Item 1.01 Entry into a Material Definitive Agreement.
Quest Midstream Partners, L.P. Purchase and Sale Agreement
On October 15, 2007, the Board of Directors of Quest Midstream GP, LLC ( “Quest Midstream
GP”), a subsidiary of Quest Resource Corporation (the “Company”), and the general partner of Quest
Midstream Partners, L.P. (the “Partnership”), approved the Partnership’s entry into a Purchase and
Sale Agreement (“Enbridge Purchase Agreement”) with Enbridge Midcoast Energy, L.P. and Midcoast
Holdings No. One, L.L.C. (the “Sellers”), dated October 9, 2007, whereby the Partnership would
purchase all of the membership interests in the two general partners of Enbridge Pipelines (KPC),
the owner of a 1,120 mile interstate gas pipeline (the “KPC Pipeline”) running from Oklahoma to
Missouri. In addition, the Partnership would purchase certain lateral pipelines related to the KPC
Pipeline. Under the Enbridge Purchase Agreement, the Partnership would acquire the membership
interests in the two general partners and the related lateral pipelines for $133 million in cash,
subject to a working capital adjustment. The Enbridge Purchase Agreement provides that the
transaction will be treated as an asset sale under Section 338(h)(10) of the Internal Revenue Code.
The closing is subject to completion of the closing conditions under the Enbridge Purchase
Agreement, including obtaining applicable government approvals and other customary closing
conditions, no later than January 1, 2008.
Because of certain third party rights associated with the market laterals, it is likely that
the Partnership will not be able to purchase these market laterals at the same time it purchases
the membership interests. If these third party rights are exercised, the Partnership may not be
able to purchase these market laterals at all, but would receive a reduction in the purchase price
paid to the Sellers.
Quest Midstream Partners, L.P. Private Placement Purchase Agreement
On October 15, 2007, the Board of Directors of Quest Midstream GP approved the Partnership’s
entry into a Purchase Agreement (the “Private Placement Purchase Agreement”) with Quest Midstream
GP, the Company, and a group of institutional investors led by Alerian Capital Management, LLC (the
“Investors”), dated October 15, 2007. Pursuant to the Private Placement Purchase Agreement, the
Partnership would sell up to 3,750,000 common units, representing an approximate 27.12% interest in
the Partnership, to the Investors, for $20.00 per common unit, or approximately $75 million. In
connection with the consummation of the private placement, Quest Midstream GP would purchase 76,531
general partner units to maintain its 2% general partner interest in the Partnership and would then
own 276,531 general partner units and all of the incentive distribution rights in the Partnership.
The net proceeds of the offering will be used to fund a portion of the purchase price for the
acquisition of the KPC Pipeline described above. The closing is subject to completion of the
closing conditions under the Enbridge Purchase Agreement being met or waived and other customary
closing conditions.
The Private Placement Purchase Agreement contains representations and warranties and
indemnification agreements that are customary for transactions of this nature. The offering was
conducted pursuant to Section 4(2) of the Securities Act of 1933, as amended (the “Securities
Act”), and Rule 506 of Regulation D promulgated under the Securities Act. The securities offered have not been registered
under the Securities Act and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.