivery of an option agreement), shall constitute the granting of
an option hereunder.
15. EFFECTIVE DATE AND TERMINATION OF PLAN.
(a) The Plan was approved by the Board of Directors on September 1,
1992, and shall be approved by the shareholders of the Company within twelve
(12) months thereof.
-10-
<PAGE>
(b) Unless the Plan shall have been discontinued as provided in Section 13
hereof, the Plan shall terminate September 1, 2002. No option may be granted
after such termination, but termination of the Plan shall not, without the
consent of the optionee or grantee, alter or impair any rights or obligations
under any option theretofore granted.
-11-
<PAGE>
GREAT FALLS GAS COMPANY
INCENTIVE STOCK OPTION PLAN
THIS AGREEMENT, made in Great Falls, Montana on this 6th day of November,
1992, between Great Falls Gas Company (hereinafter referred to as "Company")
and hereinafter referred to as "Optionee"), an employee of the Company or a
subsidiary thereof.
WHEREAS, the Company desires to maintain and develop personnel capable of
assuring the future success of the Company, to offer such personnel additional
incentives to put forth maximum efforts for the success of the business, and to
afford them an opportunity to acquire a proprietary interest in the Company
through stock options:
NOW, THEREFORE, in consideration of the mutual agreements stated hereinafter,
the Company and Optionee agree that:
1. STOCK OPTION. The Company hereby grants to the Optionee and the Optionee
accepts an incentive option to purchase 2200 shares of the Company's stock
at any time prior to November 6, 1997 at a purchase price of $14.25 per
share, all subject to the terms, provisions and conditions of this
Agreement and of the Company's 1984 Stock Option Plan (hereinafter referred
to as the "Plan"), which is incorporated herein by reference. Should there
be any inconsistency between the provisions of this Agreement and the Plan,
the provisions of the Plan shall control. This option may be exercised in
the following manner. In the first twelve months from the date of this
agreement no more than twenty percent (440) of the options granted herein
may be exercised; in the next succeeding twelve months no more than forty
percent (880) of said options shall be exercisable, in the next succeeding
twelve months no more than sixty percent (1320) of said options shall be
exercisable; in the next succeeding twelve months no more than eighty
percent (1760) of the options shall be exercisable. Other than the
foregoing restriction this Agreement shall be exercised in the manner
provided in the Plan as to all or any part of the shares of stock subject
to the option from time to time during the option period, and exercise of
the option as to part of such shares shall not exhaust or terminate the
option. The option shall be exercised as to not less than One Hundred (100)
shares at any one time, however. Payment of the option price shall be made
concurrently with the exercise of the option as provided in the Plan.
2. LIMITATION ON AMOUNT. In any calendar year, the aggregate fair market value
(such value being determined as of the time the option is granted) of stock
for which Optionee may be granted Incentive Stock Options shall not exceed
One Hundred Thousand Dollars (100,000) plus any unused limit carryover to
such year. (Any unused limit carryover amount shall be
<PAGE>
determined as prescribed by Section 422A(c)(4) of the Internal Revenue Code
of 1954, or similar provisions in succeeding enactments, and the
regulations and rulings promulgated thereunder). In determining the maximum
permissible value of Incentive Stock Options which may be granted to
Optionee in any calendar year, all Incentive Stock Options granted under
Incentive Stock Option Plans of the Company and its divisions or subsidiary
corporations shall be considered in the aggregate. This annual $100,000
limitation shall not apply to any stock option which is not an Incentive
Stock Option as defined by Section 433A of the Internal Revenue Code of
1954 (or similar provisions in succeeding enactments).
3. EXERCISE OF OPTION. All Incentive Stock Options must be exercised
sequentially; i.e., no Incentive Stock Option may be exercised by any one
individual while there is outstanding any Incentive Stock Option to that
same individual which was granted prior to the grant date of the Incentive
Stock Option sought to be exercised. Any outstanding Incentive Stock Option
shall be treated as outstanding until such option is exercised in full or
expires by reason of lapse of time.
4. PERCENT SHAREHOLDER RULE. Notwithstanding any other provision in the Plan,
if at the time an option is otherwise to be granted pursuant to the Plan
the Optionee owns directly or indirectly (within the meaning of Section
425(d) of the Code), common stock of the Company possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of
the Company or its parent or subsidiary corporations, if any (within the
meaning of Section 422A(c)(8) of the Code, and the option price shall be
not less than 110% of the fair market value of the common stock of the
Company determined as described herein, and such option by its terms shall
not be exercisable after the expiration of five (5) years from the date
such option is granted.
5. NON-TRANSFERABILITY AND TERMINATION OF EMPLOYMENT. No option granted under
the Plan shall be transferable by an Optionee, otherwise than by will or
the laws of descent of distribution as provided in Section 9(c) of the
Plan. During the lifetime of an Optionee, the option shall be exercisable
only by such Optionee. In the event that Optionee ceases to be employed
by the Company or its subsidiaries, if any, for any reason other than his
gross and willful misconduct or his death or disability, such Optionee
shall have the right to exercise the option at any time within three (3)
months after such termination of employment to the extent of the full
number of shares he was entitled to purchase under the option on the date
of termination, subject to the condition that no option shall be
exercisable after the expiration of the term of the option.
6. DILUTION OR OTHER ADJUSTMENTS. If there shall be any change in the common
stock through merger, consolidation, reorganization, recapitalization,
stock dividend (of whatever amount), stock split or other
<PAGE>
change in the corporate structure, appropriate adjustments in the Plan and
outstanding options shall be made by the Committee. In the event of any
such changes adjustments shall include, where appropriate, changes in the
aggregate number of shares subject to the Plan and the number of shares and
the price per share subject to outstanding options.
7. RIGHTS OF OPTIONEE NOT THAT OF SHAREHOLDER. The Optionee shall have no
rights as a shareholder in respect of shares as to which this option shall
not have been exercised and payment made as provided in the Plan, and the
Optionee shall not be considered or treated as a record owner of shares
with respect to which this option is exercised until the date that the
stock certificate or certificates are actually issued and such issuance
reflected on the stock records of the Company.
8. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of and be
binding upon the heirs, legatees, legal representatives, successors and
assigns of the parties hereto.
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly executed by
its Compensation Committee thereunto duly authorized, and the Optionee has
signed the same, in duplicate originals, on the date and year first above
written.
GREAT FALLS GAS COMPANY
/s/ Ian B. Davidson /s/ Thomas N. McGowen, Jr.
- ------------------------------ --------------------------
Ian B. Davidson Thomas N. McGowen, Jr.
/s/ Timothy J. Moylan
--------------------------
Timothy Moylan
/s/ John P. Allen
--------------------------
Optionee
<PAGE>
ENERGY WEST MANAGEMENT INCENTIVE PLAN
The following plan is designed to reward plan participants for building
shareholder value. This is generally accomplished through efficient operations
and innovative revenue production. It is measured by exceeding earnings per
share targets and favorable comparison with other utilities' returns on equity.
A. Eligible Participants: President
Vice Presidents
Division Managers, Managers,
Directors and Supervisors
B. General Policy Criteria:
1. The incentive will be paid to a participant on the basis of the
regular compensation earned during the year (exclusive of any incentive pay
received during the fiscal year).
2. The participant must be employed by the Company at the end of the
fiscal year to be eligible for incentive pay.
3. All earnings figures referenced throughout this plan description are
"net earnings" after all taxes, contributions to ESOP and other benefit
plans and after all payments associated with this or any other incentive
plans.
4. Specific Performance Objectives are established and monitored by the
supervisor of each participant. Accomplishment of SPO's is recommended by
the senior officer to the CEO who approves all SPO accomplishments.
5. Any Specific Performance Objective changes from those approved at the
beginning of the fiscal year must be submitted in writing to the senior
officer who must agree and forward to the President for approval.
6. This plan does not create contractual rights for the participant. The
sole purpose for this plan description is to describe how the incentive
will be paid in years that the decision is made to pay an incentive. The
plan can be terminated, modified or suspended by the Board of Directors or
Senior Management, at any time without notice to participants.
7. Interpolation will be utilized when results fall between the data
points on the attached schedules.
8. All calculations utilized in the plan will be rounded to the closest
100th (two decimal places).
<PAGE>
C. Funding Mechanism:
Step 1. Each fiscal year a corporate earnings per share (EPS) threshold
will be established using the three year modified EPS target calculated
pursuant to the methodology found on Exhibit "A". Division EPS targets are
then derived from this consolidated EPS target. The 1996 targets are found
on Exhibit "A-1".
Step 2. 50% of the incentive pool will be determined by the consolidated
results. The consolidated results are measured by two equally weighted
elements. The first element is calculated by ascertaining the percentage by
which consolidated EPS exceeds the Fiscal Year EPS target. The percentage
increase in EPS over the target increase is then compared to the schedule
appearing on Exhibit "B" which will provide 25% of the total incentive pool
(one half of this part of the funding mechanism). The second element is
determined by the Company's rank against the Edward D. Jones Gas
Distribution Companies determined on the basis of return on equity, (as
displayed on Exhibit "C"). The return on equity for the Company will be
determined by the most recent report available from Edward D. Jones from
its Gas Distribution Company group. The rank of ENERGY WEST compared to
this 34 company group is then compared to the matrix on Exhibit "C" to
calculate the balance of this part of the incentive. Once these two
elements have been calculated, one half of the funding pool has been
determined.
Step 3. The remaining 50% of the incentive pool will be calculated by
determining the amount by which the division's actual EPS for the fiscal
year exceeds the target found on Exhibit "A-1". That percentage will then
be utilized with Exhibit "B" to determine the percent of salary
attributable to this portion of the pool. (The incentive for ENERGY WEST
Services employees will be calculated 100% under Step 2 unless a % of their
incentive is allocated to another entity at the beginning of the fiscal
year.)
Step 4. Certain employees will have an additional step if they have
responsibility for more than one division. In that instance the portion of
the incentive attributable to the division in step 3 will be allocated
among the divisions or entities for which that individual has
responsibility. This allocation occurs at the beginning of the fiscal year.
This allocation will be proposed by the affected participant and approved
by the participant's supervisor and the CEO.
Step 5. Once the incentive pool is established by the above steps, 80% of
the payout will be determined by the percentage of SPO achievement. The
remainder of the incentive is determined by applying the remaining 20% to
the pool. (These percentages will be established each fiscal year.)
<PAGE>
The following illustrations are intended to illustrate the operation of the
incentive plan.
Illustration 1.
Assumptions. Manager Earns $40,000 in base salary.
Corporate EPS for 1996 is $.66.
Corporate Return on Equity ranks No. 6 on the
E. D. Jones survey of distribution companies.
Division EPS for this managers division is 8%
above the target.
The Manager earned 85% of his SPOs.
Step 1. Exhibit "A" provides the consolidated company EPS target of $.63. The
assumed consolidated earnings of $.66 results in growth of 5% over
the target.
Step 2. The consolidated portion of the incentive is then calculated using
Exhibits "B" and "C". Exhibit "B" provides the percentage related to
5% growth in EPS for a manager of 6.4%.
$40,000 x 6.4% = $2,560 x 50% = $1,280
Exhibit "C" provides the percentage attributable to the Edward D.
Jones ranking of No. 6 which is 21.8% for a manager.
$40,000 x 21.8% = $8,720 x 50% = $4,360
The consolidated portion of the plan is determined by adding the two
elements ($1,280 + $4,360 = $5,640) which is then multiplied by the
50% weighing attributable to the consolidated portion of the plan
resulting in $2,820 available for the pool.
Step 3. The division is assumed to have earned 8% over the target resulting in
a 12.8% factor from Exhibit "B"
$40,000 x .128 = $5,120 x 50% (weighing for the division portion
of the plan) = $2,560
Step 5. The total pool is determined by adding the consolidated pool of $2,820
to the Division portion of $2,560 resulting in a pool of $5,380. SPO
achievement is assumed to be 85 % and is applicable to 80% of the
pool. Therefore $5,380 x 80% = $4,304 This is the amount subject to
SPO achievement. $4,304 x 85% = $3.658.40. 20% of the pool was not
subject to SPO achievement and is derived as follows:
$5,380 x 20% = $1.076 which is added to the $3,658.4 to arrive at a
total incentive for the year of $4,734.40.
<PAGE>
Illustration No. 2.
Assumptions: Manager earns $40,000 in base salary.
Corporate EPS for 1996 is $.68
Corporate Return on Equity is No. 4 on the E.D. Jones survey
of distribution companies.
Manager has been assigned 70% responsibility for division A
and 30% for division B.
Division A exceeded its EPS target by 7%
Division B did not meet its target.
SPO achievement is assumed to be 90%
Step 1. Exhibit "A" provides the consolidated company EPS target of $.63. The
assumed consolidated earnings of $.68 is 8% over the target.
Step 2. The consolidated portion of the incentive is then calculated using
Exhibits "B" and "C". Exhibit "B" provides the percentage related to
8% growth in EPS for a manager of 12.8%.
$40,000 x .128 = $5,120 x 50% = $2,560
Exhibit "C" provides the percentage attributable to the Edward D.
Jones ranking of No. 4 which is 27.5% for a manager.
$40,000 x .275 = $11,000 x 50% = $5,500
The total pool for this part of the incentive is then determined by
adding the $5,500 and the $2,560 (8,060) and multiplying by 50%
weighing for the consolidated portion of the plan or $4,030.
Step 3. Division A is assumed to have exceeded its EPS target by 7% resulting
in a 9% factor from Exhibit "B".
40,000 x .09 = $3,600
Step 4. Since this division represents 70% of the managers responsibility the
$3,600 is multiplied by the 70% resulting in $2,520.
Division B did not achieve its EPS target. The total funding from the
division part of the plan is, therefore, $2,520. Since the division
weighing is 50% it is multiplied by 50% to arrive at $1,260.
Step 5. The total pool is determined by adding the consolidated pool of $4,030
to the division portion of $1,260 resulting in a pool of $5,290. SPO
achievement is assumed to be 90%. It is applicable to 80% of the pool
- $5,290 x 80% = $4,232. This is the amount subject to SPO
achievement. 90% SPO achievement results in .9 x $4,232 = $3,808.80.
20% of the pool is not subject to SPO achievement and is calculated as
follows: $4,030 x 20% = $806. This amount is combined with the
$3.808.80 to arrive at a total incentive of $4,016.80.
<PAGE>
EXHIBIT (21.1) SUBSIDIARIES OF THE REGISTRANT
The voting stock of the following subsidiaries is 100% owned by the Registrant:
State or Sovereign
of
Name of Subsidiary Incorporation
------------------ ------------------
Energy West Resources, Inc. (formerly Vesta, Inc.) Montana
Montana Sun, Inc. Montana
Rocky Mountain Fuels, Inc. Montana
E-3
<PAGE>
Exhibit 23.1--Consent of Independent Auditors
We consent to the use of our report dated August 15, 1996, incorporated by
reference in the Annual Report (Form 10-K) of Energy West Incorporated for
the year ended June 30, 1996 and the Registration Statement on Form S-3 and
related Prospectus pertaining to the Dividend Reinvestment Plan, with respect
to the consolidated financial statements, as amended, and the related
financial statement schedule, as amended, included in this Form 10-K/A1.
/s/ ERNST & YOUNG LLP
--------------------------
ERNST & YOUNG LLP
Denver, Colorado
July 3, 1997
E-4
<TABLE> <S> <C>
<PAGE>
<ARTICLE> UT
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 26,089,830
<OTHER-PROPERTY-AND-INVEST> 21,666
<TOTAL-CURRENT-ASSETS> 9,092,204
<TOTAL-DEFERRED-CHARGES> 2,290,973
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 37,494,673
<COMMON> 348,198
<CAPITAL-SURPLUS-PAID-IN> 2,635,540
<RETAINED-EARNINGS> 8,416,119
<TOTAL-COMMON-STOCKHOLDERS-EQ> 11,399,857
0
0
<LONG-TERM-DEBT-NET> 10,045,714
<SHORT-TERM-NOTES> 7,175,000
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 348,044
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 8,526,058
<TOT-CAPITALIZATION-AND-LIAB> 37,494,673
<GROSS-OPERATING-REVENUE> 31,318,008
<INCOME-TAX-EXPENSE> 670,025
<OTHER-OPERATING-EXPENSES> 28,353,172
<TOTAL-OPERATING-EXPENSES> 29,023,197
<OPERATING-INCOME-LOSS> 2,294,811
<OTHER-INCOME-NET> 214,902
<INCOME-BEFORE-INTEREST-EXPEN> 2,509,713
<TOTAL-INTEREST-EXPENSE> 1,242,738
<NET-INCOME> 1,266,975
0
<EARNINGS-AVAILABLE-FOR-COMM> 8,416,119
<COMMON-STOCK-DIVIDENDS> 927,763
<TOTAL-INTEREST-ON-BONDS> 709,872
<CASH-FLOW-OPERATIONS> 606,199
<EPS-PRIMARY> 0.55
<EPS-DILUTED> 0
</TABLE>
