<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 2, 1996
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
----------------
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
----------------
MARKWEST HYDROCARBON, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 3970 84-1352233
(STATE OR JURISDICTION (PRIMARY STANDARD (I.R.S. EMPLOYER
OF INDUSTRIAL IDENTIFICATION NO.)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
5613 DTC PARKWAY, SUITE 400
ENGLEWOOD, COLORADO 80111
(303) 290-8700
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
BRIAN T. O'NEILL
SENIOR VICE PRESIDENT AND CHIEF OPERATING OFFICER
MARKWEST HYDROCARBON, INC.
5613 DTC PARKWAY, SUITE 400
ENGLEWOOD, COLORADO 80111
(303) 290-8700
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
COPIES OF COMMUNICATIONS TO:
GEORGE A. HAGERTY, ESQ. KERRY C. L. NORTH, ESQ.
KEVIN A. CUDNEY, ESQ. BAKER & BOTTS, L.L.P.
DORSEY & WHITNEY LLP 2001 ROSS AVENUE, SUITE 800
REPUBLIC PLAZA BLDG., SUITE 4400 DALLAS, TEXAS 75201-2980
370 SEVENTEENTH STREET (214) 953-6500
DENVER, COLORADO 80202
(303) 629-3400
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION
STATEMENT.
----------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
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- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE (2) REGISTRATION FEE
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par
value................. 2,875,000 shares $13.00 $37,375,000 $12,888
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Includes 375,000 shares of Common Stock that may be purchased by the
Underwriters from the Registrant to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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- -------------------------------------------------------------------------------
<PAGE>
MARKWEST HYDROCARBON, INC.
FORM S-1 REGISTRATION STATEMENT
CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>
REGISTRATION STATEMENT
ITEMS AND HEADING LOCATION IN PROSPECTUS
---------------------- ----------------------
<S> <C>
1. Forepart of the Registration
Statement and Outside Front
Cover Page of Prospectus....... Outside Front Cover Page
2. Inside Front and Outside Back
Cover Pages of Prospectus...... Inside Front Cover Page; Outside Back Cover
Page
3. Summary Information, Risk
Factors and Ratio of Earnings Prospectus Summary; The Company; Risk
to Fixed Charges............... Factors
4. Use of Proceeds................ Use of Proceeds
5. Determination of Offering Underwriting; Risk Factors
Price..........................
6. Dilution....................... Risk Factors; Dilution
7. Selling Security Holders....... Not Applicable
8. Plan of Distribution........... Outside Front Cover Page; Underwriting
9. Description of Securities to be Description of Capital Stock
Registered.....................
10. Interests of Named Experts and Not Applicable
Counsel........................
11. Information with Respect to the
Registrant
a.Description of Business....... Prospectus Summary; The Company; Risk
Factors; Management's Discussion and
Analysis of Financial Condition and
Results of Operations; Business; Certain
Transactions; note 1 to Notes to Financial
Statements.
Descriptionbof.Property......... Business--Facilities
c.Legal Proceedings............. Business--Legal Proceedings
d. Market Price and Dividends of
Equity Securities............ Outside Front Cover Page; Dividend Policy;
Description of Capital Stock; Certain
Transactions
e.Financial Statements.......... Financial Statements
f.Selected Financial Data....... Prospectus Summary; Selected Consolidated
Financial Information
g.Supplementary Financial Not Applicable
Information.....................
h. Management's Discussion and
Analysis of Financial
Condition and Results of Management's Discussion and Analysis of
Operations................... Financial Condition and Results of
Operations
i. Changes in and Disagreements
with Accountants on
Accounting and Financial
Disclosure................... Not Applicable
j.Directors and Executive Management; Principal Stockholders
Officers........................
k.Executive Compensation........ Management
l. Security Ownership of Certain
Beneficial Owners and
Management................... Principal Stockholders
m. Certain Relationships and
Related Transactions......... Management; Certain Transactions
12. Disclosure of Commission
Position on Indemnification for
Securities Act Liabilities..... Not Applicable
</TABLE>
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED AUGUST 2, 1996
2,500,000 SHARES
[LOGO OF MARKWEST APPEARS HERE]
MARKWEST HYDROCARBON, INC.
COMMON STOCK
The 2,500,000 shares of Common Stock, par value $0.01 per share (the "Common
Stock"), offered hereby are being offered by MarkWest Hydrocarbon, Inc. (the
"Company"). Prior to this offering there has been no public market for the
Common Stock. It is currently estimated that the initial public offering price
will be between $11.00 and $13.00 per share. See "Underwriting" for the factors
considered in determining the initial public offering price.
Application will be made to list the Common Stock on the Nasdaq National
Market under the symbol "MWHX."
FOR A DISCUSSION OF CERTAIN RISKS OF AN INVESTMENT IN THE SHARES OF COMMON
STOCK OFFERED HEREBY, SEE "RISK FACTORS" ON PAGES 10-16.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
-----------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS* COMPANY+
<S> <C> <C> <C>
Per Share................................... $ $ $
Total++..................................... $ $ $
</TABLE>
- -----
* The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
+ Before deducting expenses of the offering payable by the Company estimated to
be $585,000.
++The Company has granted the Underwriters a 30-day option to purchase up to
375,000 additional shares of Common Stock on the same terms per share solely
to cover over-allotments, if any. If such option is exercised in full, the
total price to public will be $ , the total underwriting discounts and
commissions will be $ and the total proceeds to Company will be $ . See
"Underwriting."
-----------
The Common Stock is being offered by the Underwriters as set forth under
"Underwriting" herein. It is expected that the delivery of certificates
therefor will be made at the offices of Dillon, Read & Co. Inc., New York, New
York, on or about , 1996, against payment therefor. The Underwriters
include:
DILLON, READ & CO. INC. GEORGE K. BAUM & COMPANY
The date of this Prospectus is , 1996.
<PAGE>
At the top center of the inside front cover page is the MarkWest logo and
centered below that is the phrase "Operating Facilities."
The center of the page contains an outlined sketch of five contiguous states
including Michigan, Ohio, West Virginia, Kentucky and Tennessee. These states
are positioned and connected as they would be on a map of the United States.
The location of several of MarkWest's operating facilities are indicated
with a circled star within the states described above.
Six pictures are included on the page, with one line from each circled star
indicated on the map to each picture. A narrative description is written
directly beneath each picture. The following pictures and narrative
descriptions appear on the page: Michigan Production Facility (top left of
page); West Memphis Terminal (middle left of page); Boldman NGL Extraction Plant
(bottom left of page); Compressor at Kenova Extraction Plan (top right of page);
Siloam Fractionation Plant (middle right of page); and Church Hill Rail Facility
(bottom right of page).
[GRAPHICS]
----------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>
PROSPECTUS SUMMARY
The following summary should be read in conjunction with, and is qualified in
its entirety by, the more detailed information and financial statements and
notes thereto appearing elsewhere in this Prospectus. Unless otherwise
indicated, all information in this Prospectus assumes the Underwriters' over-
allotment option is not exercised. As used in this Prospectus, the terms
"Company" and "MarkWest" refer, unless the context requires otherwise, to the
Company, its subsidiaries, joint venture entities managed by the Company or its
subsidiaries, or their interests therein, and include the business activities
of MarkWest Hydrocarbon Partners, Ltd. See "Reorganization."
THE COMPANY
MarkWest Hydrocarbon, Inc. ("MarkWest" or the "Company") is engaged in
natural gas processing and related services. The Company, which has grown
substantially since its founding in 1988, is the largest processor of natural
gas in Appalachia and recently established a venture to provide natural gas
processing services in western Michigan. The independent gas processing
industry has grown rapidly in the last 10 years, and the Company believes there
will be substantial opportunities to grow its gas processing operations within
these existing core regions and in new markets. The Company provides
compression, gathering, treatment, and natural gas liquid ("NGL") extraction
services to natural gas producers and pipeline companies and fractionates NGLs
into marketable products for sale to third parties. The Company also purchases,
stores and markets natural gas and NGLs and has begun to conduct strategic
exploration for new natural gas sources for its processing activities. In the
twelve months ended December 31, 1995, MarkWest produced approximately 92
million gallons of NGLs and marketed approximately 127 million gallons of NGLs.
The Company's processing and marketing operations are concentrated in two
core areas which are significant gas producing basins: the southern Appalachian
region of eastern Kentucky, southern West Virginia, and southern Ohio (the
"Appalachian Core Area"), and western Michigan (the "Michigan Core Area"). At
the Company's processing plants, natural gas is treated to remove contaminants,
and NGLs are extracted and fractionated into propane, normal butane, isobutane
and natural gasoline. The Company then markets the fractionated NGLs to
refiners, petrochemical companies, gasoline blenders, multistate and
independent propane dealers, and propane resellers. In addition to processing
and NGL marketing, the Company engages in terminalling and storage of NGLs in a
number of NGL storage complexes in the central and eastern United States, and
operates propane terminals in Arkansas and Tennessee.
During 1996, the Company has taken several key steps intended to expand its
operations. In January 1996, the Company commissioned a new natural gas liquids
extraction plant in Wayne County, West Virginia, which replaced a 1958 vintage
extraction facility owned and operated by Columbia Gas Transmission Company
("Columbia Gas"). Because the Company owns and operates this new facility, the
Company will generate increased revenue, and fee revenues related to processing
operations will represent a greater proportion of total revenues. In addition,
the Company believes this new facility will generate greater NGL recovery from
natural gas, reduce downtime for maintenance, and significantly decrease fuel
costs compared to the replaced facility.
In May 1996, the Company established West Shore Processing Company, LLC
("West Shore"), a venture in western Michigan, which the Company will develop
as its Michigan Core Area. West Shore has exclusive gathering, treatment and
processing agreements with companies owned by Tenneco Ventures Corporation
("Tenneco") and ENCAP Investments LLC ("ENCAP") covering the natural gas
production from all wells and leases owned by it within western Michigan. West
Shore also is negotiating agreements with several exploration and production
companies that would result in additional dedication of natural gas production
to the gathering, treatment and processing facilities of West Shore. The
natural gas streams to be dedicated to West Shore will primarily be produced
from an extension of the Northern Niagaran
3
<PAGE>
Reef trend in western Michigan. To date, over 2.5 trillion cubic feet of
natural gas have been produced from the Northern Niagaran Reef trend. Upon
completion of the first two phases of development, West Shore's processing
operations are expected to have 30 million cubic feet per day (MMcf/D) of
capacity provided by Shell Offshore, Inc. ("Shell"), and approximately 25
MMcf/D of dedicated production from currently drilled and proven wells. With a
current pipeline capacity of 35 MMcf/D and deliverabilities of individual wells
commonly exceeding 5 MMcf/D, the Company expects that demand at West Shore will
exceed capacity. The Company also has entered into an agreement with Callon
Exploration Company ("Callon") to conduct exploration activity in the Michigan
Core Area. See "--Recent developments."
INDUSTRY OVERVIEW
Natural gas processing and related services represent a major segment of the
oil and gas industry, providing the necessary service of converting natural gas
into marketable energy products. When natural gas is produced at the wellhead,
it must be gathered, and in some cases compressed or pressurized, for
transportation via pipelines (described as gathering services) to gas
processing plants. The processing plants remove water vapor, solids and other
contaminants, such as hydrogen sulfide or carbon dioxide in the natural gas
stream that would interfere with pipeline transportation or marketing of the
gas to consumers and also extract the NGLs from the natural gas (described as
treatment and extraction services, respectively). The NGLs are then subjected
to various processes that cause the NGLs to separate, or fractionate, into
marketable products such as propane, normal butane, isobutane and natural
gasoline (described as fractionation services).
Over the past 10 years, independent gas processing has experienced
significant growth. In 1995, independent natural gas processing companies
accounted for 319,000 barrels per day of NGL production, or approximately 23%
of total U.S. NGL production by the 20 largest U.S. natural gas producers,
compared to less than 4% of such producers' NGL production in 1985. The
increase in the independent gas processing industry has resulted in part from
the divestiture by major energy companies and interstate pipeline companies of
their gas gathering and processing assets and the decision by many such
companies to outsource their gas processing needs.
An important factor expected to contribute to the continuing growth of
independent processing companies is the upward trend of gas consumption and
production in the United States. Natural gas consumption in the United States
has increased from 16.7 trillion cubic feet (Tcf) per year in 1986 to 21.9 Tcf
per year in 1995, and is forecast to increase to 24.0 Tcf per year by the year
2000. The number of natural gas rigs in service also has recently increased.
From June 1995 to June 1996, the number of natural gas rigs in service rose
from 340 to 464. This natural gas rig count is the highest in over four years,
and, as a percentage of total oil and gas rigs in service, the highest in the
last decade. Many newly discovered gas wells and gas fields will require access
to gathering and processing infrastructure, providing significant opportunities
for growth-oriented independent gas processing companies such as MarkWest.
STRATEGY
The Company's primary objective is to achieve sustainable growth in cash flow
and earnings by increasing the volume of natural gas that it gathers and
processes and the volume of NGLs that it produces and markets. To achieve this
objective, the Company employs a number of related strategies.
Geographic Core Areas. The Company emphasizes opportunities for investment in
geographic core areas where there is significant potential to achieve a
position as the area's dominant natural gas processor. The Company believes
that growth in core areas can be achieved by developing processing facilities
both in areas where a large energy or pipeline company requires processing
services and in areas where there is significant potential for natural gas
production but not significant processing capacity.
4
<PAGE>
Long-Term Strategic Relationships. The Company seeks strategic relationships
with the dominant pipelines and gas producers in each area in which the Company
operates. In the Appalachian Core Area, MarkWest owns three processing plants
that process natural gas or NGLs dedicated by Columbia Gas. In its Michigan
Core Area, the Company has entered into gas supply and processing relationships
with Shell and Michigan Production Company, LLC ("MPC"), a company jointly
owned by Tenneco and ENCAP.
NGL Marketing. The Company strives to maximize the downstream value of its
gas and liquid products by marketing directly to distributors and resellers.
Particularly in the area of NGL marketing, the Company minimizes the use of
third party brokers and instead supports a direct marketing staff focused on
refiners, petrochemical companies, gasoline blenders, and multistate and
independent propane dealers. Additionally, the Company uses its own truck and
tank car fleet, as well as its own terminals and storage facilities, to provide
supply reliability to its customers. All of these efforts have allowed the
Company to maintain pricing of its NGL products at a premium to Gulf Coast spot
prices.
Cost-Efficient Operations. The Company seeks a competitive advantage by
utilizing in-house processing and operating expertise to provide lower-cost
service. To provide competitive processing services, the Company emphasizes
facility design, project management and operating expertise that permits
efficient installation and operation of its facilities. The Company has in-
house engineering personnel who oversee the design and construction of the
Company's processing plants and equipment.
Acquisitions. The Company believes that there are significant opportunities
to make strategic acquisitions of gathering and processing assets because of
the divestiture by major energy companies and interstate pipeline companies of
their gas gathering and processing assets. The Company pursues acquisitions
that can add to existing core area investments or can lead to new core area
investments.
Exploration as a Tool to Enhance Gas Processing. The Company maintains a
strategic gas exploration effort that is designed to permit the Company to gain
access to additional natural gas supplies within its existing core areas and to
gain foothold positions in production regions that the Company might develop as
new core processing areas.
RECENT DEVELOPMENTS
In May 1996, the Company entered into arrangements for the establishment of
West Shore, a company jointly owned with Michigan Energy Company, LLC ("MEC").
At the present time, the assets of West Shore consist of a 31-mile sour gas
pipeline that is situated in Manistee and Mason Counties, Michigan (the "Basin
Pipeline"), and a number of processing contracts. West Shore will be dedicated
to natural gas gathering, treatment and processing and NGL marketing in western
Michigan. MarkWest is the operator of West Shore.
The Company has entered into agreements to construct approximately 50 miles
of pipeline to provide access to processing services to existing shut-in wells
owned by MPC and providing it the right to construct a new 50 million cubic
feet per day plant to extract NGLs. In addition, the Company expects either to
construct a new treatment plant or to expand Shell's existing plant capacity to
treat the sour gas predominant in the Michigan Core Area. The activities
contemplated by such agreements, together with the further development of West
Shore and the Basin Pipeline, are referred to herein as the "Michigan Project."
Substantially all of the natural gas produced from the western region of the
Michigan Core Area is sour. While several successful large wells have been
developed in the region, the natural gas producers have lacked adequate
gathering and processing facilities for sour gas, and development of the trend
has been inhibited as a result. With the additional capacity to be provided by
West Shore's sour gas pipeline
5
<PAGE>
and processing and treatment facilities, the Company expects further
development in western Michigan which will create demand for West Shore's
gathering and processing services. See "Business--Natural Gas Processing and
Related Services--Michigan Core Area."
REORGANIZATION
The Company was incorporated as a Delaware corporation in 1996 to act as the
successor to the business of MarkWest Hydrocarbon Partners, Ltd. ("MarkWest
Partnership"), a Colorado limited partnership formed in 1988. Upon
effectiveness of the Offering, the Company will succeed to the business, assets
and liabilities of MarkWest Partnership. See "Reorganization" and "Certain
Transactions." The description of the Company and its business included in this
Prospectus assumes the consummation of the reorganization transactions.
The Company's principal executive offices are located at 5613 DTC Parkway,
Suite 400, Englewood, Colorado 80111. Its telephone number is (303) 290-8700.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company.... 2,500,000 shares
Common Stock to be Outstanding after
the Offering (1)...................... 7,500,000 shares
Use of Proceeds........................ Repayment of indebtedness (including
indebtedness incurred to make
distributions to partners of MarkWest
Partnership) and capital expenditures
in the Michigan Core Area. See "Use of
Proceeds" and "Certain Transactions--
Partnership Distributions."
Proposed Nasdaq National Market
Symbol................................ MWHX
</TABLE>
- --------
(1) Excludes (i) 147,715 shares issuable upon exercise of stock options
outstanding as of the effective date of the Offering with a weighted average
exercise price of $8.13 per share under the Company's 1996 Stock Incentive
Option Plan; (ii) 452,285 shares reserved for future issuance under the 1996
Stock Incentive Plan; and (iii) 20,000 shares reserved for future issuance
under the Company's 1996 Non-Employee Director Stock Option Plan.
6
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION AND OTHER DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Six months
Year ended December 31, ended June 30,
------------------------- ----------------
1993 1994 1995 1995 1996
------- ------- ------- ------- -------
(unaudited)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues:
Plant revenue.................... $34,212 $33,056 $33,823 $17,225 $18,045
Terminal and marketing revenue... 19,756 13,666 13,172 5,200 9,831
Oil and gas and other revenue.... 1,783 1,830 1,075 501 744
Gain on sale of oil and gas
properties (1).................. -- 4,275 -- -- --
------- ------- ------- ------- -------
Total revenues............... 55,751 52,827 48,070 22,926 28,620
Costs and expenses:
Plant feedstock purchases........ 23,155 21,582 17,308 8,608 8,538
Terminal and marketing
purchases....................... 18,845 11,497 11,937 4,829 8,683
Operating expenses............... 6,504 4,393 4,706 2,005 2,979
General and administrative
expenses........................ 3,747 3,654 4,189 2,064 2,140
Depreciation, depletion and
amortization.................... 1,565 1,942 1,754 852 1,326
Reduction in carrying value of
assets (2)...................... -- 2,950 -- -- --
------- ------- ------- ------- -------
Total costs and expenses..... 53,816 46,018 39,894 18,358 23,666
Operating income.................. 1,935 6,809 8,176 4,568 4,954
Interest expense, net of interest
income........................... (1,395) (1,689) (352) (300) (466)
------- ------- ------- ------- -------
Net income before extraordinary
item............................. 540 5,120 7,824 4,268 4,488
Extraordinary loss on
extinguishment of debt........... -- -- (1,750) -- --
------- ------- ------- ------- -------
Net income (3).................... $ 540 $ 5,120 $ 6,074 $ 4,268 $ 4,488
======= ======= ======= ======= =======
Pro Forma Information (unaudited):
Historical income before income
taxes extraordinary item and
cumulative effect of change in
accounting principle............. $ 540 $ 5,120 $ 7,824 $ 4,268 $ 4,488
Pro forma provision for income
taxes............................ 228 1,424 2,937 1,667 1,670
------- ------- ------- ------- -------
Pro forma net income (3).......... $ 312 $ 3,696 $ 4,887 $ 2,601 $ 2,818
======= ======= ======= ======= =======
Pro forma net income, as adjusted
(4).............................. $ 5,204 $ 3,138
======= =======
Pro Forma per Common Share:
Pro forma net income.............. $ .06 $ .74 $ .98 $ .52 $ .56
======= ======= ======= ======= =======
Pro forma weighted average common
shares outstanding (5)........... 4,878 4,964 4,990 4,990 5,041
======= ======= ======= ======= =======
Pro forma net income, as
adjusted......................... $ .90 $ .49
======= =======
Pro forma weighted average shares
outstanding, as adjusted (5)..... 5,771 6,431
======= =======
Other Data:
NGL production: (gallons)......... 93,502 99,735 92,239 49,826 43,094
EBITDA (6)........................ $ 3,500 $ 7,426 $ 9,930 $ 5,420 $ 6,280
Capital expenditures.............. $ 6,941 $ 1,442 $12,426 $ 5,297 $ 2,522
</TABLE>
<TABLE>
<CAPTION>
June 30, 1996
----------------------------------
Pro Forma As
Actual Pro Forma (7) Adjusted (8)
------- ------------- ------------
(unaudited)
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents.................. $ 666 $ 896 $ 5,763
Working capital............................ 5,144 5,374 10,340
Total assets............................... 43,991 44,221 49,088
Total debt................................. 12,350 22,350 --
Total partners' capital/stockholders'
equity.................................... 26,464 13,488 40,804
</TABLE>
7
<PAGE>
- --------
(1) Represents the gain on the sale of a significant portion of the Company's
oil and gas producing assets for proceeds of approximately $10.1 million.
(2) Represents a $2.2 million write-down to estimated realizable value of an
isomerization unit that was shut down, a $347,000 charge relating to a catalyst
used in the isomerization process and a $361,000 charge for the write-down of
non-productive equipment related to various business development projects.
(3) Net income for all periods presented includes no income tax effects
because the Company operated as a partnership (non-taxable entity) during these
periods. Pro forma net income is presented for purposes of comparability
assuming the Company was a taxable entity for all periods presented.
(4) Pro forma net income, as adjusted, reflects pro forma net income adjusted
for the reduction in interest expense resulting from the application of $12.4
million of estimated proceeds of this Offering to repay indebtedness
outstanding prior to the Partnership Distribution (as defined herein). See "Use
of Proceeds" and the Unaudited Pro Forma Condensed Consolidated Financial
Statements included elsewhere in this Prospectus.
(5) See the Unaudited Pro Forma Condensed Consolidated Financial Statements
included elsewhere in this Prospectus.
(6) EBITDA represents earnings before interest income, interest expense,
income taxes, depreciation, depletion and amortization, gain on sale of oil and
gas properties, reduction in carrying value of assets and extraordinary items.
EBITDA is not intended to represent cash flows for the period, nor has it been
presented as an alternative to operating income as an indicator of operating
performance. It should not be considered in isolation or as a substitute for
measures of performance prepared in accordance with generally accepted
accounting principles. See the Company's Consolidated Statements of Cash Flows
in the Consolidated Financial Statements included elsewhere in this Prospectus.
EBITDA is included in this Prospectus because it is a basis upon which the
Company assesses its financial performance.
(7) Gives effect to the Reorganization, the accrual of $3.2 million of
deferred income tax liabilities and the Partnership Distribution (as
hereinafter defined). See "Reorganization" and the Unaudited Pro Forma
Condensed Consolidated Financial Statements included elsewhere in this
Prospectus.
(8) Further adjusted to reflect the sale of 2,500,000 shares of Common Stock
offered hereby and the application of the estimated net proceeds from the
Offering. See "Use of Proceeds."
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CERTAIN DEFINITIONS
The definitions set forth below apply to the terms used in this Prospectus.
"NGLs" means natural gas liquids. "Treatment" refers to the removal of water
vapor, solids and other contaminants, such as hydrogen sulfide or carbon
dioxide, contained in the natural gas stream that would interfere with pipeline
transportation or marketing of the gas to consumers. "Extraction" means
removing liquid and liquefiable hydrocarbons from natural gas. "Fractionation"
is the process by which the NGL stream is subjected to controlled temperatures,
causing the NGLs to separate, or fractionate, into the separate NGL products
ethane, propane, butane, isobutane and natural gasoline. "Processing" includes
treatment, extraction and fractionation. "Processing contracts" are those
supply contracts dedicated to Company facilities whereby title to the gas and
marketing rights for such gas may remain with the gas producer. The term
"dedicated reserves" means natural gas reserves subject to long-term contracts
providing for the dedication to the Company's facilities for purchase or
processing of all gas produced from all formations on designated properties for
periods typically ranging from 10 to 20 years. The terms "Tcf" means trillion
cubic feet of natural gas, "Bcf" means billion cubic feet of natural gas,
"MMcf" means million cubic feet of natural gas and "Mcf" means thousand cubic
feet of natural gas. The terms "MGal/D" or "MGal per day" mean thousand gallons
per day and "MMcf/D" or "MMcf per day" mean million cubic feet per day. "EPA"
means the Environmental Protection Agency and "FERC" means the Federal Energy
Regulatory Commission. The term "sour gas" means natural gas which contains
sulfur compounds in excess of a specified amount.
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RISK FACTORS
In addition to the other information contained in this Prospectus, the
following factors should be considered carefully in evaluating the Company and
its business before purchasing any of the shares of Common Stock offered
hereby.
COMMODITY PRICE RISKS
The Company's products, including NGLs, natural gas and related by-products,
are commodities. As such, their prices are often subject to material changes
in response to relatively minor changes in supply and demand, general economic
conditions and other market conditions over which the Company has no control.
Other conditions affecting the Company's business include the availability and
prices of competing commodities and of alternative energy and feedstock
sources (primarily oil), government regulation, industry-wide inventory
levels, the seasons, the weather and the impact of energy conservation
efforts. The Company's principal NGL product is propane, sales of which
accounted for approximately 69% of the Company's total revenues during 1995
and approximately 74% of the Company's total revenues during the six months
ended June 30, 1996. Propane sold to the Company's customers is used primarily
for home heating, and therefore the demand tends to be seasonal, increasing
sharply in the winter months. Demand for, and prices of, propane also depend,
to a large extent, upon the severity of the weather in the Company's operating
areas during the winter months. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--General," "--Seasonality" and
"Business--Industry Overview."
Under the Company's keep-whole contracts, which accounted for approximately
70% of the Company's total revenues during 1995 and approximately 58% of the
Company's total revenues during the six months ended June 1996, a principal
cost of processing gas is the reimbursement to the natural gas producers for
the energy (measured in BTUs) extracted from the natural gas stream in the
form of NGLs and consumed as fuel during processing, less the amount of energy
the Company is contractually entitled to retain. Profitability under such
contracts is largely influenced by the margin between NGL sales prices and the
cost of such reimbursement (which cost is directly related to the price of
natural gas), and may be negatively affected by increases in natural gas
prices. A contraction of the margin between the two prices may result in a
reduction in the Company's operating margin. A prolonged contraction of such
margin could have a material adverse effect on the financial condition and
results of operations of the Company. See "Business--Natural Gas Processing
and Related Services--Gas Processing Contracts and Natural Gas Supply."
AVAILABILITY OF NATURAL GAS SUPPLY
Natural gas is the source of the Company's NGLs. To maintain throughput in
its NGL extraction and fractionation systems, the Company must continually
contract to process additional natural gas provided from new or existing
sources. Future natural gas supplies available for processing at the Company's
plants will be affected by a number of factors that are not within the
Company's control, including partial or complete shut downs of major pipelines
supplying the Company's processing plants, the depletion rate of gas reserves
currently connected and the extent of exploration for, production and
development of, and demand for natural gas in the areas in which the Company
operates. Over 95% of the natural gas processed by the Company is dedicated
under contracts with remaining terms of one year or more. However, long-term
contracts do not protect the Company from shut-ins or supply curtailments by
gas suppliers or from depletion of gas reserves. Although the Company has
historically been successful in contracting for new gas supplies and in
renewing gas supply contracts as they have expired, there can be no assurance
that the Company will in the future be successful in renewing or increasing
its access to natural gas supply or the throughput of its processing
facilities. See "Business--Natural Gas Processing and Related Services."
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DEPENDENCE ON MAJOR PIPELINES
In recent years, all of the Company's gas volume has been delivered through
the Columbia Gas pipeline gathering systems. Columbia Gas has, from time to
time, sold portions of its transmission and gathering systems. The Company has
been informed by Columbia Gas that it intends to engage in negotiations with
third parties regarding the possible sale of all or a portion of the gathering
systems that provide throughput to the Company's plants. If Columbia Gas were
to sell such systems or change its policies significantly with respect to gas
transported for producers, other sources of natural gas might have to be
obtained. There can be no assurance that adequate alternative sources of
natural gas will be available or that such sources will be available at prices
that are as favorable to the Company as existing arrangements. See "Business--
Natural Gas Processing and Related Services."
CERTAIN RISKS OF NGL AND NATURAL GAS MARKETING
The profitability of the NGL and natural gas marketing operations of the
Company depends in large part on the ability of the Company's management to
assess and respond to changing market conditions in negotiating natural gas
purchase and/or processing agreements and NGL and natural gas sales
agreements. The inability of management to respond appropriately to changing
market conditions could have a negative effect on the Company's profitability.
The duration of the Company's natural gas processing contracts range from one-
time spot purchase and processing agreements to 15 years. Under certain
longer-term agreements, the Company is obligated to purchase or sell specified
quantities of natural gas at prices related to the market price. Although the
Company attempts to match its long-term purchase obligations with long-term
sales obligations, it is still subject to price risk, particularly where the
index or market for determining the purchase price under a purchase contract
is different from the index or market for determining the sales price under
the corresponding sales contract. Because longer-term purchase contracts may
permit some variation in the amount the producer is obligated to deliver or a
purchaser is obligated to purchase, matched contracts may result in an
imbalance of the natural gas volumes the Company is obligated to purchase and
sell. See "Business--Gas Processing Contracts and Natural Gas Supply."
CERTAIN RISKS OF OIL AND GAS EXPLORATION AND PRODUCTION ACTIVITIES
To date, the Company has conducted only limited exploration and production
activities for new natural gas sources as a supporting function for its
processing services. However, the Company expects to make significant
investments in exploration and production activities in the Michigan Core Area
and elsewhere. Exploration and production activities are subject to many
risks, including the risk that no commercially productive reservoirs will be
encountered. There can be no assurance that the Company's natural gas
exploration efforts will be productive or that the Company will recover all or
any portion of its investment in such activities. Drilling for natural gas may
involve unprofitable efforts, not only from dry wells, but also from wells
that are productive but do not produce sufficient net revenues to return a
profit after drilling, operating and other costs. The cost of drilling,
completing and operating wells is often uncertain. The Company's drilling
operations may be curtailed, delayed or canceled as a result of numerous
factors, many of which are beyond the Company's control, including a
substantial or extended decline in the price for oil and natural gas, title
problems, weather conditions, compliance with governmental requirements and
shortages or delays in the delivery of equipment and services. See "Business--
Exploration and Production."
RISKS RELATING TO THE MICHIGAN PROJECT
In May 1996, the Company entered into a number of agreements providing for
the development of gathering, treatment and processing facilities in the
Michigan Core Area. See "Business--Natural Gas Processing and Related
Services--Michigan Core Area." There can be no assurance that the projects
proposed by the Company in Michigan can be completed in the time frame
projected or within the current budget or that upon completion the Company
will be able to successfully integrate the newly developed
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assets into the Company's business. In addition, certain of the assets
acquired in the Michigan Core Area have a history of losses. There can be no
assurance that the Company will be able to operate its Michigan Core Area
assets in a profitable manner or recover all or any portion of its investment
in the Michigan Core Area.
GENERAL BUSINESS RISKS
The Company and its affiliates are subject to all of the risks generally
associated with the gathering, processing, transportation and storage of
natural gas and NGLs, including damage to its own and third-party pipelines,
storage facilities, related equipment and surrounding properties caused by
weather and other acts of God, construction and farm equipment, automobiles,
fires and explosions, as well as leakage of natural gas and spills of NGLs.
The Company's exploration and production operations are subject to hazards and
risks inherent in drilling for and production of oil and natural gas, such as
fires, natural disasters, explosions, encountering formations with abnormal
pressures, blowouts, cratering, pipeline ruptures and spills, any of which
could result in the loss of hydrocarbons, environmental pollution, personal
injury claims and other damage to the property of the Company and others. The
Company's operations in the Michigan Core Area are subject to additional risks
resulting from the processing and treatment of sour gas, including an
increased risk of property damage, bodily injury or death from the highly
toxic nature of sour gas. The Company's operating storage facilities
incorporate certain primary and backup equipment which, in the event of
mechanical failure, might take some time to replace, and the operation of such
storage facility could be materially impaired. The Company does not fully
insure against such risks. See "Business--Operational Risks and Insurance."
POTENTIAL VARIABILITY IN QUARTERLY OPERATING RESULTS
The Company's quarterly revenues and operating results have varied
significantly in the past and are likely to vary substantially from quarter to
quarter in the future. Quarterly revenues and operating results may fluctuate
as a result of changes in availability of and prices for natural gas and
changes in demand for gas and NGLs because of weather and variability in
demand for NGLs used as feedstocks in the petrochemical, refining and other
industries. Approximately 69% of the Company's total revenues during 1995 and
approximately 74% of the Company's total revenues during the six months ended
June 1996 resulted from the sale of propane. The strongest demand for propane
and the highest propane sales margins generally occur during the winter
heating season. As a result, the Company recognizes the greatest proportion of
its operating income during the first and fourth quarters of the year.
Operating results may also vary based upon the prices of natural gas purchased
by the Company. Because of the foregoing factors, the Company's operating
results for any particular quarterly period may not be indicative of results
for future periods and there can be no assurance that the Company will be able
to achieve or maintain profitability on a quarterly or annual basis in the
future. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Results of Operations."
DEPENDENCE ON CERTAIN CUSTOMERS
Sales to Ashland Petroleum Company and Ashland Chemical Company
(collectively, "Ashland") and Ferrellgas, L.P. ("Ferrellgas") accounted for
14% and 8%, respectively, of the Company's revenues during the first six
months of 1996 and 18% and 7%, respectively, of the Company's revenues during
1995. The existing contracts with Ashland expire in August 1996. Negotiations
for renewal of these contracts have begun, but there can be no assurance that
these contracts will be renewed or, if renewed, that the terms of the new
contracts will be as favorable to the Company as its existing contracts. The
existing contracts with Ferrellgas expire April 30, 1997. To the extent that
Ashland, Ferrellgas and other customers may reduce volumes under existing
contracts, the Company would be adversely affected unless it were able to make
comparably profitable arrangements with other customers. See "Business--Sales
and Marketing."
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GOVERNMENT REGULATION
Many aspects of the gathering, processing, marketing and transportation of
gas and NGLs by the Company are subject to federal, state and local laws and
regulations that can have a significant effect upon its operations. For
example, construction and operation of the Company's facilities require
governmental permits and approvals. Changes to federal laws and regulations
applicable to interstate transportation of gas implemented primarily during
the last five years have encouraged competition in nationwide markets for
natural gas sales and have fundamentally changed the business and regulatory
environment in which the Company markets and sells natural gas. Many of these
regulatory changes have been promulgated by the FERC. FERC regulation is still
evolving and is subject to future modifications by the FERC and the courts.
The Company cannot predict the final requirements of the FERC initiatives or
their effect on the availability or cost of transportation services to the
Company or natural gas supplies associated with such transportation services.
See "Business--Government Regulation."
The Company's Kenova extraction plant was built to replace an older plant
owned by Columbia Gas. Columbia Gas has initiated proceedings with FERC
seeking abandonment approval for the replaced plant. The Company believes that
its gas processing plants are exempt from FERC jurisdiction, and has
specifically requested a ruling from FERC confirming that the new Kenova
extraction plant is exempt from FERC jurisdiction. There can be no assurance,
however, that FERC will confirm such exemption. See "Business--Government
Regulation."
ENVIRONMENTAL MATTERS
Certain aspects of the Company's activities are subject to laws and
regulations designed to protect the environment. The cost of compliance with
such environmental laws that affect the Company can be substantial and could
have a materially adverse effect on the Company's financial condition.
Additionally, these laws could impose liability for remediation costs or
result in civil or criminal penalties for non-compliance. Environmental laws
frequently impose "strict liability" on property owners, facility operators
and certain other persons, which means that in some situations the Company
could be liable for cleanup costs resulting from improper conduct or
conditions caused by previous property owners, operators, lessees or other
persons not associated with the Company. Blowouts, ruptures or spills
occurring in connection with the Company's exploration and production
activities, as well as accident or breakage in any of the Company's natural
gas gathering, processing or related facilities, or at the Company's NGL
storage facilities, could subject the Company to liability for substantial
cleanup costs for resulting spills, leaks, emissions or other damage to the
environment or other property. See "Business--Environmental Matters."
COMPETITION
The Company's competitors in its respective lines of business include major
integrated oil and gas companies, affiliates of major interstate and
intrastate pipeline companies and national and local natural gas gatherers,
NGL brokers and distributors of varying size, financial resources and
experience. Many of these competitors, particularly those affiliated with
major integrated oil and gas and interstate and intrastate pipeline companies,
have financial resources substantially greater than those of the Company and
control supplies of natural gas and NGLs substantially greater than those
available to the Company. In addition, producers of natural gas and NGLs have
the ability to sell directly to customers in competition with the Company and
in periods of ample supply may do so at prices below the prices in the
Company's natural gas and NGLs sales contracts. Certain regulatory actions of
the FERC have also increased competition in natural gas and NGL marketing. See
"Business--Competition" and "--Government Regulation."
DEPENDENCE ON KEY PERSONNEL
The Company is highly dependent on a limited number of key management
personnel, particularly John M. Fox, its Chief Executive Officer, Brian T.
O'Neill, its Chief Operating Officer and Arthur Denney, its Vice President of
Engineering and Business Development. The Company's future success will also
depend, in part, on its ability to attract and retain highly qualified
personnel. There can be no assurance
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that the Company will be successful in hiring or retaining qualified
personnel. The loss of key personnel to death, disability or termination, or
the inability to hire and retain qualified personnel, could have a material
adverse effect on the Company's business, financial condition and results of
operations. The Company has key-person life insurance on Messrs. Fox and
O'Neill. See "Management."
RISKS PERTAINING TO ACQUISITIONS
An important element of the Company's business strategy has been, and
continues to be, to expand through acquisitions. The Company's future growth
is partially dependent upon its ability to identify suitable acquisitions and
effectively integrate acquired assets with the Company's operations. There can
be no assurance that suitable assets will be available for acquisition by the
Company, that such assets will be available on terms acceptable to the Company
or that competition for such assets will not render such acquisitions
economically infeasible. In addition, there can be no assurance that financing
will be available to fund future acquisitions, or, if available, that the cost
of such funds will be available on terms favorable to the Company. In
connection with certain acquisitions, the Company may also be required to
assume certain liabilities, including environmental liabilities, known or
unknown, in connection with future acquisitions. See "--Environmental
Matters."
NO PRIOR PUBLIC MARKET; DETERMINATION OF OFFERING PRICE; POSSIBLE VOLATILITY
OF STOCK PRICE
Prior to this Offering, there has been no public market for the Company's
Common Stock and there can be no assurance that an active trading market for
the Common Stock will develop or be sustained after this Offering. In the
event that the Company's Common Stock is thinly traded, stockholders may not
be able to sell a significant amount of Common Stock at the price quoted or at
all. The initial public offering price for the Common Stock will be determined
by negotiation between the Company and the Managing Underwriters based on
several factors and may bear no relationship to the market price of the Common
Stock subsequent to this Offering. Following this Offering, the market price
for the Common Stock may be highly volatile depending on various factors,
including the general economy, stock market conditions, announcements by the
Company, its suppliers or competitors and fluctuations in the Company's
operating results. In addition, the stock market historically has experienced
volatility which has affected the market price of securities of many companies
and which has sometimes been unrelated to the operating performance of such
companies. The trading price of the Common Stock could also be subject to
significant fluctuations in response to variations in quarterly results of
operations, changes in earnings estimates by analysts, governmental regulatory
action, general trends in the industry and overall market conditions, and
other factors. See "Underwriting."
CONTROL BY SIGNIFICANT STOCKHOLDERS
After giving effect to the Offering, John M. Fox, the Company's Chief
Executive Officer, and Brian T. O'Neill, the Company's Chief Operating
Officer, (collectively, the "Significant Stockholders"), will control
approximately 57% of the outstanding Common Stock (54% if the Underwriters'
over-allotment option is exercised in full). If they decide to vote together,
these stockholders would be able to elect all of the Company's directors,
control the management and policies of the Company and determine the outcome
of any matter submitted to a vote of the Company's stockholders. Provisions of
the Company's Certificate of Incorporation also strengthen the control of the
Significant Stockholders over the Company and may act to reduce the likelihood
of a successful attempt to take over the Company or acquire a substantial
amount of Common Stock without their consent. See "Principal Stockholders" and
"Description of Capital Stock."
CONFLICTS OF INTEREST
Currently, the Company and MAK-J Energy Partners, Ltd. ("MAK-J Energy"), an
entity controlled by John M. Fox, the President and Chief Executive Officer of
the Company, own 49% and 51%
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undivided interests, respectively, in certain oil and gas properties that the
Company operates pursuant to joint venture agreements governing such
properties. See "Business--Exploration and Production" and "Certain
Transactions--Investments with Affiliate." Pursuant to the agreements, the
Company provides certain management and administrative services related to the
properties for which MAK-J Energy pays the Company a monthly fee. While the
amount of the monthly fee will in the future be subject to renegotiation and
approval by the Company's independent directors, the monthly fee for fiscal
1996 was not negotiated on an arm's length basis. Moreover, conflicts of
interest may arise regarding such oil and gas activities, including decisions
regarding expenses and capital expenditures and the timing of the development
and exploitation of the properties.
Mr. Fox has agreed that as long as he is an officer or director of the
Company and for two years thereafter, he will not, directly or indirectly,
participate in any future oil and gas exploration or production activities
with the Company except and to the extent that the Company's independent and
disinterested directors deem it advisable and in the best interests of the
Company to include one or more additional participants, which participants may
include entities controlled by Mr. Fox. Additionally, Mr. Fox has agreed that
as long as he is an officer or director of the Company and for two years
thereafter, he will not, directly or indirectly participate in any future oil
and gas exploration or production activity that may be in competition with
exploration or production activities of the Company except and to the extent
that Mr. Fox has first offered the Company the opportunity to participate in
that activity and the Company's independent and disinterested directors deem
it advisable and in the best interests of the Company not to participate in
that activity. The terms of any future transactions between the Company and
its directors, officers, principal stockholders or other affiliates, or the
decision to participate or not participate in transactions offered by the
Company's directors, officers, principal stockholders or other affiliates will
be approved by a majority of the Company's independent and disinterested
directors. The Company's Board of Directors will use such procedures in
evaluating their terms as are appropriate considering the fiduciary duties of
the Board of Directors under Delaware law. In any such review the Board may
use outside experts or consultants including independent legal counsel, secure
appraisals or other market comparisons, refer to generally available
statistics or prices or take such other actions as are appropriate under the
circumstances. Although such procedures are intended to ensure that
transactions with affiliates will be on an arm's length basis, no assurance
can be given that such procedures will produce such result.
POSSIBLE ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE CERTIFICATE OF
INCORPORATION AND BYLAWS
The Certificate of Incorporation and Bylaws of the Company include certain
provisions that may be deemed to have anti-takeover effects and may delay,
defer, or prevent a takeover attempt that a stockholder of the Company might
consider to be in the best interest of the Company or its stockholders. These
provisions authorize 5,000,000 shares of preferred stock that may be issued
from time to time by the Board of Directors of the Company with such powers,
rights, preferences and limitations as may be designated by the Board of
Directors. The Company's Bylaws provide that directors are elected in three
classes for a three-year term for each class. This provision limits the
ability of a controlling stockholder to change the composition of the Board of
Directors for at least two years. The Company also is subject to Section 203
of the Delaware General Corporation Law ("Section 203") regulating corporate
takeovers. Section 203 prevents Delaware corporations from engaging, under
certain circumstances, in a business combination with any "interested
stockholder" for three years after the date such stockholder became an
"interested stockholder." See "Description of Capital Stock--Change of Control
Provisions."
DILUTION
Purchasers of Common Stock in the Offering will experience immediate and
substantial dilution in the net tangible book value per share of Common Stock
from the initial public offering price. See "Dilution."
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SHARES ELIGIBLE FOR FUTURE SALE
The availability for sale of certain shares of Common Stock held by existing
stockholders of the Company after this Offering could adversely affect the
market price of the Common Stock. Prior to the Offering, the Company will have
outstanding 5,000,000 shares of its Common Stock. In addition, the Company
will have 147,715 shares reserved for issuance upon the exercise of options
granted under the Company's 1996 Stock Incentive Plan, 452,285 shares reserved
for future issuance under the 1996 Stock Incentive Plan and 20,000 shares
reserved for future issuance under the Company's 1996 Non-Employee Director
Stock Option Plan. Of the 7,500,000 shares of Common Stock to be outstanding
following this Offering, the 2,500,000 shares being offered by the Company
hereby will be freely tradeable without restrictions or additional
registration under the Securities Act of 1933, as amended (the "Securities
Act"). The remaining 5,000,000 shares were issued and sold by the Company in
private transactions in reliance upon exemptions from registration under the
Securities Act. Of these shares, except as limited by lock-up agreements, up
to 4,817,762 shares will be eligible for resale pursuant to Rule 144 under the
Securities Act ("Rule 144"). In connection with this Offering, all executive
officers and directors and certain other stockholders of the Company have
agreed not to offer, sell or otherwise dispose of a total of 4,789,967 shares
held by them for a period of 180 days after the effective date of this
Offering, without the prior written consent of Dillon, Read & Co. Inc. As many
as all of the shares subject to this lockup agreement would otherwise be
available for resale upon the effective date of the Offering under Rule 144.
Sales of a substantial amount of the currently outstanding shares of Common
Stock in the public market may adversely affect the market price of the Common
Stock and the ability of the Company to raise additional capital by occurring
at a time when it would be beneficial for the Company to sell securities. See
"Description of Capital Stock," "Shares Eligible for Future Sale" and
"Underwriting."
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REORGANIZATION
The Company was incorporated in June 1996 to act as the successor to
MarkWest Partnership. MarkWest Partnership was formed in 1988 and has
conducted the business of the Company since such date. Concurrently with the
effectiveness of the Offering, the Company will acquire from the current
partners of MarkWest Partnership all of the partnership interests in MarkWest
Partnership pursuant to a reorganization agreement entered into among the
Company, MarkWest Partnership, and each of the partners of MarkWest
Partnership (the "Reorganization Agreement"). Immediately following the
Company's acquisition of the MarkWest Partnership interests, MarkWest
Partnership will be dissolved and the Company will succeed to the business,
assets and liabilities of MarkWest Partnership. The Reorganization Agreement
also contemplates that 182,238 shares of Common Stock will be issued upon
exercise of certain options held by non-affiliates of MarkWest Partnership.
The transactions contemplated by the Reorganization Agreement (referred to in
this Prospectus as the "Reorganization") will be deemed a tax-free
reorganization for United States federal income tax purposes.
Under the terms of the Reorganization Agreement, the consideration paid by
the Company to acquire the partnership interests from the partners of MarkWest
will consist of an aggregate of 5,000,000 shares of the Company's Common
Stock. The Reorganization Agreement provides that each partner will receive
shares representing a fully diluted percentage of the Company's Common Stock
to be outstanding immediately after consummation of the Reorganization
(calculated prior to the issuance of the Shares in the Offering) identical to
the partner's respective ownership interest in MarkWest Partnership. The
partnership interests in MarkWest Partnership exchanged in the Reorganization
for shares of the Company's Common Stock were originally purchased from
MarkWest Partnership for an equivalent average price per share of Common Stock
equal to $2.61. See "Dilution."
MarkWest Partnership currently has outstanding options issued to employees
that grant such employees the right to purchase partnership interests
representing approximately 3% of the fully diluted aggregate partnership
interests in MarkWest Partnership. As part of the Reorganization, such
employee options to purchase MarkWest Partnership interests will be replaced
by options to purchase shares of the Company's Common Stock granted pursuant
to the Company's 1996 Stock Incentive Plan. These options are exercisable at a
per share price equal to the total consideration that would have been paid by
a given individual to acquire all of the interest in MarkWest Partnership that
such individual was entitled to acquire, divided by the total number of
options received by such individual as part of the Reorganization. See
"Management--Compensation Plans--1996 Stock Incentive Plan."
Immediately prior to consummation of the Reorganization, MarkWest
Partnership intends to make distributions of $10.0 million to its partners as
a partial return of capital (the "Partnership Distribution"). In addition, the
Partnership expects to make a distribution to cover income taxes estimated to
be $416,000 prior to consummation of the Reorganization. See "Certain
Transactions--Partnership Distributions." MarkWest Partnership intends to
borrow the funds necessary to make the Partnership Distribution under MarkWest
Partnership's bank credit facility. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources--Financing Facilities." The Company intends to repay substantially
all of such borrowings with the net proceeds of this Offering. See "Use of
Proceeds."
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USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,500,000 shares of
Common Stock offered hereby, at an assumed initial public offering price of
$12.00 per share, after deduction of the underwriting discounts and
commissions and offering expenses payable by the Company, are estimated to be
approximately $27.3 million ($31.5 million if the Underwriters' over-allotment
option is exercised in full).
The Company will use approximately $22.4 million of such proceeds to repay
outstanding long-term indebtedness of the Company under its bank credit
facility. As of June 30, 1996, $12.4 million was outstanding under this credit
facility at an average interest rate of approximately 7.6% and with quarterly
installment payments beginning September 30, 1998 up to the maturity date of
June 30, 2002. The majority of such indebtedness was incurred to fund the
construction of the Company's Kenova natural gas processing plant in Wayne
County, West Virginia. See "Business--Natural Gas Processing and Related
Services--Appalachian Core Area--NGL Extraction--Kenova Plant."Approximately
$22.4 million is expected to be outstanding as of the effective date of the
Offering at an average interest rate of approximately 7.6%. Of such
indebtedness, $10.0 million will have been incurred as a result of the
Partnership Distribution prior to the effective date of the Offering. See
"Reorganization" and "Certain Transactions--Partnership Distributions."
The Company intends to use the remaining net proceeds of the Offering for a
portion of the capital expenditures to be made in conjunction with the
Company's Michigan Project. Such expenditures are expected to be made over a
12-month period. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources--Capital
Investment Program." "Business--Natural Gas Processing and Related Services--
Michigan Core Area."
Pending such uses, the net proceeds of this Offering will be invested in
short-term, interest-bearing investments, including government obligations and
other money market instruments.
DIVIDEND POLICY
The Company has never paid any cash dividends on its stock and anticipates
that, for the foreseeable future, it will continue to retain any earnings for
use in the operation of its business. Payment of cash dividends in the future
will depend upon the Company's earnings, financial condition, any contractual
restrictions, restrictions imposed by applicable law, capital requirements and
other factors deemed relevant by the Company's Board of Directors. The
Company's predecessor, MarkWest Partnership, has made partnership
distributions from time to time. See "Certain Transactions--Partnership
Distributions."
18
<PAGE>
DILUTION
The pro forma net tangible book value of the Company as of June 30, 1996,
after giving effect to the Reorganization and the Partnership Distribution,
was approximately $13.0 million or $2.61 per share of Common Stock. Net
tangible book value per share represents the amount of total tangible assets
of the Company less total liabilities, divided by the number of shares of
Common Stock issued and outstanding. After giving effect to the sale of the
2,500,000 shares of Common Stock offered by the Company hereby at an assumed
initial public offering price of $12.00 per share and the application of the
estimated net proceeds therefrom as described under "Use of Proceeds," the pro
forma net tangible book value of the Company as of June 30, 1996 would have
been $40.4 million, or $5.38 per share. This represents an immediate increase
in net tangible book value of $2.77 per share to existing stockholders and an
immediate dilution of $6.62 per share to new investors.
The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price........................ $12.00
Pro forma net tangible book value before the Offering...... $ 2.61
Increase in pro forma net tangible book value attributable
to new investors.......................................... 2.77
Pro forma net tangible book value after the Offering......... 5.38
------
Dilution to new investors.................................... $ 6.62
======
</TABLE>
The following table summarizes, on a pro forma basis as of June 30, 1996,
the differences in the total consideration paid and the average price per
share paid by the Company's existing stockholders and by purchasers of the
shares offered hereby:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
----------------- ------------------- Price
Number Percent Amount Percent Per Share
--------- ------- ----------- ------- ----------
<S> <C> <C> <C> <C> <C>
Existing stockholders......... 5,000,000 67% $13,473,000 31% $ 2.69
New investors................. 2,500,000 33% 30,000,000 69% 12.00
--------- --- ----------- ---
Total....................... 7,500,000 100% $43,473,000 100% $ 5.80
========= === =========== ===
</TABLE>
The computations in the tables above exclude: (i) 147,715 shares of Common
Stock issuable upon exercise of stock options to be outstanding on the
effective date of the Offering with a weighted average exercise price of $8.13
per share under the Company's 1996 Stock Incentive Plan; (ii) 452,285 shares
of Common Stock reserved for future issuance under the 1996 Stock Incentive
Plan; and (iii) 20,000 shares reserved for future issuance under the Company's
1996 Non-Employee Director Stock Option Plan. To the extent such options are
exercised, there will be further dilution to new investors. See "Management"
and Note 2 of Notes to Consolidated Financial Statements.
19
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1996 (i) on an actual basis; (ii) on a pro forma basis after giving effect
to the consummation of the Reorganization, the Partnership Distribution and
the accrual of $3.2 million of deferred income taxes resulting from conversion
of partnership to C corporation status; and (iii) such pro forma
capitalization, as adjusted, to reflect the sale of the 2,500,000 shares of
Common Stock offered hereby at an assumed public offering price of $12.00 per
share and the application of the estimated net proceeds therefrom. See
"Reorganization," "Use of Proceeds," "Certain Transactions--Partnership
Distributions" and the Unaudited Pro Forma Condensed Consolidated Financial
Statements included herein. This table should be read in conjunction with the
Consolidated Financial Statements and the notes thereto included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
June 30, 1996
------------------------------
Pro Forma
Actual Pro Forma As Adjusted
------- --------- -----------
(in thousands)
<S> <C> <C> <C>
Long-term debt:
Working capital line of credit................ $ 3,850 $ 3,850 $ --
Revolver loan................................. 8,500 18,500 --
------- ------- -------
Total long-term debt........................ 12,350 22,350 --
Partners' capital/stockholders' equity:
Partners' capital............................. 27,056 -- --
Preferred stock, $.01 par value 5,000,000
shares authorized; 0 shares issued and
outstanding.................................. -- -- --
Common stock, $.01 par value 20,000,000 shares
authorized; 5,000,000 shares issued and
outstanding; 7,500,000 shares issued and
outstanding pro forma as adjusted (1)........ -- 50 75
Additional paid-in capital.................... -- 13,835 41,126
Notes receivable (2).......................... (592) (397) (397)
------- ------- -------
Total stockholders' equity.................. 26,464 13,488 40,804
------- ------- -------
Total capitalization...................... $38,814 $35,838 $40,804
======= ======= =======
</TABLE>
- --------
(1) Excludes (i) 147,715 shares to be issuable upon exercise of stock
options outstanding as of the effective date of the Offering with a weighted
average exercise price of $8.13 per share under the Company's 1996 Stock
Incentive Option Plan; (ii) 452,285 shares reserved for future issuance under
the 1996 Stock Incentive Plan; and (iii) 20,000 shares reserved for future
issuance under the Company's 1996 Non-Employee Director Stock Option Plan.
(2) Represents promissory notes from officers and employees of the Company
for the purchase of interests in MarkWest Partnership that have been assigned
to the Company. Upon receipt of their pro rata share of the Partnership
Distribution, stockholders with outstanding promissory notes are required to
remit a portion of their pro rata share of the Partnership Distribution to the
Company to be applied toward their outstanding balance. See "Certain
Transactions--Related Party Indebtedness."
20
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OTHER INFORMATION
The selected consolidated statement of operations and balance sheet data set
forth below for the years ended December 31, 1993, 1994 and 1995 and as of
December 31, 1994 and 1995 are derived from, and are qualified by reference
to, audited consolidated financial statements of the Company included
elsewhere in this Prospectus. The selected consolidated statement of
operations and balance sheet data set forth below for the years ended December
31, 1991 and 1992 and as of December 31, 1991, 1992 and 1993 have been derived
from audited financial statements not included in this Prospectus. The
selected consolidated statement of operations and balance sheet data set forth
below as of and for the six months ended June 30, 1995 and 1996 are derived
from unaudited consolidated financial statements of the Company. Such
unaudited consolidated financial statements, in the opinion of management,
have been prepared on the same basis as the audited consolidated financial
statements and include all significant adjustments, consisting only of normal
recurring adjustments, necessary for the fair presentation of the results of
the interim periods. The results of operations for interim periods are not
necessarily indicative of the results of operations for the entire year. The
selected consolidated financial information set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Company's Consolidated Financial Statements
and related notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Six months
Year ended December 31, ended June 30,
------------------------------------------- ----------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- ------- -------
(In thousands, except share data) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues:
Plant revenue.......... $38,048 $33,803 $34,212 $33,056 $33,823 $17,225 $18,045
Terminal and marketing
revenue............... 21,944 47,340 19,756 13,666 13,172 5,200 9,831
Oil and gas and other
revenue............... 445 737 1,783 1,830 1,075 501 744
Gain on sale of oil and
gas properties (1).... -- -- -- 4,275 -- -- --
------- ------- ------- ------- ------- ------- -------
Total.................. 60,437 81,880 55,751 52,827 48,070 22,926 28,620
Costs and Expenses:
Plant feedstock
purchases............. 18,483 18,330 23,155 21,582 17,308 8,608 8,538
Terminal and marketing
purchases............. 21,266 44,596 18,845 11,497 11,937 4,829 8,683
Operating expenses..... 5,099 5,194 6,504 4,393 4,706 2,005 2,979
General and
administrative
expenses.............. 4,403 4,500 3,747 3,654 4,189 2,064 2,140
Depreciation, depletion
and amortization...... 1,415 1,477 1,565 1,942 1,754 852 1,326
Reduction in carrying
value of assets (2)... -- 310 -- 2,950 -- -- --
------- ------- ------- ------- ------- ------- -------
Total.................. 50,666 74,407 53,816 46,018 39,894 18,358 23,666
Operating income........ 9,771 7,473 1,935 6,809 8,176 4,568 4,954
Interest expense, net of
interest income........ (949) (2,024) (1,395) (1,689) (352) (300) (466)
------- ------- ------- ------- ------- ------- -------
Net income before
extraordinary item and
cumulative effect of
change in accounting
principle.............. 8,822 5,449 540 5,120 7,824 4,268 4,488
Extraordinary loss on
extinguishment of
debt................... -- -- -- -- (1,750) -- --
Cumulative effect of
change in accounting
for depreciation....... -- 877 -- -- -- -- --
------- ------- ------- ------- ------- ------- -------
Net income (3).......... $ 8,822 $ 6,326 $ 540 $ 5,120 $ 6,074 $ 4,268 $ 4,488
======= ======= ======= ======= ======= ======= =======
Pro Forma Information
(unaudited):
Historical income before
income taxes,
extraordinary item and
cumulative effect of
change in accounting
principle $ 8,822 $ 5,449 $ 540 $ 5,120 $ 7,824 $ 4,268 $ 4,488
Pro forma provision for
income taxes........... 3,336 2,060 228 1,424 2,937 1,667 1,670
------- ------- ------- ------- ------- ------- -------
Pro forma net income
(3).................... $ 5,486 $ 3,389 $ 312 $ 3,696 $ 4,887 $ 2,601 $ 2,818
======= ======= ======= ======= ======= ======= =======
Pro forma net income, as
adjusted (4)........... $ 5,204 $ 3,138
======= =======
Pro Forma per Common
Share:
Pro forma net income.... $ 1.12 $ .69 $ .06 $ .74 $ .98 $ .52 $ .56
======= ======= ======= ======= ======= ======= =======
Pro forma weighted
average common shares
outstanding (5)........ 4,878 4,878 4,878 4,964 4,990 4,990 5,041
======= ======= ======= ======= ======= ======= =======
Pro forma net income, as
adjusted............... $ .90 $ .49
======= =======
Pro forma weighted
average common shares
outstanding as adjusted
(5).................... 5,771 6,431
======= =======
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
Six Months
Year Ended December 31, ended June 30,
--------------------------------------- --------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- ------- ------
(In thousands, except share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Other Data:
NGL production
(gallons)............. 87,722 88,616 93,502 99,735 92,239 49,826 43,094
EBITDA (6)............. $11,186 $ 9,260 $ 3,500 $ 7,426 $ 9,930 $ 5,420 $6,280
Capital expenditures... $ 5,775 $ 5,695 $ 6,941 $ 1,442 $12,426 $ 5,297 $2,522
</TABLE>
<TABLE>
<CAPTION>
As of December 31, As of June 30, 1996
---------------------------------- -----------------------------
Pro Pro Forma As
1991 1992 1993 1994 1995 Actual Forma (7) Adjusted (8)
------ ------ ------ ------ ------ ------ --------- ------------
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash
equivalents........... $2,956 $6,307 $1,292 $5,468 $ 761 $ 666 $ 896 $5,763
Working capital........ 6,890 6,253 2,715 10,634 10,369 5,144 5,374 10,340
Total assets........... 32,684 41,092 40,668 35,913 46,896 43,991 44,221 49,088
Total debt............. 9,164 11,750 16,486 9,887 17,500 12,350 22,350 --
Total partners'
capital/stockholders'
equity................ 16,975 19,614 17,350 22,183 25,161 26,464 13,488 40,804
</TABLE>
- --------
(1) Represents the gain on the sale of a significant portion of the
Company's oil and gas producing assets for proceeds of approximately $10.2
million.
(2) Represents a $2.2 million write-down to estimated realizable value of an
isomerization unit that was shut down, a $347,000 charge relating to a
catalyst used in the isomerization process and a $361,000 charge for the
write-down of non-productive equipment related to various business development
projects.
(3) Net income for all periods presented includes no income tax effects
because the Company operated as a partnership (non-taxable entity) during
these periods. Pro forma net income is presented for purposes of comparability
assuming the Company was a taxable entity for all periods presented.
(4) Pro forma net income, as adjusted, reflects pro forma net income
adjusted for the reduction in interest expense resulting from the application
of $12.4 million of estimated proceeds of this Offering to repay indebtedness
outstanding prior to the Partnership Distribution (as hereinafter defined).
See "Use of Proceeds" and the Unaudited Pro Forma Condensed Consolidated
Financial Statements included elsewhere in this Prospectus.
(5) See the Unaudited Pro Forma Condensed Consolidated Financial Statements
included elsewhere in this Prospectus.
(6) EBITDA represents earnings before interest income, interest expense,
income taxes, depreciation, depletion and amortization and gain on sale of oil
and gas properties, reduction in carrying value of assets and extraordinary
items. EBITDA is not intended to represent cash flows for the period, nor has
it been presented as an alternative to operating income as an indicator of
operating performance. It should not be considered in isolation or as a
substitute for measures of performance prepared in accordance with generally
accepted accounting principles. See the Company's Consolidated Statements of
Cash Flows in the Consolidated Financial Statements included elsewhere in this
Prospectus. EBITDA is included in this Prospectus because it is a basis upon
which the Company assesses its financial performance.
(7) Gives effect to the Reorganization, the accrual of $3.2 million of
deferred income tax liabilities and the Partnership Distribution. See
"Reorganization" and the Unaudited Pro Forma Condensed Consolidated Financial
Statements included elsewhere in this Prospectus.
(8) Further adjusted to reflect the sale of 2,500,000 shares of Common Stock
offered hereby and the application of the estimated net proceeds from the
Offering. See "Use of Proceeds."
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion is intended to provide an analysis of the Company's
financial condition and results of operations, and should be read in
conjunction with the Company's Consolidated Financial Statements included
elsewhere in this Prospectus and "Selected Consolidated Financial and Other
Data."
GENERAL
MarkWest provides compression, gathering, treatment, processing and NGL
extraction services to natural gas producers and pipeline companies and
fractionates NGLs into marketable products for sale to third parties. The
Company also purchases, stores and markets natural gas and NGLs and has begun
to conduct strategic exploration for new natural gas sources for its
processing and fractionation activities.
The majority of the Company's operating income is derived from gas
processing and NGL fractionation. NGL prices and the volume of liquids
extracted, fractionated, and sold are the primary determinants of revenues.
Prices of NGLs typically do not vary directly with natural gas prices, but
more closely follow the prices of crude oil.
The majority of the Company's NGL production is purchased under keep-whole
contracts. Keep-whole contracts accounted for approximately 70% of the
Company's total revenues during 1995 and approximately 58% of the Company's
total revenues during the six months ended June 1996. In keep-whole contracts,
the Company's principal cost is the reimbursement to the natural gas producers
for the energy extracted from the natural gas stream and consumed as fuel
during processing. Profitability under such contracts is largely influenced by
the margin between NGL sales prices and the cost of such reimbursement, which
is directly related to the Company's cost for natural gas. In the event there
is a contraction of the margin between the two prices, the Company's
profitability will decrease. See "Risk Factors--Commodity Price Risks."
The Company intends to emphasize fee-based processing in the future to
reduce the fluctuations in margins inherent in processing natural gas under
keep-whole arrangements. In 1995, the Company began construction of a new NGL
extraction facility in Kenova, West Virginia, which became operational in
January 1996. This facility provides services to Columbia Gas and other gas
producers in the Appalachian Core Area. Services provided by the Kenova plant
are based on a fee for volumes processed. The fee contracts related to the
Kenova plant are expected to help offset margin fluctuations in the keep-whole
contracts related to the Siloam fractionation plant. See "Business--Gas
Processing Contracts and Natural Gas Supply--Fee Contracts."
In recent years, a substantial majority of the gas received by the Company's
processing plants was received from major pipelines owned by third parties.
From time to time, such pipeline transmission systems have been partially shut
down for maintenance or repairs for up to four months. Partial or complete
shut downs of pipelines supplying the Company's processing plants could have a
material impact on the volumes of natural gas processed and on the volumes of
NGLs fractionated and sold, and correspondingly on the revenues realized by
the Company. See "Risk Factors--Availability of Natural Gas Supply" and "--
Dependence on Major Pipelines."
In addition to sales of NGLs processed by the Company, the Company generates
income from the purchase and resale of NGLs as part of its terminal and
marketing activities. The Company previously engaged in third party trading
and brokerage activities, which significantly increased revenue. Because of
minimal gross margins and significant operating costs related to the brokerage
and trading business, the Company discontinued brokerage and trading in mid-
1993. The Company continues to provide marketing activities in support of its
company-owned facilities and production and, with the acquisition of its
Church Hill facility in 1995, the Company currently operates two propane
terminals.
23
<PAGE>
The Company plans to increase its investment in its new Michigan Core Area
and the Company's results of operations in the future should be increasingly
impacted by the operations in the Michigan Core Area. The Company's assets in
the Michigan Core Area presently consist of the Basin Pipeline and a number of
processing contracts. In May 1996, the Company entered into several related
agreements providing for the further development of gathering, treatment and
processing facilities in western Michigan. The Company also plans to invest in
exploration and production activities in the Michigan Core Area and has agreed
to purchase a 17.5% working interest in the drilling program of Callon
Exploration Company. See "Business--Natural Gas Processing and Related
Services--Michigan Core Area." The operation of certain assets acquired in the
Michigan Core Area prior to their purchase by the Company was not profitable.
The Company's fiscal 1995 pro forma net income, giving effect to the inclusion
of Basin Pipeline with the Company, would have been lower by $354,000. See the
Unaudited Pro Forma Condensed Consolidated Financial Statements included
elsewhere in this Prospectus. While the Company has entered into agreements
that the Company believes will increase the profitability of Basin Pipeline,
there can be no assurance that such operations will be profitable in the
future or that the Company's planned expansion efforts will be successful. See
"Risk Factors--Risks Relating to the Michigan Project."
The Company also plans to increase its investment in exploration and
production activities for new natural gas sources as a supporting function for
its processing services. Exploration and production activities are subject to
many risks, including the risk that no commercially productive reservoirs will
be encountered. There can be no assurance that its natural gas exploration
efforts will be productive or that the Company will recover all or a portion
of its investment in such activities. See "Risk Factors--Certain Risks of Oil
and Gas Exploration and Production Activities."
All statements other than statements of historical fact contained in this
Prospectus, including statements concerning the Company's financial position
and liquidity, results of operations, prospects for development of the
Appalachian Core Area and the Michigan Core Area, prospects for development of
exploration and production assets and other matters are forward looking
statements. Although the Company believes that the expectations reflected in
such forward looking statements are reasonable, no assurance can be given that
such expectations will prove correct. Factors that could cause the Company's
results to differ materially from the results discussed in such forward
looking statements include the risks described under "Risk Factors," such as
commodity price risks, risks involved in future supplies of natural gas,
dependence on major pipelines, general business risks in NGL marketing and
exploration and production activities, dependence on certain customers,
intense competition, regulatory and other risks in the natural gas processing
and related services industry. All forward looking statements in this
Prospectus are expressly qualified in their entirety by the cautionary
statements in this paragraph.
SEASONALITY
The Company's results of operations fluctuate from quarter to quarter, due
in large part to the impact of seasonal factors on the prices and sales
volumes of NGLs and natural gas. The Company's principal NGL product, propane,
is used primarily as home heating fuel in the Company's marketing areas. Sales
volume and prices of propane usually increase during the winter season and
decrease during the summer season. However, demand for, and prices of, propane
also depend, to a large extent, upon the severity of the weather in the
Company's operating areas during the winter months. To meet the needs of the
marketplace, the Company seasonally stores product to meet anticipated winter
demand and also increase its third party purchases to meet wintertime needs.
As a result, the Company recognizes the greatest proportion of its operating
income during the first and fourth quarters of the year. See "Risk Factors--
Potential Variability in Quarterly Operating Results."
RESULTS OF OPERATIONS
Six Months Ended June 30, 1996 Compared to Six Months Ended June 30, 1995
Revenues. Plant revenue increased to $18.0 million from $17.2 million for
the six months ended June 30, 1996 as compared to the six months ended June
30, 1995, an increase of $820,000 or 5%. The revenue increase resulted
principally from $1.6 million in additional revenue generated by the new
Kenova
24
<PAGE>
processing plant during its first six months of operations, offset by a
decrease in volumes fractionated at the Siloam plant and NGLs sold to third
parties, and by higher selling prices per gallon for butanes and natural
gasoline. The volume decrease at the fractionation plant at Siloam, which
receives approximately 70% of its raw NGL mix from the Kenova plant, was due
principally to normal start-up delays in the transition from an older
processing facility at Kenova to the Company's new plant in the first quarter
of 1996.
Terminal and marketing revenue increased to $9.8 million from $5.2 million
for the six months ended June 30, 1996 as compared to the six months ended
June 30, 1995, an increase of $4.6 million, or 88%. Revenue from the West
Memphis terminal accounted for $3.3 million of the increase and the new
terminal in Church Hill, Tennessee, which became operational in the fall of
1995, accounted for $1.3 million of the increase. The increase in revenues
from the West Memphis terminal was due principally to colder temperatures
during January and February 1996 in the geographic areas served by this
terminal, resulting in an increased demand for propane.
Oil and gas and other revenue increased to $744,000 from $501,000 for the
six months ended June 30, 1996 as compared to the six months ended June 30,
1995, an increase of $243,000, or 49%. This increase was due principally to a
full year of production from the Company's current complement of oil and gas
properties, which began producing in the fourth quarter of 1995. Other revenue
consists of income received from the leasing of Company-owned railcars to
third parties.
Costs and expenses. Terminal and marketing purchases increased to $8.7
million from $4.8 million for the six months ended June 30, 1996 as compared
to the six months ended June 30, 1995, an increase of $3.9 million, or 81%.
Increased product costs resulted from increased propane sales.
Operating expenses increased to $3.0 million from $2.0 million for the six
months ended June 30, 1996 as compared to the six months ended June 30, 1995,
an increase of $1.0 million, or 49%. The increase was due principally to new
operations at both the Kenova and Church Hill facilities, which commenced
operations in the first quarter of 1996 and the fourth quarter of 1995,
respectively.
Depreciation and amortization increased to $1.3 million from $852,000 for
the six months ended June 30, 1996 as compared to the six months ended June
30, 1995, an increase of $501,000 or 59%. The increase was due principally to
depreciation attributable to the Company's new Kenova plant.
Net interest expense. Net interest expense increased to $466,000 from
$300,000 for the six months ended June 30, 1996 as compared to the six months
ended June 30, 1995, an increase of $166,000 or 55%. This increase resulted
principally from an increase in outstanding long-term debt to $12.4 million at
June 30, 1996, from $3.8 million at June 30, 1995, in order to finance the
Kenova plant.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Revenues. Plant revenue increased to $33.8 million from $33.1 million for
1995 as compared to 1994, an increase of $767,000, or 2%. This increase
resulted principally from an increase in average sales price of NGLs, offset
by a decrease in NGL volumes sold.
Terminal and marketing revenue decreased to $13.2 million from $13.7 million
for 1995 as compared to 1994, a decrease of $494,000 or 4%. This decrease
principally resulted from the expiration of the remaining third-party
brokerage sales in 1994, a decrease in volumes sold and a decrease in the
average selling price per gallon of propane.
Oil and gas and other revenue decreased to $1.1 million from $1.8 million in
1995 as compared to 1994, a decrease of $755,000 or 41%. The decrease resulted
principally from the Company's sale in 1994 of substantially all of its San
Juan Basin coalbed methane properties and associated gathering systems.
Gain on sale of oil and gas properties of $4.3 million in 1994 was due to
the sale of a majority of the Company's oil and gas producing assets for
approximately $10.2 million.
25
<PAGE>
Costs and expenses. Plant feedstock purchases decreased to $17.3 million
from $21.6 million for 1995 as compared to 1994, a decrease of $4.3 million or
20%. This decrease resulted from the acquisition of feedstock quantities
during off-peak periods, when prices typically are lower, rather than at spot
prices during peak season.
Terminal and marketing purchases increased to $11.9 million from $11.5
million for 1995 as compared to 1994, an increase of $440,000 or 4%. This
increase was due principally to an increase in the average price per gallon of
propane.
Operating expenses increased to $4.7 million from $4.4 million for 1995 as
compared to 1994, an increase of $313,000 or 7%. The increase was attributable
to the construction and start up of the Kenova gas processing facility.
General and administrative expenses increased to $4.2 million from $3.7
million for 1995 as compared to 1994, an increase of $535,000 or 15%. The
increase was attributable to administrative support activities related to the
Michigan Project and the new Kenova and Church Hill facilities.
Depreciation and amortization decreased to $1.7 million from $1.9 million
for 1995 as compared to 1994, a decrease of $188,000 or 10%. This decrease
resulted principally from lower plant carrying values due to reductions made
in 1994.
Reduction in carrying value of assets of $3.0 million in 1994 was due to a
one-time charge reflecting the shutdown of the isomerization unit at the
Siloam plant and a charge for the write-down of other non-productive
equipment.
Net interest expense. Net interest expense decreased to $352,000 from $1.7
million for 1995 as compared to 1994, a decrease of $1.3 million or 79%. The
decrease resulted principally from lower average borrowing levels as well as
the capitalization of approximately $300,000 of interest in connection with
the construction of the Kenova gas processing plant.
Year Ended December 31, 1994 Compared to Year Ended December 31, 1993
Revenues. Plant revenues decreased to $33.1 million from $34.2 million for
1994 as compared to 1993, a decrease of $1.1 million or 3%. This decrease
resulted principally from a decrease in average sales prices of NGLs, offset
by an increase in volumes sold.
Terminal and marketing revenue decreased to $13.7 million from $19.8 million
for 1994 as compared to 1993, a decrease of $6.1 million or 31%. This decrease
resulted principally from the Company's discontinuation of its third-party
brokerage operations.
Costs and expenses. Plant feedstock purchases decreased to $21.6 million
from $23.2 million for 1994 as compared to 1993, a decrease of $1.6 million or
7%. This decrease was attributable to the Company's initiation in 1994 of the
practice of acquiring feedstock quantities at off-peak periods, when prices
are typically lower.
Terminal and marketing purchases decreased to $11.5 million from $18.8
million for 1994 as compared to 1993, a decrease of $7.3 million or 39%. This
decrease resulted principally from the Company's discontinuation of its third
party brokerage operations.
Operating expenses decreased to $4.4 million from $6.5 million for 1994 as
compared to 1993, a decrease of $2.1 million or 32%. This decrease resulted
from a cost containment policy implemented in
26
<PAGE>
fiscal 1994. The aggregate reduction in operating expenses consisted primarily
of reduced transportation expense related to third-party brokerage operations,
lower operating expenses related to the shutdown of the Siloam isomerization
plant during 1994, and reduced repair and maintenance expense.
Depreciation and amortization increased to $1.9 million from $1.6 million
for 1994 as compared to 1993, an increase of $377,000 or 24%. The increase was
primarily due to the acquisition of certain assets, including a new computer
system, with shorter depreciable lives.
Net interest expense. Net interest expense increased to $1.7 million from
$1.4 million for 1994 as compared to 1993, an increase of $294,000 or 21%. The
increase resulted from higher average borrowing levels and higher average
interest rates.
LIQUIDITY AND CAPITAL RESOURCES
The Company's sources of liquidity and capital resources historically have
been net cash provided by operating activities, proceeds from issuance of
long-term debt and, in 1994, the proceeds from the sale of certain oil and gas
properties. The Company's principal uses of cash have been to fund operations
and acquisitions.
The Company believes that the net proceeds from this Offering, together with
its current credit facilities and cash flows generated by its operations, will
be sufficient to meet its anticipated cash needs for working capital and
capital expenditures for the foreseeable future. Thereafter, if cash generated
from operations is insufficient to satisfy the Company's liquidity
requirements, the Company may seek to sell additional equity or debt
securities, obtain additional credit facilities or adjust the level of its
operating and capital expenditures. The sale of additional equity securities
could result in additional dilution to the Company's stockholders.
Financing Facilities
Revolver Loan. The Company currently has a financing agreement with Norwest
Bank Denver, N.A. as agent, First American National Bank of Nashville,
Tennessee and N M Rothschild and Sons Limited (collectively, the "Lenders").
The agreement is structured as a revolving facility, with a maximum borrowing
base of $40.0 million as of June 30, 1996. Interest rates are based on either
the agent bank's prime rate plus 1/4% or the London Interbank Offered Rate
(LIBOR) plus 2%. The repayment period begins on September 30, 1998, continuing
for 16 equal quarterly installments until June 30, 2002. Outstanding
borrowings at June 30, 1996 were $8.5 million. Upon application of the net
proceeds of the Offering, no amounts will be outstanding under this facility.
This facility is secured by substantially all of the Company's assets.
Working Capital Loan. The Company has a working capital line of credit with
a maximum borrowing base of $7.5 million as of June 30, 1996. Interest rates
are based on prime plus 1/4%, with maturity on July 1, 1998. Outstanding
borrowings at June 30, 1996 were $3.9 million. Upon application of the net
proceeds of the Offering, no amounts will be outstanding under this facility.
The working capital loan is secured by the Company's inventory, receivables
and cash.
Capital Investment Program
During 1996, the Company expects to make approximately $10.0 million in
capital investments. The Company expects to invest approximately $4.0 million
in the Company's subsidiary, MW Michigan, Inc. ("MW Michigan"), for activities
in the Michigan Core Area. Through MW Michigan, the Company is committed to
make certain capital contributions to West Shore, a venture dedicated to
natural gas gathering, treatment, processing and NGL marketing in western
Michigan. The Company has committed to fund up to $1.2 million of West Shore's
construction of a two-mile gathering pipeline and up to $10.0 million for a
30-mile extension of the Basin Pipeline. In addition, the Company has
committed to fund
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60% of the costs in excess of such amounts if necessary to complete these
projects. See "Business--Natural Gas Processing and Related Services--Michigan
Core Area." The Company also expects to invest approximately $5.0 million in
the Company's exploration and production subsidiary, MarkWest Resources, Inc.
("MarkWest Resources"). For the six months ended June 30, 1996, the Company
made capital expenditures totalling $2.5 million, including $629,000 for MW
Michigan and $1.4 million for MarkWest Resources.
As of June 30, 1996, the Company had expended $12.2 million and $200,000 in
connection with the construction and related costs for development of the
Kenova plant and the Church Hill terminal and storage facility, respectively.
The Company expects to expend an additional $280,000 to expand the Church Hill
facility in 1996.
During 1994, the Company expended $1.4 million for the expansion and upgrade
of existing facilities.
RISK MANAGEMENT ACTIVITIES
The Company's policy is to utilize risk management tools primarily to reduce
commodity price risk for its natural gas shrink replacement purchases. This
effectively allows the Company to fix a portion of its margin because gains or
losses in the physical market are offset by corresponding losses or gains in
the financial instruments market. The Company maintains a three-person
committee that oversees all hedging activity of the Company. This committee
reports monthly to management regarding recommended hedging transactions and
positions. Gains and losses related to qualifying hedges, as defined by SFAS
No. 80, "Accounting for Futures Contracts", of firm commitments or anticipated
transactions are recognized in plant revenue and feedstock purchases upon
execution of the hedged physical transaction.
As of December 31, 1994 and 1995, and as of June 30, 1996, the Company did
not hold any material notional quantities of natural gas, NGL, or crude oil
futures, swaps or options.
TERMINATION OF PARTNERSHIP TAX STATUS
The Company's immediate predecessor, MarkWest Partnership, will remain a
partnership until its reorganization immediately prior to consummation of the
Offering. As such, MarkWest partnership was not subject to federal and most
state income tax and its income was taxed directly to its respective partners.
The financial data set forth in this Prospectus reflect pro forma income tax
provisions as if the Company had been taxed as a Subchapter C corporation
under the Internal Revenue Code during the relevant periods. Pro forma income
taxes giving effect to termination of MarkWest Partnership's tax status were
calculated using an effective income tax rate of approximately 42.3%, 27.8%,
37.5% and 37.2% in 1993, 1994, 1995 and for the first six months of 1996,
respectively. See Note 10 of Notes to Consolidated Financial Statements.
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BUSINESS
GENERAL
The Company is engaged in natural gas processing and related services. The
Company, which has grown substantially since its founding in 1988, is the
largest processor of natural gas in Appalachia and recently established a
venture to provide natural gas processing services in western Michigan. The
independent gas processing industry has grown rapidly in the last 10 years,
and the Company believes there will be substantial opportunities to grow its
gas processing operations within these existing core regions and in new
markets. The Company provides compression, gathering, treatment, and NGL
extraction services to natural gas producers and pipeline companies and
fractionates NGLs into marketable products for sale to third parties. The
Company also purchases, stores and markets natural gas and NGLs and has begun
to conduct strategic exploration for new natural gas sources for its
processing activities. In the twelve months ended December 31, 1995, MarkWest
produced approximately 92 million gallons of NGLs and marketed approximately
127 million gallons of NGLs.
The Company's processing and marketing operations are concentrated in two
core areas which are significant gas producing basins: the southern
Appalachian region of eastern Kentucky, southern West Virginia, and southern
Ohio (the Appalachian Core Area), and western Michigan (the Michigan Core
Area). At the Company's processing plants, natural gas is treated to remove
contaminants, and NGLs are extracted and fractionated into propane, normal
butane, isobutane and natural gasoline. The Company then markets the
fractionated NGLs to refiners, petrochemical companies, gasoline blenders,
multistate and independent propane dealers, and propane resellers. In addition
to processing and NGL marketing, the Company engages in terminalling and
storage of NGLs in a number of NGL storage complexes in the central and
eastern United States, and operates propane terminals in Arkansas and
Tennessee.
During 1996, the Company has taken several key steps intended to expand its
operations. In January 1996, the Company commissioned a new natural gas
liquids extraction plant in Wayne County, West Virginia. See "--Natural Gas
Processing and Related Services--Appalachian Core Area--NGL Extraction--Kenova
Plant." In May 1996, the Company established West Shore, a venture in western
Michigan, which the Company will develop as the Michigan Core Area. The
Company has identified opportunities, and has entered into agreements, to
expand its gas gathering operations and to commence gas processing operations
in the Michigan Core Area in the near future. See "--Natural Gas Processing
and Related Services--Michigan Core Area."
INDUSTRY OVERVIEW
Natural gas processing and related services represent a major segment of the
oil and gas industry, providing the necessary service of converting natural
gas into marketable energy products. When natural gas is produced at the
wellhead, it must be gathered, and in some cases compressed or pressurized,
for transportation via pipelines (described as gathering services) to gas
processing plants. The processing plants remove water vapor, solids and other
contaminants, such as hydrogen sulfide or carbon dioxide in the natural gas
stream that would interfere with pipeline transportation or marketing of the
gas to consumers and also extract the NGLs from the natural gas (described as
treatment and extraction services, respectively). The NGLs are then subjected
to various processes that cause the NGLs to separate, or fractionate, into
marketable products such as propane, normal butane, isobutane and natural
gasoline (described as fractionation services).
Over the past 10 years, independent gas processing has experienced
significant growth. In 1995, independent natural gas processing companies
accounted for 319,000 barrels per day of NGL production, or approximately 23%
of total U.S. NGL production by the 20 largest U.S. natural gas producers,
compared to less than 4% of such producers' NGL production in 1985. The
increase in the independent gas processing industry has resulted in part from
the divestiture by major energy companies and interstate pipeline companies of
their gas gathering and processing assets and the decision by many such
companies to outsource their gas processing needs.
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An important factor expected to contribute to the continuing growth of
independent processing companies is the upward trend of gas consumption and
production in the United States. Natural gas consumption in the United States
has increased from 16.7 trillion cubic feet (Tcf) per year in 1986 to 21.9 Tcf
per year in 1995, and is forecast to increase to 24.0 Tcf per year by the year
2000. The number of natural gas rigs in service also has recently increased.
From June 1995 to June 1996, the number of natural gas rigs in service rose
from 340 to 464. This natural gas rig count is the highest in over four years,
and as a percentage of total oil and gas rigs in service, the highest in the
last decade. Many newly discovered gas wells and gas fields will require
access to gathering and processing infrastructure, providing significant
opportunities for growth-oriented independent gas processing companies such as
MarkWest.
STRATEGY
The Company's primary objective is to achieve sustainable growth in cash
flow and earnings by increasing the volume of natural gas that it gathers and
processes and the volume of NGLs that it produces and markets. To achieve this
objective, the Company employs a number of related strategies.
Geographic Core Areas. The Company emphasizes opportunities for investment
in geographic core areas where there is significant potential to achieve a
position as the area's dominant natural gas processor. The Company believes
that growth in core areas can be achieved by developing processing facilities
both in areas where a large energy or pipeline company requires processing
services and in areas where there is significant potential for natural gas
production but not significant processing capacity.
Long-Term Strategic Relationships. The Company seeks strategic relationships
with the dominant pipelines and gas producers in each area in which the
Company operates. In the Appalachian Core Area, MarkWest owns three processing
plants that process natural gas or NGLs dedicated by Columbia Gas. In its
Michigan Core Area, the Company has entered into gas supply and processing
relationships with Shell and MPC, a company jointly owned by Tenneco and
ENCAP.
NGL Marketing. The Company strives to maximize the downstream value of its
gas and liquid products by marketing directly to distributors and resellers.
Particularly in the area of NGL marketing, the Company minimizes the use of
third party brokers and instead supports a direct marketing staff focused on
refiners, petrochemical companies, gasoline blenders, and multistate and
independent propane dealers. Additionally, the Company uses its own truck and
tank car fleet, as well as its own terminals and storage facilities, to
provide supply reliability to its customers. All of these efforts have allowed
the Company to maintain pricing of its NGL products at a premium to Gulf Coast
spot prices.
Cost-Efficient Operations. The Company seeks a competitive advantage by
utilizing in-house processing and operating expertise to provide lower-cost
service. To provide competitive processing services, the Company emphasizes
facility design, project management and operating expertise that permits
efficient installation and operation of its facilities. The Company has in-
house engineering personnel who oversee the design and construction of the
Company's processing plants and equipment.
Acquisitions. The Company believes that there are significant opportunities
to make strategic acquisitions of gathering and processing assets because of
the divestiture by major energy companies and interstate pipeline companies of
their gas gathering and processing assets. The Company pursues acquisitions
that can add to existing core area investments or can lead to new core area
investments.
Exploration as a Tool to Enhance Gas Processing. The Company maintains a
strategic gas exploration effort that is designed to permit the Company to
gain access to additional natural gas supplies within its existing core areas
and to gain foothold positions in production regions that the Company might
develop as new core processing areas.
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NATURAL GAS PROCESSING AND RELATED SERVICES
The Company's processing operations are located in its Appalachian Core Area
consisting of eastern Kentucky, southern West Virginia, and southern Ohio, and
its Michigan Core Area consisting of the area of western Michigan north of
Grand Rapids and south of Traverse City. The Company's operations in
Appalachia date from the Company's founding in 1988. At present, the Company
is the largest processor of natural gas in Appalachia based on the volume of
natural gas processed at its owned facilities, including those it leases to
third parties. The Company began development of the Michigan Core Area in June
1996.
APPALACHIAN CORE AREA
The Company's operations in Appalachia consist of two extraction facilities,
a fractionation plant, an NGL pipeline, rail terminals and related processing
assets. Since 1988, when the Company purchased its Siloam fractionation plant
(see "--Fractionation"), the volume of natural gas processed by the Company in
the Appalachian Core Area has grown to approximately 170 MMcf/D, and the
Company's NGL production has grown to approximately 275 MGal/D.
[GRAPHIC: 43 X 33 1/2 PICA MAP OF APPALACHIAN CORE AREA]
The Company believes that this region has favorable supply and demand
characteristics. The Appalachian Core Area is geographically situated between
the TET pipeline to the north and the Dixie pipeline to the south. In addition
to Appalachia, the TET pipeline serves the upper midwestern and eastern United
States, and the Dixie pipeline serves the
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southeast. Because the areas directly served by these two pipelines are
experiencing significant population growth, the demand for NGL products
exceeds the capacity of these two lines. The demand for propane from the TET
and Dixie pipelines is such that the pipelines allocate supply to purchasers
during peak wintertime periods, thereby limiting the available supply to
Appalachia. There are few sources of propane to the Appalachian Core Area
other than the Company's facilities, the TET and Dixie pipelines, and propane
shipped by rail cars from other producing areas. In addition, the Appalachian
mountain range limits access to the Dixie pipeline by distributors in the
Appalachian Core Area. These factors enable producers in Appalachia
(principally MarkWest, Ashland and CNG Transmission Corporation) to price
their products (particularly propane) at a premium to Gulf Coast spot prices
during times of supply shortages from other sources, especially during winter
high demand periods. The underground storage caverns at Siloam allow the
Company to defer sales of NGLs to the winter months when peak demand periods
often lead to higher product prices and provide local consumers with needed
wintertime supplies.
The Company also believes that there are significant growth opportunities in
this region both from the improvement of gas processing efficiencies for
existing gas production in the area and the Company's capacity to process
natural gas streams from areas in the region that are not currently processed.
For example, in 1994 in Kentucky, Ohio, Pennsylvania, Virginia and West
Virginia, only 473 MMcf/D of natural gas was processed out of a total
production of over 1,400 MMcf/D. While not all of this natural gas is
available to the Company or is economically feasible to process, the Company
believes there is significant opportunity to capture an increasing portion of
this unprocessed supply.
NGL EXTRACTION. The Company currently owns two NGL extraction plants in
Appalachia, one which it operates and one which it leases to Columbia Gas.
Extraction plants remove NGLs, as well as water vapor, solids and other
contaminants, such as hydrogen sulfide or carbon dioxide, contained in the
natural gas stream. The Company provides NGL extraction services under a fee-
based arrangement.
Kenova Plant. The Company began construction of its Kenova natural gas
liquids extraction plant, located in Wayne County, West Virginia, in 1995. The
Kenova plant was commissioned in January 1996 and replaced a 1958 extraction
facility owned and operated by Columbia Gas. Because the Company owns and
operates this new facility, the Company will generate increased revenue, and
fee revenues related to processing operations will represent a greater
proportion of total revenues. In addition, the Company believes that this new
facility will generate greater NGL recovery from natural gas, reduce downtime
for maintenance, and significantly reduce fuel costs compared to the replaced
facility. Construction and related costs for development of the Kenova plant
were approximately $12.2 million. The Kenova plant was constructed under an
agreement with Columbia Gas and is situated on a main gathering line of
Columbia Gas. The Kenova plant produces revenue for the Company by charging
fees to process natural gas production. To date, substantially all of Kenova's
processing throughput has been obtained from Columbia Gas. See "--Gas
Processing Contracts and Natural Gas Supply." The Company estimates that
average natural gas throughput at the Kenova plant in 1996 will be 115 MMcf/D.
NGL production at the Kenova plant in 1996 is estimated to be 70 million
gallons.
The Kenova plant is a turbo expander plant that both processes natural gas
into pipeline quality gas and extracts NGLs from the natural gas stream. The
Kenova plant refrigerates natural gas down to -105 degrees Fahrenheit and
separates the natural gas from the NGLs formed at the low temperatures. The
Kenova plant's design allows for relatively fuel-efficient, low-pollution
extraction of a high volume of NGLs from the natural gas. The plant has a
processing capacity of 120 MMcf/D, and also has over 6,500 horsepower of inlet
compression capability. See "--Facilities." Substantially all of the Kenova
plant's extracted NGLs are transported via the Company's 38.5 mile high
pressure pipeline to its Siloam fractionation facility located in South Shore,
Kentucky, for separation into marketable NGL products.
Boldman Plant. The Company constructed the Boldman natural gas liquids
extraction plant, located in Pike County, Kentucky, in 1991. Construction and
related costs for development of the Boldman plant were approximately $4.0
million.
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The Boldman plant is a refrigeration plant that extracts NGLs by
refrigerating natural gas down to -20 degrees Fahrenheit. The plant has a
processing capacity of 70 MMcf/D and includes two 60,000 gallon product
storage tanks and truck loading facilities. The Boldman plant is currently
leased to, and operated by, Columbia Gas. Under such lease, the Company
receives a monthly rental fee ranging from $40,000 to $47,000. Columbia Gas
also has an option to purchase the Boldman plant at set prices during the term
and upon expiration of the lease. See "--Facilities."
Columbia Gas has dedicated all NGLs recovered at the Boldman plant to the
Company's Siloam facility for fractionation under a contract which runs
through December 31, 2003. This production is transported via tanker trucks
from the Boldman plant to the Siloam plant for processing. Natural gas
throughput at the Boldman plant in 1995 averaged 55 MMcf/D.
NGL Pipeline. The Company owns a 38.5 mile, high pressure steel pipeline
that connects its Kenova processing plant to the Company's Siloam
fractionation facility. The pipeline currently delivers approximately 70
million gallons per year to the Siloam facility from the Kenova processing
plant. Because this pipeline was originally designed to handle a high pressure
ethane-rich stream, it has the capacity to handle almost twice as much product
if it becomes available.
FRACTIONATION. The Company's fractionation services in the Appalachian Core
Area are performed at its Siloam fractionation plant located in South Shore,
Kentucky. At this facility, extracted NGLs are subjected to various processes
that cause the natural gas to separate, or fractionate, into separate NGL
products, including propane, isobutane, normal butane and natural gasoline.
The Siloam facility is one of only two fractionation plants in the Appalachian
Core Area producing over 6,500 barrels, or 275,000 gallons, per day of NGLs.
Substantially all of the Company's fractionation services in its Appalachian
Core Area are provided under keep-whole contracts with Columbia Gas. See "--
Gas Processing Contracts and Natural Gas Supply--Keep-Whole Contracts."
The Company acquired the Siloam plant in April 1988 from Columbia Gas for
$3.5 million. During 1989, the Company began an approximately $11 million
expansion program at the Siloam plant that included the construction of an
isomerization unit that has the capacity to convert up to 2,000 barrels per
day of normal butane into isobutane. Because of attractive normal butane
prices, the Company does not currently operate the isomerization unit. The
expansion program also included the construction of additional storage
facilities, improvements to existing electrical and control systems and the
addition of loading facilities. The expansion was fully operational in early
1991. The Siloam plant, situated on approximately 290 Company-owned acres, has
a gross design capacity of 8,500 barrels per day, or over 140 million gallons
per year. The Siloam plant also has over 14 million gallons of on-site product
storage, including an 8.4 million gallon propane underground storage cavern, a
3.1 million gallon butane underground storage cavern, and approximately 3
million gallons of above-ground storage tanks. The Siloam plant is served by
the following modern loading and unloading facilities: four automated truck
loading docks for propane/butane; two automated truck unloading docks for
mixed feedstock; one automated bottom loading dock for natural gasoline; truck
scales; a rail siding capable of holding over 20 railcars and simultaneously
loading or unloading eight cars; and barge facilities for the loading of
natural gasoline and butanes.
Approximately 79% of the fractionation throughput at the Siloam plant comes
from the production of the Company's Kenova and Boldman plants. The Company
also makes purchases of NGLs from third-party processors and of additional
production from Columbia Gas. The Company's most significant purchase contract
for NGLs is with Columbia Gas. In addition to the approximately 9 MMGal per
year of Columbia Gas NGL production from the Boldman plant, Columbia Gas
dedicates approximately 17.0 MMGal per year from its Cobb, West Virginia
extraction plant. Pursuant to the Columbia Gas purchase agreements, the
Company is committed to purchase substantially all of the NGLs produced at
Columbia Gas' own processing plants, as well as those produced by the Company
for Columbia Gas. Under these contracts, the Company is required to compensate
Columbia Gas for the BTU energy equivalent of NGLs and fuel removed from the
natural gas as a result of processing. The terms of these contracts runs
through December 31, 2003, except for the contract at the Kenova plant which
runs through 2010, and provide for automatic two-year extensions thereafter,
unless either party gives notice to terminate the contract at least one year
in advance of an expiration date. In 1995, the Company's cost for purchases
under these contracts were $17.0 million, and such purchases represented 98%
of all NGLs fractionated by the Company.
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MICHIGAN CORE AREA
The Company was attracted to the Michigan Core Area because of the potential
for providing gathering and processing services in the area. Substantially all
of the natural gas in the Michigan Core Area is sour and, therefore, has
limited outlets for processing. Through West Shore, the Company expects to be
able to gather and process this sour gas. As a result of availability of large
shut-in sour gas wells and the expected increase in drilling by producers who
previously had no outlet for sour gas production in the area, the Company
entered into several related agreements in May 1996 providing for the
development of gathering, treatment and processing facilities in western
Michigan. The Michigan Project is conducted through West Shore, a venture
dedicated to natural gas gathering, treatment, processing and NGL marketing in
Manistee, Mason and Oceana Counties in Michigan. MW Michigan has the
contractual right to acquire a 60% interest in West Shore. See "--Development
Agreements."
[GRAPHIC: MAP OF MICHIGAN CORE AREA]
The most significant assets of West Shore currently include the Basin
Pipeline, a 31-mile sour gas pipeline which is situated in Manistee and Mason
Counties, rights to obtain a sour gas treatment plant located in Manistee
County, Michigan, and various agreements that dedicate natural gas production
to West Shore for processing. Until completion of the second phase of the
Michigan Project, West Shore's revenues will be derived from fees generated by
gathering of natural gas on the Basin Pipeline and by treatment of sour gas.
Following completion of the second phase, revenues will be derived from fees
generated by gathering, treatment and extraction and fractionation of NGLs.
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The Michigan Project is in its first phase of development, which includes
construction of a two-mile pipeline from one of West Shore's main gathering
locations to a treatment plant owned and operated by Shell in Manistee County.
The purpose of this pipeline is to deliver sour gas to Shell for treatment.
The first phase also includes the construction of a 30-mile pipeline that will
connect the Slocum natural gas well owned by MPC in Oceana County to the Basin
Pipeline. Pending approval by the Michigan Public Service Commission of this
pipeline as part of the Basin Pipeline, MPC will own, and West Shore will
operate for MPC, this connecting pipeline. The Slocum well has estimated
reserves of approximately 13 Bcf, and estimated initial well deliverabilities
of approximately 8 MMcf/D. The Company currently expects to complete the first
phase of the Michigan Project in the first quarter of 1997. The first phase of
the Michigan Project is budgeted to cost $10.4 million, of which the Company's
share is $9.5 million.
The second phase of the Michigan Project includes construction of a two-mile
residue return line from the Shell treatment plant to the natural gas
transmission line of Michigan Consolidated Gas Company ("MichCon") and
construction of approximately 18 miles of pipeline to connect natural gas
wells in southern Oceana County, including the Claybanks wells owned by MPC
with estimated reserves of approximately 7.5 Bcf and estimated initial well
deliverabilities of approximately 8 MMcf/D, to the Basin Pipeline. The second
phase will also include the construction of an NGL extraction and
fractionation facility at the site of the Shell treatment plant. The facility
will be owned by West Shore and operated by Shell. The Company currently
expects that the second phase of the Michigan Project will be completed by the
end of the fourth quarter of 1997. The second phase of the Michigan Project is
expected to cost over $10 million, although the budget for such project is not
yet finalized.
Upon completion of the first two phases of development, West Shore's
processing operations are expected to have 30 MMcf/D of capacity provided by
Shell and approximately 25 MMcf/D of dedicated production from currently
drilled and proven wells. With a current pipeline capacity of 35 MMcf/D and
deliverabilities of individual wells commonly exceeding 5 MMcf/D, the Company
expects that demand at West Shore could exceed capacity. As a result, the
Company is already planning to expand West Shore to increase capacity in the
second phase of the Michigan Project. There can be no assurance, however, that
demand for West Shore's services will reach the levels anticipated by the
Company.
Availability of Natural Gas Supply. West Shore has an exclusive gathering,
treatment and processing agreement with MPC covering the natural gas
production from all wells and leases presently owned by MPC within Manistee,
Mason and Oceana Counties, Michigan. West Shore also is negotiating an
agreement with Callon that may result in the dedication of its natural gas
production to the pipeline, treatment and processing facilities of West Shore.
The Company believes that the expansion of the Basin Pipeline southward will
provide an outlet for sour gas production in the area and may stimulate new
drilling activity in the area. Both MPC and Callon are considering initiating
drilling programs in the area, to begin in late 1996 or early 1997. Production
from the MPC program has been dedicated to the Basin Pipeline, and West Shore
is negotiating with Callon for dedication of its production to the Basin
Pipeline. MarkWest Resources has agreed to purchase a 17.5% working interest
in the Callon drilling program. MarkWest also has had discussions with other
exploration companies that are evaluating possible exploration and production
activities in the corridor to be serviced by the expanded Basin Pipeline.
MarkWest currently is evaluating various drilling programs and expects to
participate actively in drilling wells in the area.
The natural gas streams to be dedicated to West Shore under these agreements
will primarily be produced from an extension of the Northern Niagaran Reef
trend in western Michigan. To date, over 2.5 trillion cubic feet of natural
gas has been produced from the Northern Niagaran Reef trend. Substantially all
of the natural gas produced from the western region of this trend, however, is
sour. While several successful large wells were developed in the region, the
natural gas producers lacked adequate gathering and treatment facilities for
sour gas, and development of the trend stopped in northern Manistee County.
With the sour gas pipeline, treatment and processing facilities and capacity
to be provided by
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West Shore, the Company believes there could be increased development in the
region. In addition, the Company believes that improvements in seismic
technology may increase exploration and production efforts, as well as
drilling sucess rates.
Development Agreements. West Shore was formed in May 1996 and is governed by
an operating agreement between MW Michigan, Inc. and MEC, which is owned by
Tenneco and ENCAP.
Pursuant to the West Shore operating agreement, MEC contributed various
gathering and processing assets, including gas purchase and processing
contracts, valued by MEC and the Company at $11.2 million. The most
significant assets contributed by MEC include its ownership interest in the
Basin Pipeline, which is now held by West Shore's Basin Pipeline LLC
subsidiary, rights to obtain a sour gas treatment plant located in Manistee
County, Michigan, and various agreements that dedicate natural gas production
to West Shore for processing.
The acquisition of construction and operating permits in Michigan
historically has been very difficult, particularly for sour gas. The assets
contributed by MEC to West Shore included two key permits: a certificate of
approval from the State of Michigan to transport sour natural gas via the
Basin Pipeline and a permit to construct an additional treatment plant in
Oceana County.
In addition to acting as the operator under the West Shore operating
agreement, the Company has committed to fund up to $1.2 million of West
Shore's construction of a two-mile gathering pipeline and up to $10.0 million
for a 30-mile extension of the Basin Pipeline. In addition, the Company has
committed to fund 60% of the costs in excess of such amounts if necessary to
complete these projects. The Company also intends to construct and install
processing and fractionating facilities to capitalize on the shut-in supply of
natural gas streams in the area. If the Company proceeds with this project,
the Company would pay 100% of such costs up to $5.6 million, and fund 60% of
the costs in excess of such amount if necessary to complete this project.
The Company's ownership interest in West Shore is based upon the
proportionate amount of capital funded to West Shore by the Company relative
to the overall capital of West Shore, up to a maximum ownership interest of
60%. When the first two phases of the Michigan Project are complete, and
assuming the Company has contributed capital of at least $16.8 million, the
Company will own a 60% interest in West Shore. If the Company has not funded
at least $16.8 million to West Shore prior to July 1, 1997, the Company has
the right to make capital contributions to West Shore in the amount of the
difference to obtain a 60% ownership interest. As of June 30, 1996, the
Company had contributed $629,000 to, and had a 5.3% interest in, West Shore.
Historically, Basin Pipeline's operations have not been profitable. Although
there can be no assurance that West Shore or Basin Pipeline will achieve
profitability, the Company believes that, with the capital contributions
committed by the Company, operational efficiencies will improve and the
throughput volume of the Basin Pipeline will increase as a result of the
connection of the Slocum, the Claybanks and additional natural gas wells to
the pipeline.
Shell Treatment and Processing Agreement. In addition to the establishment
of West Shore, the Michigan Project includes a number of related agreements.
To provide treatment for natural gas dedicated to West Shore, West Shore has
entered into a gas treatment and processing agreement with Shell. Currently,
the agreement provides West Shore with 30 MMcf/D of gas treatment capacity at
Shell's facility in Manistee County, Michigan. The agreement also permits West
Shore to cause the expansion of Shell's treatment facilities. In addition, the
agreement grants West Shore the right to construct and install an NGL
processing plant at the site of Shell's treatment plant. Following completion
of the new processing plant, Shell will act as contract operator for West
Shore.
36
<PAGE>
GAS PROCESSING CONTRACTS AND NATURAL GAS SUPPLY
The Company historically has processed natural gas under two types of
arrangements: keep-whole and fee-based processing. An increasing portion of
the Company's revenue is derived from fees charged for processing third-party
natural gas production. The Company intends to emphasize fee-based processing
in the future to reduce the fluctuations in margins inherent in processing
natural gas under keep-whole arrangements.
Keep-Whole Contracts. Under keep-whole contracts, the principal cost is the
reimbursement to the natural gas producers for the BTUs extracted from the gas
stream in the form of liquids or consumed as fuel during processing. In such
cases, the Company creates operating margins by maximizing the value of the
NGLs extracted from the natural gas stream and minimizing the cost of
replacement of BTUs. While the Company maintains programs to minimize the cost
to deliver the replacement of fuel and shrinkage to the natural gas supplier,
the Company's margins under keep-whole contracts can be negatively affected by
either decreases in NGL prices or increases in prices of replacement natural
gas. Keep-whole contracts accounted for approximately 70% of the Company's
total revenues during 1995, and approximately 58% of the Company's total
revenues during the six months ended June 30, 1996. See "Risk Factors--
Commodity Price Risks."
Fee Contracts. The Company has entered into a fee-based contract with
Columbia Gas, which expires December 31, 2010, pursuant to which Columbia Gas
has agreed to use its best efforts to deliver a minimum of 115 MMcf/D of
natural gas to the Company's Kenova processing plant, and the Company has
agreed to process all natural gas made available by Columbia Gas to the
Company at the Kenova plant. In 1995, deliveries by Columbia Gas to the Kenova
plant under this contract represented approximately 70% of all throughput
processed by the Company. Under the agreement, Columbia Gas pays the Company a
fee per MMbtu of processed natural gas. The terms of the contract provide for
automatic two-year extensions after 2010, unless either party gives notice to
terminate the contract at least one year in advance of an expiration date. In
its Michigan Core Area, West Shore has entered into a fee-based contract with
MPC, which expires December 2016, pursuant to which MPC has agreed to use its
best efforts to deliver all of its natural gas to West Shore's pipeline and
treating facilities. Under the agreement, MPC pays West Shore a fee per MMbtu
of transported and treated natural gas. Approximately 5% of the Company's
total revenues during the six months ended June 30, 1996 resulted from fee-
based contracts.
Percent-of-Proceeds Contracts. Under percent-of-proceeds contracts, the
Company retains a portion of NGLs and/or natural gas as compensation for the
processing services provided. Operating revenues earned by the Company under
percent-of-proceeds contracts increase proportionately with the price of NGLs
and natural gas sold. While historically the Company has not entered into
percent-of-proceeds contracts, recently the Company offered to process natural
gas for certain suppliers in the Appalachian Core Area under percent-of-
proceeds arrangements.
The Company and Columbia Gas are in the process of negotiating fee and/or
percent-of-proceeds arrangements whereby the Company will process natural gas
directly for third-party shippers who utilize Columbia Gas' pipeline and
distribution system. In addition, part of the fee structure for transporting
and treating natural gas in the Michigan Core Area includes retaining a
portion of extracted NGLs.
SALES AND MARKETING
The Company attempts to maximize the value of its NGL output by marketing to
distributors, resellers, blenders, refiners and petrochemical companies. The
Company minimizes the use of third party brokers and instead supports a direct
marketing staff focused on multistate and independent dealers. Additionally,
the Company uses its own truck and tank car fleet, as well as its own
terminals and storage facilities, to enhance supply reliability to its
customers. All of these efforts have allowed the Company to maintain premium
pricing of its NGL products compared to Gulf Coast spot prices.
37
<PAGE>
Substantially all of the Company's revenue is derived from sales of NGLs,
particularly propane. Revenues from NGLs represented 93%, 98% and 92% of total
revenues, excluding gains on sale of property, in each of 1994, 1995 and in
the first six months of 1996, respectively. The Company markets and sells NGLs
to numerous customers, including refiners, petrochemical companies, gasoline
blenders, multistate and independent propane distributors and propane
resellers. The majority of the Company's sales of NGLs are based on spot
prices at the time the NGLs are sold. Spot market prices are based upon prices
and volumes negotiated for short terms, typically 30 days.
Marketing Assets. The Company maintains various terminalling, storage and
transportation assets designed to facilitate NGL sales and to take advantage
of seasonal variations in NGL prices.
In early 1992, the Company acquired a seven-acre propane terminal and
storage facility in West Memphis, Arkansas for approximately $4.5 million. The
West Memphis terminal is located at the terminus of an 80-mile intrastate
pipeline from McCrae Junction, Arkansas. The McCrae Junction terminal is
connected to the large interstate TEPPCO pipeline that originates in Mt.
Belvieu, Texas. At the West Memphis terminal, the Company maintains 45
pressurized storage tanks which have a storage capacity of just over 2.5
million gallons of NGLs. The terminal has a key stop automated loading
facility with two loading docks for propane, operating 24 hours per day, seven
days per week. The West Memphis terminal is capable of serving railcar and
trucking transportation. An adjoining Union Pacific rail siding holds up to 17
railcars and has six loading/unloading stations. The terminal is located
approximately 1/4 mile from the Mississippi River and is secured by a long
term lease held by the Company.
The West Memphis terminal is supplied by product from three sources: the
TEPPCO pipeline, the Union Pacific railroad siding, and truck unloading. The
facility also has the capability to terminal other NGLs (butanes) during non-
peak demand periods for propane, and has dehydration facilities to ensure
minimal water contamination. During 1995, throughput at the West Memphis
terminal was approximately 30.0 million gallons. The Company's profit margin
on such throughput results from transportation, storage and handling services
to customers, which include approximately 45 area propane dealers.
The Company also leases and operates a propane terminal in Church Hill,
Tennessee, which principally receives product by rail and redelivers the
product to dealers and resellers by truck. The Church Hill terminal was
commissioned in the fall of 1995. The Company has agreed to maintain not less
than 60,000 gallons of propane in storage at the terminal during the period
from September 15 through March 15 of each year for use by Hawkins County
Utility Co. ("Hawkins"). Hawkins uses the facility for a retail propane
operation and a standby natural gas peak shaving plant, which mixes air with
propane to generate marketable natural gas. The Church Hill terminal has
240,000 gallons of pressurized storage, an automated truck loading station and
a rail siding that can hold four cars and has two unloading stations. Given
the relatively strong demand for NGL products, the Company expects to make
further investment in storage and loading/unloading assets of as much as
$280,000 in the last quarter of 1996.
To reach transportation and sales delivery points, the Company operates a
fleet of approximately 80 pressurized railcars. The Company owns 70 of the
railcars and leases the balance of the railcars under term leases. The Company
also owns seven pressurized truck transport trailers, which are principally
used in either the movement of mixed NGL feedstock to the Siloam fractionator
or the sale of propane in the Appalachian Core Area. The Company anticipates
increasing its owned railcar fleet in 1996 and 1997 and has budgeted a total
of $753,000 for such purpose.
The Company maintains a marketing staff of six persons in Columbus, Ohio;
West Memphis, Arkansas; and Denver, Colorado.
38
<PAGE>
Sales Contracts. The Company has two significant contracts for sales of
NGLs. The Company entered into a contract, which expires August 31, 1996, with
Ashland pursuant to which Ashland has agreed to purchase all of the normal
butane produced by the Company during each calendar year the contract is in
effect. In 1995, butanes represented approximately 24% of all NGLs produced by
the Company. The contract also provides for Ashland to purchase a portion of
the Company's isobutane production. In 1995, Ashland purchased approximately
21 million gallons of butanes out of a total of 92 million gallons of NGLs
produced at the Siloam plant. Sales prices for product sold to Ashland are
based upon monthly average spot market prices. In 1995, sales to Ashland
represented 18% of the Company's revenues. The Company expects that its
contract with Ashland will be renewed prior to the expiration of its current
term in August 1996, although there can be no assurance that such renewal will
occur or will occur on terms similar to the current contract.
The Company also has significant sales contracts with Ferrellgas pursuant to
which Ferrellgas has agreed to purchase approximately 12 million gallons of
the Company's annual propane production from its Siloam plant. The contract
expires in April 1997. The Company has had its contract with Ferrellgas
renewed each year since 1989. As such, the Company expects its contract with
Ferrellgas to be renewed subsequent to April 1997, although there can be no
assurance that such renewal will occur or will occur on terms similar to the
current contract. Sales prices for propane sold to Ferrellgas are based upon
monthly average market prices. In 1995, sales to Ferrellgas represented 7% of
the Company's revenues.
EXPLORATION AND PRODUCTION
The Company maintains a strategic gas exploration effort intended to permit
the Company to gain a foothold position in production areas that have strong
potential to create demand for its processing services. The Company, through
its MarkWest Resources subsidiary, currently owns interests in several
exploration and production assets. Such assets include the following:
. A 49% undivided interest in two separate exploration and production
projects in La Plata County, Colorado, situated on the Fruitland
Formation coal seam. One project currently contains three coal seam
wells that each produce approximately 300 Mcf/D of natural gas. Together
with its joint venture partner, MarkWest Resources plans to commence a
12 well drilling program in the West Tiffany area of the San Juan basin
in September 1996. It is estimated that full development of these two
projects will cost the Company approximately $3.2 million through the
end of 1997.
. A 5.4% working interest in a 66 well drilling program operated by Conley
Smith, Denver, Colorado. The majority of these well sites are in
Oklahoma, Nevada, Kansas and Texas. MarkWest believes it may have a
future opportunity to provide its processing expertise to Conley Smith
in the areas with successful drilling sites. There can be no assurance,
however, that Conley Smith will use the Company's processing services.
. A 25% working interest in a 31,000 acre project to be developed in the
Piceance Basin of Colorado. The project includes both the exploration
for natural gas in an area known as Sulfur Gulch and the purchase of
acreage and a number of existing wells. While there can be no assurance
that these projects will generate substantial natural gas volumes,
MarkWest believes that this area could generate increased demand for
processing services.
. A 17.5% working interest in the drilling program of Callon in the
Michigan Core Area. Callon intends to conduct a 25 square mile three-
dimensional seismic survey in the area, and thereafter acquire acreage
and conduct drilling activities. See "--Natural Gas Processing and
Related Services--Michigan Core Area."
In an attempt to mitigate certain of the risks involved in such activities,
the Company has conducted its exploration and production activities with third
parties. To date, the Company's exploration and production efforts have been
conducted jointly with MAK-J Energy, a partnership whose general partner is a
corporation owned and controlled by John Fox, President and Chief Executive
Officer of the Company. See "Certain Transactions--Investments with
Affiliate." In the future, any activities involving MAK-J Energy are required
by the Company's bylaws to be approved by a majority of the Company's
independent and disinterested directors. See "Certain Transactions--
Investments with Affiliate."
39
<PAGE>
FACILITIES
The following table provides information concerning the Company's principal
gas processing plants and gathering facilities.
<TABLE>
<CAPTION>
Year Acquired Gas NGL Production
or Placed Throughput Throughput Throughput
into Service Capacity (MMcf/D)(1) (MGal/Year)(1)
------------- ------------ ----------- --------------
<S> <C> <C> <C> <C>
Processing Plants
Siloam Fractionation
Plant,
South Shore, KY......... 1988 360 MGal/D N/A 100,000
Boldman Extraction
Plant,
Pike County, KY......... 1991 70.0 MMcf/D 55.0 9,300
Kenova Extraction Plant,
Wayne County, WV........ 1996 120.0 MMcf/D 115.0 70,000
Pipelines
38.5-mile Kenova--Siloam
NGL pipeline,
Wayne County, WV to
South Shore, KY......... 1988 350 MGal/D N/A 70,000
31-mile sour gas pipe-
line
Manistee County, MI(2).. 1996 35.0 MMcf/D 9.0 N/A
</TABLE>
<TABLE>
<CAPTION>
Year Acquired
or Placed Storage Annual Sales
into Service Capacity (MGal/Year)(1)
------------- ----------- --------------
<S> <C> <C> <C>
Terminal and Storage
Siloam Fractionation Storage
South Shore, KY........................ 1988 14,000 MGal 100,000
Terminal and Storage
West Memphis, AR....................... 1992 2,500 MGal 33,000
Terminal and Storage
Church Hill, TN........................ 1995 240 MGal 5,000
</TABLE>
- --------
(1) Estimated for 1996.
(2) Owned through West Shore Processing Company, LLC. See "--Natural Gas
Processing and Related Services--Michigan Core Area."
Kenova Plant. The Company's Kenova, West Virginia processing plant was
developed pursuant to certain agreements with Columbia Gas. Pursuant to
purchase and related agreements entered into between the Company and Columbia
Gas in March 1995, the Company has agreed to purchase approximately six acres
of land and facilities constituting Columbia Gas' former natural gas
processing plant located in Kenova, West Virginia, for $500,000. Under the
agreements, Columbia Gas has agreed to indemnify the Company for all
environmental liabilities and costs identified by the environmental assessment
of the Kenova properties, provided that, upon completion of the remediation
identified in the remediation plan, the Company has agreed to pay Columbia Gas
an additional $600,000 as a contribution for performing the remediation. The
Kenova plant currently is the subject of certain FERC abandonment proceedings.
See "--Government Regulation."
Boldman Plant. The Company's Boldman, Kentucky processing plant was
constructed pursuant to an agreement with Columbia Gas. The contract provided
that the Company would design and construct an NGL extraction plant on
Columbia Gas property. The Company invested approximately $4.0 million
40
<PAGE>
in constructing the facility. Under the Company's agreement with Columbia Gas,
the Company has leased the facility to Columbia Gas for a ten year term ending
February 2001. The lease has a base monthly rental fee of $40,000 and an
operating fee measured by monthly production of liquids at the plant, which
typically results in a monthly rental ranging from $40,000 to $47,000. The
lease also contains a bonus fee arrangement pursuant to which the Company has
agreed to pay fees to Columbia Gas if NGL production at the plant exceeds
certain specified levels. The term is subject to an additional two-year
extension upon notice from Columbia Gas to the Company, subject to negotiation
of acceptable lease terms. Columbia Gas has the option, at the end of 1996,
1997, 1998 and 1999, to purchase the Boldman plant from the Company for a
price equal to a specified premium above the book value of the plant on the
date of purchase. In addition, Columbia Gas has the option to purchase the
plant at the salvage value of the plant upon expiration of the lease term.
While the Company does not expect that Columbia Gas will exercise its
repurchase option, and anticipates that it will negotiate an agreement with
Columbia Gas by which the Company will operate the plant on Columbia Gas'
property after expiration of the lease term, there can be no assurance that
such results will be achieved.
Executive Offices. MarkWest occupies approximately 12,000 square feet of
space at its executive offices in Denver, Colorado under a lease expiring in
March 1997. While the Company will require additional office space as its
business expands, the Company believes that its existing facilities are
adequate to meet its needs for the immediate future, and that additional
facilities will be available on commercially reasonable terms as needed.
OPERATIONAL RISKS AND INSURANCE
The Company's operations are subject to the usual hazards incident to the
exploration for and production, transmission, processing and storage of
natural gas and NGLs, such as explosions, product spills, leaks, emissions and
fires. These hazards can cause personal injury and loss of life, severe damage
to and destruction of property and equipment, and pollution or other
environmental damage, and may result in curtailment or suspension of
operations at the affected facility. In addition, the Company's operations in
the Michigan Core Area are subject to additional risks resulting from the
processing and treatment of sour gas, including an increased risk of property
damage, bodily injury or death from the highly toxic nature of sour gas. See
"Risk Factors--General Business Risks."
The Company maintains general public liability, property and business
interruption insurance in amounts that it considers to be adequate for such
risks. Such insurance is subject to deductibles that the Company considers
reasonable and not excessive. Consistent with insurance coverage generally
available to the NGL industry, the Company's insurance policies do not provide
coverage for losses or liabilities related to pollution or other environmental
damage, except for sudden and accidental occurrences.
The occurrence of a significant event not fully insured or indemnified
against, and/or the failure of a party to meet its indemnification
obligations, could materially and adversely affect the Company's operations
and financial condition. Moreover, no assurance can be given that the Company
will be able to maintain adequate insurance in the future at rates it
considers reasonable.
COMPETITION
The Company faces intense competition in obtaining natural gas supplies for
its gathering and processing operations, in obtaining processed NGLs for
fractionation, and in marketing its products and services. The Company's
principal competitors include major integrated oil and gas companies such as
Ashland and Amoco Oil Co., major interstate pipeline companies such as CNG
Transmission Corporation, NGL processing companies such as Natural Gas
Clearinghouse, and national and local gas gatherers, brokers, marketers and
distributors of varying sizes, financial resources and experience. Many of the
Company's competitors, such as major oil and gas and pipeline companies, have
capital resources and control supplies of natural gas substantially greater
than those of the Company. Smaller local distributors may enjoy a marketing
advantage in their immediate service areas.
41
<PAGE>
The Company competes against other companies in its gas processing business
both for supplies of natural gas and for customers to which it sells its
products. Competition for natural gas supplies is based primarily on location
of gas gathering facilities and gas processing plants, operating efficiency
and reliability and ability to obtain a satisfactory price for products
recovered. Competition for customers is based primarily on price, delivery
capabilities, and maintenance of quality customer relationships.
The Company's fractionation business competes against other fractionation
facilities that serve local markets. Competitive factors affecting the
Company's fractionation business include proximity to industry marketing
centers and efficiency and reliability of service.
In marketing its products and services, the Company has numerous
competitors, including interstate pipelines and their marketing affiliates,
major producers, and local and national gatherers, brokers, and marketers of
widely varying sizes, financial resources and experience. Marketing
competition is primarily based upon reliability, transportation, flexibility
and price.
GOVERNMENT REGULATION
Certain of the Company's pipeline activities and facilities are involved in
the intrastate or interstate transportation of natural gas and NGLs, and are
subject to state and/or federal regulation. Historically, the transportation
and sale for resale of natural gas in interstate commerce have been regulated
pursuant to the Natural Gas Act of 1938 ("NGA"), the Natural Gas Policy Act of
1978 ("NGPA"), and the regulations promulgated thereunder by the Federal
Energy Regulatory Commission ("FERC"). In the past, the federal government
regulated the prices at which oil and gas could be sold, as well as certain
terms of service. However, the deregulation of natural gas sales pricing began
under terms of the NGPA and was completed in January 1993 pursuant to the
Natural Gas Wellhead Decontrol Act of 1989 (the "Decontrol Act"). Thus, all
sales by the Company of NGLs and natural gas currently can be made at
uncontrolled market prices. There can be no assurance, however, that Congress
will not reenact price controls in the future which could apply to, or
substantially effect, these sales activities.
FERC's jurisdiction over the interstate transportation of natural gas was
not removed or limited by the NGPA or the Decontrol Act. FERC also retains
jurisdiction over the interstate transportation of liquid hydrocarbons, such
as NGLs and product streams derived therefrom. The processing of natural gas
for the removal of liquids currently is not viewed by the FERC as an activity
subject to its jurisdiction. If a processing plant's primary function is
extraction of NGLs and not natural gas transportation, the FERC has
traditionally maintained that the plant is not a facility for transportation
or sale for resale of natural gas in interstate commerce and therefore is not
subject to jurisdiction under the Natural Gas Act. Although the FERC has not
been requested to and has made no specific declaration as to the
jurisdictional status of the Company's gas processing operations or
facilities, the Company believes that because its gas processing plants are
primarily involved in removing NGLs, their processing activities are exempt
from FERC jurisdiction. Notwithstanding the foregoing, Columbia Gas is seeking
abandonment approval of the processing plant that was replaced by the
Company's Kenova extraction plant. The previous Columbia Gas processing plant
was considered by FERC to be transportation-related and was included in
Columbia Gas' certificated facilities. See "--Natural Gas Processing and
Related Services--Appalachian Core Area--NGL Extraction" and "--Facilities."
Certain third party producers have filed for intervention in the abandonment
proceeding seeking to clarify commitments regarding dedication of production
and a determination regarding processing fees. Because of this prior
regulatory classification when owned by Columbia Gas, the Company has
specifically requested a ruling from FERC confirming that the new Kenova
extraction plant is exempt from FERC jurisdiction. While there can be no
assurance that FERC will issue such a ruling, the Company believes, based upon
opinions of legal counsel to the Company, that such a ruling will be
forthcoming.
As part of the Michigan Project, the Company will own and operate pipeline
gathering facilities in conjunction with its processing plants. Under the NGA,
facilities which have as their "primary function" the performance of gathering
activities and are not owned by interstate gas pipeline companies are wholly
exempt from FERC jurisdiction. Interstate transmission facilities, on the
other hand, are subject to FERC jurisdiction. The FERC distinguishes between
these two types of activities on a fact-specific basis, which may make it
difficult to state with certainty the status of the Company's pipeline
gathering facilities.
42
<PAGE>
Although the FERC has not been requested to or issued any order or opinion
declaring the Company's facilities as gathering rather than transmission
facilities, based on opinion of legal counsel, management believes these
systems are NGA-exempt gathering facilities. In addition, state and local
regulatory authorities oversee intrastate gathering and other natural gas
pipeline operations. For example, the Basin Pipeline, part of the Company's
Michigan Project, is regulated by the Michigan Public Service Commission and
local authorization is required for the connection of certain gas wells to the
Basin Pipeline. See "--Natural Gas Processing and Related Services--Michigan
Core Area."
Because the Company's NGL pipeline facilities do not transport liquids in
continuous flow in interstate commerce, they are not subject to FERC
regulation under the Interstate Commerce Act. However, the design,
construction, operation, and maintenance of the Company's NGL and natural gas
pipeline facilities are subject to the safety regulations established by the
Secretary of the Department of Transportation pursuant to the Natural Gas
Pipeline Safety Act of 1968, as amended ("1968 Act"), or by state agency
regulations which meet or exceed the requirements of the 1968 Act.
The Company's natural gas exploration and production operations are subject
to various types of regulation at the federal, state and local levels. Such
regulation includes requiring permits for the drilling of wells, meeting
bonding requirements in order to drill or operate wells and regulating the
location of wells, the methods of drilling and casing wells, the surface use
and restoration of properties upon which wells are drilled, the plugging and
abandoning of wells and the disposal of fluids used in connection with such
operations. Production operations are also subject to various conservation
laws and regulations. These typically include the regulation of the size of
drilling and spacing or proration units and the density of wells which may be
drilled therein and the unitization or pooling of oil and gas properties.
Whether the state has forced pooling, or integration of smaller tracts to form
a tract large enough to conduct drilling operations, or relies only on
voluntary pooling can affect the ease with which a property can be developed.
State conservation laws also typically establish maximum rates of production
of natural gas, generally prohibit the venting or flaring of gas and impose
certain requirements regarding the ratability of production and the handling
of nonhydrocarbon gases, such as carbon dioxide and hydrogen sulfide. The
effect of these regulations may limit the amount of oil and gas available to
the Company or which the Company can produce from its wells. They also
substantially affect the cost and profitability of conducting natural gas
exploration and production activities. Inasmuch as such laws and regulations
are frequently expanded, amended or reinterpreted, the Company is unable to
predict the future cost or impact of complying with these production-related
regulations.
Commencing in April 1992, the FERC issued a series of orders, generally
referred to collectively as Order No. 636, which, among other things, require
interstate pipelines such as Columbia Gas to "restructure" to provide
transportation services separate or "unbundled" from the interstate pipelines
sales of gas. Order No. 636 also requires interstate pipelines to provide
open-access transportation on a basis that is equal for all shippers and all
supplies of natural gas. This order was implemented through pipeline-by-
pipeline restructuring proceedings. In many instances, the result has been to
substantially reduce or bring to an end interstate pipelines' traditional role
as wholesalers of natural gas in favor of providing only storage and
transportation services. On July 16, 1996, the United States Court of Appeals
for the District of Columbia Circuit upheld the validity of most of the
provisions and features of Order No. 636. However, in many instances, appeals
remain outstanding in the individual pipeline restructuring proceedings, so
the Company cannot predict the final outcome of these proceedings. Order No.
636 is intended to foster increased competition within all phases of the
natural gas industry. It remains unclear what impact, if any, increased
competition within the natural gas industry under Order No. 636 will have on
the Company or its various lines of business. Additionally, the FERC has
issued a number of other orders which are intended to supplement various
facets of its open access program, all of which will continue to affect how
and by whom natural gas production and associated NGL's will be transported
and sold in the marketplace. In its current form, FERC's open access
initiatives could provide the Company with additional access to gas supplies
and markets, and could assist the Company and its customers by mandating more
fairly applied service rates, terms and conditions. On the other hand, it
43
<PAGE>
could also subject the Company and entities with which it does business to
more restrictive pipeline imbalance tolerances, more complex operations and
greater monetary penalties for violation of the pipelines tolerances and other
tariff provisions. The Company does not believe, however, that it will be
affected by any action taken with respect to Order No. 636 materially
differently than any other producers, gatherers, processors or marketers with
which it competes.
ENVIRONMENTAL MATTERS
The Company is subject to environmental risks normally incident to the
operation and construction of gathering lines, pipelines, plants and other
facilities for gathering, processing, treatment, storing and transporting
natural gas and other products including, but not limited to, uncontrollable
flows of natural gas, fluids and other substances into the environment,
explosions, fires, pollution, and other environmental and safety risks. The
following is a discussion of certain environmental and safety concerns related
to the Company. It is not intended to constitute a complete discussion of the
various federal, state and local statutes, rules, regulations, or orders to
which the Company's operations may be subject. For example, the Company,
without regard to fault, could incur liability under the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended
(also known as the "Superfund" law), or state counterparts, in connection with
the disposal or other releases of hazardous substances, including sour gas,
and for natural resource damages. Further, the recent trend in environmental
legislation and regulations is toward stricter standards, and this will likely
continue in the future.
The Company's activities in connection with the operation and construction
of gathering lines, pipelines, plants, injection wells, storage caverns, and
other facilities for gathering, processing, treatment, storing, and
transporting natural gas and other products are subject to environmental and
safety regulation by federal and state authorities, including, without
limitation, the state environmental agencies and the federal Environmental
Protection Agency ("EPA"), which can increase the costs of designing,
installing and operating such facilities. In most instances, the regulatory
requirements relate to the discharge of substances into the environment and
include measures to control water and air pollution.
Environmental laws and regulations may require the acquisition of a permit
or other authorization before certain activities may be conducted by the
Company. These laws also include fines and penalties for non-compliance.
Further, these laws and regulations may limit or prohibit activities on
certain lands lying within wilderness areas, wetlands, areas providing habitat
for certain species or other protected areas. The Company is also subject to
other federal, state, and local laws covering the handling, storage or
discharge of materials used by the Company, or otherwise relating to
protection of the environment, safety and health.
EMPLOYEES
As of July 1, 1996, the Company had 84 employees, including eight employees
dedicated to the Michigan Project. The Company anticipates hiring additional
employees in connection with the development of the Michigan Project.
Eighteen employees at the Company's Siloam fractionation facility in South
Shore, Kentucky are represented by the Oil, Chemical and Atomic Workers
International Union, Local 3-372 (Siloam Sub-Local). The Company recently
negotiated a new collective bargaining agreement with this Union that is
effective May 1, 1996 and expires on April 30, 2000. The agreement covers only
hourly, non-supervisory employees. The Company considers labor relations to be
satisfactory at this time.
LEGAL PROCEEDINGS
From time to time the Company has been involved in certain legal proceedings
that have arisen in the ordinary course of business, none of which has had a
material adverse effect on the Company's financial position or results of
operations. The Company currently is not a party to any litigation and is not
aware of any threatened litigation.
44
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
John M. Fox................ 56 President, Chief Executive Officer and Director
Brian T. O'Neill........... 48 Senior Vice President, Chief Operating Officer
and Director
Arthur J. Denney........... 47 Vice President of Engineering and Business
Development and Director
Robert F. Garvin........... 56 Vice President of Exploration
Rita E. Harvey............. 40 Director of Finance and Treasurer
Norman H. Foster (1)(2).... 61 Director
Barry W. Spector (2)....... 44 Director
David R. Whitney (1)(2).... 44 Director
</TABLE>
KEY EMPLOYEES
Certain key employees of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Katherine S. Holland................. 43 Manager, NGL and Natural Gas Supply
Michael R. La Rue.................... 37 Manager, Project Development
Kimberly H. Marle.................... 38 Manager , Information Systems
Faye E. McGuar....................... 45 Controller
Randy S. Nickerson................... 35 Manager, West Shore and Basin Pipeline
Joseph D. O'Meara.................... 52 Manager, Appalachian Area
Fred R. Shato........................ 48 General Manager, Marketing
</TABLE>
- --------
(1) Member of the Compensation Committee of the Board of Directors.
(2) Member of the Audit Committee of the Board of Directors.
EXECUTIVE OFFICERS AND DIRECTORS
JOHN M. FOX has been the Company's President, Chief Executive Officer and a
member of the Board of Directors since its inception in April 1988. Mr. Fox
was a founder of Western Gas Resources, Inc., a company listed on the New York
Stock Exchange, and was Executive Vice President and Chief Operating Officer
from 1972 to 1986. Mr. Fox holds a bachelors degree in engineering from the
United States Air Force Academy and an MBA from the University of Denver.
BRIAN T. O'NEILL has been the Company's Senior Vice President, Chief
Operating Officer and a member of the Board of Directors since its inception
in April 1988. Mr. O'Neill has approximately 20 years of experience in NGL and
natural gas marketing, and served as a Marketing Manager for Western Gas
Resources, Inc., specializing in gas acquisition and sales, new business
development and NGL marketing, from 1982 to 1987. Mr. O'Neill holds a
bachelors degree in advertising and psychology from
45
<PAGE>
the University of Florida and a masters degree in international marketing and
finance from the American Graduate School of International Management.
ARTHUR J. DENNEY has been the Company's Vice President of Engineering and
Business Development since January 1990 and a member of the Board of Directors
since June 1996. Mr. Denney has over 22 years of experience in gas gathering,
gas processing and the NGL business. From 1987 to 1990, Mr. Denney served as
Manager of Business Development for Lair Petroleum, Inc. From 1974 to 1987,
Mr. Denney was employed by Enron Gas Processing Co. in a variety of positions,
including seven years as its Rocky Mountain Regional Manager for business
development. Mr. Denney holds a bachelors degree in mechanical engineering and
an MBA from the University of Nebraska.
ROBERT F. GARVIN joined MarkWest in 1988 as Manager, Exploration. Mr. Garvin
has been the Company's Vice President of Exploration since April 1996. Mr.
Garvin has more than 29 years of oil and gas industry experience. During his
career, Mr. Garvin has been employed as a geologist by Phillips Petroleum
Company, Duncan Oil Properties, Excel Energy Corporation, Ecological
Engineering Systems and has been a self-employed geologist. Mr. Garvin holds a
bachelors degree in geology from Westminster College and a masters degree in
geology from the University of Utah.
RITA E. HARVEY has been the Company's Director of Finance and Treasurer
since November 1995. From April 1994 through October 1995, Ms. Harvey served
as the Company's controller. Ms. Harvey is a certified public accountant with
over fifteen years of experience in accounting, budgeting, finance and
management. From July 1991 through March 1994, Ms. Harvey specialized in the
extractive industries as a member of the Audit and Business Advisory Services
Group of Price Waterhouse LLP. Ms. Harvey is currently in her third year as a
member of the Authority Finance Committee of the Denver Health and Hospitals
Board of Directors. Ms. Harvey holds a bachelors degree in accounting from
Metropolitan State College and is currently pursuing a masters degree in
finance at the University of Colorado at Denver.
NORMAN H. FOSTER has been a member of the Board of Directors of the Company
since June 1996. Dr. Foster has more than 33 years of experience in oil and
natural gas exploration, both domestic and international. Dr. Foster has been
an independent geologist since 1979, and has held positions with Sinclair Oil
Corporation, Trend Exploration Limited and Filon Exploration Corporation. In
1995, he co-founded Voyager Exploration, Inc., a private exploration and
production company for which he serves as President. Dr. Foster holds a
bachelors degree in general science and a masters degree in geology from the
University of Iowa and a Ph.D. in geology from the University of Kansas.
BARRY W. SPECTOR has been a member of the Board of Directors of the Company
since September 1995. Mr. Spector has practiced law as a sole practitioner
since 1979. Mr. Spector's practice emphasizes oil and gas law with a
particular emphasis in natural gas contracts, interstate and intrastate
regulation and marketing. Mr. Spector holds a bachelors degree in biology and
a J.D. from the University of Denver. Mr. Spector is also a director of
Chaparral Resources, Inc., a publicly-held company.
DAVID R. WHITNEY has been a member of the Board of Directors of the Company
since April, 1988. Since 1985, Mr. Whitney has been a Managing Director of
Resource Investors Management Company Limited Partnership ("RIMCO"), a full
service investment management company specializing in the energy industry and
the holder, after the Reorganization, of 3.5% of the Company's shares of
Common Stock. Mr. Whitney holds a bachelors degree in economics from the
University of Colorado and an MBA from the Univesity of Connecticut.
KEY EMPLOYEES
KATHERINE S. HOLLAND joined MarkWest in 1988. She has been the Company's
Manager, NGL and Natural Gas Supply, since late 1993. Prior to that, she
served as the Company's Manager, Railcar Fleet and Distribution. Ms. Holland
has approximately 13 years' combined experience in the oil and gas industry
46
<PAGE>
and the NGL and natural gas segment of the oil and gas industry. From 1983 to
1988, Ms. Holland was employed by Sherwood Exploration Company, an oil and gas
exploration and production company. Ms. Holland holds a bachelors degree in
art history from the University of Colorado.
MICHAEL R. LA RUE joined MarkWest in 1991 as Controller. In 1993, Mr. La Rue
became Manager, Project Development for the Company, with primary
responsibility for business development in the Appalachian Core Area. From
1983 to 1991, Mr. LaRue was employed by Price Waterhouse as an accountant
specializing in tax consulting for the extractive industry. Mr. La Rue holds a
bachelors degree in accounting from Oklahoma State University.
KIMBERLY H. MARLE has been the Company's Manager, Information Systems, since
March 1995. Ms. Marle joined MarkWest in December 1993 as an information
systems consultant developing applications for the Company's accounting
systems. Ms. Marle has an extensive background in oil and gas computerization,
having worked for Forest Oil Corporation for four years prior to joining
MarkWest. Ms. Marle holds a bachelors degree in business from the University
of Memphis and is currently pursuing a masters degree in information systems
at the University of Denver.
FAYE E. MCGUAR joined MarkWest in 1996 as Controller. Ms. McGuar is a
certified public accountant with over 15 years of experience in accounting,
budgeting, treasury and finance. From 1994 to 1996, Ms. McGuar was employed by
the Southern Pacific Railroad as Budget Director, and from 1982 to 1988, she
was employed by the Anschutz Corporation, serving as its controller from 1987
to 1988. Ms. McGuar holds a bachelors degree in finance from the University of
Utah.
RANDY S. NICKERSON joined MarkWest in 1995 as Manager, New Projects, and now
serves as Manager, West Shore Processing and Basin Pipeline. From 1984 to
1990, he was a project manager and a project engineer for Chevron USA, and
from 1991 to 1995, he was a project engineer and Regional Engineering Manager
for Western Gas Resources, Inc. Mr. Nickerson holds a bachelors degree in
chemical engineering from Colorado State University.
JOSEPH D. O'MEARA joined MarkWest in 1992 as Manager, Siloam Plant. In 1995,
Mr. O'Meara was promoted to Manager, Appalachian Area. Prior to joining
MarkWest, Mr. O'Meara was employed for 26 years by Cities Service/Occidental
Petroleum, during which time he held a number of operational, supervisory and
management positions.
FRED R. SHATO joined MarkWest in 1989 as Manager, Marketing. In 1992, Mr.
Shato became the Company's General Manager, Marketing. Mr. Shato has 20 years
of experience in gasoline and NGL acquisition, trading and marketing, and
served as Manager of Trading and Product Acquisitioin for Certified Oil
Corporation from 1980 to 1989. Mr. Shato holds a bachelors degree in history
and political science from Defiance College.
BOARD OF DIRECTORS
The Company's By-Laws provide for a classified board of directors. The two
class I directors, Messrs. Denney and Foster, have been elected for an initial
term expiring at the 1997 annual meeting. The two class II directors, Messrs.
O'Neill and Spector, have been elected for an initial term expiring at the
1998 annual meeting. The two class III directors, Messrs. Fox and Whitney,
have been elected for an initial term expiring at the 1999 annual meeting. All
subsequent elections will be for successive three-year terms. No director is
selected or serves pursuant to any special arrangement or contract.
Officers serve at the discretion of the Board and are elected annually.
There are no family relationships between the directors or executive officers
of the Company.
The Board of Directors has a Compensation Committee and an Audit Committee.
The Compensation Committee makes recommendations to the Board concerning
salaries and incentive compensation for the
47
<PAGE>
Company's officers and employees and administers the Company's 1996 Stock
Incentive Plan, as amended (the "Stock Incentive Plan"). The Audit Committee
aids management in the establishment and supervision of the Company's
financial controls, evaluates the scope of the annual audit, reviews audit
results, consults with management and the Company's independent auditors prior
to the presentation of financial statements to stockholders and, as
appropriate, initiates inquiries into aspects of the Company's financial
affairs.
Prior to this offering, directors have not received any compensation from
the Company for serving on the Board of Directors. All directors are
reimbursed for out-of-pocket expenses incurred while attending board and
committee meetings.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company is incorporated in Delaware in part to take advantage of certain
provisions in the Delaware General Corporation Law (the "Delaware Code")
relating to limitations on liability of corporate officers and directors.
The Company's Certificate of Incorporation limits the liability of directors
to the fullest extent permitted by the Delaware Code. Under current Delaware
law, a director's liability to a company or its stockholders may not be
limited with respect to (i) any breach of his duty of loyalty to the company
or its stockholders, (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) unlawful payments
or dividends or unlawful stock repurchases or redemptions as provided in
Section 174 of the Delaware Code or (iv) transactions from which the director
derived an improper personal benefit. The Company's Bylaws provide that the
Company shall indemnify its officers and directors and may indemnify its
employees and other agents to the fullest extent permitted under the Delaware
Code.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent of the Company where indemnification
would be required or permitted. The Company is not aware of any overtly
threatened litigation or proceeding that might result in a claim for
indemnification.
EXECUTIVE COMPENSATION
The following table sets forth the cash and noncash compensation for the
fiscal year ended December 31, 1995, awarded to or earned by (i) the
individual who served as the Company's Chief Executive Officer ("CEO") in
fiscal 1995; and (ii) each other executive officer of the Company whose salary
and bonus in fiscal 1995 exceeded $100,000 ((i) and (ii), collectively, the
"Named Executive Officers"). No other officer had compensation in excess of
$100,000 for fiscal year 1995:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Long Term
Compensation Compensation
---------------- ------------
Salary Bonus Options
Name and Principal Positions Fiscal Year ($) ($) (#)
- ---------------------------- ----------- -------- ------- ------------
<S> <C> <C> <C> <C>
John M. Fox........................... 1995 $140,510 $43,350 --
President and CEO.................... 1994 $109,516 $36,786 --
1993 $127,400 $ 2,997 --
Brian T. O'Neill...................... 1995 $142,191 $43,350 800
Senior Vice President and Chief
Operating Officer................... 1994 $117,338 $36,786 --
1993 $133,025 $ 2,997 --
Arthur J. Denney...................... 1995 $127,179 $39,235 1,106
Vice President of Engineering and
Business 1994 $109,515 $34,333 --
Development.......................... 1993 $117,875 $ 2,664 --
</TABLE>
48
<PAGE>
OPTION GRANTS
The following table sets forth information concerning stock options granted
to the Named Executive Officers during the fiscal year ended December 31,
1995, pursuant to the predecessor to the Company's Stock Incentive Plan. No
stock appreciation rights ("SARs") have been granted to these individuals to
date.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Number of
Securities Percent of Total
Underlying Options Granted Exercise or
Options to Employees in Base Price Expiration
Name Granted (#) Fiscal Year ($/Sh) Date
- ---- ----------- ---------------- ----------- --------------
<S> <C> <C> <C> <C>
John M. Fox............. -- -- -- --
Brian T. O'Neill........ 800 1.45% $8.00 August 1, 2001
Arthur J. Denney........ 1,106 2.00% $8.00 August 1, 2001
</TABLE>
FISCAL YEAR-END OPTION VALUES
The following table sets forth certain information with respect to stock
options held by each of the Company's Named Executive Officers. There have
been no option exercises by the Named Executive Officers since the formation
of the Company.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at Fiscal Year- In-the-Money Options at
End (#) Fiscal Year-End ($)(1)
------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
John M. Fox................. 5,000 1,250 $20,000 $ 5,000
Brian T. O'Neill............ 5,800 4,450 23,200 17,800
Arthur J. Denney............ 4,706 5,324 18,824 21,296
</TABLE>
- --------
(1) There was no public trading market for the Common Stock as of December
31, 1995. Accordingly, these values have been calculated on the basis of an
assumed initial public offering of $12.00 per share, less the applicable
option exercise price.
COMPENSATION PLANS
1996 Stock Incentive Plan. The Company's Stock Incentive Plan was adopted in
1996. The maximum number of shares authorized to be issued under the Stock
Incentive Plan is 600,000 shares of Common Stock. As of July 15, 1996, an
aggregate of approximately 452,285 shares of Common Stock had been reserved
for issuance under the Stock Incentive Plan and options to purchase an
aggregate of 147,715 shares of Common Stock were outstanding under the Stock
Incentive Plan. Outstanding options granted under the Stock Incentive Plan
generally vest and become exercisable at a rate of 20% per annum beginning on
the first anniversary after the date of grant. Generally, the term of each
outstanding option is the later to occur of three years after vesting or three
years after the closing of the Offering. The exercise price for options
granted under the Stock Incentive Plan is at least equal to 100% of the fair
market value of the Common Stock of the Company on the date of grant. The
Stock Incentive Plan permits the granting of stock options, including
incentive stock options ("ISOs") as defined under Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), and non-qualified stock options
("NQSOs") which do not qualify as ISOs. The purpose of the Stock Incentive
Plan is to reward and provide incentives for executive officers and key
employees of the Company by providing them with an opportunity to acquire
49
<PAGE>
an equity interest in the Company, thereby increasing their personal interest
in its continued success and progress. The purpose of the Stock Incentive Plan
is also to retain the services of executive officers and key employees as well
as to assist in attracting new executive officers and key employees. Non-
employee directors are not eligible to receive grants under the Stock
Incentive Plan.
The Stock Incentive Plan is administered by the Compensation Committee,
which has the sole and complete authority to select the employees (including
executive officers) who will receive options under the Stock Incentive Plan.
The Compensation Committee has the authority to determine the number of stock
options to be granted to eligible individuals, whether the options will be
ISOs or NQSOs and the terms and conditions of the options (which may vary from
grantee to grantee). The Compensation Committee determines the period for
which each stock option may be exercisable, but in no event may a stock option
be exercisable more than three years from the date the option becomes vested.
The number of shares available under the Stock Incentive Plan and the exercise
price of the options granted thereunder are subject to adjustment by the
Compensation Committee to reflect stock splits, stock dividends,
recapitalization, mergers, or other major corporate actions.
The Compensation Committee also has the authority under the Stock Incentive
Plan to grant Stock Appreciation Rights ("SARs") to employees. SARs confer on
the holder a right to receive, upon exercise, the excess of the Fair Market
Value of one Share on the date of exercise over the grant price of the SAR as
specified by the Committee, which price may not be less than 100% of the Fair
Market Value of one Share on the date of grant of the SAR. The grant price,
term, methods of exercise, dates of exercise, methods of settlement and any
other terms and conditions of any SAR are determined by the Committee.
The Board of Directors may discontinue, amend, or suspend the Stock
Incentive Plan in a manner consistent with the Stock Incentive Plan's
provisions, provided such changes do not violate the federal or state
securities laws.
In conjunction with the Reorganization, the Company will issue options to
purchase shares of Common Stock pursuant to the Stock Incentive Plan to
employees of MarkWest Partnership who currently hold outstanding options to
purchase partnership interests representing approximately 3% of the fully
diluted aggregate partnership interests in MarkWest Partnership. The aggregate
number of shares subject to such options is equal to (i) the percentage
interests of MarkWest Partnership into which the MarkWest Partnership options
were exercisable, multiplied by (ii) the fully diluted percentage of the
Company's Common Stock to be outstanding immediately after consummation of the
Reorganization (calculated prior to the issuance of the Shares in the
Offering). The exercise price per share for such options varies from $6.35 to
$7.14, and has been obtained by multiplying (i) the aggregate consideration to
have been paid pursuant to a MarkWest Partnership option, divided by (ii) the
number of shares of the Company's Common Stock into which the new option
issued pursuant to the Stock Incentive Plan is exercisable.
1996 Incentive Compensation Plan. The Company's 1996 Incentive Compensation
Plan (the "Compensation Plan") provides for cash incentive awards to
executives and employees of the Company in varying amounts, and is
administered by the Company's Compensation Committee. The Compensation Plan
was effective as of January 1, 1996. Certain bonus payments were made under
the Compensation Plan in May 1996. The Compensation Plan lists five tiers for
determining eligibility: Tier One includes all executive level employees; Tier
Two includes all management level employees; Tier Three includes all mid-level
exempt employees; Tier Four includes all lower-level exempt employees; and
Tier Five includes certain non-exempt employees. An incentive award is based
upon the financial performance of the Company compared to corporate goals for
1996. Profit sharing payments under the Compensation Plan are paid annually;
incentive payments under the Compensation Plan are paid periodically
throughout the year. The purpose of the Compensation Plan is to reward and
provide incentives for executives and employees of the Company by providing
them with an opportunity to acquire cash rewards, thereby increasing their
personal interest in the Company's continued success and progress.
50
<PAGE>
During the fiscal years ended December 31, 1993, 1994 and 1995, the Company
made profit sharing payments under the Compensation Plan of approximately
$95,000, $213,000 and $211,000, respectively, and incentive compensation
payments of approximately $50,000, $315,000 and $401,000, respectively.
1996 Non-Employee Director Stock Option Plan. In July 1996, the Company
adopted the 1996 Non-Employee Director Stock Option Plan (the "Director Stock
Option Plan"), which has a five-year term. The Director Stock Option Plan
provides for an automatic grant of NQSOs to purchase 500 shares of Common
Stock to non-employee directors upon completion of the Offering, and an
automatic grant of an option to purchase an additional 500 shares of Common
Stock on the day after each subsequent annual meeting of the Company's
stockholders. The option price is equal to the fair market value of the Common
Stock on the date of grant. Initial option grants vest and become exercisable
as to one-third of the shares covered by the option on each annual anniversary
of the date of grant if the holder remains a director on such date, provided
that such options may become fully exercisable upon a director's resignation
from the Board of Directors or death of the holder. Annual option grants vest
and become exercisable as to 100% of the shares covered by the option on the
six-month anniversary of the date of grant if the holder remains a director on
such date, provided that such options may become fully exercisable upon a
director's resignation from the Board of Directors or death of the holder. The
Company has reserved 20,000 shares of Common Stock for issuance under the
Director Stock Option Plan. Upon completion of the Offering, Messrs. Foster,
Spector and Whitney will each receive options to acquire 500 shares of Common
Stock at the price of the shares offered to the public in the Offering.
CERTAIN TRANSACTIONS
REORGANIZATION
The Company's business historically has been conducted by MarkWest
Partnership. Concurrently with the effectiveness of the Offering, the Company
will acquire from the current partners of MarkWest Partnership all of the
partnership interests in MarkWest Partnership in exchange for shares of the
Company pursuant to the Reorganization Agreement. Immediately following the
acquisition of MarkWest Partnership, MarkWest Partnership will be dissolved
and the Company will succeed to the business, assets and liabilities of
MarkWest Partnership. The Company believes that the transactions contemplated
by the Reorganization will qualify as a tax-free reorganization for United
States federal income tax purposes.
Pursuant to the Reorganization, the partners of MarkWest will receive an
aggregate of 5,000,000 shares of the Company's Common Stock. The terms of the
Reorganization Agreement provide that the partners will receive a fully
diluted percentage of the Company's Common Stock to be outstanding immediately
after consummation of the Reorganization (calculated prior to the issuance of
the Shares in the Offering) substantially equivalent to the partners'
interests in MarkWest Partnership. See "Reorganization."
MarkWest Partnership currently has outstanding options issued to current and
former employees that granted such employees the right to purchase partnership
interests representing approximately 3% of the fully diluted aggregate
partnership interests in MarkWest Partnership. As part of the Reorganization,
such employee options to purchase MarkWest Partnership interests will be
replaced by options to purchase shares of the Company's Common Stock issuable
pursuant to the Company's Stock Incentive Plan. Such options will be subject
to all of the terms and conditions of the Stock Incentive Plan. See
"Management--Compensation Plans--1996 Stock Incentive Plan."
PARTNERSHIP DISTRIBUTIONS
Immediately prior to consummation of the Reorganization, MarkWest
Partnership intends to make cash distributions to its partners equal to $10.0
million as a partial distribution of partnership capital. Such distribution
will be distributed pro rata to partners of MarkWest based upon such partners'
percentage
51
<PAGE>
interests in the partnership at the time of the distribution. MarkWest
Partnership intends to borrow the money necessary to make such distribution
under MarkWest Partnership's credit facility with the Lenders. As MarkWest
Partnership's successor, the Company will become obligated for such borrowing.
See "Management's Discussion and Analysis of Financial Condition--Liquidity
and Capital Resources--Credit Facilities." The Company intends to repay
substantially all of the indebtedness owed to Norwest Bank Denver, N.A. under
the Company's credit facility with the Lenders from the net proceeds of this
Offering. See "Use of Proceeds."
MarkWest Partnership is and has been a partnership for purposes of federal
income taxes. As a result, the net income of MarkWest Partnership was taxed
for federal and state income tax purposes directly to the partners of MarkWest
Partnership rather than to MarkWest Partnership. MarkWest Partnership
distributed to its partners an aggregate of $995,000, $320,000 and $4.2
million during the 1993, 1994 and 1995 fiscal years to cover income taxes and
an aggregate of $2.1 million during the 1993 fiscal year as a distribution of
partnership net earnings. No distributions of partnership net earnings were
made during fiscal years 1994 and 1995. The Partnership has distributed an
aggregate of $3.2 million to date in 1996 for partner income tax liabilities
through June 1996, and expects to make an additional such distribution of
approximately $416,000 prior to consummation of the Reorganization.
MWHC Holding, Inc., a Colorado corporation (the "MarkWest General Partner"),
received 70%, 69% and 69% of such distributions during the 1993, 1994 and 1995
fiscal years, respectively, and Erin Partners, Ltd., a Colorado limited
partnership ("Erin Partners"), received 11% of such distributions during each
of the 1993, 1994 and 1995 fiscal years. The MarkWest General Partner is
controlled by John Fox, President and Chief Executive Officer of the Company.
Erin Partners is controlled by Brian O'Neill, Senior Vice President and Chief
Operating Officer of the Company. See "Principal Stockholders."
INVESTMENTS WITH AFFILIATE
The Company, through its MarkWest Resources subsidiary, holds a 49%
undivided interest in several exploration and production assets ("E&P Assets")
owned jointly with MAK-J Energy, which owns a 51% undivided interest in such
properties. See "Business--Exploration and Production." The general partner of
MAK-J Energy is a corporation owned and controlled by John Fox, President and
Chief Executive Officer of the Company. The properties are held pursuant to
joint venture agreements entered into between MarkWest Resources and MAK-J
Energy. MarkWest Resources is the operator under such agreements. As the
operator, MarkWest Resources is obligated to provide certain engineering,
administrative and accounting services to the joint ventures. The joint
venture agreements provide for a monthly fee payable to MarkWest Resources for
all such expenses. While the amount of the monthly fee will in the future be
subject to review by the Company's independent directors, the monthly fee for
fiscal 1996 was not negotiated on an arm's length basis. Moreover, conflicts
of interest may arise regarding such oil and gas activities, including
decisions regarding expenses and capital expenditures and the timing of the
development and exploitation of the properties. As of June 30, 1996, MarkWest
had invested $3.3 million in E&P Assets owned jointly with MAK-J Energy. See
"Risk Factors--Conflicts of Interest."
The E&P Assets were originally developed by MarkWest Coalseam Development
Company LLC ("Coalseam LLC"), a natural gas development venture, and MW
Gathering LLC ("Gathering LLC"), a natural gas gathering venture. Coalseam LLC
and Gathering LLC originally were owned 51% by MAK-J Energy and 49% by the
Company. In connection with the Reorganization, in June 1996 Coalseam LLC and
Gathering LLC were merged, the Company transferred its interest in the
combined company to MarkWest Resources, and the combined company dissolved and
distributed its properties to MarkWest Resources and MAK-J Energy in
proportion to their respective interests.
Mr. Fox has agreed that as long as he is an officer or director of the
Company and for two years thereafter, he will not, directly or indirectly,
participate in any future oil and gas exploration or production activities
with the Company except and to the extent that the Company's independent and
disinterested
52
<PAGE>
directors deem it advisable and in the best interests of the Company to
include one or more additional participants, which participants may include
entities controlled by Mr. Fox. Additionally, Mr. Fox has agreed that as long
as he is an officer or director of the Company and for two years thereafter,
he will not, directly or indirectly participate in any future oil and gas
exploration or production activity that may be in competition with exploration
or production activities of the Company except and to the extent that Mr. Fox
has first offered the Company the opportunity to participate in that activity
and the Company's independent and disinterested directors deem it advisable
and in the best interests of the Company not to participate in that activity.
The terms of any future transactions between the Company and its directors,
officers, principal stockholders or other affiliates, or the decision to
participate or not participate in transactions offered by the Company's
directors, officers, principal stockholders or other affiliates will be
approved by a majority of the Company's independent and disinterested
directors. The Company's Board of Directors will use such procedures in
evaluating their terms as are appropriate considering the fiduciary duties of
the Board of Directors under Delaware law. In any such review the Board may
use outside experts or consultants including independent legal counsel, secure
appraisals or other market comparisons, refer to generally available
statistics or prices or take such other actions as are appropriate under the
circumstances. Although such procedures are intended to ensure that
transactions with affiliates will be on an arm's length basis, no assurance
can be given that such procedures will produce such result.
RELATED PARTY INDEBTEDNESS
MarkWest Partnership periodically extended offers to partners and employees
to purchase initial or additional interests in MarkWest Partnership. The
partners and/or employees have provided MarkWest Partnership with promissory
notes as part of the purchase price for such interests. According to the terms
of the promissory notes, interest accrues at 7% and payments are required for
the greater of accrued interest or distributions made by MarkWest Partnership
to partners in excess of the partner's income tax liability. An aggregate of
$592,000 principal amount of such notes are outstanding as of June 30, 1996. A
minimum of 50% of each individual's pro rata share of the Partnership
Distribution expected to be made prior to the effective date of the Offering
will be applied, in the case of distributions made to partners who issued
promissory notes to MarkWest Partnership, to outstanding amounts owed under
such promissory notes. Assuming application of such distribution to
outstanding amounts owed under the promissory notes, an aggregate of $397,000
principal amount of such notes will be outstanding subsequent to such
distribution. As part of the Reorganization, such remaining promissory notes
will be replaced by promissory notes owed to the Company. These new notes will
accrue interest at 7%, payable annually, and require full payment of principal
and outstanding interest on the third anniversary of the effective date of the
Reorganization.
53
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of July 15, 1996, (i) by each
person (or group of affiliated persons) who is known by the Company to own
beneficially more than five percent (5%) of the Company's Common Stock, (ii)
by each of the Named Executive Officers, (iii) by each of the Company's
directors, and (iv) by all directors and executive officers as a group. The
Company believes that the persons and entities named in the table have sole
voting and investment power with respect to all shares of Common Stock shown
as beneficially owned by them, subject to community property laws, where
applicable.
<TABLE>
<CAPTION>
Beneficial Ownership (1)
------------------------------------
Percentage
Number of shares Beneficially
Beneficially Owned Owned (2)
------------------ -----------------
BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER (3) OFFERING OFFERING
- ---------------------------------------- -------- --------
<S> <C> <C> <C>
MWHC Holding, Inc. (4)................... 3,327,248 66.5% 44.4%
Erin Partners, Ltd. (5).................. 525,968 10.5 7.0
John M. Fox (6).......................... 3,552,668 71.1 47.4
Brian T. O'Neill (7)..................... 721,429 14.4 9.6
Arthur J. Denney......................... 53,258 1.2 *
David R. Whitney (8)..................... 175,000 3.5 2.3
Barry W. Spector......................... 4,979 * *
Norman H. Foster......................... 0 * *
All directors and executive officers as a
group (8 persons) (6)(7)................ 4,514,374 90.3% 60.2%
</TABLE>
- --------
* Represents less than 1% of the outstanding shares
(1) All percentages have been determined at July 15, 1996 in accordance with
Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). For purposes of this table, a person or group of persons is
deemed to have "beneficial ownership" of any shares of Common Stock that such
person or group has the right to acquire within sixty days after July 15,
1996. For purposes of computing the percentage of outstanding shares of Common
Stock held by each person or group of persons named above, any security which
such person or group has the right to acquire within sixty days after July 15,
1996 is deemed to be outstanding, but is not deemed to be outstanding for the
purpose of computing the percentage ownership of any other person. At July 15,
1996, a total of 5,000,000 shares of Common Stock were issued and outstanding,
options to acquire a total of 16,931 shares of Common Stock were exercisable
within sixty days and 16,931 shares are exercisable at the consummation of the
Offering pursuant to the Stock Incentive Plan. The applicable percentage of
"beneficial ownership" after this Offering is based upon 7,500,000 shares of
Common Stock outstanding, which includes all of the numbers discussed above.
(2) Assumes no exercise of the Underwriters' over-allotment option.
(3) Unless otherwise indicated, the address for each listed stockholder is
c/o MarkWest Hydrocarbon, Inc., 5613 DTC Parkway, Suite 400, Englewood,
Colorado 80111.
(4) MWHC Holding, Inc. is an entity controlled by John M. Fox.
(5) Erin Investments, Inc., an entity controlled by Brian T. O'Neill, is the
general partner of Erin Partners, Ltd.
(6) Includes an aggregate of 225,420 shares held in the Brent A. Crabtree
Trust, the Brian T. Crabtree Trust and the Carrie L. Crabtree Trust (the
"Crabtree Trusts"), for which Mr. Fox is the Trustee. Also includes all shares
owned directly by MWHC Holding, Inc., an entity controlled by Mr. Fox. As a
result of Mr Fox's control of MWHC Holding, Inc., Mr. Fox may be deemed to
have an indirect
54
<PAGE>
pecuniary interest (within the meaning of Rule 16a-1 under the Exchange Act),
in an indeterminate portion of the shares beneficially owned by MWHC Holding,
Inc. Mr. Fox disclaims "beneficial ownership" of these shares within the
meaning of Rule 13d-3 under the Exchange Act, and also disclaims beneficial
ownership of the shares held in the Crabtree Trusts.
(7) Includes all shares owned directly by Erin Partners, Ltd., the general
partner of which is Erin Investments, Inc., an entity controlled by Mr.
O'Neill. As a result of Mr. O'Neill's control of Erin Investments, Inc. and
his indirect control of Erin Partners, Ltd., Mr. O'Neill may be deemed to have
an indirect pecuniary interest (within the meaning of Rule 16a-1 under the
Exchange Act), in an indeterminate portion of the shares beneficially owned by
Erin Partners, Ltd. Mr. O'Neill disclaims "beneficial ownership" of these
shares within the meaning of Rule 13d-3 under the Exchange Act.
(8) All of the shares indicated as owned by Mr. Whitney are owned by certain
limited partnerships whose general partner is RIMCO, and are included because
Mr. Whitney is a Managing Director of RIMCO. As such, Mr. Whitney may be
deemed to have an indirect pecuniary interest (within the meaning of Rule 16a-
1 under the Exchange Act), in an indeterminate portion of the shares
beneficially owned by RIMCO. Mr. Whitney disclaims "beneficial ownership" of
these shares within the meaning of Rule 13d-3 under the Exchange Act.
55
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the closing of this Offering, the authorized capital stock of the
Company will consist of twenty million (20,000,000) shares of Common Stock,
$0.01 par value, and five million (5,000,000) shares of Preferred Stock, $0.01
par value, for a total of twenty-five million (25,000,000) shares of capital
stock.
COMMON STOCK
Upon consummation of the Reorganization, there will be 5,000,000 shares of
Common Stock outstanding held of record by approximately 30 stockholders. The
holders of Common Stock are entitled to one vote per share on all matters to
be voted on by the stockholders. Subject to preferences that may be applicable
to outstanding shares of Preferred Stock, if any, the holders of Common Stock
are entitled to receive ratably such dividends as may be declared from time to
time by the Board of Directors out of funds legally available therefor. In the
event of the liquidation, dissolution or winding up of the Company, the
holders of Common Stock are entitled to share ratably in all assets remaining
after payment of liabilities, subject to prior liquidation rights of Preferred
Stock, if any, then outstanding. The Common Stock has no preemptive conversion
rights or other subscription rights. There are no redemption or sinking funds
provisions applicable to the Common Stock. All outstanding shares of Common
Stock are fully paid and non-assessable, and the shares of Common Stock to be
outstanding upon completion of this offering will be fully paid and non-
assessable.
PREFERRED STOCK
After the closing of the Offering, the Company will be authorized to issue
5,000,000 shares of undesignated Preferred Stock. The Board of Directors will
have the authority to issue the undesignated Preferred Stock in one or more
series and to fix the rights, preferences, privileges and restrictions granted
to or imposed upon any wholly unissued series of undesignated Preferred Stock
and to fix the number of shares constituting any series in the designations of
such series, without any further vote or action by the stockholders. The Board
of Directors, without stockholder approval, can issue Preferred Stock with
voting and conversion rights which could adversely affect the voting power of
the holders of Common Stock. The issuance of Preferred Stock may have the
effect of delaying, deferring or preventing a change in control of the
Company. The Company has no present plan to issue Preferred Stock.
CHANGE OF CONTROL PROVISIONS
Certain provisions of the Company's Certificate of Incorporation and Bylaws
may have the effect of preventing, discouraging or delaying a change in the
control of the Company and may maintain the incumbency of the Board of
Directors and management. The authorization of undesignated Preferred Stock
makes it possible for the Board of Directors to issue Preferred Stock with
voting or other rights or preferences that could impede the success of any
attempt to change control of the Company. In addition, the Company's Bylaws
limit the ability of stockholders of the Company to raise matters at a meeting
of stockholders without giving advance notice. The Bylaws also classify the
Company's Board of Directors into three classes, each class serving a three-
year term. Without the vote of 80% of the Company's capital stock, directors
may not be removed without cause by the stockholders. These provisions have
the effect of delaying a stockholder's ability to replace a majority of the
Board of Directors.
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law ("Section 203") regulating corporate takeovers.
Section 203 prevents certain Delaware corporations, including those whose
securities are listed on the Nasdaq National Market, from engaging, under
certain circumstances, in a "business combination" (which includes a merger or
sale of more than 10% of the corporation's assets) with any "interested
stockholder" (a stockholder who acquired 15% or more of the corporation's
outstanding voting stock without the prior approval of the corporation's Board
of Directors)
56
<PAGE>
for three years following the date that such stockholder became an "interested
stockholder." A Delaware corporation may "opt out" of Section 203 with an
express provision in its original certificate of incorporation or an express
provision in its certificate of incorporation or bylaws resulting from a
stockholders' amendment approved by at least a majority of the outstanding
voting shares. The Company has not "opted out" of the provisions of Section
203.
REGISTRATION RIGHTS
Under the terms of the Reorganization Agreement, 181 days after the closing
of this Offering, holders of approximately 891,274 shares of Common Stock (the
"Registrable Securities") will be entitled to certain rights with respect to
the registration of such shares of Common Stock under the Securities Act.
Specifically, certain beneficial owners of interests in MarkWest Partnership
(including certain limited partnerships whose general partner is RIMCO) who
will receive shares of Common Stock as part of the Reorganization and who are
not officers, directors or employees of the Company, and who are not the
beneficial holders of ten percent or more of the outstanding shares of Common
Stock either at the time immediately following the Reorganization or at the
time of a request for registration of shares of Common Stock, shall be
entitled to such registration rights. Under the Reorganization Agreement, if
the Company proposes to register any of its Common Stock under the Securities
Act, such holders of Registrable Securities are entitled to notice of such
registration and to include their Registrable Securities therein. The Company
may, in certain circumstances, defer such registration.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is American Securities
Transfer Inc.
LISTING
The Company has applied to list its Common Stock on the Nasdaq National
Market under the trading symbol "MWHX."
57
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this Offering, there has not been any public market for the Common
Stock. Sale of a substantial number of shares of Common Stock into the public
market following the Offering could adversely affect prevailing market prices
for the Common Stock.
Following this Offering, the Company will have outstanding an aggregate of
7,500,000 shares of Common Stock, assuming no exercise of the Underwriters'
over-allotment option. In addition to the 2,500,000 shares of Common Stock
offered hereby, as of the effective date of the Offering, there will be
5,000,000 shares of Common Stock outstanding, all of which are Restricted
Shares under the Securities Act. All executive officers, directors and certain
other stockholders and optionees of the Company have agreed they will not sell
4,789,967 shares of Common Stock held by them without the prior consent of
Dillon, Read & Co. Inc. for a period of 180 days from the date of this
Prospectus (the "180-day Lockup Period"). Following the 180-day Lockup Period,
up to 4,817,762 Restricted Shares will become eligible for sale in the public
market pursuant to Rule 144 subject to the volume and other restrictions
pursuant to such Rule. The Underwriters may, in their sole discretion and at
any time without notice, release all or any portion of the securities subject
to lock-up agreements.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), who has beneficially owned shares for at least
two years (including the holding period of any prior owner except an
affiliate) is entitled to sell in "broker's transactions" or to market makers,
within any three-month period, a number of shares that does not exceed the
greater of (i) one percent of the then outstanding shares of Common Stock, or
(ii) generally, the average weekly trading volume in the Common Stock during
the four calendar weeks preceding the sale. Sales under Rule 144 are also
subject to the filing of a Form 144 with respect to such sale and certain
other limitations and restrictions. Under Rule 144(k), a person who is not
deemed to have been an affiliate of the Company at any time during the ninety
(90) days preceding a sale, and who has beneficially owned the shares proposed
to be sold for at least three years, would be entitled to sell such shares
without having to comply with the manner of sale, volume limitation or notice
filing provisions described above.
The Company is unable to estimate the number of shares that will be sold
under Rule 144, as this will depend on the market price for the Common Stock
of the Company, the personal circumstances of the sellers and other factors.
Prior to this Offering, there has been no public market for the Common Stock,
and there can be no assurance that a significant public market for the Common
Stock will develop or be sustained after the Offering. Any future sale of
substantial amounts of the Common Stock in the open market may adversely
affect the market price of the Common Stock offered hereby.
The Company intends to file a registration statement on Form S-8 under the
Securities Act to register up to 600,000 shares of Common Stock reserved for
issuance under its Stock Incentive Plan, thus permitting the resale of such
shares by nonaffiliates in the public market without restriction under the
Securities Act, subject to vesting restrictions with the Company or the lock-
up agreements described above. Upon the completion of this Offering, there
will be a total of approximately 147,715 shares subject to options which are
expected to be the subject matter of such registration statement.
58
<PAGE>
UNDERWRITING
The names of the Underwriters of the shares of Common Stock offered hereby
and the aggregate number of shares which each has severally agreed to purchase
from the Company, subject to the terms and conditions specified in the
Underwriting Agreement, are as follows:
<TABLE>
<CAPTION>
Number of
Underwriter Shares
----------- ---------
<S> <C>
Dillon, Read & Co. Inc............................................
George K. Baum & Company..........................................
---------
Total........................................................... 2,500,000
=========
</TABLE>
The Managing Underwriters are Dillon, Read & Co. Inc. and George K. Baum &
Company.
The Underwriters are committed to purchase all of the shares of Common Stock
offered hereby, if any are so purchased. The Underwriting Agreement contains
certain provisions whereby, if any Underwriter defaults in its obligation to
purchase such shares, and the aggregate obligations of the Underwriters so
defaulting do not exceed ten percent of the shares of Common Stock offered
hereby, some or all of the remaining Underwriters must assume such
obligations.
The Underwriters propose to offer the shares of Common Stock directly to the
public initially at the offering price per share set forth on the cover page
of this Prospectus and to certain dealers at such price less a concession not
in excess of $ per share. The Underwriters may allow, and such dealers may
re-allow, concessions not in excess of $ per share to certain other
dealers. The offering of the shares of Common Stock is made for delivery when,
as and if accepted by the Underwriters and subject to prior sale and
withdrawal, cancellation or modification of this offer without notice. The
Underwriters reserve the right to reject any order for the purchase of the
shares. After the public offering of the shares of Common Stock, the public
offering price and the concessions may be changed by the Managing
Underwriters.
The Company has granted to the Underwriters an option for 30 days from the
date of this Prospectus, to purchase up to 375,000 additional shares of Common
Stock, at the initial public offering price less the underwriting discount set
forth on the cover page of this Prospectus. The Underwriters may exercise such
option only to cover over-allotments of the shares of Common Stock offered
hereby. To the extent the Underwriters exercise this option, each Underwriter
will be obligated, subject to certain conditions, to purchase the number of
additional shares of Common Stock proportionate to such Underwriter's initial
commitment.
The Company has agreed to indemnify the Underwriters against certain
liabilities under the Securities Act, or to contribute to payments the
Underwriters may be required to make in respect thereof.
The Company, certain pre-Offering stockholders, and all directors and
executive officers of the Company have agreed, subject to certain exceptions,
that they will not offer, sell, contract to sell, transfer or otherwise
encumber or dispose of any shares of Common Stock or securities convertible
into or exchangeable for Common Stock, or exercise demand registration rights,
for a period of 180 days from the date of this Prospectus, without the written
consent of Dillon, Read & Co. Inc.
59
<PAGE>
Prior to the Offering, there has been no public market for the Common Stock.
Consequently, the initial public offering price for the Common Stock will be
determined by negotiation among the Company and the Managing Underwriters.
Factors to be considered in determining the initial public offering price will
be prevailing market conditions, the state of the Company's development,
recent financial results of the Company, the future prospects of the Company
and its industry, market valuations of securities of companies engaged in
activities deemed by the Managing Underwriters to be similar to those of the
Company and other factors deemed relevant.
The Underwriters do not intend to confirm sales to accounts over which they
exercise discretionary authority.
LEGAL MATTERS
The validity of the issuance of shares of Common Stock offered hereby will
be passed upon for the Company by Dorsey & Whitney LLP, Denver, Colorado.
Certain legal matters in connection with this Offering will be passed upon for
the Underwriters by Baker & Botts, L.L.P., Dallas, Texas.
EXPERTS
The financial statements of MarkWest Hydrocarbon, Inc. as of June 30, 1996
and of MarkWest Hydrocarbon Partners, Ltd. as of December 31, 1994 and 1995,
and for each of the three years in the period ended December 31, 1995 included
in this Prospectus have been so included in reliance on the reports of Price
Waterhouse LLP, independent accountants, given on the authority of said firm
as experts in auditing and accounting. The financial statements of Basin
Pipeline L.L.C. as of December 31, 1995, and the related statements of
operations and accumulated deficit and cash flows for the year then ended have
been audited by BDO Seidman, LLP, independent certified public accountants and
are included in this Prospectus upon the authority of said firm as experts in
auditing and accounting.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 with respect to the shares
of Common Stock offered hereby, of which this Prospectus forms a part. In
accordance with the rules of the Commission, this Prospectus omits certain
information contained in the Registration Statement. For further information
with respect to the Company and the securities offered hereby, reference is
made to the Registration Statement and the exhibits and schedules filed
therewith. Statements contained in this Prospectus concerning the provisions
of such documents are necessarily summaries of such documents and each such
statement is qualified in its entirety by reference to the copy of the
applicable document filed with the Commission as an exhibit to the
Registration Statement. Copies of the Registration Statement and the exhibits
and schedules thereto may be inspected, without charge, at the offices of the
Commission, or obtained at prescribed rates from the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549.
The Company intends to furnish to its stockholders annual reports containing
audited financial statements certified by its independent auditors and
quarterly reports for the first three quarters of each fiscal year containing
unaudited financial information.
60
<PAGE>
MARKWEST HYDROCARBON, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
MarkWest Hydrocarbon, Inc. Balance Sheet as of June 30, 1996
Report of Independent Accountants........................................ F-2
Balance Sheet............................................................ F-3
Notes to Balance Sheet .................................................. F-4
MarkWest Hydrocarbon Partners, Ltd. Consolidated Financial Statements as
of December 31, 1994 and 1995 and June 30, 1996 (unaudited), and for
each of the three years in the period ended December 31, 1995 and for
the six months ended June 30, 1995 and 1996 (unaudited)
Report of Independent Accountants........................................ F-5
Consolidated Balance Sheet............................................... F-6
Consolidated Statement of Operations..................................... F-7
Consolidated Statement of Changes in Partners' Capital................... F-8
Consolidated Statement of Cash Flows..................................... F-9
Notes to Consolidated Financial Statements............................... F-10
Basin Pipeline, L.L.C. Financial Statements as of December 31, 1995 and
June 30, 1996 (unaudited), for the year ended December 31, 1995 and for
the six months ended June 30, 1995 and 1996 (unaudited)
Report of Independent Certified Public Accountants....................... F-18
Balance Sheet............................................................ F-19
Statement of Operations and Accumulated Deficit.......................... F-20
Statement of Cash Flows.................................................. F-21
Summary of Accounting Policies........................................... F-22
Notes to Financial Statements............................................ F-23
MarkWest Hydrocarbon, Inc. Unaudited Pro Forma Condensed Consolidated
Financial Statements
Introduction............................................................. F-25
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of June 30,
1996.................................................................... F-26
Unaudited Pro Forma Condensed Consolidated Statement of Operations for
the year ended December 31, 1995........................................ F-27
Unaudited Pro Forma Condensed Consolidated Statement of Operations for
the six months ended June 30, 1996...................................... F-28
Notes to Unaudited Pro Forma Condensed Consolidated Financial
Statements.............................................................. F-29
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of MarkWest Hydrocarbon, Inc.
In our opinion, the accompanying balance sheet presents fairly, in all
material respects, the financial position of MarkWest Hydrocarbon, Inc. at
June 30, 1996, in conformity with generally accepted accounting principles.
This financial statement is the responsibility of the management of MarkWest
Hydrocarbon, Inc.; our responsibility is to express an opinion on this
financial statement based on our audit. We conducted our audit of this
statement in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statement is free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statement, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Denver, Colorado
August 2, 1996
F-2
<PAGE>
MARKWEST HYDROCARBON, INC.
BALANCE SHEET
($000S)
<TABLE>
<CAPTION>
June 30,
1996
--------
<S> <C>
ASSETS
Cash.................................................................. $ 1
----
Total current assets.................................................. 1
----
Deferred offering costs............................................... 100
----
Total assets.......................................................... $101
====
LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued offering costs................................................ $100
----
Stockholders' equity:
Preferred stock, $.01 par value; 5,000,000 shares authorized, no
shares issued or outstanding....................................... --
Common stock, $.01 par value; 20,000,000 shares authorized, 100
shares issued and outstanding...................................... --
Additional paid-in capital.......................................... 1
----
Total stockholders' equity............................................ 1
----
Total liabilities and stockholders' equity............................ $101
====
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-3
<PAGE>
MARKWEST HYDROCARBON, INC.
NOTES TO BALANCE SHEET
NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
MarkWest Hydrocarbon, Inc. (the "Company") was incorporated in June 1996 to
act as the successor to MarkWest Hydrocarbon Partners, Ltd. ("MWHP"). On the
effective date of the registration statement for the Company, MWHP will be
reorganized from a limited partnership into a corporation ("the
Reorganization"). The existing general and limited partners of MWHP will
exchange 100% of the Partnership interests in MWHP for 5,000,000 shares of
common stock of the Company. This transaction represents a reorganization of
entities under common control and will be accounted for at historical cost.
INCOME TAXES
Following the Reorganization, income taxes will be determined using the
asset and liability approach in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 109, Accounting for Income Taxes. This
method gives consideration to the future tax consequences of temporary
differences between the carrying amounts and the tax bases of assets and
liabilities.
Provisions of the Internal Revenue Code provide that any future tax
liabilities resulting from the operation of the Company will be obligations of
the Company. Accordingly, the cumulative effect of deferred taxes related to
temporary differences that originated when the Company was a general
partnership and that will reverse subsequent to the reorganization will be
accounted for on the balance sheet on the date of the reorganization. In
accordance with SFAS 109, the Company will establish the appropriate deferred
taxes with a corresponding charge to the statement of operations.
NOTE 2. EMPLOYEE BENEFIT PLANS
The Company has adopted, subject to approval by stockholders, the 1996 Stock
Incentive Plan (the "Plan"). By the terms of the Plan, 600,000 shares have
been authorized for issuance of awards to officers and employees. The awards
may include incentive stock options ("ISOs") as defined under Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code"), and non-qualified
stock options which do not qualify as ISOs, stock appreciation rights,
restricted stock and restricted stock units, performance awards, dividend
equivalents or other stock-based awards.
Stock options will be granted at an exercise price of not less than fair
market value at the date of grant, vest over a five-year period from the date
of grant, and are exercisable for a period of three years from the date the
options become vested. In conjunction with the Reorganization, the Company
will exchange options to purchase shares of common stock for outstanding
options to purchase partnership interests of MarkWest Hydrocarbon Partners,
Ltd. currently held by employees.
The Company accounts for its stock-based awards in accordance with the
provisions of APB 25 and will make the disclosures required by SFAS No. 123,
Accounting for Stock-Based Compensation.
F-4
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of MarkWest Hydrocarbon Partners, Ltd.
In our opinion, the accompanying consolidated balance sheet and related
consolidated statements of operations, of cash flows and of changes in
partners' capital present fairly, in all material respects, the financial
position of MarkWest Hydrocarbon Partners, Ltd. and its subsidiaries at
December 31, 1995 and 1994, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the management of MarkWest Hydrocarbon
Partners, Ltd.; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
Price Waterhouse LLP
Denver, Colorado
August 2, 1996
F-5
<PAGE>
MARKWEST HYDROCARBON PARTNERS, LTD.
CONSOLIDATED BALANCE SHEET
($000S)
<TABLE>
<CAPTION>
Pro Forma
December 31, June 30, Capitalization
--------------- 1996 (Note 10)
1994 1995 (unaudited) (unaudited)
------- ------- ----------- --------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......... $ 5,468 $ 761 $ 666
Accounts receivable............... 4,180 8,909 3,588
Product inventory................. 2,669 2,718 3,287
Materials and supplies inventory.. 142 112 264
Prepaid expenses and other
assets........................... 304 375 359
Prepaid feedstock................. 1,714 1,729 2,157
------- ------- -------
Total current assets............ 14,477 14,604 10,321
Property, plant and equipment, at
cost, net of accumulated
depreciation, depletion and
amortization of $7,913, $9,568 and
$10,810, respectively.............. 21,194 31,947 32,598
Intangible assets, net of
accumulated amortization of $71,
$152 and $233, respectively........ 141 320 443
Investment in West Shore
Processing......................... -- -- 629
Other assets........................ 101 25 --
------- ------- -------
Total assets........................ $35,913 $46,896 $43,991
======= ======= =======
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Trade accounts payable............ $ 1,924 $ 3,283 $ 4,430
Accrued liabilities............... 275 404 418
Interest payable.................. 431 147 99
Accrued bonus and profit sharing.. 213 401 230
Current portion of long-term
debt............................. 1,000 -- --
------- ------- -------
Total current liabilities....... 3,843 4,235 5,177
Long-term debt...................... 9,887 17,500 12,350 22,350
------- ------- ------- ------
Total liabilities............... 13,730 21,735 17,527
Commitments and contingencies (Note
5)................................. -- -- --
Partners' capital................... 22,183 25,161 26,464 16,464
------- ------- ------- ------
Total liabilities and partners'
capital............................ $35,913 $46,896 $43,991
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
MARKWEST HYDROCARBON PARTNERS, LTD.
CONSOLIDATED STATEMENT OF OPERATIONS
($000S)
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, June 30,
------------------------- ------------------
1993 1994 1995 1995 1996
------- ------- ------- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Plant revenue................ $34,212 $33,056 $33,823 $ 17,225 $ 18,045
Terminal and marketing
revenue..................... 19,756 13,666 13,172 5,200 9,831
Oil and gas and other
revenue..................... 1,783 1,830 1,075 501 744
Gain on sales of oil and gas
properties.................. -- 4,275 -- -- --
------- ------- ------- -------- --------
Total revenue................ 55,751 52,827 48,070 22,926 28,620
------- ------- ------- -------- --------
Costs and Expenses:
Plant feedstock purchases.... 23,155 21,582 17,308 8,608 8,538
Terminal and marketing
purchases................... 18,845 11,497 11,937 4,829 8,683
Operating expenses........... 6,504 4,393 4,706 2,005 2,979
General and administrative
expenses.................... 3,747 3,654 4,189 2,064 2,140
Depreciation, depletion and
amortization................ 1,565 1,942 1,754 852 1,326
Reduction in carrying value
of assets................... -- 2,950 -- -- --
------- ------- ------- -------- --------
Total costs and expenses..... 53,816 46,018 39,894 18,358 23,666
------- ------- ------- -------- --------
Earnings from operations....... 1,935 6,809 8,176 4,568 4,954
Other income (expense):
Interest expense............. (1,515) (1,825) (508) (402) (509)
Interest income.............. 120 136 156 102 43
------- ------- ------- -------- --------
Total other income
(expense)................... (1,395) (1,689) (352) (300) (466)
------- ------- ------- -------- --------
Income before extraordinary
item.......................... 540 5,120 7,824 4,268 4,488
Extraordinary loss on
extinguishment of debt........ (1,750)
------- ------- ------- -------- --------
Net income..................... $ 540 $ 5,120 $ 6,074 $ 4,268 $ 4,488
======= ======= ======= ======== ========
Pro forma information
(unaudited) (Note 10):
Historical income before
extraordinary item.......... $ 540 $ 5,120 $ 7,824 $ 4,268 $ 4,488
Pro forma provision for
income taxes................ 228 1,424 2,937 1,667 1,670
------- ------- ------- -------- --------
Pro forma net income......... $ 312 $ 3,696 $ 4,887 $ 2,601 $ 2,818
======= ======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
MARKWEST HYDROCARBON PARTNERS, LTD.
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL
(UNAUDITED AS TO THE SIX MONTHS ENDED JUNE 30, 1996)
($000S)
<TABLE>
<S> <C>
Balance, December 31, 1992............................................. $19,614
Net income............................................................. 540
Payments on notes receivable from partners............................. 236
Distributions.......................................................... (3,040)
-------
Balance, December 31, 1993............................................. 17,350
Net income............................................................. 5,120
Purchase of partnership interests financed by notes receivable......... 422
Notes receivable from partners......................................... (422)
Contributions.......................................................... 33
Distributions.......................................................... (320)
-------
Balance, December 31, 1994............................................. 22,183
Net income............................................................. 6,074
Purchase of partnership interests financed by notes receivable......... 11
Notes receivable from partners......................................... (11)
Contributions.......................................................... 4
Distributions.......................................................... (4,150)
Option granted in conjunction with extinguishment of debt.............. 1,050
-------
Balance, December 31, 1995............................................. 25,161
Net income for the six months ended June 30, 1996...................... 4,488
Contributions.......................................................... 34
Distributions.......................................................... (3,219)
-------
Balance, June 30, 1996................................................. $26,464
=======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE>
MARKWEST HYDROCARBON PARTNERS, LTD.
CONSOLIDATED STATEMENT OF CASH FLOWS
($000S)
<TABLE>
<CAPTION>
Six Months Ended
Year ended December 31, June 30,
------------------------- ------------------
1993 1994 1995 1995 1996
------- ------- ------- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash Flows From Operating
Activities:
Net income..................... $ 540 $ 5,120 $ 6,074 $ 4,268 $ 4,488
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation, depletion and
amortization.................. 1,565 1,942 1,754 852 1,326
Option granted in conjunction
with extinguishment of debt... -- -- 1,050 -- --
Gain on sale of assets......... -- (4,275) -- -- --
Reduction in carrying value of
assets........................ -- 2,950 -- -- --
------- ------- ------- -------- -------
Net cash provided by operating
activities before changes in
certain components of working
capital....................... 2,105 5,737 8,878 5,120 5,814
Changes in certain components
of working capital............ 112 (4,743) (3,442) 5,551 5,131
------- ------- ------- -------- -------
Net cash flow from operating
activities.................... 2,217 994 5,436 10,671 10,945
------- ------- ------- -------- -------
Cash Flows From Investing
Activities:
Capital expenditures........... (6,941) (1,442) (12,426) (5,297) (2,522)
Proceeds from sale of assets... -- 10,166 -- -- --
Decrease (increase) in
intangible and other assets... 24 344 (184) 85 (183)
------- ------- ------- -------- -------
Net cash provided by (used in)
investing activities.......... (6,917) 9,068 (12,610) (5,212) (2,705)
------- ------- ------- -------- -------
Cash Flows From Financing
Activities:
Proceeds from issuance of long-
term debt..................... 23,513 7,201 17,500 3,750 3,500
Repayments of long-term debt... (21,024) (12,800) (10,887) (10,887) (8,650)
Partners' distributions........ (3,040) (320) (4,150) (3,381) (3,219)
Other.......................... 236 33 4 4 34
------- ------- ------- -------- -------
Net cash provided by (used in)
financing activities.......... (315) (5,886) 2,467 (10,514) (8,335)
------- ------- ------- -------- -------
Net increase (decrease) in cash
and cash equivalents.......... (5,015) 4,176 (4,707) (5,055) (95)
Cash and cash equivalents at
beginning of period............. 6,307 1,292 5,468 5,468 761
------- ------- ------- -------- -------
Cash and cash equivalents at end
of period....................... $ 1,292 $ 5,468 $ 761 $ 413 $ 666
======= ======= ======= ======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-9
<PAGE>
MARKWEST HYDROCARBON PARTNERS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
MarkWest Hydrocarbon Partners, Ltd. (the "Partnership") is a Colorado
limited partnership formed on March 28, 1988. MWHC Holding, Inc. ("Holding")
is the general partner. The Partnership operates under a limited partnership
agreement (the "Agreement") which provides that net income or loss, certain
defined capital events and cash distributions (all as defined in the
Agreement) are generally allocated in accordance with the partners' respective
ownership percentages.
The Company provides compression, gathering, treatment, processing and
natural gas liquids extraction services to natural gas producers and pipeline
companies and fractionates natural gas liquids into marketable products for
sale to third parties. The Partnership also purchases, stores and markets
natural gas and natural gas liquids and has begun to conduct strategic
exploration for new natural gas sources for its processing and fractionation
activities.
ACCOUNTING POLICIES
The interim consolidated financial statements and related notes thereto
presented herein are unaudited, but reflect, in the opinion of management, all
adjustments (which include only normal recurring adjustments) necessary for
fair presentation of the results for such periods. Footnote disclosures as of
June 30, 1996 and for the six months ended June 30, 1995 and 1996 are
presented only where significant.
The significant accounting policies followed by the Partnership and its
subsidiaries are presented herein to assist the reader in evaluating the
financial information contained herein. The Partnership's accounting policies
are in accordance with generally accepted accounting principles.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Partnership and its wholly-owned subsidiaries, MarkWest Resources, Inc.
("Resources") and MarkWest Michigan, LLC. All material intercompany
transactions have been eliminated in consolidation.
Prior to July 1, 1996, the Partnership owned 49% of MarkWest Coalseam
Development Company LLC (formerly MarkWest Coalseam Joint Venture)
("Coalseam"), a natural gas development venture, and MW Gathering LLC
("Gathering"), a natural gas gathering venture. Effective July 1, 1996,
Gathering was merged into Coalseam. Simultaneously, the Partnership formed
Resources, and Coalseam distributed 49% of its assets to Resources and 51% to
MAK-J Energy Partners, Ltd. (formerly MarkWest Energy Partners, Ltd.)
("Energy"), a partnership whose general partner is a corporation owned and
controlled by the President of MarkWest Hydrocarbon Partners, Ltd. The
consolidated financial statements reflect Resources' 49% proportionate share
of the underlying oil and gas assets, liabilities, revenues and expenses.
WEST SHORE PROCESSING ACQUISITION (UNAUDITED)
Effective May 6, 1996, the Partnership acquired the right to earn up to a
60% interest for $16.8 million in a newly formed venture, West Shore
Processing, LLC ("West Shore"). The most significant asset of West Shore is
Basin Pipeline, LLC, which was contributed by the Partnership's venture
partner, Michigan Energy Company, LLC. The West Shore agreement is structured
so that the Partnership's ownership interest increases as capital expenditures
for the benefit of West Shore are made by the Partnership. As of June 30,
1996, the Partnership has recorded a net investment in West Shore of $629,000
representing a 5.3% ownership interest. The Partnership is omitted to make
capital expenditures of approximately $10.0 million through early 1997 in
conjunction with the first phase of the agreement.
F-10
<PAGE>
MARKWEST HYDROCARBON PARTNERS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CASH AND CASH EQUIVALENTS
The Partnership considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Cash and cash equivalents comprise the following (in $000s):
<TABLE>
<CAPTION>
December 31,
-------------- June 30,
1994 1995 1996
------- -----------------
(Unaudited)
<S> <C> <C> <C>
Cash and overnight investments........................ $ 1,665 $ 761 $666
Restricted cash....................................... 3,803 -- --
------- ----- ----
$ 5,468 $ 761 $666
======= ===== ====
</TABLE>
Excess cash is used to pay down the revolver facility. Accordingly,
investments are limited to overnight investments of end-of-day cash balances.
Restricted cash was comprised of funds received from the sale of oil and gas
properties which were held in escrow pending the consummation of a transaction
structured to qualify as a like-kind exchange of property for tax purposes,
within the meaning of Section 1031 of the Internal Revenue Code of 1986. Such
transaction was consummated in 1995.
INVENTORY
Product inventory consists primarily of finished goods (propane, butane,
isobutane and natural gasoline) and is valued at the lower of cost, using the
first-in, first-out method, or market. Market value of the Partnership's
inventory was $3,618,000, $3,807,000 and $3,975,000 (unaudited) at December
31, 1994 and 1995 and June 30, 1996, respectively.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is recorded at cost. Expenditures which extend
the useful lives of assets are capitalized. Repairs, maintenance and renewals
which do not extend the useful lives of the assets are expensed as incurred.
The components of property, plant and equipment and the respective useful
lives and depreciation, depletion and amortization methods (straight line (SL)
or units of production (UOP)) are as follows (in $000s):
<TABLE>
<CAPTION>
December 31,
---------------- June 30, Useful DD&A
1994 1995 1996 lives method
------- ------- ----------- ---------- ------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Land.......................... $ 730 $ 730 $ 830 -- --
Plant facilities.............. 21,604 31,699 32,319 20 years SL
Buildings..................... 264 308 491 40 years SL
Furniture, leasehold
improvements and other....... 5,770 6,895 6,476 3-10 years SL
Oil and gas properties........ 739 1,883 3,292 -- UOP
------- ------- -------
29,107 41,515 43,408
Accumulated depreciation,
depletion and amortization... (7,913) (9,568) (10,810)
------- ------- -------
$21,194 $31,947 $32,598
======= ======= =======
</TABLE>
F-11
<PAGE>
MARKWEST HYDROCARBON PARTNERS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Oil and gas properties consist of leasehold costs, producing and non-
producing gas wells and equipment, and pipelines. The Partnership uses the
full cost method of accounting for oil and gas properties. Accordingly, all
costs associated with acquisition, exploration and development of oil and gas
reserves are capitalized to the full cost pool.
These capitalized costs, including estimated future costs to develop the
reserves and estimated abandonment costs, net of salvage, are amortized on a
units-of-production basis using estimates of proved reserves. Investments in
unproved properties and major development projects are not amortized until
proved reserves associated with the projects can be determined or until
impairment occurs. If the results of an assessment of such properties indicate
that the properties are impaired, the amount of impairment is added to the
capitalized cost base to be amortized. As of December 31, 1995 and June 30,
1996, approximately $862,000 and $2,271,000 (unaudited) of investments in
unproved properties were excluded from amortization, respectively.
The capitalized costs included in the full cost pool are subject to a
"ceiling test," which limits such costs to the aggregate of the estimated
present value, using a 10 percent discount rate, of the future net revenues
from proved reserves, based on current economics and operating conditions.
Impairment under the ceiling test of $116,000 was recognized in 1994 and is
included in depreciation, depletion and amortization in the accompanying
consolidated statement of operations. No impairment existed as of December 31,
1995 and June 30, 1996.
Sales of proved and unproved properties are accounted for as adjustments of
capitalized costs with no gain or loss recognized, unless such adjustments
would significantly alter the relationship between capitalized costs and
proved reserves of oil and gas, in which case the gain or loss is recognized
in the consolidated statement of operations.
INTANGIBLE ASSETS
Deferred financing costs and a non-compete agreement with a former officer
and director are included in intangible assets. Both are amortized using the
straight-line method over the terms of the associated agreements.
INCOME TAXES
No provision for income taxes is necessary in the financial statements of
the Partnership because, as a partnership, it is not subject to income tax and
the tax effects of its activities accrue to the respective partners.
HEDGED TRANSACTIONS
The Partnership limits its exposure to propane and natural gas price
fluctuations related to future production with futures contracts. These
contracts are accounted for as hedges in accordance with the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 80, Accounting for
Futures Contracts. Gains and losses on such hedge contracts are deferred and
included as a component of plant revenues and feedstock purchases when the
hedged production is sold.
As of December 31, 1994 and 1995, and as of June 30, 1996, the Partnership
did not hold any material notional quantities of natural gas, NGL, or crude
oil futures, swaps or options.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Partnership's financial instruments consist of cash and cash
equivalents, receivables, trade accounts payable, accrued and other current
liabilities, and long-term debt. Except for long-term debt, the carrying
amounts of financial instruments approximate fair value due to their short
maturities. At December 31, 1995 and June 30, 1996, based on rates available
for similar types of debt, the fair value of long-term debt was not materially
different from its carrying amount.
F-12
<PAGE>
MARKWEST HYDROCARBON PARTNERS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(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 reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
NOTE 2. DEBT
REVOLVER LOAN
On November 20, 1992, the Partnership entered into a financing agreement (the
"Facility") with Norwest Bank Denver, N.A. ("Norwest") and First American
National Bank ("FANB") of Nashville, Tennessee. The Facility is structured as a
revolver, and the borrowing base is redetermined semi-annually. As of December
31, 1995 and June 30, 1996, maximum borrowing bases of $25 million and $40
million, respectively, were available to the Partnership, $10 million and $31.5
million, respectively, of which were unutilized.
On September 8, 1995, the Facility was further amended to add N M Rothschild
and Sons Limited ("Rothschild") as a lender, revise the interest rate for base
rate loans, institute the option of a LIBOR (London Interbank Offered Rate)
interest rate, and extend the revolver commitment period and maturity dates.
Interest on a base rate loan is currently calculated at prime plus .25% if
the Partnership's total debt is less than or equal to 40% of total
capitalization. If debt exceeds 40% of capitalization, the rate increases to
prime plus .50%. At December 31, 1995 and June 30, 1996, $3 million and $2.5
million were outstanding under a base rate loan bearing interest at 9.00% and
8.50%, respectively.
The LIBOR option allows the Partnership to lock in a portion of the revolver
balance for a period of one, two, three or six months. Interest on a LIBOR loan
is calculated at LIBOR plus 2% if the Partnership's total debt is less than or
equal to 40% of total capitalization. If debt exceeds 40% of capitalization,
the rate increases to LIBOR plus 2.25%. At December 31, 1995 and June 30, 1996,
$12 million and $6 million were outstanding under a 90-day LIBOR and 30-day
LIBOR commitment bearing interest at 8.125% and 7.50%, maturing February 16,
1996 and July 12, 1996, respectively. On May 31, 1996, the Facility was amended
to increase the maximum borrowing base to $40 million and extend the repayment
period to June 30, 2002, with 16 equal quarterly installments commencing
September 30, 1998.
This debt is secured by a first mortgage on the Partnership's property,
plant, equipment and contracts, excluding railcars and truck trailers. The
Facility restricts certain activities and requires the maintenance of certain
financial ratios and other conditions.
WORKING CAPITAL LINE OF CREDIT
On November 20, 1992, the Partnership entered into a working capital line of
credit agreement with Norwest/FANB in the amount of $5 million. The borrowing
base, as defined in the credit agreement, is redetermined monthly. On September
8, 1995, the agreement was amended to add Rothschild as a lender, revise the
interest rate, increase the maximum borrowing base to $7.5 million, and extend
the working capital commitment period and maturity date. The extended due date
on the working capital note is June 30, 1997. At December 31, 1995 and June 30,
1996, the full amount of the borrowing base was available under the working
capital line. The interest rate is the same as discussed above for base
F-13
<PAGE>
MARKWEST HYDROCARBON PARTNERS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
rate loans. No LIBOR option is available for the working capital line. At
December 31, 1995 and June 30, 1996, $2.5 million and $3.85 million
(unaudited) were outstanding under base rate loans bearing interest at 9.00%
and 8.5%, respectively. On May 31, 1996, the commitment period was extended to
June 30, 1998. The agreement is secured by the Partnership's inventory,
receivables and cash.
Scheduled debt maturities under the terms of each facility are as follows
(in $000s):
<TABLE>
<CAPTION>
December 31, 1995 June 30, 1996
---------------------------- ----------------------------
(Unaudited)
Revolver loan Line of credit Revolver loan Line of credit
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
1996................. $ -- $ -- $ -- $ --
1997................. 1,875 2,500 -- --
1998................. 3,750 -- 1,062 3,850
1999................. 3,750 -- 2,125 --
2000 and thereafter.. 5,625 -- 5,313 --
------- ------ ------ ------
Total................ $15,000 $2,500 $8,500 $3,850
======= ====== ====== ======
</TABLE>
SILOAM NOTE
On December 15, 1989, the Partnership entered into a note agreement in
conjunction with the purchase of the Siloam plant and the isomerization
expansion. The note agreement allowed for the prepayment of principal to no
less than $500,000. In November 1992, the Partnership exercised its prepayment
rights relative to this agreement by paying $9.2 million of the then-
outstanding balance. The remaining $500,000 principal balance accrued interest
at 12%. Under the terms of the note, additional interest was payable annually
based on certain operating results of the fractionation plant and proceeds
from asset dispositions. Such additional interest expense was $405,000 and
$422,000 for 1993 and 1994, respectively.
During 1995, the Partnership reached an agreement with the noteholder to
fully retire the note. Accordingly, the Partnership paid the remaining balance
of $500,000 as well as $700,000 of additional interest. In addition, the
Partnership granted to the noteholder an option to acquire 3.5% of the
Partnership for $35,000. Based on management's best estimate of the fair value
of the Partnership, the option was valued at $1,050,000 which, together with
the $700,000 of additional interest, is reflected in the consolidated
statement of operations as an extraordinary loss due to the early
extinguishment of debt.
NOTE 3. RELATED PARTY AND PARTNERS' CAPITAL TRANSACTIONS
The Partnership made contributions of $95,000, $213,000, and $211,000 to a
profit-sharing plan maintained by the general partner for the years ended
December 31, 1993, 1994 and 1995, and accrued a liability of $113,000 for
estimated contributions for the six months ended June 30, 1996. The plan is
discretionary, with annual contributions determined by the general partner's
board of directors.
The Partnership periodically extends offers to partners and employees to
purchase initial or additional interests in the Partnership. The partners
and/or employees have provided the Partnership with promissory notes as part
of the purchase price. According to the terms of the notes, interest accrues
at 7% and payments are required for the greater of accrued interest or excess
distributions. Notes dated December 31, 1990, January 1, 1994, October 1,
1994, and January 1, 1995 in the amounts of $80,000, $313,000, $109,000, and
$11,000, respectively, have been reflected as reductions of partners' capital
at December 31, 1995.
During 1992, the management of the Partnership granted limited partnership
options to certain employees. The options are exercisable at a fixed price and
subject to certain conditions and restrictions. The options vest ratably over
5 years and are non-transferable. In 1993 and 1995, management granted
F-14
<PAGE>
MARKWEST HYDROCARBON PARTNERS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
additional limited partnership interest options with a fixed exercise price of
$40 per .0001% interest. In addition, the previously issued options were
amended to reduce the option price from $50 to $40, which was estimated to be
the fair value at that date.
The Partnership's employees perform certain administrative functions on
behalf of Holding, Energy, Coalseam and Gathering. At December 31, 1995 and
June 30, 1996, no material amounts were due to or receivable from Holding,
Energy, Coalseam or Gathering for miscellaneous administrative expenses. The
Partnership allocated $324,000 and $180,000 (unaudited) of administrative
expenses to Holding, Energy, Coalseam and Gathering for the year ended
December 31, 1995 and the six months ended June 30, 1996, respectively. No
material amounts of administratives expenses were allocated to Holding,
Energy, Coalseam and Gathering for the years ended December 31, 1993 and 1994.
NOTE 4. REDUCTION IN CARRYING VALUE OF ASSETS
In 1994, the Partnership shut down the Siloam plant isomerization unit when
it was unable to find satisfactory markets for its isobutane. Accordingly, the
Partnership recorded a $2,242,000 charge to write down the unit to its
estimated realizable value. In addition, a catalyst used in the isomerization
process was sold, resulting in a $347,000 loss in 1994. The Partnership also
recorded a charge of $361,000 in 1994 for the write-down of non-productive
equipment related to various business development projects.
NOTE 5. COMMITMENTS AND CONTINGENCIES
Rental expense was $160,000, $166,000, $195,000 and $102,000 (unaudited) for
the years ended December 31, 1993, 1994 and 1995 and for the six months ended
June 30, 1996, respectively.
Future minimum lease payments under all operating leases are as follows (in
$000s):
<TABLE>
<CAPTION>
December 31, 1995 June 30, 1996
--------------------------------------------- ---------------------------------------------
(Unaudited)
Railcar leases Other leases Total obligations Railcar leases Other leases Total obligations
-------------- ------------ ----------------- -------------- ------------ -----------------
<S> <C> <C> <C> <C> <C> <C>
1996.................... $107 $176 $283 $22 $100 $122
1997.................... -- 51 51 -- 51 51
1998.................... -- 6 6 -- 6 6
1999.................... -- 5 5 -- 5 5
2000.................... -- 5 5 -- 5 5
---- ---- ---- --- ---- ----
Total................... $107 $243 $350 $22 $167 $189
==== ==== ==== === ==== ====
</TABLE>
The Partnership leases railcars to ensure efficient movement of natural gas
liquids to fulfill sales obligations. The Partnership has obtained commitments
for railcar subleases to receive payments of $221,000 and $81,000 during 1996
and 1997, respectively.
NOTE 6. ACCOUNTS RECEIVABLE
During the fourth quarter of 1995, the Partnership made several short-term
advances totaling $3,174,000 as part of an agreement with a partner to develop
a joint project. These advances were included in accounts receivable at
December 31, 1995. In accordance with the terms of the agreement, the
Partnership was reimbursed for the full amount of the advances at the closing
date of May 6, 1996.
At December 31, 1995 and June 30, 1996, trade receivables totaled $5,596,000
and $2,468,000 (unaudited) respectively, and receivables from employees and
officers were $74,000 and $80,000 (unaudited) respectively. No allowance for
doubtful accounts is considered necessary based on favorable historical
experience.
F-15
<PAGE>
MARKWEST HYDROCARBON PARTNERS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7. SIGNIFICANT CUSTOMERS
For the years ended December 31, 1993 and 1995 and the six months ended June
30, 1996, sales to one customer accounted for approximately 16%, 18% and 14%
(unaudited) of total revenues, respectively. During 1994, no sales to any one
customer accounted for more than 10% of total revenue. Management believes the
loss of these customers would not adversely impact operations, as alternative
markets are available.
NOTE 8. SUPPLEMENTAL CASH FLOW INFORMATION
Interest of $1,408,000, $1,805,000, $792,000, $545,000 (unaudited) and
$557,000 (unaudited) was paid for the years ended December 31, 1993, 1994 and
1995 and for the six-month periods ended June 30, 1995 and 1996, respectively.
Interest paid in 1995 is net of $301,000 capitalized in relation to
construction projects.
The following comprise changes in certain components of working capital
($000s):
<TABLE>
<CAPTION>
Six Months Ended
Year ended December 31, June 30,
--------------------------- -----------------
1993 1994 1995 1995 1996
------- -------- -------- -------- --------
(Unaudited)
<S> <C> <C> <C> <C> <C>
(Increase) decrease in
accounts receivable.......... $ 3,307 $ (977) $ (4,729) $ 1,976 $ 5,321
(Increase) decrease in
inventories.................. (1,296) 1,348 (19) 33 (721)
(Increase) decrease in
prepaids..................... (345) (1,125) (86) 746 (412)
Increase (decrease) in current
liabilities.................. (1,554) (3,989) 1,392 2,796 943
------- -------- -------- -------- --------
Changes in certain components
of working capital........... $ 112 $ (4,743) $ (3,442) $ 5,551 $ 5,131
======= ======== ======== ======== ========
</TABLE>
F-16
<PAGE>
MARKWEST HYDROCARBON PARTNERS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following summarizes certain quarterly results of operations ($000s):
<TABLE>
<CAPTION>
Operating Gross Profit Pretax Income
Revenues (Loss) (a) (Loss)(b)
--------- ------------ -------------
<S> <C> <C> <C>
QUARTER ENDED:
March 31, 1994............................ $16,342 $ 2,421 $1,492
June 30, 1994............................. 2,911 (1,023) (1,939)
September 30, 1994........................ 9,707 1,955 893
December 31, 1994......................... 23,867 5,785 4,674 (c)
------- ------- ------
$52,827 $ 9,138 $5,120
======= ======= ======
March 31, 1995............................ $15,566 $ 4,770 $3,589
June 30, 1995............................. 7,360 1,860 679
September 30, 1995........................ 8,665 1,564 (1,182)(d)
December 31,1995.......................... 16,477 4,171 2,988
------- ------- ------
$48,070 $12,365 $6,074
======= ======= ======
March 31, 1996............................ $19,832 $ 5,514 $4,174
June 30, 1996............................. 8,788 1,580 314
------- ------- ------
$28,620 $ 7,094 $4,488
======= ======= ======
</TABLE>
- --------
(a) Excludes gain on sale of oil and gas properties, general and
administrative expenses, reduction in carrying value of assets and net
interest expense.
(b) Excludes income taxes since the Partnership is not subject to income
taxes.
(c) Includes $4,275 gain on sale of oil and gas properties and $2,950 charge
for reduction in carrying value of assets.
(d) Includes $1,750 extraordinary loss on extinguishment of debt.
NOTE 10. PLANNED REORGANIZATION AND PARTNERSHIP DISTRIBUTION
In connection with a planned offering of common stock to the public, the
Partnership intends to reorganize and the existing general and limited
partners will exchange their interests in the Partnership for common shares of
MarkWest Hydrocarbon, Inc., a corporation formed to be the successor to the
Partnership ("MHI"). Since MHI will be a taxable entity, a pro forma provision
for income taxes has been presented in the financial statements as if the
Partnership had been a taxable entity for all periods presented.
Pro forma earnings per share has not been presented due to the planned
significant change in capital structure.
The pro forma capitalization as of June 30, 1996 presented on the face of
the balance sheet reflects only the $10.0 million distribution to the partners
planned to occur just prior to the reorganization and does not include the pro
forma income tax effect of the reorganization.
F-17
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Members
Basin Pipeline L.L.C.
Englewood, Colorado
We have audited the accompanying balance sheet of Basin Pipeline L.L.C. (the
"Company") as of December 31, 1995 and the related statements of operations
and accumulated deficit and cash flows for the year then ended. 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 audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Basin Pipeline, L.L.C. at
December 31, 1995, and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has incurred recurring losses from
operations, has a working capital deficiency and is in default on a
significant portion of its debt. These conditions raise substantial doubt
about the Company's ability to continue as a going concern. Management's plans
in regard to these matters are also described in Note 1. The financial
statements do not include any adjustments that might result from the outcome
of this uncertainty.
BDO Seidman, LLP
Denver, Colorado
April 5, 1996
F-18
<PAGE>
BASIN PIPELINE L.L.C.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
1995 1996
------------ -----------
(unaudited)
<S> <C> <C>
Assets (Note 2)
Current:
Cash................................................. $ 3,646 $ 9,353
Accounts receivable, related party................... 29,401 260,955
Other current assets................................. -- 8,072
----------- -----------
Total current assets................................... 33,047 278,380
----------- -----------
Property and equipment--
Gas gathering and processing......................... 9,393,405 10,332,817
Less accumulated depreciation........................ 1,566,981 80,118
----------- -----------
Net property and equipment............................. 7,826,424 10,252,699
----------- -----------
$ 7,859,471 $10,531,079
=========== ===========
Liabilities and Members' Capital Deficit
Current:
Accounts payable..................................... $ 1,749,511 $ 92,814
Interest payable..................................... 178,938 --
Accrued expenses..................................... 3,302 31,811
Current maturities of long-term debt (Note 2)........ 9,112,275 --
----------- -----------
Total current liabilities.............................. 11,044,026 124,625
Commitments and contingencies (Notes 1 and 3)
Members' capital deficit:
Contributed capital.................................. 2,000 10,359,404
Accumulated deficit.................................. (3,186,555) --
Retained earnings.................................... -- 47,050
----------- -----------
Total members' capital deficit......................... (3,184,555) 10,406,454
----------- -----------
$ 7,859,471 $10,531,079
=========== ===========
</TABLE>
See accompanying report of independent certified public accountants, summary of
accounting policies and notes to financial statements.
F-19
<PAGE>
BASIN PIPELINE L.L.C.
STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
Six months ended
Year Ended June 30,
December 31, ---------------------
1995 1995 1996
------------ ----------- --------
(unaudited)
<S> <C> <C> <C>
Revenue:
Pipeline and transportation fees........ $ 841,380 $ 420,690 $534,211
Other income............................ 74 10 --
----------- ----------- --------
Total revenue............................. 841,454 420,700 534,211
----------- ----------- --------
Costs and expenses:
Pipeline operating and other costs...... 669,004 324,568 294,736
General and administrative.............. 205,219 21,292 71,646
----------- ----------- --------
Total costs and expenses.................. 874,223 345,860 366,382
----------- ----------- --------
Other expenses:
Depreciation............................ 899,728 449,864 241,815
Interest................................ 1,100,022 660,513 --
----------- ----------- --------
Total other expenses...................... 1,999,750 1,110,377 241,815
----------- ----------- --------
Net loss.................................. (2,032,519) $(1,035,537) $(73,986)
=========== ========
Accumulated deficit, beginning of year.... (1,154,036)
-----------
Accumulated deficit, end of year.......... $(3,186,555)
===========
</TABLE>
See accompanying report of independent certified public accountants,summary of
accounting policies and notes to financial statements.
F-20
<PAGE>
BASIN PIPELINE L.L.C.
STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH
<TABLE>
<CAPTION>
Year Ended
December 31,
1995
------------
<S> <C>
Operating activities:
Net loss........................................................ $(2,032,519)
Adjustments to reconcile net loss to net cash provided by
operating activities--
Depreciation................................................... 899,728
Changes in operating assets and liabilities:
Trade accounts receivable..................................... 24,407
Intercompany accounts......................................... 180,287
Trade accounts payable........................................ 488,264
Interest payable.............................................. 512,200
Accrued expenses.............................................. 3,302
-----------
Cash provided by operating activities............................. 75,669
-----------
Cash used in investing activities--
Purchase of property and equipment................................ (489,828)
-----------
Cash provided by financing activities--
Proceeds from long-term debt...................................... 417,114
-----------
Net increase in cash.............................................. 2,955
Cash, beginning of year........................................... 691
-----------
Cash, end of year................................................. $ 3,646
===========
</TABLE>
See accompanying report of independent certified public accountants,summary of
accounting policies and notes to financial statements.
F-21
<PAGE>
BASIN PIPELINE L.L.C.
SUMMARY OF ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
Basin Pipeline L.L.C. (the "Company") owns and operates a sour gas gathering
system in Western Michigan and is also responsible for transportation and
marketing operations.
FINANCIAL INSTRUMENTS AND CREDIT RISK CONCENTRATION
Financial instruments that potentially subject the Company to concentrations
of credit risk consist primarily of cash. The Company maintains cash in bank
deposit accounts that at times may exceed Federally insured limits. To date,
the Company has not incurred a loss relating to these concentrations of credit
risk.
The Company derived all of its revenue from one customer.
USE OF ESTIMATES
The preparation of the Company's financial statements in conformity with
generally accepted accounting principles requires the Company's management to
make estimates and assumptions that affect the amounts reported in the
accompanying financial statements. Actual results could differ from those
estimates.
PROPERTY, EQUIPMENT AND DEPRECIATION
Property and equipment are recorded at cost. Renewals and betterments that
substantially extend the useful life of the assets are capitalized.
Maintenance and repairs are expensed when incurred. Depreciation is computed
using the straight-line method over estimated useful lives ranging from seven
to ten years. Gains and losses on retirements are included in operations.
INCOME TAXES
As a Limited Liability Company, the tax consequences of the Company's
operations are the responsibility of each member. Accordingly, the
accompanying financial statements do not include a provision for current or
deferred income taxes.
CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
REVENUE RECOGNITION
Revenue is recognized upon the sale of gas at the wellhead.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has recently issued Statement of
Financial Accounting Standards ("SFAS") No. 121, "Accounting for the
Impairment of Long-Lived Assets." SFAS No. 121 requires that long-lived assets
and certain identifiable intangibles be reported at the lower of the carrying
amount or their estimated recoverable amount and the adoption of the statement
by the Company is not expected to have an impact on the financial statements.
This statement is effective for fiscal years beginning after December 15,
1995.
F-22
<PAGE>
BASIN PIPELINE L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GOING CONCERN
As reflected in the accompanying financial statements, the Company incurred
a net loss of $2,032,519 for the year ended December 31, 1995 and its current
liabilities exceeded its current assets by approximately $11,000,000.
Additionally, the Company is in default on a significant portion of its debt,
resulting in classification of such amounts as current liabilities. These
conditions raise substantial doubt about the Company's ability to continue as
a going concern.
Management's plans with regard to the Company's ability to continue as a
going concern include the contribution of the members' capital to a new entity
in exchange for an interest in the newly formed entity. The Company believes
the execution of this plan will provide sufficient liquidity for the Company
to continue as a going concern. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
2. LONG-TERM DEBT
During December 1993, the Company and its affiliate Manistee Gas Limited
Liability Company (the "Companies") entered into a credit agreement ("Credit
Agreement") with Gas Fund to finance the construction and acquisition of
certain processing facilities, gathering systems, and oil and gas properties.
The original amount of the credit agreement was for up to $13,800,000. During
1995, the maximum amount available under the Credit Agreement was increased to
$18,700,000. At December 31, 1995, the Company owes $9,112,275 to Gas Fund
under the Credit Agreement. The Companies incur a placement fee of one and
one-half percent (1 1/2%) of the amounts funded under the Credit Agreement,
and are charged a commitment fee of one-half percent ( 1/2%) of the unused
portion of the maximum loan amount. The Credit Agreement bears interest at 17%
per annum as the combined balance due exceeds $16 million, with interest
payments due quarterly. Principal payments are payable quarterly out of
available cash flows, subject to annual mandatory prepayments. In addition to
the payment terms, the Companies are subject to various restrictive covenants,
including a current ratio requirement of not less than one to one from and
after December 31, 1994. The Credit Agreement is collateralized by a first
lien on substantially all of the Companies' assets. Borrowings under the
Credit Agreement and related amounts are allocated between the Company and its
affiliate based upon their proportionate amount of assets acquired with the
proceeds received under the Credit Agreement.
The Companies are in default on certain prepayment requirements and other
covenants under the Credit Agreement. As such, the Companies have classified
the entire balance owing to Gas Fund as current liabilities as of December 31,
1995. See Note 5.
As a condition of the Credit Agreement, the Companies granted a net profits
interest and preferred LLC interest (the "NPI") to Gas Fund. The NPI is based
on net cash flows from operations, as adjusted for limitations on debt service
payments, general and administrative expenses, and various other expenditures.
The NPI is 22% after pay-out and is to be calculated quarterly and paid, if
applicable, within thirty days following the end of each quarter. As of
December 31, 1995, the Companies had amounts owing to Gas Fund totalling
approximately $23,000 which are recorded in royalties payable of Manistee Gas
Limited Liability Company.
Interest expense was approximately $1,100,000 for the year ended December
31, 1995.
Statement of Financial Accounting Standards No. 107 requires that the fair
value of short-term notes payable, loans payable, and commercial paper be
disclosed. The carrying amount of the Company's debt approximates fair value
due to its short-term maturity.
F-23
<PAGE>
BASIN PIPELINE L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. COMMITMENTS AND CONTINGENCIES
The Company's operations may impose certain environmental and dismantlement
commitments in future years. Management estimates that potential salvage
proceeds will be sufficient to offset any material commitments of this nature.
Accordingly, no accrual has been recorded for potential future costs.
The Company leases certain vehicles and compressor equipment under the terms
of noncancellable operating lease agreements. The original unexpired lease
terms range from one to five years. Minimum future rental payments are as
follows:
<TABLE>
<CAPTION>
Years Ended December 31,
- ------------------------
<S> <C>
1996.................................................................. $156,316
1997.................................................................. 155,125
1998.................................................................. 154,032
1999.................................................................. 53,562
2000.................................................................. 2,880
--------
$521,915
========
</TABLE>
Rent expense under operating leases for the year ended December 31, 1995 was
approximately $162,000.
4. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments of interest totalled $572,970 for the year ended December 31,
1995.
Excluded from the statement of cash flows for the year ended December 31,
1995 was $474,516, representing accrued interest on debt added back to debt
principal.
5. SUBSEQUENT EVENT
Effective March 29, 1996, the members of the Company contributed their
interests to a newly formed entity, Michigan Energy Company, L.L.C. ("MEC"),
in exchange for a 45 percent membership interest in MEC.
F-24
<PAGE>
MARKWEST HYDROCARBON, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited pro forma consolidated balance sheet and pro
forma consolidated statements of operations give effect to the reorganization
of the Company from a limited partnership into a corporation, to the
application of the net proceeds from the initial public offering of 2,500,000
shares of common stock in the Corporation, and to the planned acquisition of
an interest in Basin Pipeline, L.L.C., and are based on the assumptions set
forth in the notes to such statements.
The unaudited pro forma consolidated financial statements comprise
historical financial data included elsewhere in this Prospectus which have
been retroactively adjusted to reflect the effect of the above proposed
transactions. The pro forma information assumes that the transactions were
consummated on June 30, 1996 for the pro forma consolidated balance sheet and
on January 1 of each period presented for the pro forma consolidated statement
of operations. Such pro forma information should be read in conjunction with
the related historical financial information and is not necessarily indicative
of the results which would actually have occurred had the transactions been
consummated on the dates or for the periods indicated or which may occur in
the future.
F-25
<PAGE>
MARKWEST HYDROCARBON, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1996
($000S)
<TABLE>
<CAPTION>
MarkWest Reorganization Basin
MarkWest Hydrocarbon and Historical Pipeline
Hydrocarbon Partners, Offering Pro Forma Basin Acquisition Pro Forma
Inc. Ltd. Adjustments Corporation Pipeline Adjustments Combined
----------- ----------- -------------- ----------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents............ $ 1 $ 666 $ 5,096 (b) $ 5,763 $ 9 $ (5,772)(e) $ --
Accounts receivable..... -- 3,588 -- 3,588 261 -- 3,849
Product inventory....... -- 3,287 -- 3,287 -- -- 3,287
Materials and supplies
inventory.............. -- 264 -- 264 -- -- 264
Prepaid expenses and
other assets........... -- 359 -- 359 8 -- 367
Prepaid feedstock....... -- 2,157 -- 2,157 -- -- 2,157
---- -------- ------- ------- ------- -------- -------
Total current assets.... 1 10,321 5,096 15,418 278 (5,772) 9,924
---- -------- ------- ------- ------- -------- -------
Property, plant and
equipment, at cost..... -- 43,408 -- 43,408 10,333 16,216 (e) 69,957
Accumulated
depreciation, depletion
and amortization....... -- (10,810) -- (10,810) (80) -- (10,890)
---- -------- ------- ------- ------- -------- -------
Net property, plant and
equipment.............. -- 32,598 -- 32,598 10,253 16,216 59,067
---- -------- ------- ------- ------- -------- -------
Intangible assets, net
of accumulated
amortization........... -- 443 -- 443 -- -- 443
Other assets............ 100 629 (100) 629 -- (629)(f) --
---- -------- ------- ------- ------- -------- -------
Total assets............ $101 $ 43,991 $ 4,996 $49,088 $10,531 $ 9,815 $69,434
==== ======== ======= ======= ======= ======== =======
LIABILITIES AND EQUITY
Current liabilities:
Trade accounts payable.. $-- $ 4,430 $ -- $ 4,430 $ 93 -- $ 4,523
Accrued liabilities..... 100 418 (100) 418 32 -- 450
Interest payable........ -- 99 (99) -- -- -- --
Accrued bonus and profit
sharing................ -- 230 -- 230 -- -- 230
---- -------- ------- ------- ------- -------- -------
Total current
liabilities............ 100 5,177 (199) 5,078 125 -- 5,203
Deferred income taxes... -- -- 3,206 (a) 3,206 -- -- 3,206
Long-term debt.......... -- 12,350 (12,350)(c) -- -- 10,459 (e) 10,459
---- -------- ------- ------- ------- -------- -------
Total liabilities....... 100 17,527 (9,343) 8,284 125 10,459 18,868
Minority interest....... -- -- -- -- -- 9,749 (g) 9,749
Equity.................. 1 26,464 14,339 (d) 40,804 10,406 (10,393)(h) 40,817
---- -------- ------- ------- ------- -------- -------
Total liabilities and
equity................. $101 $ 43,991 $ 4,996 $49,088 $10,531 $ 9,815 $69,434
==== ======== ======= ======= ======= ======== =======
</TABLE>
F-26
<PAGE>
MARKWEST HYDROCARBON, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
($000S, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
MarkWest Reorganization Basin
MarkWest Hydrocarbon and Historical Pipeline
Hydrocarbon Partners, Offering Pro Forma Basin Acquisition Pro Forma
Inc. Ltd. Adjustments Corporation Pipeline Adjustments Combined
----------- ----------- -------------- ----------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Plant revenue........... $-- $33,823 $ -- $33,823 $ -- $ -- $33,823
Terminal and marketing
revenue................ -- 13,172 -- 13,172 -- -- 13,172
Oil and gas and other
revenue................ -- 1,075 -- 1,075 841 -- 1,916
---- ------- ------- ------- ------- ------ -------
Total revenue........... -- 48,070 -- 48,070 841 -- 48,911
---- ------- ------- ------- ------- ------ -------
Costs and Expenses:
Plant feedstock
purchases.............. -- 17,308 -- 17,308 -- -- 17,308
Terminal and marketing
purchases.............. -- 11,937 -- 11,937 -- -- 11,937
Operating expenses...... -- 4,706 -- 4,706 669 -- 5,375
General and
administrative
expenses............... -- 4,189 -- 4,189 205 -- 4,394
Depreciation, depletion
and amortization....... -- 1,754 -- 1,754 900 -- 2,654
---- ------- ------- ------- ------- ------ -------
Total costs and
expenses............... -- 39,894 -- 39,894 1,774 -- 41,668
---- ------- ------- ------- ------- ------ -------
Earnings (loss) from
operations............. -- 8,176 -- 8,176 (933) -- 7,243
Interest expense, net of
interest income........ -- (352) 508(i) 156 (1,100) 1,100(j) 156
---- ------- ------- ------- ------- ------ -------
-- 7,824 508 8,332 (2,033) 1,100 7,399
Minority interest....... -- -- -- -- -- 373(k) 373
---- ------- ------- ------- ------- ------ -------
Income (loss) before
income taxes........... -- 7,824 508 8,332 (2,033) 1,473 7,772
(Provision) benefit for
income taxes........... -- -- (3,128)(l) (3,128)(l) -- 210(l) (2,918)(l)
---- ------- ------- ------- ------- ------ -------
Net income.............. $-- $ 7,824 $(2,620) $ 5,204 $(2,033) $1,683 $ 4,854
==== ======= ======= ======= ======= ====== =======
Weighted average common
shares outstanding..... 5,771 5,771
======= =======
Net income per common
share.................. $ .90 $ .84
======= =======
</TABLE>
F-27
<PAGE>
MARKWEST HYDROCARBON, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
($000S, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
MarkWest Reorganization Basin
MarkWest Hydrocarbon and Historical Pipeline
Hydrocarbon Partners, Offering Pro Forma Basin Acquisition Pro Forma
Inc. Ltd. Adjustments Corporation Pipeline Adjustments Combined
----------- ----------- -------------- ----------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Plant revenue........... $-- $18,045 $ -- $18,045 $-- $ -- $18,045
Terminal and marketing
revenue................ -- 9,831 -- 9,831 -- -- 9,831
Oil and gas and other
revenue................ -- 744 -- 744 534 -- 1,278
---- ------- ------- ------- ---- ----- -------
Total revenue........... -- 28,620 -- 28,620 534 -- 29,154
---- ------- ------- ------- ---- ----- -------
Costs and Expenses:
Plant feedstock
purchases.............. -- 8,538 -- 8,538 -- -- 8,538
Terminal and marketing
purchases.............. -- 8,683 -- 8,683 -- -- 8,683
Operating expenses...... -- 2,979 -- 2,979 295 -- 3,274
General and
administrative
expenses............... -- 2,140 -- 2,140 71 -- 2,211
Depreciation, depletion
and amortization....... -- 1,326 -- 1,326 241 517 (m) 2,084
---- ------- ------- ------- ---- ----- -------
Total costs and
expenses............... -- 23,666 -- 23,666 607 517 24,790
---- ------- ------- ------- ---- ----- -------
Earnings (loss) from
operations............. -- 4,954 -- 4,954 (73) (517) 4,364
Interest expense, net of
interest income........ -- (466) 509 (i) 43 -- (392)(n) (349)
---- ------- ------- ------- ---- ----- -------
-- 4,488 509 4,997 (73) (909) 4,015
Minority interest....... -- -- -- -- -- 393 393
---- ------- ------- ------- ---- ----- -------
Income (loss) before
income taxes .......... -- 4,488 509 4,997 (73) (516) 4,408
(Provision) benefit for
income taxes........... -- -- (1,859)(l) (1,859)(l) -- 219 (l) (1,640)(l)
---- ------- ------- ------- ---- ----- -------
Pro forma net income.... $-- $ 4,488 $(1,350) $ 3,138 $(73) $(297) $ 2,768
==== ======= ======= ======= ==== ===== =======
Weighted average common
shares outstanding..... 6,431 6,431
======= =======
Net income per common
share.................. $ .49 $ .43
======= =======
</TABLE>
F-28
<PAGE>
MARKWEST HYDROCARBON, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
- --------
(a) Represents the estimated deferred taxes to be recorded when the
Partnership reorganizes into a corporation and, consequently, becomes a
taxable entity.
(b) Represents the incremental cash to the Company from net proceeds of the
Offering, assuming that $22.4 million of the expected net proceeds of
$27.3 million was used to retire debt, including the debt incurred to fund
the $10.0 million Partnership Distribution, and for receipt of $.2 million
from employees who financed their acquisition of stock with notes
receivable and proceeds received upon exercise of options.
(c) Reflects the retirement of existing debt with proceeds from the Offering.
(d) Includes increases in equity of $27.3 million resulting from the expected
net proceeds of the Offering, and for receipt of $.2 million from
employees who financed their acquisition of stock with notes receivable
and proceeds received upon exercise of options, offset by reductions of
$10.0 million related to the Partnership Distribution and $3.2 million
resulting from the charge to record the deferred taxes discussed in (a).
(e) Reflects the planned increase in the investment in Basin Pipeline, L.L.C.
of $16.2 million, funded by the $5.8 million remaining proceeds from the
Offering and $10.5 million in borrowings. While the planned investment is
expected to be made through capital expenditures over a period of
approximately 18 months, the entire amount is reflected as if it had been
invested on June 30, 1996 for purposes of the pro forma balance sheet at
that date and as if it had been invested on January 1, 1995 for purposes
of the pro forma statement of operations for the year ended December 31,
1995 and for the six months ended June 30, 1996. Since the assets will be
under construction for approximately 12 months, no depreciation expense
has been recorded for the year ended December 31, 1995 and all interest
expense assumed to be incurred during 1995 has been capitalized. Finally,
while the planned investment will be made in increments through capital
expenditures and may never be made up to the $16.2 million level, the full
amount, which represents a 60% interest in Basin, has been reflected for
pro forma purposes.
(f) Represents reclassification of the initial investment in Basin from other
assets to property, plant and equipment.
(g) Represents the 40% minority interest in Basin, assuming the Company owns
60% of Basin as discussed in (e) above.
(h) Primarily represents the elimination of the book equity accounts of Basin.
(i) Reflects the elimination of the historical interest expense of the Company
because all outstanding debt is assumed to be retired with the proceeds of
the Offering.
(j) Represents the elimination of the historical interest expense of Basin
because all debt of Basin was forgiven prior to and as a condition of the
Company's investment in Basin.
(k) Represents the 40% minority interest impact of the Basin adjustments.
(l) Represents the income tax effects of the pro forma adjustments to income
as well as the pro forma provision for income taxes assuming the Company
will be a taxable entity after the reorganization.
(m) Represents depreciation expense on the property, plant and equipment
constructed with the amounts invested by the Company, assuming such assets
were under construction for all of 1995 and were placed in service
effective January 1, 1996.
(n) Represents interest expense at 7.5% on the amount assumed to be borrowed
in conjunction with the Basin acquisition (see (e) above).
F-29
<PAGE>
At the top center of the inside back cover page, within a text box, is the
phrase "The Critical Link between the Gas Well and the Market is provided by"
followed by the MarkWest logo.
Below that, arranged from left to right on the page are several icons
depicting five different phases of natural gas lifecycle, beginning with
"Exploration & Production" and ending with "End-Use Customers."
The following icons and narrative descriptions are included on the page:
Natural Gas Wellhead icon labeled "Exploration & Production" followed by two
narrative phrases (3rd party natural gas production) and (planned exploration
activity in Michigan); Pipeline icon labeled "Gas Gathering & Compression"
followed by three narrative phrases (31 mile regulated pipeline in Michigan),
(50+ mile Michigan planned expansion) and (38 mile NGL pipeline in Appalachia);
Natural Gas Refinery Plant icon labeled "Gas Processing Services" followed by
three narrative phrases (2 extraction plants in Appalachia), (1 NGL
Fractionator in Appalachia) and (1 planned Extraction/Fractionation plant in
Michigan); Gas storage tank, barge, train car and tanker truck icons labeled
"Marketing Services" followed by six narrative phrases (West Memphis, AR
Terminal), (Church Hill, TN Terminal), (Mined Siloam, KY Caverns), (7 owned LPG
transport trailers), (Fleet of 70+ rail cars) and (Marketing contracts &
programs); and House, factory and home propane storage tank icons labeled
"End-Use Customers" followed by four narrative phrases (Gas Consumers),
(Petrochemical Plants), (Refineries) and (LPG Fuel Users).
<PAGE>
================================================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFOR-
MATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PRO-
SPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN, AND IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AU-
THORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTI-
TUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, SHARES OF COMMON
STOCK IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE ANY
SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION OR IN WHICH THE PERSON MAKING
SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COM-
PANY SINCE THE DATE HEREOF.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 10
Reorganization........................................................... 17
Use of Proceeds.......................................................... 18
Dividend Policy.......................................................... 18
Dilution................................................................. 19
Capitalization........................................................... 20
Selected Consolidated Financial and Other Information.................... 21
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 23
Business................................................................. 29
Management............................................................... 45
Certain Transactions..................................................... 51
Principal Stockholders................................................... 54
Description of Capital Stock............................................. 56
Shares Eligible for Future Sale.......................................... 58
Underwriting............................................................. 59
Legal Matters............................................................ 60
Experts.................................................................. 60
Additional Information................................................... 60
Financial Statements..................................................... F-1
</TABLE>
---------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICI-
PATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING
AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
================================================================================
================================================================================
[LOGO OF MARKWEST APPEARS HERE]
MARKWEST HYDROCARBON, INC.
---------------
2,500,000 SHARES
COMMON STOCK
PROSPECTUS
, 1996
---------------
DILLON, READ & CO. INC.
GEORGE K. BAUM & COMPANY
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable in connection with the sale of
the Common Stock being registered hereby.
<TABLE>
<CAPTION>
ITEM AMOUNT
---- -------
<S> <C>
SEC registration fee............................................. $12,888
NASD filing fee.................................................. 4,238
Nasdaq National Market Listing Fee............................... 37,188
Blue Sky fees and expenses....................................... *
Printing and engraving expenses.................................. *
Legal fees and expenses.......................................... *
Auditors' accounting fees and expenses........................... *
Transfer Agent and Registrar fees................................ *
Miscellaneous expenses........................................... *
-------
Total........................................................ $ *
=======
</TABLE>
- --------
* To be supplied by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law (the "Delaware Law")
authorizes a court to award, or a corporation's Board of Directors to grant,
indemnity to directors and officers in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933,
as amended (the "Securities Act"). Article IX of the Registrant's Certificate
of Incorporation (Exhibit 3.1 hereto) and Article VIII of the Registrant's
Bylaws (Exhibit 3.2 hereto) provide for indemnification of the Registrant's
directors, officers, employees and other agents to the maximum extent
permitted by Delaware Law. In addition, the Underwriting Agreement (Exhibit
l.) provides for cross-indemnification among the Registrant and the
Underwriters with respect to certain matters, including matters arising under
the Securities Act.
The Registrant's Certificate of Incorporation also provides that directors
of the Registrant shall be under no liability to the Registrant for monetary
damages for breach of fiduciary duty as a director of the Registrant, except
for those specific breaches and acts or omissions with respect to which
Delaware Law expressly provides that a corporation's certificate of
incorporation shall not eliminate or limit such personal liability of
directors. Section 102(b)(7) of the Delaware Law provides that a corporation's
certificate of incorporation may not limit the liability of directors for (i)
breaches of their duty of loyalty to the corporation and its stockholders,
(ii) acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) unlawful dividends or unlawful
stock repurchases under Section 174 of the Delaware Law, or (iv) transactions
from which a director derives an improper personal benefit.
Reference is made to the following documents filed as exhibits to this
Registration Statement regarding relevant indemnification provisions described
above and elsewhere herein:
<TABLE>
<CAPTION>
DOCUMENT EXHIBIT NUMBER
-------- --------------
<S> <C>
Underwriting Agreement..................................... 1.
Registrant's Certificate of Incorporation.................. 3.1
Registrant's Bylaws........................................ 3.2
</TABLE>
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The following is a summary of the transactions by Registrant during the last
three years involving sales of Registrant's securities that were not
registered under the Securities Act of 1933, as amended (the "Securities
Act"):
1. In conjunction with the Reorganization, the Company anticipates
issuing 5,000,000 shares of Common Stock to the holders of partnership
interests in MarkWest Hydrocarbon Partners, Ltd. in exchange for the
partnership interests of such holders. The issuance of securities to such
holders will be deemed to be exempt from registration under the Securities
Act in reliance on Rule 506 promulgated under Section 4(2) thereunder as a
transaction by an issuer not involving any public offering.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<C> <S>
1.* Form of Underwriting Agreement
3.1 Certificate of Incorporation of Registrant
3.2 Bylaws of Registrant
4.1* Specimen Common Stock Certificate of Registrant
5.1* Opinion of Dorsey & Whitney LLP
10.1 Reorganization Agreement made as of August 1, 1996, by and among
MarkWest Hydrocarbon, Inc., MarkWest Hydrocarbon Partners, Ltd., MWHC
Holding, Inc., RIMCO Associates, Inc. and each of the limited
partners of MarkWest Hydrocarbon Partners, Ltd.
10.2 Modification Agreement, dated July 31, 1996, among MarkWest
Hydrocarbon Partners, LTD, MarkWest Hydrocarbon, Inc., Norwest Bank
Colorado, N.A., First American National Bank, N M Rothschild and Sons
Limited and Norwest
10.3 Amended and Restated Mortgage, Assignment, Security Agreement and
Financing Statement, dated May 2, 1996, between West Shore Processing
Company, LLC and Bank of America Illinois
10.4 Secured Guaranty, dated May 2, 1996, between West Shore Processing
Company, LLC and Bank of America Illinois
10.5 Security Agreement, dated May 2, 1996, between West Shore Processing
Company, L.L.C. and Bank of America Illinois
10.6 Pledge Agreement, dated May 2, 1996, between West Shore Processing
Company, L.L.C. and Bank of America Illinois
10.7 Participation, Ownership and Operating Agreement for West Shore
Processing Company, LLC, dated May 2, 1996
10.8 Second Amended and Restated Operating Agreement for Basin Pipeline
L.L.C., dated May 2, 1996
10.9 Subordination Agreement, dated May 2, 1996, among MarkWest Michigan
LLC, Bank of America Illinois, West Shore Processing Company, L.L.C.,
Basin Pipeline L.L.C., Michigan Energy Company, L.L.C.
10.10** Gas Treating and Processing Agreement, dated May 1, 1996, between West
Shore Processing Company, LLC and Shell Offshore, Inc.
10.11** Gas Gathering, Treating and Processing Agreement, dated May 2, 1996,
between Oceana Acquisition Company and West Shore Processing Company,
LLC
10.12** Gas Gathering, Treating and Processing Agreement, dated May 2, 1996,
between Michigan Production Company, L.L.C. and West Shore Processing
Company, LLC
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
10.13** Products Exchange Agreements, dated May 1, 1996, with Ferrellgas, L.P.
10.14** Gas Processing and Treating Agreement, dated March 29, 1996, between
Manistee Gas Limited Liability Company and Michigan Production
Company, L.L.C.
10.15 Processing Agreement (Kenova Processing Plant), dated March 15, 1995,
between Columbia Gas Transmission Corporation and MarkWest
Hydrocarbon Partners, Ltd.
10.16 Natural Gas Liquids Purchase Agreement (Cobb Plant), between Columbia
Gas Transmission Corporation and MarkWest Hydrocarbon Partners, Ltd.
10.17 Purchase and Demolition Agreement Construction Premises, dated March
15, 1995, between Columbia Gas Transmission Corporation and MarkWest
Hydrocarbon Partners, Ltd.
10.18 Purchase and Demolition Agreement Remaining Premises, dated March 15,
1995, between Columbia Gas Transmission Corporation and MarkWest
Hydrocarbon Partners, Ltd.
10.19 Agreement to Design and Construct New Facilities, dated March 15,
1995, between Columbia Gas Transmission Corporation and MarkWest
Hydrocarbon Partners, Ltd.
10.20** Sales Acknowledgement, dated August 8, 1994, NO. 12577, confirming
sale to Ashland Petroleum Company
10.21 Loan Agreement dated November 20, 1992, among MarkWest Hydrocarbon
Partners, Ltd., Norwest Bank Denver, National Association,
individually and as Agent, and First American National Bank
10.22* Contract for Construction and Lease of Boldman Plant, dated December
24, 1990, between Columbia Gas Transmission Corporation and MarkWest
Hydrocarbon Partners, Ltd.
10.23 Natural Gas Liquids Purchase Agreement (Boldman Plant), dated December
24, 1990, between Columbia Gas Transmission Corporation and MarkWest
Hydrocarbon Partners, Ltd.
10.24* Natural Gas Liquids Purchase Agreement, dated April 26, 1988, between
Columbia Gas Transmission Corporation and MarkWest Hydrocarbon
Partners, Ltd.
10.25 1996 Incentive Compensation Plan
10.26 1996 Stock Incentive Plan of Registrant
10.27 1996 Nonemployee Director Stock Option Plan
10.28 Form of Non-Compete Agreement between John M. Fox and MarkWest
Hydrocarbon, Inc.
11. Computation of per share earnings
23.1 Consent of Price Waterhouse LLP
23.2 Consent of BDO Seidman, LLP
23.3* Consent of Dorsey & Whitney LLP (to be included as part of Exhibit
5.1)
24. Power of Attorney (see page II-5)
</TABLE>
- --------
* To be filed by amendment.
** Confidential treatment requested.
ITEM 17. UNDERTAKINGS.
The undersigned hereby undertakes to provide to the Underwriters, at the
Closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described in Item 14, or otherwise, the
Registrant has been advised that, in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a
director, officer of controlling person of the Registrant in the successful
defense
II-3
<PAGE>
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the Registrant will treat the information omitted from the form of
prospectus filed as part of this Registration Statement in reliance upon
Rule 430A and contained in a form of prospectus filed by the Registrant
under Rule 424(b)(1), or (4), or 497(h) under the Securities Act as part of
this Registration Statement as of the time the Commission declares it
effective.
(2) For purposes of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
IN ACCORDANCE WITH THE REQUIREMENT OF THE SECURITIES ACT OF 1933, THE
REGISTRANT CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS
ALL OF THE REQUIREMENTS OF FILING ON FORM S-1 AND AUTHORIZED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, IN THE CITY OF
DENVER, STATE OF COLORADO, ON THE 2ND DAY OF AUGUST, 1996.
MARKWEST HYDROCARBON, INC.
By: John M. Fox
---------------------------------
JOHN M. FOX
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS THAT EACH PERSON WHOSE SIGNATURE APPEARS
BELOW CONSTITUTES AND APPOINTS JOHN M. FOX AND BRIAN T. O'NEILL AND EACH OF
THEM, AS HIS TRUE AND LAWFUL ATTORNEYS-IN-FACT AND AGENTS, WITH FULL POWER OF
SUBSTITUTION AND RESUBSTITUTION, FOR HIM AND IN HIS NAME, PLACE AND STEAD, IN
ANY AND ALL CAPACITIES, TO SIGN ANY AND ALL AMENDMENTS (INCLUDING POST-
EFFECTIVE AMENDMENTS) TO THIS REGISTRATION STATEMENT, AND TO FILE THE SAME
WITH ALL EXHIBITS THERETO, AND OTHER DOCUMENTS IN CONNECTION THEREWITH, WITH
THE SECURITIES AND EXCHANGE COMMISSION, GRANTING UNTO SAID ATTORNEYS-IN-FACT
AND AGENTS, AND EACH OF THEM, FULL POWER AND AUTHORITY TO DO AND PERFORM EACH
AND EVERY ACT AND THING REQUISITE AND NECESSARY TO BE DONE IN AND ABOUT THE
PREMISES, AS FULLY TO ALL INTENTS AND PURPOSES AS HE MIGHT OR COULD DO IN
PERSON, HEREBY RATIFYING AND CONFIRMING ALL THAT SAID ATTORNEYS-IN-FACT AND
AGENTS, OR EITHER OF THEM, OR THEIR OR HIS SUBSTITUTE OR SUBSTITUTES, MAY
LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT WAS SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES
INDICATED BELOW AND ON THE DATES STATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
JOHN M. FOX President and Chief August 2, 1996
- ------------------------------------- Executive Officer
JOHN M. FOX (Principal
Executive Officer)
BRIAN T. O'NEILL Senior Vice August 2, 1996
- ------------------------------------- President, and
BRIAN T. O'NEILL Chief Operating
Officer
RITA E. HARVEY Director of Finance August 2, 1996
- ------------------------------------- and Treasurer
RITA E. HARVEY (Principal
Financial and
Accounting Officer)
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
ARTHUR J. DENNEY Vice President of August 2, 1996
- ------------------------------------- Engineering and
ARTHUR J. DENNEY Business
Development
NORMAN H. FOSTER Director August 2, 1996
- -------------------------------------
NORMAN H. FOSTER
BARRY W. SPECTOR Director August 2, 1996
- -------------------------------------
BARRY W. SPECTOR
DAVID R. WHITNEY Director August 2, 1996
- -------------------------------------
DAVID R. WHITNEY
</TABLE>
II-6
<PAGE>
CERTIFICATE OF INCORPORATION
OF
MARKWEST HYDROCARBON, INC.
To form a corporation pursuant to the Delaware General Corporation Law, the
undersigned hereby certifies as follows:
ARTICLE I
---------
The name of the corporation (the "Corporation") is "MarkWest Hydrocarbon,
Inc."
ARTICLE II
----------
The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County
of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
ARTICLE III
-----------
The nature of the business and purposes to be conducted or promoted by the
Corporation is to engage in any lawful act or activity for which corporations
may be organized under the Delaware General Corporation Law.
ARTICLE IV
----------
The name and mailing address of the incorporator is as follows:
Gregory A. Piel
Dorsey & Whitney LLP
Suite 4400
370 Seventeenth Street
Denver, Colorado 80202
ARTICLE V
---------
The total number of shares of capital stock which the Corporation is
authorized to issue shall be twenty-five million (25,000,000) shares, consisting
of twenty million (20,000,000) shares of common stock, par value $0.01 per share
("Common Stock"), and five million (5,000,000) shares of preferred stock, par
value $0.01 per share ("Preferred Stock").
The relative powers, preferences and rights together with the
qualifications and limitations and restrictions of the Common Stock and the
Preferred Stock are as follows:
================================================================================
<PAGE>
1. COMMON STOCK
(a) Dividends and Distributions. Subject to the preferences and other
---------------------------
rights of the Preferred Stock, the holders of Common Stock shall be entitled to
receive their pro rata shares, based upon the number of shares of Common Stock
held by them, of such dividends or other distributions as may be declared by the
board of directors from time to time, when and as declared by the board of
directors, out of funds legally available therefor.
(b) Liquidation. In the event of any liquidation, dissolution or winding
-----------
up of the affairs of the Corporation, voluntary or involuntary, after payment or
provision for payment to the holders of Preferred Stock of the amounts to which
they may be entitled, the remaining assets of the Corporation available to
stockholders shall be distributed equally per share to the holders of common
Stock.
(c) Voting Rights. Each holder of Common Stock shall be entitled to one
-------------
vote in respect of each share of Common Stock held of record on all matters
submitted to a vote of stockholders. Holders of Common Stock shall not be
entitled to cumulate their votes in the election of directors and shall not be
entitled to any preemptive rights to acquire shares of any class or series of
capital stock of the Corporation.
2. UNDESIGNATED PREFERRED STOCK
The board of directors of the Corporation is hereby authorized to provide,
by resolution or resolutions adopted by such board, for the issuance of
Preferred Stock from time to time in one or more classes and/or series, to
establish the number of shares of each such class or series, and to fix the
powers, designations, preferences and relative, participating, optional or
other rights, if any, and the qualifications, limitations or restrictions
thereof, if any, of the shares of each such class or series, all to the full
extent permitted by the Delaware General Corporation Law, Sections 102(a)(4) and
151, or any successor provisions. Without limiting the generality of the
foregoing, the board of directors is authorized to provide that shares of a
class or series of Preferred Stock:
(1) are entitled to cumulative, partially cumulative or noncumulative
dividends or other distributions payable in cash, capital stock or
indebtedness of the Corporation or other property, at such times and in
such amounts as are set forth in the board resolutions establishing such
class or series or as are determined in a manner specified in such
resolutions;
-2-
<PAGE>
(2) are entitled to a preference with respect to payment of dividends over
one or more other classes and/or series of capital stock of the Corporation;
(3) are entitled to a preference with respect to any distribution of
assets of the Corporation upon its liquidation, dissolution or winding up over
one or more other classes and/or series of capital stock of the Corporation in
such amount as is set forth in the board resolutions establishing such class or
series or as is determined in a manner specified in such resolutions;
(4) are redeemable or exchangeable at the option of the Corporation and/or
on a mandatory basis for cash, capital stock or indebtedness of the Corporation
or other property, at such times or upon the occurrence of such events, and at
such prices, as are set forth in the board resolutions establishing such class
or series or as are determined in a manner specified in such resolutions;
(5) are entitled to the benefits of such sinking fund, if any, as is
required to be established by the Corporation for the redemption and/or purchase
of such shares by the board resolutions establishing such class or series;
(6) are convertible at the option of the holders thereof into shares of
any other class or series of capital stock of the Corporation, at such times or
upon the occurrence of such events, and upon such terms, as are set forth in the
board resolutions establishing such class or series or as are determined in a
manner specified in such resolutions;
(7) are exchangeable at the option of the holders thereof for cash,
capital stock or indebtedness of the Corporation or other property, at such
times or upon the occurrence of such events, and at such prices, as are set
forth in the board resolutions establishing such class or series or as are
determined in a manner specified in such resolutions;
(8) are entitled to such voting rights, if any, as are specified in the
board resolutions establishing such class or series (including, without limiting
the generality of the foregoing, the right to elect one or more directors voting
alone as a single class or series or together with one or more other classes
and/or series of Preferred Stock, if so specified by such board resolutions) at
all times or upon the occurrence of specified events; and
-3-
<PAGE>
(9) are subject to restrictions on the issuance of additional
shares of Preferred Stock of such class or series or of any other class
or series, or on the reissuance of shares of Preferred Stock of such
class or series or of any other class or series, or on increases or
decreases in the number of authorized shares of Preferred Dtock of such
class or series or of any other class or series.
Without limiting the generality of the foregoing authorizations, any of
the voting powers, designations, preferences, rights and qualifications,
limitations or restrictions of a class or series of Preferred Stock may be made
dependent upon facts ascertainable outside the board resolutions establishing
such class or series, all to the full extent permitted by the Delaware General
Corporation Law. Unless otherwise specified in the board resolutions
establishing a class or series of Preferred Stock, holders of a class or series
of Preferred Stock shall not be entitled to cumulate their votes in any election
of directors in which they are entitled to vote and shall not be entitled to any
preemptive rights to acquire shares of any class or series of capital stock of
the Corporation.
ARTICLE VI
----------
The Corporation is to have perpetual existence.
ARTICLE VII
-----------
In furtherance and not in limitation of the powers conferred by statute,
the by-laws of the Corporation may be made, altered, amended or repealed by the
holders of at least a majority of the shares entitled to vote on the proposed
action or by the majority vote of the board of directors.
ARTICLE VIII
------------
Elections of directors need not be by written ballot.
ARTICLE IX
----------
(a) The Corporation shall indemnify to the fullest extent permitted
under and in accordance with the laws of the State of Delaware any person who is
or was a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative by reason of the fact that he or she is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of or in
any other capacity with another corporation, partnership,joint venture, trust or
other enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and
- 4 -
<PAGE>
reasonably incurred by him or her in connection with such action, suit or
proceeding if he or she acted in good faith and in a manner he or she reasonably
believed to be in or not opposed to the best interests of the Corporation, and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe his or her conduct was unlawful.
(b) Expenses incurred in defending a civil or criminal action, suit or
proceeding shall (in the case of any action, suit or proceeding against a
director of the Corporation) or may (in the case of any action, suit or
proceeding against an officer, trustee, employee, or agent) be paid by the
Corporation in advance of the final disposition of such action, suit or
proceeding as authorized by the board of directors upon receipt of an
undertaking by or on behalf of the indemnified person to repay such amount if it
shall ultimately be determined that he or she is not entitled to be indemnified
by the Corporation as authorized in this Article.
(c) The indemnification and other rights set forth in this paragraph
shall not be exclusive of any provisions with respect thereto in the by-laws or
any other contract or agreement between the Corporation and any officer,
director, employee or agent of the Corporation.
(d) Neither the amendment nor repeal of this Article IX, paragraph (a),
(b) or (c), nor the adoption of any provision of this Certificate of
Incorporation inconsistent with Article IX, paragraph (a), (b) or (c), shall
eliminate or reduce the effect of this Article IX, paragraphs (a), (b) and (c),
in respect of any matter occurring before such amendment, repeal or adoption of
an inconsistent provision or in respect of any cause of action, suit or claim
relating to any such matter which would have given rise to a right of
indemnification or right to receive expenses pursuant to this Article IX,
paragraph (a), (b) or (c), if such provision had not been so amended or repealed
or if a provision inconsistent therewith had not been so adopted.
(e) The Corporation shall have power to purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him or
her and incurred by him or her in any such capacity, or arising out of his or
her status as such, whether or not the Corporation would have the power to
indemnify him or her against such liability under this section.
(f) No director shall be personally liable to the Corporation or any
stockholder for monetary damages for breach of fiduciary duty as a director,
except for any matter in respect of which such director (i) shall be liable
under Section 174 of the Delaware General Corporation Law or any amendment
thereto or successor
-5-
<PAGE>
provision thereto, or (ii) shall be liable by reason that, in addition to any
and all other requirements for liability, he or she:
(1) shall have breached his or her duty of loyalty to the Corporation or its
stockholders;
(2) shall not have acted in good faith or, in failing to act, shall not have
acted in good faith;
(3) shall have acted in a manner involving intentional misconduct or a knowing
violation of law or, in failing to act, shall have acted in a manner
involving intentional misconduct or a knowing violation of law; or
(4) shall have derived an improper personal benefit.
If the Delaware General Corporation Law is amended after June 25, 1996, to
authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of a director of the Corporation
shall be eliminated or limited to the fullest extent permitted by the Delaware
General Corporation Law, as so amended.
ARTICLE X
---------
Whenever a compromise or arrangement is proposed between this Corporation
and its creditors or any class of them and/or between this Corporation and its
stockholders or any class of them, any court of equitable jurisdiction within
the State of Delaware may, on the application in a summary way of this
Corporation or of any creditor or stockholder thereof on the application of any
receiver or receivers appointed for this Corporation under the provisions of
Section 291 of Title 8 of the Delaware Code or on the application of trustees in
dissolution or of any receiver or receivers appointed for this Corporation under
the provisions of Section 279 of Title 8 of the Delaware Code order a meeting of
the creditors or class of creditors, and/or of the stockholders or class of
stockholders of this Corporation, as the case may be, to be summoned in such
manner as the said court directs. If a majority in number representing three
fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this Corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of this
Corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or classes of creditors, and/or on all stockholders or classes of
stockholders of this Corporation, as the case may be, and also on this
Corporation.
-6-
<PAGE>
ARTICLE XI
----------
Meetings of stockholders may be held within or without the State of
Delaware, as the by-laws of the Corporation may provide. The books of the
Corporation may be kept (subject to any provision contained in the statutes)
outside the State of Delaware at such place or places as may be designated from
time to time by the board of directors or in the by-laws of the Corporation.
ARTICLE XII
-----------
The initial board of directors shall be comprised of:
Name Address
---- -------
John M. Fox 5613 DTC Parkway, Suite 400
Englewood, CO 80111
Brian T. O'Neill 5613 DTC Parkway, Suite 400
Englewood, CO 80111
Arthur J. Denney 5613 DTC Parkway, Suite 400
Englewood, CO 80111
Norman H. Foster 1625 Broadway, Suite 530
Denver, CO 80202
David R. Whitney 22 Waterville Road
Avon, CT 06001
Barry W. Spector 1050 17th Street, Suite 1660
Denver, CO 80202
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<PAGE>
ARTICLE XIII
------------
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in any manner now or
hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.
THE UNDERSIGNED, being the incorporator hereinbefore named, for the purposes
of forming a corporation pursuant to the Delaware General Corporation Law makes
this certificate, hereby declaring and certifying that this is his act and deed
and the facts herein stated are true and, accordingly, has hereunto set his hand
this 25th day of June, 1996.
/s/ Gregory A. Piel
------------------------------
Gregory A. Piel
-8-
<PAGE>
BYLAWS
OF
MARKWEST HYDROCARBON, INC.
ARTICLE I.
Offices, Corporate Seal
Section 1.01. Offices. The Corporation shall have a registered
-------
office, a principal office and such other offices as the Board of Directors may
determine.
Section 1.02. Corporate Seal. The Corporation shall have no
--------------
corporate seal.
ARTICLE II.
Meetings of Stockholders
Section 2.01. Place and Time of Meetings. Meetings of the
--------------------------
stockholders may be held at such place and at such time as may be designated by
the Board of Directors. In the absence of a designation of place, this meeting
shall be held at the principal office. In the absence of a designation of time,
the meeting shall be held at 10:00 a.m.
Section 2.02. Annual Meetings. The annual meeting of the
---------------
stockholders of the Corporation for the election of Directors and for the
transaction of any other proper business, notice of which was given in the
notice of the meeting, shall be held in June of each year on such business day
as the Secretary of the Corporation shall determine from time to time.
Section 2.03. Special Meetings. Special meetings of the stockholders
----------------
for any purpose or purposes shall be called by the Secretary at the written
request of a majority of the total number of Directors, by the Chairman of the
Board, by the President or by the stockholders owning a majority of the shares
outstanding and entitled to vote. Such request shall state the purpose or
purposes of the proposed meeting. Business transacted at any special meeting
shall be limited to the purposes stated in the notice.
Section 2.04. Quorum, Adjourned Meetings. The holders of a majority
--------------------------
of the shares outstanding and entitled to vote shall constitute a quorum for the
transaction of business at any annual or special meeting. If a quorum is not
present at a meeting, those present shall adjourn to such day as they shall
agree upon by majority vote. Notice of any adjourned meeting need not be given
if the time and place thereof are announced at the meeting at which the
adjournment is taken. At adjourned meetings at which a quorum is present, any
business may be transacted which might have been transacted at the meeting as
originally noticed. If
<PAGE>
a quorum is present, the stockholders may continue to transact business until
adjournment notwithstanding the withdrawal of enough stockholders to leave less
than a quorum.
Section 2.05. Organization. At each meeting of the stockholders, the
------------
Chairman of the Board or in his or her absence the President or in his or her
absence the chairman chosen by a majority in voting interest of the stockholders
present in person or by proxy and entitled to vote shall act as chairman; and
the Secretary of the Corporation or in his or her absence an Assistant Secretary
or in his or her absence any person whom the chairman of the meeting shall
appoint shall act as Secretary of the meeting.
Section 2.06. Order of Business. The order of business at all
-----------------
meetings of the stockholders shall be determined by the chairman of the meeting,
but such order of business may be changed by the vote of a majority in voting
interest of those present or represented at such meeting and entitled to vote
thereat.
Section 2.07. Voting. Each stockholder of the Corporation entitled
------
to vote at a meeting of stockholders or entitled to express consent in writing
to the corporate action without a meeting shall have one vote in person or by
proxy for each share of stock having voting rights held by him or her and
registered in his or her name on the books of the Corporation. Upon the request
of any stockholder, the vote upon any question before a meeting shall be by
written ballot, and all elections of Directors shall be by written ballot. All
questions at a meeting shall be decided by a majority vote of the number of
shares entitled to vote represented at the meeting at the time of the vote
except where otherwise required by statute, the Certificate of Incorporation or
these Bylaws. Any action to be taken by written consent without a meeting may be
taken by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting in which all shares entitled to vote thereon were present and voted. For
the election of Directors, the persons receiving the largest number of votes (up
to and including the number of Directors to be elected) shall be Directors. If
Directors are to be elected by consent in writing of the stockholders without a
meeting, those persons receiving the consent in writing of the largest number of
shares in the aggregate and constituting not less than a majority of the total
outstanding shares entitled to consent in writing thereon (up to and including
the number of Directors to be elected) shall be Directors. Persons holding stock
in a fiduciary capacity shall be entitled to vote the shares so held. If shares
stand of record in the names of two or more persons, whether fiduciaries,
members of a partnership, joint tenants, tenants in common, tenants by the
entirety or otherwise, or if two or more persons shall have the same fiduciary
relationship respecting the same shares, unless the Secretary of the Corporation
shall have been given written notice to the contrary and shall have been
furnished with a copy of the instrument or order appointing them or creating a
relationship wherein it is so provided, their acts with respect to voting shall
have the following effect:
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<PAGE>
(i) if only one shall vote, his or her act shall bind all.
(ii) if more than one shall vote, the act of the majority voting
shall bind all.
(iii) if more than one shall vote, but the votes shall be evenly
split on any particular matter, then, except as otherwise
required by statute, each fraction may vote the shares in
question proportionately.
Section 2.08. Inspectors of Election. At each meeting of the
----------------------
stockholders, the chairman of such meeting may appoint two inspectors of
election to act. Each inspector of election so appointed shall first subscribe
an oath or affirmation briefly to execute the duties of an inspector of election
at such meeting with strict impartiality and according to the best of his or her
ability such inspectors of election, if any, shall take charge of the ballots at
such meeting and after the balloting thereat on any question shall count the
ballots cast thereon and shall make a report in writing to the Secretary of such
meeting of the results thereof. An inspector of election need not be a
stockholder of the Corporation, and any officer or employee of the Corporation
may be an inspector of election on any question other than a vote for or against
his or her election to any position with the Corporation or on any other
question in which he or she may be directly interested.
Section 2.09. Notices of Meetings and Consents. Every stockholder
--------------------------------
shall furnish the Secretary of the Corporation with an address at which notices
of meetings and notices and consent material with respect to proposed corporate
action without a meeting and all other corporate communications may be served on
or mailed to him or her. Except as otherwise provided by the Certificate of
Incorporation or by statute, a written notice of each annual and special meeting
of stockholders shall be given not less than 10 nor more than 60 days before the
date of such meeting or the date on which the corporate action without a meeting
is proposed to be taken to each stockholder of record of the Corporation
entitled to vote at such meeting by delivering such notice of meeting to him or
her personally or depositing the same in the United States mail, postage
prepaid, directed to him or her at the post office address shown upon the
records of the Corporation. Service of notice is complete upon mailing. Personal
delivery to any officer of a corporation or association or to any member of a
partnership is delivery to such corporation, association or partnership. Every
notice of a meeting of stockholders shall state the place, date and hour of the
meeting and the purpose or purposes for which the meeting is called.
Section 2.10. Proxies. Each stockholder entitled to vote at a
-------
meeting of stockholders or consent to corporate action without a meeting may
authorize another person or persons to act for him or her by proxy by an
instrument executed
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<PAGE>
in writing. If any such instrument designates two or more persons to act as
proxies, a majority of such persons present at the meeting, or, if only one
shall be present, then that one, shall have and may exercise all of the powers
conferred by such written instrument upon all of the persons so designated
unless the instrument shall otherwise provide. No such proxy shall be valid
after three years from the date of its execution unless the proxy provides for a
longer period. A proxy may be irrevocable if it states that it is irrevocable
and, if, and only as long as, it is coupled with an interest sufficient to
support an irrevocable power. Subject to the above, any proxy may be revoked if
an instrument revoking it or proxy bearing a later date is filed with the
Secretary.
Section 2.11. Waiver of Notice. Notice of any annual or special
----------------
meeting may be waived either before, at or after such meeting in writing signed
by the person or persons entitled to the notice. Attendance of a person at a
meeting shall constitute a waiver of notice of such meeting, except when the
person attends a meeting for the express purpose of objecting at the beginning
of the meeting to the transacting of any business because the meeting is not
lawfully called or convened.
Section 2.12. Written Action. Any action that may be taken at a
--------------
meeting of the stockholders may be taken without a meeting, without prior notice
and without a vote, if a consent in writing, setting forth the actions so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be required to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted. Prompt notice of the taking of the corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing.
Section 2.13. Stockholder List. The officer who has charge of the
----------------
stock ledger of the Corporation shall prepare and make, at least ten days before
each meeting of stockholders, a complete list of the stockholders entitled to
vote at such meeting, arranged in alphabetical order and showing the address of
each stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder for
any purpose germane to the meeting, during ordinary business hours, for a period
of at least ten days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or, if not so specified, at the place where the meeting is to be
held. The list shall also be produced and kept at the time and place of the
meeting during the whole time thereof and may be inspected by any stockholder
who is present.
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<PAGE>
ARTICLE III.
Board of Directors
Section 3.01. General Powers. The business of the Corporation shall
--------------
be managed by the Board of Directors.
Section 3.02. Number, Qualification and Term of Office. The Board of
----------------------------------------
Directors shall consist of not less than six members. The exact number of
Directors shall be fixed from time to time by the Board of Directors pursuant to
a resolution adopted by a majority of the entire Board of Directors. The
Directors shall be divided into three classes, as nearly equal in number as
possible, with respect to the times for which they shall severally hold office.
Directors of the First Class first chosen shall hold office for one year or
until the first annual election following their election; Directors of the
Second Class first chosen shall hold office for two years or until the second
annual election following their election; and Directors of the Third Class first
chosen shall hold office for three years or until the third annual election
following their election; and, in each case, until their successors shall be
duly elected and shall qualify. At each future annual meeting of the
stockholders, the successors to the Class of Directors whose terms shall expire
at that time shall be elected to hold office for a term of three years, so that
the term of office of one Class of Directors shall expire in each year. Each
Director elected shall hold office until his successor shall be elected and
shall qualify. Notwithstanding anything contained in these By-Laws to the
contrary, the affirmative vote of the holders of at least 80% of the shares of
the Corporation entitled to vote for the election of Directors shall be required
to amend or repeal, or to adopt any provision inconsistent with, this Section
3.02.
Section 3.03. Annual Meeting. As soon as practicable after each
--------------
election of Directors, the Board of Directors shall meet at the registered
office of the Corporation, or at such other place previously designated by the
Board of Directors, for the purpose of electing the officers of the Corporation
and for the transaction of such other business as may come before the meeting.
Section 3.04. Regular Meetings. Regular meetings of the Board of
----------------
Directors shall be held from time to time at such time and place as may be fixed
by resolution adopted by a majority of the total number of Directors.
Section 3.05. Special Meetings. Special meetings of the Board of
----------------
Directors may be called by the Chairman of the Board, the President, or by any
two of the Directors and shall be held from time to time at such time and place
as may be designated in the notice of such meeting.
Section 3.06. Notice of Meetings. No notice need be given of any
------------------
annual or regular meeting of the Board of Directors. Notice of each special
meeting of the Board of Directors shall be given by the Secretary who shall give
at least
-5-
<PAGE>
twenty-four hours' notice thereof to each Director by mail, telephone, telegram,
or in person. Notice shall be effective upon receipt.
Section 3.07. Waiver of Notice. Notice of any meeting of the Board
----------------
of Directors may be waived either before, at, or after such meeting in writing
signed by each Director. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends a meeting for
the express purposes of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.
Section 3.08. Quorum. A majority of the total number of Directors
------
shall constitute a quorum for the transaction of business. The vote of a
majority of the Directors present at a meeting at which a quorum is present
shall be the act of the Board of Directors unless these Bylaws require a greater
number.
Section 3.09. Vacancies. Newly created directorships resulting from
---------
any increase in the authorized number of Directors or any vacancies in the Board
of Directors resulting from death, resignation, retirement, disqualification,
removal from office or other cause shall he filled by a majority vote of the
remaining Directors, though less than a quorum, and the Directors so chosen
shall hold office for a term expiring at the next annual meeting of stockholders
at which a successor shall be elected and shall qualify. Notwithstanding
anything contained in these By-Laws to the contrary, the affirmative vote of the
holders of at least 80% of the shares of the Corporation entitled to vote for
the election of Directors shall be required to amend or repeal, or to adopt any
provision inconsistent with, this Section 3.09.
Section 3.10. Removal. At any meeting of the stockholders held for
-------
the purpose of removal of Directors, any Director may, by the vote of 80% of all
the shares of stock outstanding and entitled to vote, be removed from office,
but only for cause. Notwithstanding anything contained in these By-Laws to the
contrary, the affirmative vote of the holders of at least 80% of the shares of
the Corporation entitled to vote for the election of Directors shall be required
to amend or repeal, or to adopt any provision inconsistent with, this Section
3.10.
Section 3.11. Committees of Directors. The Board of Directors may,
-----------------------
by resolution adopted by a majority of the total number of Directors, designate
one or more committees, each to consist of two or more of the Directors of the
Corporation, which, to the extent provided in the resolution, may exercise the
powers of the Board of Directors in the management of the business and affairs
of the Corporation. The Board of Directors may designate one or more Directors
as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. Such committee or
committees shall have such name or names as may be determined by the resolution
adopted by the Directors. The committees shall keep regular minutes of their
proceedings and report the same to the Board of Directors when required.
-6-
<PAGE>
Section 3.12. Written Action. Any action required or permitted to be
--------------
taken at a meeting of the Board of Directors or any committee thereof may be
taken without a meeting if all Directors or committee members consent thereto in
writing and the writing or writings are filed with the minutes of proceedings of
the Board of Directors or committee.
Section 3.13. Compensation. Directors who are not salaried officers
------------
of the Corporation may receive a fixed sum per meeting attended or a fixed
annual sum and such other forms of reasonable compensation as may be determined
by resolution of the Board of Directors. All Directors shall receive their
expenses, if any, of attendance at meetings of the Board of Directors or any
committee thereof. Any Director may serve the Corporation in any other capacity
and receive proper compensation therefor.
Section 3.14. Conference Communications. Directors may participate
-------------------------
in any meeting of the Board of Directors, or of any duly constituted committee
thereof, by means of a conference telephone conversation or other comparable
communication technique whereby all persons participating in the meeting can
hear and communicate to each other. For the purposes of establishing a quorum
and taking any action at the meeting, such Directors participating pursuant to
this Section 3.14 shall be deemed present in person at the meeting; and the
place of the meeting shall be the place of origination of the conference
telephone conversation or other comparable communication technique.
Section 3.15. Conflicts of Interest.
---------------------
(a) As used in this Section 3.15, "Control Person" means any Director
or officer of the Corporation or any holder of 10% or more of the Corporation's
securities.
(b) As used in this Section 3.15, "Conflicting Interest Transaction"
means any of the following:
(i) A loan or other assistance by the Corporation to a Control
Person or to an entity in which a Control Person is a director or
officer or has a material financial interest;
(ii) A guaranty by the Corporation of an obligation of a Control
Person or of an obligation of an entity in which a Control Person is
a director or officer or has a material financial interest; or
(iii) A contract or transaction between the Corporation and a
Control Person or between the Corporation and an entity in which a
-7-
<PAGE>
Control Person is a director or officer or has a material financial
interest.
(c) As used in this Section 3.15, "Outside Director" means any member
of the Board of Directors of the Corporation not employed by the Corporation and
not a party to the Conflicting Interest Transaction under consideration.
(d) The Corporation shall not enter into any Conflicting Interest
Transaction unless and until the material facts as to the Director's
relationship or interest and as to the Conflicting Interest Transaction are
disclosed or are known to the Board of Directors, and a majority of the Outside
Directors in good faith authorizes, approves, or ratifies the Conflicting
Interest Transaction by affirmative vote, even though the Outside Directors are
less than a quorum.
(e) All Directors present at a meeting of the Board of Directors may
be counted in determining the presence of a quorum at a meeting of the Board of
Directors which authorizes, approves, or ratifies the Conflicting Interest
Transaction.
ARTICLE IV.
Officers
Section 4.01. Number. The officers of the Corporation shall consist
------
of a President, one or more Vice Presidents, a Secretary, a Treasurer, and any
officers and agents as the Board of Directors by a majority vote of the total
number of Directors may designate. Any person may hold two or more offices.
Section 4.02. Election, Term of Office, and Qualifications. At each
--------------------------------------------
annual meeting of the Board of Directors all officers, from within or without
their number, shall be elected. Such officers shall hold office until the next
annual meeting of the Directors or until their successors are elected and
qualified, or until such office is eliminated by a vote of the majority of all
Directors. Officers who may be Directors shall hold office until the election
and qualification of their successors, notwithstanding an earlier termination of
their Directorship.
Section 4.03. Removal and Vacancies. Any officer may be removed from
---------------------
his or her office by a majority vote of the total number of Directors with or
without cause. Such removal shall be without prejudice to the contract rights of
the person so removed. A vacancy among the officers by death, resignation,
removal, or otherwise shall be filled for the unexpired term by the Board of
Directors.
Section 4.04. Chairman of the Board. The Chairman of the Board, if
---------------------
one is elected, shall preside at all meetings of the stockholders and Directors
and
-8-
<PAGE>
shall have such other duties as may be prescribed, from time to time, by the
Board of Directors.
Section 4.05. President. The President shall have general active
---------
management of the business of the Corporation. He or she shall preside at all
meetings of the stockholders and Directors. He or she shall be the chief
executive officer of the Corporation and shall see that all orders and
resolutions of the Directors are carried into effect. He or she shall be ex
--
officio a member of all standing committees. He or she may execute and deliver
- -------
in the name of the Corporation any deeds, mortgages, bonds, contracts or other
instruments pertaining to the business of the Corporation and in general shall
perform all duties usually incident to the office of the President. He or she
shall have such other duties as may, from time to time, be prescribed by the
Board of Directors.
Section 4.06. Vice President. Each Vice President shall have such
--------------
powers and shall perform such duties as may be prescribed by the Board of
Directors or by the President. In the event of absence or disability of the
President, Vice Presidents shall succeed to his or her power and duties in the
order designated by the Board of Directors.
Section 4.07. Secretary. The Secretary shall be secretary of and
---------
shall attend all meetings of the stockholders and Board of Directors and shall
record all proceedings of such meetings in the minute book of the Corporation.
He or she shall give proper notice of meetings of stockholders and the Board of
Directors. He or she shall perform such other duties as may from time to time be
prescribed by the Board of Directors or by the President.
Section 4.08. Treasurer. The Treasurer shall keep accurate accounts
---------
of all moneys of the Corporation received or disbursed. He or she shall deposit
all moneys, drafts and checks in the name of and to the credit of the
Corporation in such banks and depositaries as a majority of the whole Board of
Directors shall from time to time designate. He or she shall have power to
endorse for deposit all notes, checks and drafts received by the Corporation. He
or she shall disburse the funds of the Corporation as ordered by the Directors,
making proper vouchers therefor. He or she shall render to the President and the
Board of Directors whenever required an account of all his or her transactions
as Treasurer and of the financial condition of the Corporation and shall perform
such other duties as may from time to time be prescribed by the Board of
Directors or by the President.
Section 4.09. Duties of Other Officers. The duties of such other
------------------------
officers and agents as the Board of Directors may designate shall be set forth
in the resolution creating such office or by subsequent resolution.
Section 4.10. Compensation. The officers of the Corporation shall
------------
receive such compensation for their services as may be determined from time to
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<PAGE>
time by resolution of the Board of Directors or by one or more committees to the
extent so authorized from time to time by the Board of Directors.
ARTICLE V.
Shares and Their Transfer
Section 5.01. Certificates for Stock. Every holder of stock in the
----------------------
Corporation shall be entitled to a certificate, to be in such form as shall be
prescribed by the Board of Directors, certifying the number of shares in the
Corporation owned by him or her. The certificates for such shares shall be
numbered in the order in which they shall be issued and shall be signed in the
name of the Corporation by the Chairman of the Board, the President or a Vice
President, and by the Treasurer or an Assistant Treasurer, or the Secretary or
an Assistant Secretary. Every certificate surrendered to the Corporation for
exchange or transfer shall be canceled, and no new certificate or certificates
shall be issued in exchange for any existing certificate until such certificate
shall have been so canceled, except in cases provided for in Section 5.05.
Section 5.02. Issuance of Stock. The Board of Directors is
-----------------
authorized to cause to be issued stock of the Corporation up to the full amount
authorized by the Certificate of Incorporation in such amounts and for such
consideration as may be determined by the Board of Directors. No shares shall be
allotted except in consideration of cash, labor, personal property, or real
property, or leases thereof, or of an amount transferred from surplus to stated
capital upon a share dividend. At the time of such allotment of stock, the Board
of Directors shall state its determination of the fair value to the Corporation
in monetary terms of any consideration other than cash for which shares are
allotted. Stock so issued shall be fully paid and nonassessable. The amount of
consideration to be received in cash or otherwise shall not be less than the par
value of the shares so allotted. Treasury shares may be disposed of by the
Corporation for such consideration, expressed in dollars, as may be fixed by the
Board of Directors.
Section 5.03. Partly Paid Stock. The Corporation may issue the whole
-----------------
or any part of its stock as partly paid and subject to call for the remainder of
the consideration to be paid therefor. Upon the face or back of each certificate
issued to represent any such partly paid stock, the total amount of the
consideration to be paid therefor and the amount paid thereon shall be stated.
Upon the declaration of any dividend on fully paid stock, the Corporation may
declare a dividend upon partly paid stock of the same class, but only upon the
basis of the percentage of the consideration actually paid thereon. The Board of
Directors may, from time to time, demand payment, in respect of each share of
stock not fully paid, of such sum of money as the necessities of the business
may, in the judgment of the Board of Directors, require, not exceeding in the
whole the balance remaining unpaid on such stock, and such sum so demanded shall
be paid to the Corporation at such times and by such installments as the
Directors shall direct. The Directors shall give
-10-
<PAGE>
written notice of the time and place of such payments, which notice shall be
mailed at least 30 days before the time for such payment, to each holder of or
subscriber for stock which is not fully paid at his or her last known post-
office address.
Section 5.04. Transfer of Stock. Transfer of stock on the books of
-----------------
the Corporation may be authorized only by the stockholder named in the
certificate, the stockholder's legal representative or the stockholder's duly
authorized attorney-in-fact and upon surrender of the certificate or the
certificates for such stock. The Corporation may treat as the absolute owner of
stock of the Corporation the person or persons in whose name stock is registered
on the books of the Corporation.
Section 5.05. Loss of Certificates. Any stockholder claiming a
--------------------
certificate for stock to be lost, stolen or destroyed shall make an affidavit of
that fact in such form as the Board of Directors may require and shall, if the
Board of Directors so requires, give the Corporation a bond of indemnity in
form, in an amount, and with one or more sureties satisfactory to the Board of
Directors, to indemnify the Corporation against any claims which may be made
against it on account of the alleged loss, theft or destruction of the
certificate or issuance of such new certificate. A new certificate may then be
issued in the same tenor and for the same number of shares as the one claimed to
have been lost, stolen or destroyed.
Section 5.06. Facsimile Signatures. Whenever any certificate is
--------------------
countersigned by a transfer agent or by a registrar other than the Corporation
or its employee, then the signatures of the officers or agents of the
Corporation may be a facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed on any such
certificate shall cease to be such officer, transfer agent or registrar before
such certificate is issued, it may be issued by the Corporation as though the
person who signed such certificate or whose facsimile signature or signatures
had been placed thereon were such officer, transfer agent or registrar at the
date of issue.
ARTICLE VI.
Dividends, Surplus, Etc.
Section 6.01. Dividends. The Board of Directors may declare
---------
dividends from the Corporation's surplus, or if there be none, out of its net
profits for the current fiscal year, and/or the preceding fiscal year in such
amounts as in their opinion the condition of the affairs of the Corporation
shall render advisable unless otherwise restricted by law.
Section 6.02. Use of Surplus, Reserves. The Board of Directors may
------------------------
use any of its property or funds, unless such would cause an impairment of
capital, in purchasing any of the stock, bonds, debentures, notes, scrip or
other securities or evidences of indebtedness of the Corporation. The Board of
Directors may from
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<PAGE>
time to time set aside from its surplus or net profits such sums as it deems
proper as a reserve fund for any purpose.
ARTICLE VII.
Books and Records, Audit, Fiscal Year
Section 7.01. Books and Records. The Board of Directors of the
-----------------
Corporation shall cause to be kept: (a) a share ledger which shall be a charge
of an officer designated by the Board of Directors; (b) records of all
proceedings of stockholders and Directors; and (c) such other records and books
of account as shall be necessary and appropriate to the conduct of the corporate
business.
Section 7.02. Audit. The Board of Directors shall cause the records
-----
and books of account of the Corporation to be audited at least once in each
fiscal year and at such other times as it may deem necessary or appropriate.
Section 7.03. Annual Report. The Board of Directors shall cause to
-------------
be filed with the Delaware Secretary of State in each year the annual report
required by law.
Section 7.04. Fiscal Year. The fiscal year of the Corporation shall
-----------
end on December 31 of each year.
Section 7.05. Examination by Stockholders. Any stockholder of record
---------------------------
of the Corporation, upon written demand under oath stating the purpose thereof,
shall have the right to inspect in person or by agent or attorney, during usual
business hours, for any proper purpose, the Corporation's stock ledger, a list
of its stockholders and its other books and records, and to make copies or
extracts therefrom. A proper purpose shall mean a purpose reasonably related to
such person's interest as a stockholder. Holders of voting trust certificates
representing stock of the Corporation shall be regarded as stockholders for the
purpose of this subsection. In every instance where an attorney or other agent
shall be the person who seeks the right to inspection, the demand under oath
shall be accompanied by a power of attorney or such other writing which
authorizes the attorney or other agent to so act on behalf of the stockholder.
The demand under oath shall be directed to the Corporation at its registered
office in Delaware or at its principal office.
ARTICLE VIII.
Indemnification
Section 8.01. Indemnification. The Corporation shall indemnify such
---------------
persons for such liabilities in such manner under such circumstances, and to
such extent, as permitted by the Certificate of Incorporation of the Corporation
and by Section 145 of the Delaware General Corporation Law, as now enacted or
hereafter
-12-
<PAGE>
amended. The Board of Directors may authorize the purchase and maintenance of
insurance and/or the execution of individual agreements for the purpose of such
indemnification, and the Corporation shall advance all reasonable costs and
expenses (including attorneys' fees) incurred in defending any action, suit or
proceeding to all persons entitled to indemnification under this section 8.01,
all in the manner, under the circumstances and to the extent permitted by the
Certificate of Incorporation of the Corporation and by Section 145 of the
Delaware General Corporation Law, as now enacted or hereafter amended.
ARTICLE IX.
Miscellaneous
Section 9.01. Fixing Date for Determination of Stockholders of
------------------------------------------------
Record. (a) In order that the Corporation may determine the stockholders
- ------
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not be more than 60 nor less than 10 days before the date of such
meeting, nor more than 60 days prior to any other action.
(b) If no record date is fixed:
(i) The record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is
given, or, if notice is waived, at the close of business on the day
next preceding the day on which the meeting is held.
(ii) The record date for determining stockholders entitled to
express consent to corporate action in writing without a meeting, when
no prior action by the Board of Directors is necessary, shall be the
day on which the first written consent is expressed.
(iii) The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto.
(c) A determination of stockholders of record entitled to notice of
or to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
-13-
<PAGE>
Section 9.02. Periods of Time. During any period of time prescribed
---------------
by these Bylaws, the date from which the designated period of time begins to run
shall not be included, and the last day of the period so computed shall be
included.
Section 9.03. Voting Securities Held by the Corporation. Unless
-----------------------------------------
otherwise ordered by the Board of Directors, the President shall have full power
and authority on behalf of the Corporation (a) to attend and to vote at any
meeting of security holders of other corporations in which the Corporation may
hold securities; (b) to execute any proxy for such meeting on behalf of the
Corporation; or (c) to execute a written action in lieu of a meeting of such
other corporation on behalf of the Corporation. At such meeting, by such proxy
or by such writing in lieu of meeting, the President shall possess and may
exercise any and all rights and powers incident to the ownership of such
securities that the Corporation might have possessed and exercised if it had
been present. The Board of Directors may, from time to time, confer like powers
upon any other person or persons.
Section 9.04. Purchase and Sale of Securities. Unless otherwise
-------------------------------
ordered by the Board of Directors, the President shall have full power and
authority on behalf of the Corporation to purchase, sell, transfer or encumber
any and all securities of any other corporation owned by the Corporation and may
execute and deliver such documents as may be necessary to effectuate such
purchase, sale, transfer or encumbrance. The Board of Directors may, from time
to time, confer like powers upon any other person or persons.
ARTICLE X.
Amendments
Section 10.01. Amendment by Board of Directors. The Board of
-------------------------------
Directors shall have the power to make, amend and repeal these By-Laws of the
Corporation, by vote of a majority of all of the Directors, at any regular or
special meeting of the Board; provided, however, that any By-Laws made by the
Board of Directors may be amended, altered, or repealed by the stockholders as
provided in Section 10.02.
Section 10.02. Amendment by Stockholders. Except as provided in
-------------------------
Sections 3.02, 3.09 and 3.10 of these By-Laws, the stockholders, by the
affirmative vote of the majority of the stock issued, outstanding and entitled
to vote, may make, alter or amend these By-Laws without notice at any annual
meeting, or any special meeting if notice thereof be contained in the notice of
such meeting.
July 1996
-14-
<PAGE>
REORGANIZATION AGREEMENT
THIS AGREEMENT OF REORGANIZATION (the "Agreement") is made as of
August 1, 1996, by and among MarkWest Hydrocarbon, Inc., a Delaware corporation
(the "Company"), MarkWest Hydrocarbon Partners, Ltd., a Colorado limited
partnership (the "Partnership"), MWHC Holding, Inc., a Colorado corporation and
the general partner of the Partnership (the "General Partner"), RIMCO
Associates, Inc. ("RIMCO"), and each of the limited partners of the Partnership
listed on Exhibit A to this Agreement (the "Limited Partners," and, together
with the General Partner, the "Partners").
A. This Agreement is intended to be and is adopted as a plan for the
transfer of all interests in the Partnership (the "Interests") to the Company in
exchange for newly issued shares of the Company's common stock pursuant to
Section 351 under the Internal Revenue Code of 1986, as amended (the "Code").
The transfers and issuances (the "Reorganization") described in this Agreement
will consist of the exchange of all of the outstanding interests of the
Partnerships owned by the Partners for newly issued shares of the Company's
common stock, $.01 par value (the "Common Stock"), and certain related
transactions, upon the terms and conditions set forth in this Agreement.
B. This Agreement also provides for the conversion of all of the
outstanding options to purchase interests of the Partnerships held by current
and former employees of the Partnership listed on Exhibit C (the "Optionees")
for options to purchase shares of the Company's Common Stock. Options to
purchase Company Common Stock to be issued to current employees of the
Partnership will be issued pursuant to the Company's 1996 Stock Incentive Plan
(the "Stock Incentive Plan").
WITNESSETH:
WHEREAS, the authorized capital stock of the Company consists of
20,000,000 shares of Common Stock, one share of which is issued and outstanding
as of the date hereof, and 5,000,000 shares of preferred stock, $.01 par value,
none of which is issued and outstanding as of the date hereof;
WHEREAS, the Company was formed for the purpose of acquiring the
interests of each of the Partners and to act as the successor to the business,
assets and liabilities of the Partnership;
<PAGE>
WHEREAS, each Partner owns that percentage interest in the Partnership
as set forth across from such Partner's name in Exhibit A hereto;
WHEREAS, in connection with the Reorganization, the Company intends to
conduct an initial public offering of shares of its Common Stock (the
"Offering");
WHEREAS, pursuant to Article 16 of the Limited Partnership Agreement
of the Partnership, dated March 28, 1988, as amended (the "Partnership
Agreement"), the General Partner has the power, as attorney-in-fact for each of
the Limited Partners, to transfer all of the interests of the Limited Partners
to the Company in exchange for shares of Common Stock as described herein for
the purpose of facilitating the Offering;
WHEREAS, the Partnership intends to distribute cash to the Partners
immediately prior to the consummation of the Reorganization as a partial return
of partnership capital; and
WHEREAS, the Board of Directors of the Company, the General Partner
and RIMCO deem it to be in their respective best interests to enter into this
Agreement and to consummate the transactions comprising the Reorganization.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements herein contained and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged by
each party hereto, the parties hereto covenant and agree as follows:
1. TRANSFERS AND ISSUANCES; RELATED TRANSACTIONS.
---------------------------------------------
(a) At the Closing (as hereinafter defined) of the Reorganization, each
Partner will contribute to the Company such Partner's Interest, as set forth
opposite his, her or its name in Exhibit A, in exchange for the number of shares
of Common Stock as set forth opposite his, her or its name on Exhibit A hereto.
The Partners acknowledge that the Common Stock share amounts set forth on
Exhibit A represent a proportionate percentage ownership in the Company
substantially equivalent to that represented by the Partners' Interests in the
Partnership.
(b) At the Closing of the Reorganization, each option agreement between
the Partnership and each Optionee providing for an option to purchase an
Interest (a "Partnership Option") shall be deemed terminated in exchange for
each Optionee receiving an option to purchase shares of Common Stock in the
Company ("Company Option"). Company Options issued to Optionees who are current
employees of the Partnership will be issued pursuant to the Stock Incentive
Plan. The form of the Company Option to be entered into between the Company and
each Optionee who is an employee of the Partnership is set forth as Exhibit B.
The number of shares of Common Stock subject to each Optionee's Company Option,
-2-
<PAGE>
and the exercise price per share of Common Stock applicable for each Optionee,
shall be as set forth opposite such Optionee's name on Exhibit C hereto.
(c) The Partners acknowledge that they have been provided detailed
information regarding the Company and have had the opportunity to conduct their
own independent investigation relating to the Company. The Partners further
acknowledge that the number of shares of Common Stock that Partners are entitled
to receive in exchange for their Interests hereunder, and the number of shares
of Common Stock into which options issued to Optionees hereunder, shall not be
adjusted, notwithstanding any changes in circumstances regarding the Company
after the execution of this Agreement.
(d) Immediately prior to the Closing, the Partnership shall distribute
cash to the Partners as a partial return of capital in amounts proportionate to
the Partner's Interests. With respect to Partners who have promissory notes
outstanding to the Partnership, fifty percent (50%) of such distribution shall
be applied against the outstanding interest and principal, in that order, of
such promissory notes. At the Closing of the Reorganization, Partners who have
remaining balances due under such promissory notes shall execute new promissory
notes in favor of the Company for such remaining balances in the form of note
attached hereto as Exhibit D.
(e) At the Closing, RIMCO shall cause each of RIMCO Partners, L.P. and
RIMCO Partners, L.P. II (collectively, "RIMCO Partners") to exercise RIMCO
Partners' option to purchase a 3-1/2% Interest in accordance with the terms and
conditions set forth in the Cancellation of Note Agreement and Option Agreement,
dated August 23, 1995, between RIMCO Partners and the Partnership (the "RIMCO
Option"). In accordance with the terms of the RIMCO Option, the RIMCO Option
shall be exercised for shares of Common Stock of the Company. RIMCO
acknowledges that the RIMCO Option shall be exercisable into 175,000 shares of
Common Stock (124,600 of which shall be held by RIMCO Partners, L.P. and 50,400
of which shall be held by RIMCO Partners, L.P. II) and that such number of
shares of Common Stock represents a proportionate percentage ownership in the
Company equivalent to that represented by RIMCO Partners' option to purchase an
Interest in the Partnership under the RIMCO Option.
(f) In connection with the Offering and pursuant to an underwriting
agreement to be entered into between the Company and Dillon Read & Co. Inc.
("Dillon Read") after the Closing, up to 2,875,000 shares of Common Stock,
representing approximately 30% of the shares of Common Stock to be outstanding
after the Offering, are expected to be purchased by Dillon Read, which purchase
shall be included as part of the Reorganization for purposes of Section 351 of
the Code.
-3-
<PAGE>
2. ISSUANCE OF SHARES.
------------------
At the Closing, the Company shall issue to each Partner a certificate or
certificates representing the shares of Common Stock to be received in exchange
for such Partner's Interest. Immediately following the Closing, the Company
shall issue to RIMCO a certificate or certificates representing the shares of
Common Stock to be received by RIMCO upon exercise of the RIMCO Option. Each
certificate representing shares of Common Stock issued to a Partner pursuant to
this Agreement shall bear the following legend:
The shares represented by this certificate may not be transferred
without (i) an opinion of counsel satisfactory to this corporation
that such transfer may lawfully be made without registration under the
Securities Act of 1933, as amended, and all applicable state
securities laws or (ii) such registration.
3. CLOSING. The closing of the exchange transactions contemplated by
-------
this Agreement (the "Closing") shall take place at the offices of Dorsey &
Whitney, Denver, Colorado, prior to the time at which the Registration
Statement, including any amendments or supplements thereto (the "Registration
Statement"), filed by the Company with the Securities and Exchange Commission
(the "SEC") for registration under the Securities Act of 1933, as amended (the
"Securities Act"), of the shares of Common Stock being sold in the Offering, is
expected to be declared effective by the SEC, or at such other place or
different time or day as may be mutually acceptable to the Company and the
General Partner, acting on behalf of the Partners (the "Closing Date"). At the
Closing, the following deliveries shall be made:
(a) the General Partner, on behalf of each Partner, shall transfer
each Partner's Interest to the Company in accordance with Section 1(a)
hereof;
(b) the Company shall deliver an instruction letter to the transfer
agent and registrar for its Common Stock instructing the transfer agent to
issue and deliver to (i) each Partner receiving shares of Common Stock
pursuant to Section 1(a) hereof a stock certificate registered in the name
of such Partner representing the number of shares of Common Stock issuable
to the such Partner pursuant to Section 1(a) hereof, and (ii) RIMCO
Partners a stock certificate registered in the name of RIMCO Partners
representing the number of shares of Common Stock issuable to RIMCO
Partners pursuant to Section 1(e) hereof;
(c) RIMCO Partners shall, pursuant to the exercise of the RIMCO
Option, pay to the Company the option exercise price equal to $35,000 by
wire transfer or good check;
-4-
<PAGE>
(d) each Partnership Option shall be deemed terminated in accordance
with Section 1(b) hereof;
(e) the Company shall deliver to each Optionee the Company Option
issuable to such Optionee pursuant to Section 1(b) hereof;
(f) the Company and the Partnership shall deliver to each other the
Assignment and Assumption Agreement attached hereto as Exhibit F; and
(g) each party hereto shall deliver such other documents as any other
party hereto or its counsel may reasonably request.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. In order to induce
---------------------------------------------
each Partner and RIMCO to enter into this Agreement and to consummate the
transactions contemplated hereby, the Company hereby represents and warrants to
each Partner and RIMCO that:
(a) Organization, Standing, etc. The Company is a corporation duly
---------------------------
organized, validly existing and in good standing under the laws of the State of
Delaware. The Company has the requisite corporate power and authority to issue
the shares of Common Stock to be exchanged pursuant to this Agreement and to
otherwise perform its obligations under this Agreement.
(b) Compliance With Applicable Laws and Other Instruments. Neither the
-----------------------------------------------------
execution nor delivery of, nor the performance of or compliance with, this
Agreement nor the consummation of the transactions contemplated hereby will,
with or without the giving of notice or passage of time, result in any breach
of, or constitute a default under, or result in the imposition of any lien or
encumbrance upon any asset or property of the Company pursuant to any agreement
or other instrument to which the Company is a party or by which the Company or
any of its properties, assets or rights is bound or affected, and will not
violate the Certificate of Incorporation or Bylaws of the Company. The Company
is not in violation of its Certificate of Incorporation or Bylaws, nor is it in
violation of, or in default under, any lien, indenture, mortgage, lease,
agreement, instrument, commitment or arrangement in any material respect. The
Company is not subject to any restriction which would prohibit it from entering
into or performing its obligations under this Agreement.
(c) Common Stock. The shares of Common Stock to be exchanged pursuant to
------------
this Agreement, when issued and delivered pursuant to the terms of this
Agreement, will be duly authorized, validly issued and outstanding, fully paid,
and nonassessable and shall be free and clear of all pledges, liens,
encumbrances and restrictions, except to the extent the transfer thereof may be
restricted by federal or state securities laws or any agreement entered by or on
behalf of the Partners or RIMCO Partners contemplated by the Reorganization.
-5-
<PAGE>
(d) Securities Laws. Based in part upon the representations of the
---------------
Partners and RIMCO in Section 5 hereof, no consent, authorization, approval,
permit or order of or filing with any governmental or regulatory authority is
required under current laws and regulations in connection with the execution and
delivery of this Agreement or the offer, issuance or delivery of the shares of
Common Stock to be exchanged pursuant to this Agreement. The draft of the
preliminary prospectus to be included in the Registration Statement filed by the
Company in connection with the Offering (the "Preliminary Prospectus"), a copy
of which has been delivered to each of the parties hereto, does not contain any
untrue statements of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading; provided, however,
that the Company makes no representations or warranties as to information
contained in or omitted from the Preliminary Prospectus in reliance upon, and in
conformity with, information furnished to the Company by or on behalf of any
Partner, RIMCO or RIMCO Partners or any underwriter in the Offering specifically
for use in the preparation of the Preliminary Prospectus.
(f) Capital Stock. At the date hereof, the authorized capital stock of
-------------
the Company consists of 20,000,000 shares of Common Stock, $.01 par value, of
which one share is issued and outstanding, and 5,000,000 shares of preferred
stock, $.01 par value, of which no shares are issued and outstanding. Except as
contemplated by the Reorganization, the Partnership Options, the Stock Incentive
Plan and the Offering, there are no outstanding subscriptions, options,
warrants, calls, contracts, demands, commitments, convertible securities or
other agreements or arrangements of any character or nature whatever, other than
this Agreement, under which the Company is obligated to issue any securities of
any kind representing an ownership interest in the Company. No holder of any
security of the Company is entitled to any preemptive or similar rights to
purchase any securities of the Company from the Company; provided, however, that
nothing in this Section 4(f) shall affect, alter or diminish any right granted
to the Partners, RIMCO Partners or Optionees pursuant to this Agreement.
(g) Corporate Acts and Proceedings. This Agreement has been duly
------------------------------
authorized by all necessary corporate action on behalf of the Company, has been
duly executed and delivered by authorized officers of the Company, and is a
valid and binding agreement on the part of the Company that is enforceable
against the Company in accordance with its terms, except as the enforceability
thereof may be limited by bankruptcy, insolvency, moratorium, reorganization or
other similar laws affecting the enforcement of creditors' rights generally and
to judicial limitations on the enforcement of the remedy of specific performance
and other equitable remedies. All corporate action necessary to the
authorization, creation, issuance and delivery of the shares of Common Stock to
be exchanged pursuant to this Agreement has been taken by the Company, or will
be taken by the Company on or prior to the Closing Date.
-6-
<PAGE>
(h) Registration Rights. Other than under this Agreement, the Company has
-------------------
not agreed to register any of its authorized or outstanding securities under the
Securities Act.
5. REPRESENTATIONS AND WARRANTIES OF THE PARTNERSHIP AND THE GENERAL
-----------------------------------------------------------------
PARTNER. In order to induce the Company, each Partner and RIMCO to enter into
- -------
this Agreement and to consummate the transactions contemplated hereby, the
General Partner, on behalf of itself and the Partnership, hereby represents and
warrants to the Company, each Partner and RIMCO that:
(a) Organization, Standing, etc. The Partnership is a limited partnership
----------------------------
duly formed, validly existing and in good standing under the laws of the State
of Colorado. The Partnership has the requisite partnership power and authority
to perform its obligations under this Agreement. The General Partner has the
requisite power and authority to execute and deliver this Agreement on behalf of
the Partnership and each of the Partners.
(b) Compliance With Applicable Laws and Other Instruments. Neither the
-----------------------------------------------------
execution nor delivery of, nor the performance of or compliance with, this
Agreement nor the consummation of the transactions contemplated hereby will,
with or without the giving of notice or passage of time, result in any breach
of, or constitute a default under, or result in the imposition of any lien or
encumbrance upon any asset or property of the Partnership pursuant to any
agreement or other instrument to which the Partnership is a party or by which
the Partnership or any of its properties, assets or rights is bound or affected,
and will not violate the Certificate of Limited Partnership of the Partnership
or the Partnership Agreement. The Partnership is not in violation of its
Certificate of Limited Partnership or Partnership Agreement, nor is it in
violation of, or in default under, any lien, indenture, mortgage, lease,
agreement, instrument, commitment or arrangement in any material respect. The
Partnership is not subject to any restriction which would prohibit it from
entering into or performing its obligations under this Agreement.
(c) Partnership Acts and Proceedings. This Agreement has been duly
--------------------------------
authorized by all necessary action on behalf of the Partnership and the General
Partner, has been duly executed and delivered by authorized officers of the
General Partner on behalf of the Partnership and the Partners, and is a valid
and binding agreement on the part of the Partnership that is enforceable against
the Partnership in accordance with its terms, except as the enforceability
thereof may be limited by bankruptcy, insolvency, moratorium, reorganization or
other similar laws affecting the enforcement of creditors' rights generally and
to judicial limitations on the enforcement of the remedy of specific performance
and other equitable remedies.
(d) Liens on Partnership Interests. To the extent that the Partnership
------------------------------
holds any security interest or lien on any Partner's Interest, the Partnership
hereby releases such security interest or lien for the purposes of effecting the
transactions contemplated hereby.
-7-
<PAGE>
6. REPRESENTATIONS AND WARRANTIES OF THE PARTNERS. In order to induce
----------------------------------------------
the Company, the Partnership, the other Partners and RIMCO to enter into this
Agreement and to consummate the transactions contemplated hereby, each Partner
hereby, severally and not jointly, represents and warrants to the Company and
each other party hereto that:
(a) Investment Intent. The shares of Common Stock to be issued to such
-----------------
Partner pursuant to Section 1 hereof are being acquired by such Partner for
investment for such Partner's own account and not with the view to, or for
resale in connection with, any distribution or public offering thereof. Such
Partner understands that such shares of Common Stock have not been registered
under the Securities Act or any state securities laws by reason of their
contemplated issuance in transactions exempt from the registration requirements
of the Securities Act pursuant to Section 4(2) thereof and applicable state
securities laws, and that the reliance of the Company and others upon these
exemptions is predicated in part upon this representation by each Partner. Such
Partner further understands that such shares of Common Stock may not be
transferred or resold without (i) registration under the Securities Act and any
applicable state securities laws, or (ii) an exemption from the requirements of
the Securities Act and applicable state securities laws. Such Partner
understands that an exemption from such registration may not presently be
available pursuant to Rule 144 promulgated under the Securities Act by the SEC
and that in any event a Partner may not sell any securities pursuant to Rule 144
prior to the expiration of a two-year period after such Partner is deemed to
acquire such securities. Such Partner understands that any sales pursuant to
Rule 144 can be made only in full compliance with the provisions of Rule 144.
(b) Disclosure, etc. Each Partner acknowledges that such Partner has been
----------------
provided with a copy of the Preliminary Prospectus and with detailed financial
information relating to the Company and has attended meetings at which the
historical financial operating results, projected financial results, and the
valuations used in determining the number of shares of Common Stock that such
Partner is entitled to receive in the Reorganization have been discussed. Such
Partner further acknowledges that each of the Partnership and the Company has
given complete access to full and complete information regarding the Company,
and has made available to such Partner at a reasonable time prior to the
execution of this Agreement the opportunity to ask questions and receive answers
concerning the terms and conditions of the exchange of shares contemplated by
this Agreement and to obtain any additional information (which the Company
possesses or can acquire without unreasonable effort or expense) as may be
necessary to verify the accuracy of any information furnished to such Partner.
Such Partner (i) is able to bear the loss of his or her entire investment in the
Common Stock, and (ii) has such knowledge of the Company and experience in
business matters that he or she is capable of evaluating the merits and risks of
the investment to be made by him or her pursuant to this Agreement.
-8-
<PAGE>
(c) Acts and Proceedings. This Agreement has been duly authorized (if
--------------------
applicable), executed and delivered by or on behalf of such Partner and is a
valid and binding agreement of such Partner. By execution of this Agreement,
such Partner consents to and approves the Reorganization and each of the
transactions comprising the Reorganization.
(d) Compliance With Applicable Laws and Other Instruments. Neither the
-----------------------------------------------------
execution nor delivery of, nor the performance of or compliance with, this
Agreement nor the consummation of the transactions contemplated hereby will,
with or without the giving of notice or passage of time, result in any breach
of, or constitute a default under, or result in the imposition of any lien or
encumbrance upon any asset or property of such Partner pursuant to any agreement
or other instrument to which such Partner is a party or by which it or any of
its properties, assets or rights is bound or affected. Such Partner is not
subject to any restriction which would prohibit such Partner from entering into
or performing his or her obligations under this Agreement. No consent,
authorization, approval, permit or order of or filing with any governmental or
regulatory authority is required under current laws and regulations in
connection with the execution and delivery of this Agreement by or on behalf of
such Partner or the performance of the transactions contemplated hereby by such
Partner.
(e) Beneficial Owner. Such Partner is now and will remain at all times
----------------
through the Closing Date the beneficial owner of the Interest set forth next to
such Partner's name on Exhibit A hereto. Such Partner has and will have through
the Closing Date good and valid title to such Interest free and clear of all
pledges, liens, encumbrances and restrictions of whatever character (except to
the extent that the Partnership may have a lien on such Interest), with full
power and authority to transfer, exchange or otherwise dispose of such Interest
as contemplated hereby. Such Partner shall take or cause to be taken all
required actions on its part so that, upon consummation of such transfer,
exchange or other disposition as contemplated hereby, the Company will become
the record and beneficial owner of such Interest and will have good and valid
title thereto, free and clear of all pledges, liens, encumbrances and
restrictions of whatever character.
(f) Exculpation Among Partners. Such Partner acknowledges that in making
--------------------------
its decision to consummate the exchange of Interests for shares of Common Stock
contemplated hereby, it is not relying on any other Partner or upon any person,
firm or company. Such Partner agrees that none of the Company, the Partnership
or any other Partner shall be liable for any actions taken by such Partner, or
omitted to be taken by such Partner, in connection with such exchange of shares
as contemplated by this Agreement.
7. REPRESENTATIONS AND WARRANTIES OF RIMCO. In order to induce the
---------------------------------------
Company, the Partnership, and the Partners to enter into this Agreement and to
consummate the transactions contemplated hereby, RIMCO, on behalf of
-9-
<PAGE>
itself and RIMCO Partners, severally and not jointly, represents and warrants to
the Company and each other party hereto that:
(a) Investment Intent. The shares of Common Stock to be issued to RIMCO
-----------------
Partners pursuant to Section 1 hereof are being acquired by RIMCO Partners for
investment for RIMCO Partners' own account and not with the view to, or for
resale in connection with, any distribution or public offering thereof. RIMCO
understands that such shares of Common Stock have not been registered under the
Securities Act or any state securities laws by reason of their contemplated
issuance in transactions exempt from the registration requirements of the
Securities Act pursuant to Section 4(2) thereof and applicable state securities
laws, and that the reliance of the Company and others upon these exemptions is
predicated in part upon this representation by RIMCO. RIMCO further understands
that such shares of Common Stock may not be transferred or resold without
(i) registration under the Securities Act and any applicable state securities
laws, or (ii) an exemption from the requirements of the Securities Act and
applicable state securities laws. RIMCO understands that an exemption from such
registration may not presently be available pursuant to Rule 144 promulgated
under the Securities Act by the SEC and that in any event RIMCO Partners may not
sell any securities pursuant to Rule 144 prior to the expiration of a two-year
period after RIMCO Partners is deemed to acquire such securities. RIMCO
understands that any sales pursuant to Rule 144 can be made only in full
compliance with the provisions of Rule 144.
(b) Location of Domicile, Disclosure, etc. The state in which RIMCO's and
--------------------------------------
RIMCO Partners' domicile is located is Connecticut. RIMCO acknowledges that
RIMCO has been provided with a copy of the Preliminary Prospectus and with
detailed financial information relating to the Company and has attended meetings
at which the historical financial operating results, projected financial
results, and the methods used in determining the number of shares of Common
Stock that RIMCO is entitled to receive in the Reorganization have been
discussed. RIMCO further acknowledges that each of the Company and the
Partnership has given complete access to full and complete information regarding
the Company, and has made available to RIMCO at a reasonable time prior to the
execution of this Agreement the opportunity to ask questions and receive answers
concerning the terms and conditions of the exchange of shares contemplated by
this Agreement and to obtain any additional information (which the Company
possesses or can acquire without unreasonable effort or expense) as may be
necessary to verify the accuracy of any information furnished to RIMCO. RIMCO
Partners (i) is able to bear the loss of its entire investment in the Common
Stock, and (ii) has such knowledge of the Company and experience in business
matters that he or she is capable of evaluating the merits and risks of the
investment to be made by it pursuant to this Agreement.
(c) Acts and Proceedings. This Agreement has been duly authorized (if
--------------------
applicable), executed and delivered by or on behalf of RIMCO and RIMCO Partners
and is a valid and binding agreement of RIMCO and RIMCO Partners. By execution
-10-
<PAGE>
of this Agreement, RIMCO consents to and approves the Reorganization and each of
the transactions comprising the Reorganization.
(d) Compliance With Applicable Laws and Other Instruments. Neither the
-----------------------------------------------------
execution nor delivery of, nor the performance of or compliance with, this
Agreement nor the consummation of the transactions contemplated hereby will,
with or without the giving of notice or passage of time, result in any breach
of, or constitute a default under, or result in the imposition of any lien or
encumbrance upon any asset or property of RIMCO or of RIMCO Partners pursuant to
any agreement or other instrument to which RIMCO or RIMCO Partners is a party or
by which it or any of its properties, assets or rights is bound or affected.
Neither RIMCO nor RIMCO Partners is subject to any restriction which would
prohibit RIMCO from entering into or performing his or her obligations under
this Agreement. No consent, authorization, approval, permit or order of or
filing with any governmental or regulatory authority is required under current
laws and regulations in connection with the execution and delivery of this
Agreement by or on behalf of RIMCO or RIMCO Partners or the performance of the
transactions contemplated hereby by RIMCO and RIMCO Partners.
(e) Exculpation. RIMCO acknowledges that in making its decision to
-----------
consummate the exercise of the RIMCO Option contemplated hereby, it is not
relying on any other Partner or upon any person, firm or company. RIMCO agrees
that none of the Company, the Partnership or any Partner shall be liable for any
actions taken by RIMCO, or omitted to be taken by RIMCO, in connection with such
exchange of shares as contemplated by this Agreement.
8. BOARD OF DIRECTORS. The Partners and RIMCO acknowledge that the
------------------
initial Board of Directors of the Company consists of John Fox, Brian O'Neill,
Arthur Denney, Barry Spector, David Whitney and Norman H. Foster. This Section
8 is not intended as, nor should it be construed as, an agreement by the
Partners or RIMCO Partners to vote for any person to the Company's Board of
Directors. The Partners acknowledge that there are no agreements to vote for
members to the Company's Board of Directors.
9. RELEASES. Each of the parties hereto, on behalf of himself, herself
--------
or itself and their respective heirs, executors, administrators, directors,
officers, agents, employees, affiliates, parents, subsidiaries, successors and
assigns, hereby releases and forever discharges each other and all of their past
or present directors, officers, shareholders, agents, employees, affiliates,
parents, subsidiaries, successors and assigns from all claims, demands, actions,
liability, damages or rights of any kind, in equity or law, whether known or
unknown, fixed or contingent, or otherwise, arising out of or resulting from any
matter, fact or thing, occurring or existing prior to the Closing Date,
including, without limitation, the transactions contemplated by Section 1 of
this Agreement, and any and all transactions contemplated by the Reorganization
and any and all actions taken or failures to take action in connection
therewith, which each or any of the parties hereto or any of their foregoing
related
-11-
<PAGE>
parties had, now have or ever can, shall or may have, for or by reason
of any cause or matter whatsoever, against each other or any of their foregoing
related parties.
10. LEGAL REPRESENTATION; CONSENTS. Dorsey & Whitney LLP is representing
------------------------------
the Partnership and the Company in connection with the transactions contemplated
by this Agreement. Each of the parties hereto specifically consent to Dorsey &
Whitney LLP representing the Partnership and the Company in connection with the
transactions contemplated by this Agreement and the parties hereto other than
the Partnership and the Company represent that they have been advised by such
firm to retain separate counsel in connection herewith.
11. LEGAL AND ACCOUNTING FEES. The parties hereto agree that, in the
-------------------------
event the Reorganization is not consummated, the fees and expenses of Dorsey &
Whitney LLP relating to the transactions contemplated by this Agreement will be
paid by the Partnership.
12. PARTNER AGREEMENTS. Except for the Partnership Agreement and as
------------------
otherwise disclosed by a Partner in writing to the Partnership, each of the
Partners represents and warrants that there are no existing equityholder, pre-
incorporation, buy-sell or other similar agreements currently in existence
between such Partner and other Partners or with respect to any of the shares of
the Company.
13. CONSUMMATION OF THE OFFERING IS NOT A CONDITION TO THE REORGANIZATION.
---------------------------------------------------------------------
Each party hereto expressly acknowledges that although such party expects that
the Reorganization will be consummated in connection with the closing of the
Offering, they agree that the closing of the Offering is not a condition to
effecting the Reorganization contemplated by this Agreement.
14. OTHER AGREEMENTS.
----------------
(a) Partnership Tax Status. The Partners and RIMCO acknowledge and agree
----------------------
that as a result of the transactions contemplated by this Agreement, the
Partnership will be converted from an entity that qualifies for pass-through
partnership status to a subchapter "C" corporation for income tax reporting
purposes effective on the Closing Date.
(b) Consents. The parties hereto shall use their best efforts as may be
--------
necessary to obtain all regulatory or other consents or approvals as may be
necessary to carry out the transactions contemplated by the Reorganization.
(c) Cooperation. The parties hereto agree that they shall cooperate with
-----------
each other in all reasonable respects on and after the date hereof in order to
effectuate the transactions contemplated hereby.
(d) Option Plans. Attached hereto as Exhibit E is the form of the
------------
Company's 1996 Stock Incentive Plan and attached hereto as Exhibit F is the form
of
-12-
<PAGE>
the Company's 1996 Nonemployee Director Stock Option Plan (collectively, the
"Option Plans"). The Partners agree to the adoption by the Company of the
Option Plans.
15. CONTINGENT REGISTRATION RIGHTS FOR NON-AFFILIATES. The Company shall,
-------------------------------------------------
in the event any Non-Affiliate (as defined below) whose Exchange Shares (as
defined below) is subject to an agreement with the Company or Dillon Read not to
sell such Exchange Shares during the Lockup Period (as defined below) is
unable, based upon an opinion of legal counsel to the Company, to sell such Non-
Affiliate's Exchange Shares (such person or persons hereinafter referred to as
"Restricted Non-Affiliates") without registration under the Securities Act
beginning 181 days after consummation of the Offering (the "Post-Lockup
Period"), if any, provide the following rights to such Restricted Non-
Affiliates:
(a) Registration. The Company shall, within 45 calendar days prior to the
------------
commencement of the Post-Lockup Period, give written notice of its intention to
file a registration statement under the Securities Act, on such appropriate form
as the Company in its sole discretion shall determine, on behalf of all
Restricted Non-Affiliates of record determined as of such date (the
"Registration Statement"). Upon the written request of a Restricted Non-
Affiliate given within 30 days after receipt of any such notice from the
Company, the Company shall, except as herein provided, cause all the Exchange
Shares held by Restricted Non-Affiliates which have so requested registration
thereof, to be included in such Registration Statement, all to the extent
required to permit the sale or other disposition by the prospective seller or
sellers of the Exchange Shares to be so registered; provided, however, that
nothing herein shall prevent the Company from delaying any such registration for
a reasonable period of time (but not in excess of 90 days) if in the good faith
judgment of the Company's legal counsel such filing would, at such time, require
the disclosure of material information that the Company has a bona fide business
purpose for preserving as confidential or would require the providing of
information required by the Securities Exchange Commission or the Securities Act
(or the rules and regulations promulgated thereunder) that at such time the
Company would be unable to provide. At such time as it shall file the
Registration Statement, the Company shall also make such filings with each state
securities commission or agency of any states of the United States reasonably
requested by each participating Restricted Non-Affiliate ("Participating
Holder") in writing as are required to permit the Participating Holders to sell
or otherwise dispose of any and all Common Stock in such states; provided,
however, that the Company shall not be obligated to qualify as a foreign
corporation to do business under the laws of any jurisdiction in which it shall
then be qualified or to file any consent to service or process in any
jurisdiction in which such a consent has been previously (and is not then)
filed. The Company agrees to use its best efforts to cause the Registration
Statement to become effective and to remain effective until the earlier to occur
of (i) the completion of the Participating Holders' distribution of their Common
Stock; (ii) that date after which the Exchange Shares held by the Participating
Holders may be sold pursuant to Rule 144 under the Securities Act; and (iii) 60
days after the
-13-
<PAGE>
effective date of the Registration Statement. Each of the Participating Holders
undertakes to provide all such information and materials and take all such
actions as may be required in order to permit the Company to comply with all
applicable requirements of the Securities Exchange Commission and the Securities
Act (and the rules and regulations promulgated thereunder), to obtain any
desired acceleration of the effective date of the Registration Statement and to
comply with all requirements of applicable state blue sky laws or other
administrative agencies of states of the United States.
(b) Expenses. The Company shall bear the following fees, costs and
--------
expenses with respect to filing of the Registration Statement pursuant to
Section 15(a): all registration, filing and NASD fees, printing expenses, fees
and disbursements of counsel and accountants for the Company, all internal
Company expenses, the premiums and other costs of policies of insurance against
liability arising out of the public offering, and all legal fees and
disbursements and other expenses of complying with state securities or blue sky
laws of any jurisdictions in which the securities to be offered are to be
registered or qualified. Fees and disbursements of counsel and accountants for
the Participating Holders, underwriting discounts and commissions and transfer
taxes for Participating Holders and any other expenses incurred by the
Participating Holders not expressly included above shall be borne by the
Participating Holders.
(c) Indemnification. For all Exchange Shares included in the Registration
---------------
Statement under Section 15(a):
(i) The Company will indemnify and hold harmless each Participating
Holder whose Exchange Shares are included in the Registration Statement
pursuant to the provisions of this Section 15 and each person, if any, who
controls such holder within the meaning of the Securities Act, from and
against any and all loss, damage, liability, cost and expense to which such
holder or any such underwriter or controlling person may become subject
under the Securities Act or otherwise, insofar as such losses, damages,
liabilities, costs or expenses are caused by any untrue statement or
alleged untrue statement of any material fact contained in such
registration statement, any prospectus contained therein or any amendment
or supplement thereto, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading; provided, however,
that the Company will not be liable to the Participating Holders in any
such case to the extent that any such loss, damage, liability, cost or
expense arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission so made in conformity with
information furnished by such Participating Holder.
-14-
<PAGE>
(ii) Each Participating Holder of Exchange Shares which are included
in a registration pursuant to the provisions of this Section 15 will
indemnify and hold harmless the Company, any controlling person and any
underwriter from and against any and all loss, damage, liability, cost or
expense to which the Company or any controlling person and/or any
underwriter may become subject under the Securities Act or otherwise,
insofar as such losses, damages, liabilities, costs or expenses are caused
by any untrue or alleged untrue statement of any material fact contained in
such registration statement, any prospectus contained therein or any
amendment or supplement thereto, or arise out of or are based upon the
omission or the alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein, in light
of the circumstances in which they were made, not misleading, in each case
to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was so made in
reliance upon and in conformity with information furnished by such
Participating Holder.
(iii) Promptly after receipt by an indemnified party pursuant to the
provisions of paragraph (i) or (ii) of this Section 15(c) of notice of the
commencement of any action involving the subject matter of the foregoing
indemnity provisions, such indemnified party will, if a claim thereof is to
be made against the indemnifying party pursuant to the provisions of said
paragraph (i) or (ii), promptly notify the indemnifying party of the
commencement thereof, but the omission to so notify the indemnifying party
will not relieve it from any liability which it may have to any indemnified
party otherwise than hereunder. In case such action is brought against any
indemnified party and it notifies the indemnifying party of the
commencement thereof, the indemnifying party shall have the right to
participate in, and, to the extent that it may wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party; provided, however, if the
defendants in any action include both the indemnified party and the
indemnifying party and there is a conflict of interest which would prevent
counsel for the indemnifying party from also representing the indemnified
party, the indemnified party or parties shall have the right to select
separate counsel to participate in the defense of such action on behalf of
such indemnified party or parties. After notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party will not be liable to such indemnified
party pursuant to the provisions of said paragraph (i) or (ii) for any
legal or other expense subsequently incurred by such indemnified party in
connection with the defense thereof other than reasonable costs of
investigation, unless (A) the indemnified party shall have employed counsel
in accordance with the proviso of the preceding sentence, (B) the
indemnifying party shall not have employed counsel satisfactory to the
indemnified party to represent the indemnified party within a reasonable
time after the notice of the
-15-
<PAGE>
commencement of the action, or (C) the indemnifying party has authorized
the employment of counsel for the indemnified party at the expense of the
indemnifying party.
(d) Registration Rights of Transferees; Others. The registration rights
------------------------------------------
granted to the holders of Exchange Shares pursuant to this Section 15 are not
transferable. No holder of Exchange Shares whose Exchange Shares are not the
subject of an agreement with the Company or Dillon Read not to sell such
Exchange Shares during the Lockup Period shall have any rights under this
Section 15.
(e) Definitions. For purposes of this Section 15:
-----------
(i) "Non-Affiliate" shall refer to and include any Partner
(including, for purposes of this definition, RIMCO Partners) who receives
Exchange Shares as part of the Reorganization and who is not an officer,
director or employee of the Company, or is not the beneficial holder of ten
percent (10%) or more of the outstanding shares of Common Stock either at the
time immediately following the Reorganization or at the time of a request made
pursuant to Section 15(a) hereof. "Non-Affiliate" shall also include any
equityholder of such Partner who receives Exchange Shares distributed by such
Partner after consummation of the Reorganization so long as such equityholder
also qualifies as a "Non-Affiliate" under the terms of the foregoing sentence.
(ii) "Exchange Shares" shall refer to and include the shares of Common
Stock issuable to the Partners (including, for purposes of this definition,
RIMCO Partners) pursuant to the terms and conditions of Section 1 of this
Agreement and any shares of capital stock of the Company issued with respect to,
or in exchange for, any of the foregoing in any corporate recapitalization or
corporate restructuring.
16. CONDITIONS OF THE COMPANY'S OBLIGATION. The obligation of the Company
--------------------------------------
to consummate the transactions contemplated hereby is subject to the fulfillment
prior to or on the Closing Date of the conditions set forth in this Section 16,
any of which may be waived by the Company in its sole discretion. In the event
that any such condition is not satisfied to the satisfaction of the Company with
respect to any Partner or RIMCO or in the event that one or more of the Partners
do not proceed with the exchange of shares such Partner has committed to
exchange or RIMCO does not exercise the RIMCO Option, then the Company shall not
be obligated to consummate any of the transactions contemplated hereby with any
of the Partners or with RIMCO Partners.
(a) No Errors, etc. The representations and warranties of each Partner
--------------
and RIMCO under this Agreement shall be true in all material respects as of the
Closing Date with the same effect as though made on and as of the Closing Date.
-16-
<PAGE>
(b) Compliance with Agreement. Each Partner and RIMCO shall have
-------------------------
performed and complied with all agreements or conditions required by this
Agreement to be performed and complied with by it prior to or as of the Closing
Date.
(c) Certificate of General Partner. The General Partner shall have
------------------------------
delivered to the Company a certificate, dated the Closing Date, executed by or
on behalf of the Partners and certifying to the satisfaction of the conditions
specified in Sections 16(a) and 16(b).
(d) Certificate of RIMCO. RIMCO shall have delivered to the Company a
--------------------
certificate, dated the Closing Date, executed by RIMCO on behalf of RIMCO
Partners and certifying to the satisfaction of the conditions specified in
Sections 16(a) and 16(b).
(e) Proceedings and Documents. All proceedings and actions taken in
-------------------------
connection with the transactions contemplated hereby and all certificates,
agreements, instruments and documents mentioned herein or incident to any such
transaction shall be satisfactory in form and substance to legal counsel for the
Company.
(f) The Reorganization. All consents, authorizations, approvals, permits
------------------
or orders of or filings with all governmental and regulatory authorities shall
have been obtained for the Reorganization and the transactions comprising the
Reorganization (other than any such consents, authorizations, approvals, permits
or orders of or filings required under the Securities Act or state securities
laws); all consents to the Reorganization and the transactions comprising the
Reorganization required pursuant to any agreement or instrument to which the
Company or any party involved in the Reorganization is a party or by which it or
any of its properties, assets or rights is bound or affected shall have been
obtained; and there shall be no legal actions, suits, arbitrations or other
legal, administrative or governmental proceedings or investigations pending or
threatened against the Company or any of the parties involved in the
Reorganization in connection with, relating to or arising out of the
Reorganization or the transactions comprising the Reorganization.
17. CONDITIONS OF THE GENERAL PARTNER'S AND RIMCO'S OBLIGATIONS. The
-----------------------------------------------------------
obligations of the General Partner and RIMCO to consummate the transactions
contemplated hereby is subject to the fulfillment prior to or on the Closing
Date of the conditions set forth in this Section 17, any of which may be waived
by the General Partner or RIMCO, as the case may be, in their sole discretion.
(a) No Errors, etc. The representations and warranties of the Company
---------------
under this Agreement shall be true in all material respects as of the Closing
Date with the same effect as though made on and as of the Closing Date.
-17-
<PAGE>
(b) Compliance with Agreement. The Company shall have performed and
-------------------------
complied with all agreements or conditions required by this Agreement to be
performed and complied with by it prior to or as of the Closing Date.
(c) Certificate of Officers. The Company shall have delivered to the
-----------------------
General Partner and RIMCO a certificate, dated the Closing Date, executed by its
Chief Executive Officer, President or Chief Financial Officer and certifying to
the satisfaction of the conditions specified in Sections 17(a) and 17(b) to the
extent such conditions relate to the Company.
(d) Proceedings and Documents. All corporate and other proceedings and
-------------------------
actions taken in connection with the transactions contemplated hereby and all
certificates, opinions, agreements, instruments and documents mentioned herein
or incident to any such transaction shall be satisfactory in form and substance
to the Partners.
(e) The Reorganization. All consents, authorizations, approvals, permits
------------------
or orders of or filings with all governmental and regulatory authorities shall
have been obtained for the Reorganization and the transactions comprising the
Reorganization (other than any such consents, authorizations, approvals, permits
or orders of or filings required under the Securities Act or state securities
laws); all consents to the Reorganization and the transactions comprising the
Reorganization required pursuant to any agreement or instrument to which the
Company or any party involved in the Reorganization is a party or by which it or
any of its properties, assets or rights is bound or affected shall have been
obtained; and there shall be no legal actions, suits, arbitrations or other
legal, administrative or governmental proceedings or investigations pending or
threatened against the Company or any of the parties involved in the
Reorganization in connection with, relating to or arising out of the
Reorganization and the transactions comprising the Reorganization.
18. MISCELLANEOUS.
-------------
(a) Changes, Waivers, etc. Neither this Agreement nor any provision
---------------------
hereof may be changed, waived, discharged or terminated orally, but only by a
statement in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought.
(b) Notices. All notices, requests, consents and other communications
-------
required or permitted hereunder shall be in writing and shall be delivered, or
mailed first-class postage prepaid, registered or certified mail,
(i) if to a Partner, addressed to such holder at its address as shown
on the books of the Partnership, or at such other address as such holder
may specify by written notice to the Company,
-18-
<PAGE>
(ii) if to RIMCO or RIMCO Partners, at Resource Investors Management
Company, 22 Waterville Road, Avon, Connecticut 06001, Attention: David R.
Whitney; or at such other address as RIMCO may specify by written notice to
the Partnership and the Company, or
(iii) if to the Company, at 5613 DTC Parkway, Suite 400, Englewood,
Colorado 80111, Attention: Brian T. O'Neill; or at such other address as
the Company may specify by written notice to the General Partners,
and such notices and other communications shall for all purposes of this
Agreement be treated as being effective or having been given if delivered
personally, or, if sent by mail, on the day which is three days after such
notice or communication is sent.
(c) Survival of Representations and Warranties, etc. All representations
-----------------------------------------------
and warranties contained herein shall survive the execution and delivery of this
Agreement, any investigation at any time made by or on behalf of the Partners,
the General Partner, RIMCO or the Company, and the transactions contemplated
hereby.
(d) Headings. The headings of the articles and sections of this Agreement
--------
have been inserted for convenience of reference only and do not constitute a
part of this Agreement.
(e) Choice of Law. The laws of Delaware shall govern the validity of this
-------------
Agreement, the construction of its terms and the interpretation of the rights
and duties of the parties hereunder. The parties hereby agree that all disputes
arising hereunder shall be submitted to and hereby subject themselves to the
jurisdiction of the courts of competent jurisdiction, state and federal, in the
State of Delaware.
(f) Attorneys' Fees. In the event that any action is brought by a party
---------------
to this Agreement, the prevailing party's attorneys' fees and costs shall be
paid by the nonprevailing party.
(g) Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
-19-
<PAGE>
IN WITNESS WHEREOF, each of the Company, the Partnership and RIMCO has
caused this Agreement to be executed by its duly authorized representative, and
the General Partner has executed this Agreement on behalf of each of the
Partners pursuant to a power-of-attorney granted by each Partner to the General
Partner.
MARKWEST HYDROCARBON, INC. MARKWEST HYDROCARBON
PARTNERS, LTD.
By: MWHC Holding, Inc.
By /s/ Brian T. O'Neill Its general partner
--------------------------------
Brian T. O'Neill, Senior Vice
President
By /s/ Brian T. O'Neill
---------------------------
Brian T. O'Neill, Senior Vice
President
PARTNERS:
All Partners, pursuant to powers of attorney
and authorizations executed in favor of, and granted
and delivered to, the General Partner:
By: MWHC Holding, Inc.
Its general partner
By /s/ Brian T. O'Neill
--------------------------------
Brian T. O'Neill, Senior Vice President
RIMCO ASSOCIATES, INC., general partner of
Resources Investors Management Company
Limited Partnership, general partner of
RIMCO Partners, L.P. and RIMCO Partners, L.P. II
By:/s/ David R. Whitney
--------------------------------
David R. Whitney
Its:
-20-
<PAGE>
EXHIBIT A
---------
<TABLE>
<CAPTION>
Partner Name Percentage Interest Share Amount
------------ ------------------- ------------
<S> <C> <C>
Adkins, William 0.1367% 6,837
Brown, Dan 0.0569% 2,847
Crabtree, Brent A. Trust 1.5028% 75,140
Crabtree, Brian T. Trust 1.5028% 75,140
Crabtree, Carrie L. Trust 1.5028% 75,140
Denney, Arthur 1.0652% 53,258
Erin Investments 10.5194% 525,968
Fox, Marjorie S. 1.5477% 77,383
Garvin, Robert 0.0535% 2,673
Harvey, Rita 0.0873% 4,367
Holland, Katherine 0.1691% 8,453
La Rue, Michael 0.3196% 15,980
MarkWest Hydrocarbon, Inc. 66.5450% 3,327,248
Murray, Pat 1.6959% 84,795
Nickel, Henry 0.1078% 5,389
Nickerson, Randy 0.1448% 7,237
O'Meara, Joseph D. 0.1354% 6,769
O'Neill, Brian 3.9092% 195,461
O'Neill, Erin B. Trust 0.1529% 7,648
O'Neill, Kellen L. Trust 0.1529% 7,648
O'Neill, Shannon Eileen 0.1529% 7,648
Reed, Tom 0.9017% 45,085
RIMCO Partners, L.P. 2.4920% 124,600
RIMCO Partners, L.P. II 1.0080% 50,400
Shato, Fred 0.2430% 12,149
Simms, Rick 0.0713% 3,566
Smith, Ron 0.0337% 1,684
Spector, Barry 0.0996% 4,979
The Murray Company 2.5048% 125,238
Vance, Lisbeth Fox 0.9570% 47,849
Warner, Warren 0.2285% 11,421
------ ---------
Total 100.0000% 5,000,000
========= =========
</TABLE>
<PAGE>
MODIFICATION AGREEMENT
This Modification Agreement (this "Agreement") dated as of July 31, 1996,
---------
is by and among MARKWEST HYDROCARBON PARTNERS, LTD., a Colorado limited
partnership ("Borrower"), MARKWEST HYDROCARBON, INC., a Delaware corporation
--------
(the "Company"), NORWEST BANK COLORADO, NATIONAL ASSOCIATION (successor to
-------
Norwest Bank Denver, National Association), a national banking association,
("Norwest"), FIRST AMERICAN NATIONAL BANK, a national banking association
-------
("First American"), and N M ROTHSCHILD AND SONS LIMITED, a company organized and
--------------
existing under the laws of England ("Rothschild") (Norwest, First American and
----------
Rothschild are referred to individually as a "Lender" and collectively as the
------
"Lenders"), and NORWEST, AS AGENT FOR THE LENDERS (in such capacity, the
-------
"Agent").
-----
RECITALS
--------
A. Borrower, Agent and Lenders are parties to (i) that certain Loan
Agreement dated as of November 20, 1992, as amended by a First Amendment to Loan
Agreement dated as of September 14, 1993, a Second Amendment to Loan Agreement
dated as of March 23, 1994, a Third Amendment to Loan Agreement dated as of
September 8, 1995, and a Fourth Amendment to Loan Agreement dated as of May 31,
1996 (as amended, the "Revolver/Term Loan Agreement"), and (ii) that certain
----------------------------
Working Capital Loan Agreement dated as of November 20, 1992, as amended by a
First Amendment to Working Capital Loan Agreement dated as of March 23, 1994, a
Second Amendment to Working Capital Loan Agreement dated as of September 8,
1995, and a Third Amendment to Working Capital Loan Agreement dated as of May
31, 1996 (as amended, the "Working Capital Loan Agreement") (the Revolver/Term
------------------------------
Loan Agreement and the Working Capital Loan Agreement are referred to herein
collectively as the "Loan Agreements"). Unless otherwise defined herein,
---------------
capitalized terms used herein shall have the meaning assigned to them in the
Loan Agreements.
B. Borrower and related entities propose to carry out a reorganization
and initial public offering pursuant to which Borrower will be dissolved and all
of the assets and liabilities of Borrower will be assigned to and assumed by the
Company. Such reorganization and public offering (collectively, the
"Reorganization") are more fully described in its Registration Statement, Form
--------------
S-1, to be filed by the Company with the Securities and Exchange Commission (the
"Registration Statement").
----------------------
C. The consent of the Lenders and Agent is required under the terms of
the Loan Agreements in order for Borrower and the Company to carry out the
Reorganization, and the parties accordingly desire to set forth their agreement
concerning the terms on which Agent and the Lenders grant such consent.
<PAGE>
AGREEMENT
---------
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Borrower, the Company, Agent, and
each of the Lenders hereby agree as follows:
1. Consent to Reorganization. The Lenders and Agent hereby consent to
-------------------------
the transactions included in the Reorganization as described in the Registration
Statement, including without limitation the $10,000,000 partial distribution of
partnership capital by Borrower (the "Partnership Distribution") which will be
------------------------
funded by an advance under the Revolver/Term Loan Agreement, subject to
satisfaction of the conditions set forth in Section 4 below.
2. Status of Reorganization. Prior to the consummation of the
------------------------
Reorganization, the Company shall keep Agent and the Lenders fully informed as
to any material changes either to the Registration Statement or to the
transactions and events to be carried out in connection with the Reorganization.
3. Amended Loan Documents. Subject to satisfaction of the conditions of
----------------------
Agent and the Lenders set forth in Section 4, contemporaneously with
consummation of the Reorganization Agent, the Lenders and the Company shall
execute the following amended loan documents to reflect the assignment and
assumption by the Company of Borrower's obligations pursuant to the
Reorganization:
a. Amended and restated loan agreements which shall contain the
current terms and conditions set forth in the Loan Agreements, modified as
appropriate to reflect the Reorganization, and which shall contain such other
terms and conditions as the Lenders shall deem reasonably appropriate in good
faith.
b. Amendments to the existing Security Documents and continuation
statements for existing financing statements as necessary and appropriate in the
Lenders' sole discretion to preserve the validity and priority of the liens and
security interests currently held by Agent and the Lenders pursuant to the
existing Security Documents; and
c. Replacement Notes and any other documents deemed necessary or
advisable by the Lenders in their sole discretion in order to properly document
the assignment and assumption by the Company of Borrower's obligations under the
Loan Agreements pursuant to the Reorganization.
4. Conditions to Consent. The consent of the Lenders and Agent set forth
---------------------
in Section 1 above and the other obligations of the Lenders and Agent pursuant
to this Agreement are subject to satisfaction of the following conditions:
2
<PAGE>
a. In addition to the Assignment and Assumption Agreement executed by
the Company in connection with the Reorganization, the Company shall have
executed a separate Assumption Agreement containing an express assumption by the
Company of Borrower's obligations under, and a specific description acceptable
to the Lenders of, the Loan Agreements, the Security Documents and all other
agreements executed in connection therewith;
b. Prior to and at the consummation of the Reorganization the Company
shall not have granted, and there shall not exist against the Company or its
assets any judgment, lien, encumbrance, burden or claim of any kind that would
attach to the assets of Borrower to be assigned to the Company in connection
with the Reorganization except liens and encumbrances existing as a result of
the Loan Agreements;
c. Prior to consummation of the Reorganization, the Company shall
have executed and delivered to Agent UCC financing statements (the "Company
-------
Financing Statements") covering all of the assets of Borrower that are to be
- --------------------
assigned to the Company and that are covered by financing statements executed by
Borrower in connection with the Loan Agreements, and the Company Financing
Statements shall have been properly filed in all appropriate jurisdictions
designated by Agent;
d. Agent shall be satisfied in its sole discretion and shall have
received an opinion of counsel for the Company that upon consummation of the
Reorganization the Lenders will have a perfected first priority lien and
security interest in the assets assigned to the Company by Borrower;
e. Prior to consummation of the Reorganization, the Company shall
have obtained all necessary consents, permissions and approvals by third parties
or governmental authorities in connection with the transfer of the assets of
Borrower to the Company and the transfer of all governmental permits and
licenses held by Borrower in connection with the operation of its business, and
the Company shall have obtained all necessary waivers of preferential and
similar rights of third parties to purchase any portion of such assets;
f. No event or other circumstance shall have occurred or exist that
would cause the financial condition of the Company upon consummation of the
Reorganization to be materially and adversely different from the pro forma
financial statements for the Company set forth in the Registration Statement;
g. Except for the Partnership Distribution and the other elements of
the Reorganization that would violate the terms of the Loan Agreements but for
the consent set forth in Section 1 above, no Event of Default or Unmatured Event
of
3
<PAGE>
Default under the Loan Agreements shall have occurred or be continuing, all
representations and warranties contained in Section 7 of the Revolver/Term Loan
Agreement shall be true in all material respects (except those affected by the
occurrence of the Reorganization), and Borrower and the Company shall have
satisfied in all material respects their covenants and obligations under this
Agreement;
h. Borrower shall have obtained and delivered to Agent all releases
and termination statements necessary to release or terminate of record all
security instruments and financing statements executed in connection with the
RIMCO Loan;
i. No order shall have been entered by any court or governmental
agency having jurisdiction over the parties or the subject matter of this
Agreement that restrains or prohibits the Reorganization or the other
transactions contemplated by this Agreement and which remains in effect at the
time of the Reorganization and the other transactions contemplated hereby;
j. Lenders shall have received an opinion of Dorsey & Whitney, LLP,
counsel for the Company, addressed to Lenders and Agent, in form and substance
satisfactory to Agent, concerning the legal issues set forth in paragraphs 1
through 7 of the Borrower's counsel opinion attached as Exhibit E to the
Revolver/Term Loan Agreement, modified as appropriate to cover the
Reorganization and the transactions contemplated by this Agreement;
k. The amended loan documents referenced in Section 3 shall have been
executed and delivered by the Company, Agent and the Lenders; and
l. Prior to making the $10,000,000 advance under the Revolver/Term
Loan Agreement (the "Distribution Advance") that will be used to fund the
--------------------
Partnership Distribution, (i) the Lenders shall have received from the Borrower
and the Company all information requested by the Lenders concerning the status
of the Company's public offering, (ii) the Lenders shall be satisfied in their
sole discretion that net proceeds from the Company's public offering will be
sufficient to repay the Distribution Advance promptly upon completion of the
Reorganization, and (iii) the Lenders shall be satisfied in their sole
discretion that there has been no material adverse change from the financial
condition of the Borrower on the date of this Agreement to the anticipated
financial condition of the Company upon completion of the Reorganization.
5. Repayment of Distribution Advance. If the Distribution Advance and
---------------------------------
the Partnership Distribution occur as described in the Registration Statement
and thereafter for any reason the Reorganization does not occur (so that the
assets of Borrower are not transferred to the Company and Borrower's obligations
under the
4
<PAGE>
Loan Agreements are not assumed by the Company), then in such event the consent
and all waivers given by Lenders hereunder as to the Loan Agreements and the
Partnership Distribution shall be deemed revoked, and Borrower shall repay the
Distribution Advance within 30 days after the date the Partnership Distribution
is made.
6. Counterparts. This Agreement may be executed in one or more
------------
counterparts, with each party signing on different counterparts, each of which
shall be deemed an original, and all of which together shall constitute but one
and the same instrument. Delivery of an executed counterpart of this Agreement
by telecopy shall be equally effective as delivery of a manually executed
counterpart of this Agreement, but the failure to deliver a manually executed
counterpart shall not affect the validity, enforceability and binding effect of
this Agreement.
EXECUTED as of the date first above written.
BORROWER:
- ---------
MARKWEST HYDROCARBON PARTNERS, LTD.,
a Colorado limited partnership
By: MWHC HOLDING, INC., its General Partner
By: /s/ Brian T. O'Neill By: /s/ Rita E. Harvey
------------------------------------ -----------------------------
Brian T. O'Neill, Sr. Vice President Rita E. Harvey, Treasurer
THE COMPANY:
- ------------
MARKWEST HYDROCARBON, INC.,
a Delaware corporation
By: /s/ Brian T. O'Neill By: /s/ Rita E. Harvey
------------------------------------ ---------------------------
Brian T. O'Neill, Sr. Vice President Rita E. Harvey, Treasurer
5
<PAGE>
LENDERS:
- --------
NORWEST BANK COLORADO, NATIONAL
ASSOCIATION (successor to Norwest Bank Denver,
National Association), a national banking association
By: /s/ Thomas M. Foncannon
----------------------------
Thomas M. Foncannon
Vice President
FIRST AMERICAN NATIONAL BANK,
a national banking association
By: /s/ Mariah G. Lundberg
----------------------------
Mariah G. Lundberg
Assistant Vice President
N M ROTHSCHILD AND SONS LIMITED,
a company organized and existing under
the laws of England
By: /s/ Andrew Wright By: /s/ Kelvin Russell
-------------------------- -------------------------
Name: Andrew Wright Name: Kelvin Russell
------------------------ -----------------------
Title: Assistant Director Title: Assistant Director
----------------------- -----------------------
AGENT:
- ------
NORWEST BANK COLORADO, NATIONAL
ASSOCIATION (successor to Norwest Bank Denver,
National Association), a national banking association
By: /s/ Thomas M. Foncannon
----------------------------
Thomas M. Foncannon
Vice President
6
<PAGE>
(Gathering System Properties)
AMENDED AND RESTATED
MORTGAGE, ASSIGNMENT, SECURITY
AGREEMENT AND FINANCING STATEMENT
FROM
WEST SHORE PROCESSING COMPANY, LLC, MORTGAGOR TO
BANK OF AMERICA ILLINOIS, LENDER
Dated as of May 2, 1996
A CARBON, PHOTOGRAPHIC, FACSIMILE, OR OTHER REPRODUCTION OF THIS INSTRUMENT IS
SUFFICIENT AS A FINANCING STATEMENT.
THIS INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS, SECURES PAYMENT OF
FUTURE ADVANCES, AND COVERS PROCEEDS OF COLLATERAL.
THIS INSTRUMENT SHALL BE EFFECTIVE AS A FINANCING STATEMENT FILED AS A FIXTURE
FILING WITH RESPECT TO ALL FIXTURES INCLUDED IN THE PROPERTY, AND IS TO BE FILED
FOR RECORD, AMONG OTHER PLACES, IN THE REAL ESTATE OR COMPARABLE RECORDS OF THE
COUNTIES REFERENCED IN EXHIBIT A HERETO. THE MORTGAGOR HAS AN INTEREST OF
RECORD IN THE REAL ESTATE CONCERNED, WHICH INTEREST IS DESCRIBED IN SECTION 1.1
OF THIS INSTRUMENT.
A POWER OF SALE HAS BEEN GRANTED IN THIS MORTGAGE. A POWER OF SALE MAY ALLOW
- ----------------------------------------------------------------------------
LENDER (AS HEREINAFTER DEFINED) TO TAKE THE MORTGAGED PROPERTIES AND SELL THEM
- ------------------------------------------------------------------------------
WITHOUT GOING TO COURT IN A FORECLOSURE ACTION UPON DEFAULT BY THE MORTGAGOR (AS
- --------------------------------------------------------------------------------
HEREINAFTER DEFINED) UNDER THIS MORTGAGE.
- -----------------------------------------
WARNING; THIS MORTGAGE CONTAINS A POWER OF SALE AND UPON DEFAULT MAY BE
- -----------------------------------------------------------------------
FORECLOSED BY ADVERTISEMENT. IN FORECLOSURE BY ADVERTISEMENT AND THE SALE OF THE
- --------------------------------------------------------------------------------
PROPERTY IN CONNECTION THEREWITH, NO HEARING IS REQUIRED AND THE ONLY NOTICE
- ----------------------------------------------------------------------------
REQUIRED IS THE PUBLICATION OF NOTICE IN A LOCAL NEWSPAPER AND THE POSTING OF A
- -------------------------------------------------------------------------------
COPY OF THE NOTICE ON THE PROPERTY.
- -----------------------------------
WHEN RECORDED OR FILED RETURN TO:
Rex A. Palmer
Mayer, Brown & Platt
190 South LaSalle Street
Chicago, Illinois 60603
<PAGE>
AMENDED AND RESTATED
MORTGAGE, ASSIGNMENT, SECURITY AGREEMENT AND FINANCING STATEMENT
THIS AMENDED AND RESTATED MORTGAGE, ASSIGNMENT, SECURITY AGREEMENT AND
FINANCING STATEMENT (this "Mortgage"), dated as of May 2, 1996, is from West
------------
Shore Processing Company, LLC, a Michigan limited liability company (herein
called the "Mortgagor"), to BANK OF AMERICA ILLINOIS, an Illinois banking
-------------
corporation having offices at 231 South LaSalle Street, Chicago, Illinois 60697
(herein called "Lender").
RECITALS:
1. Manistee Gas Limited Liability Company, a Wyoming limited liability
company ("Manistee"), has previously executed, acknowledged and delivered to
-------------
Michigan Gas Fund I, a Texas general partnership ("MGF"), that certain Mortgage,
--------
Assignment, Security Agreement and Financing Statement dated as of December 1,
1993, which was recorded and filed as set forth on Schedule 1 attached hereto,
----------
as amended by that certain First Supplement to Mortgage, Assignment, Security
Agreement and Financing Statement dated March 30, 1994, which was recorded and
filed as set forth on Schedule 1 attached hereto, and as amended by that certain
----------
Second Supplement to Mortgage, Assignment, Security Agreement and Financing
Statement dated October 24, 1994, which was recorded and filed as set forth on
Schedule 1 attached hereto (such mortgage, as so amended, the "Original Plant
- ---------- ---------------
and Gathering System Mortgage").
- --------------------------------
2. In order to secure the indebtedness to and performance of all
obligations of MGF under (i) that certain Interim Construction and Acquisition
Facility Credit Agreement dated as of December 1, 1993 (as amended, the "Interim
--------
Credit Agreement"), between MGF and Den norske Bank AS, a Norwegian Bank ("Den
- -------------------
norske"), (ii) that certain Term Credit Agreement dated as of December 1, 1993
(as amended to the date hereof, the "Original Term Credit Agreement"),
----------------------------------
originally entered into between MGF and Den norske and (iii) that certain Trust
Indenture and Security Agreement dated as of December 1, 1993, between MGF,
Manistee, Basin Pipeline, L.L.C., a Michigan limited liability company
("Basin"), and Bankers Trust Company ("Trustee"), as trustee for Den norske, as
------------
amended by that certain First Amendment to Trust Indenture and Security
Agreement dated March 30, 1994, that certain Second Amendment to Trust Indenture
and Security Agreement dated as of June 30, 1994, that certain Third Amendment
to Trust Indenture and Security Agreement dated as of October 24, 1994, and that
certain Fourth Amendment to Trust Indenture and Security Agreement dated as of
December 29, 1995, each entered into among MGF, Manistee, Basin and Trustee (as
so amended, the "Original Indenture"), MGF pledged, assigned and transferred to
----------------------
Trustee, for the benefit of Den norske, all MGF's right, title and interest in,
to and under the Original Plant and Gathering System Mortgage, among other
rights and interests, pursuant to that certain Collateral Assignment of Notes
and Liens by MGF in favor of Bankers Trust, as trustee, dated as of December 1,
1993, which was recorded as set forth on Schedule 1 attached hereto, as amended
----------
by that Certain Amended and Restated Collateral Assignment of Notes and Liens
dated as of March 31, 1994, which was recorded as set forth on Schedule 1
----------
attached hereto, as amended by that certain Second Amended and Restated
Collateral Assignment of Notes and Liens dated as of December 29, 1995, which
was recorded as set forth on Schedule 1 attached hereto.
----------
3. On December 29, 1995, Bank of America Illinois, an Illinois banking
corporation (the "Lender") purchased all of Den norske's interests under the
Original Term Credit Agreement and has succeeded to the interest of Den norske
under the Original Term Credit Agreement and under the Original Indenture and in
connection therewith, Den norske has granted, sold, conveyed, transferred and
assigned to the Lender all Den norske's right, title and interest in, to and
under the Term Credit Agreement, the Term Note and the Original Indenture,
pursuant to that
<PAGE>
certain Assignment of Notes and Liens dated as of December 29, 1995, which was
recorded and filed as set forth on Schedule 1 attached hereto.
----------
4. Pursuant to that certain Conveyance dated as of March 29, 1996,
Manistee has transferred to Michigan Energy Company, L.L.C., a Michigan limited
liability company ("MEC"), all of its right, title and interest in those certain
properties described below as the "Property" (which properties, and certain
other properties, are encumbered by and are subject to the Original Plant and
Gathering System Mortgage) and, in connection with such Conveyance, MEC and
Michigan Production Company, L.L.C, a Michigan limited liability company
("MPC"), have assumed the debt of Basin and Manistee to MGF, including amounts
owing under that certain note (the "First Note") in the face amount of
--------------
$16,084,913 in favor of MGF. In a subsequent conveyance, MEC transferred to
Mortgagor all interest in the Property which was transferred to it by Manistee
in the above referenced conveyance.
5. MGF has granted, sold, conveyed, transferred and assigned to the
Lender the First Note and, among other rights and interests, all of its right,
title and interest in, to and under the Original Plant and Gathering System
Mortgage, insofar as such Original Plant and Gathering System Mortgage relates
to the Property (as defined below) covered hereby (such rights so assigned being
herein called the "Partial Assigned Mortgage Rights"). The Original Plant and
---------------------------------
Gathering System Mortgage has been segregated into two mortgages, one (the
"Gathering System Mortgage") securing the First Note (which was assigned to
- ----------------------------
Lender as discussed above) and covering the Property covered hereby, and the
other (the "Plant Only Mortgage") securing certain indebtedness (other than the
----------------------
First Note) which was assigned to MEC and covering the certain Property (as
defined in the Original Plant and Gathering System Mortgage) other than the
Property covered hereby. Such assignment to Lender is an absolute assignment and
not merely a collateral assignment as provided for in the documents described in
Recital 2 above.
6. Concurrently herewith, MEC, MPC and the Lender are entering into that
certain Amended and Restated Credit Agreement (herein, as the same may be
amended, modified, restated or supplemented from time to time, called the
"Amended and Restated Credit Agreement"), pursuant to which Lender has agreed to
- -----------------------------------------
lend to MPC and MEC amounts not to exceed $30,000,000 at any time outstanding,
and MPC and MEC, to evidence such indebtedness to Lender under the Amended and
Restated Credit Agreement, have executed and delivered to Lender their
promissory notes dated of even date herewith (herein collectively called the
"Loan Note"), in the aggregate principal amount of $30,000,000 to mature on
- -------------
December 31, 2000, the Loan Note being payable to the order of Lender, bearing
interest at the rates provided for therein, and containing provisions for the
payment of attorneys' fees and acceleration of maturity in the event of default,
as set forth therein.
7. In order to secure repayment of the Loan Note and payment and
performance of the Obligations (as defined in the Amended and Restated Credit
Agreement), Mortgagor has executed and delivered to the Lender its Secured
Guaranty, dated of even date herewith (herein, as the same may be from time to
time amended, modified, restated or supplemented, called the "Guaranty").
------------
8. In order to secure repayment of the Guaranty and the Loan Note and
payment and performance of the Obligations (as defined in the Amended and
Restated Credit Agreement), Mortgagor and the Lender desire to enter into this
Amended and Restated Mortgage, Deed of Trust, Assignment, Security Agreement and
Financing Statement to confirm and ratify the Gathering System Mortgage, to
mortgage certain additional property owned by Mortgage but not covered by the
Gathering System Mortgage and to amend the Gathering System Mortgage to provide
that it secures
-2-
<PAGE>
the obligations of MEC and MPC under the Amended and Restated Credit Agreement.
9. MEC and MarkWest Michigan LLC, a Michigan limited liability company
("Markwest") are parties to that certain Participation, Ownership and Operating
Agreement dated as of May 2, 1996 (the "Participation Agreement"), pertaining to
---------------------------
the formation and capitalization of Mortgagor and Basin Pipeline, L.L.C., a
Michigan limited liability company ("Basin"), pursuant to which Markwest will
earn member interests in Mortgagor.
10. MEC, Markwest, Mortgagor and Basin are parties to that certain
Subordination Agreement dated as of May 2, 1996 (the "Subordination Agreement"),
--------------------------
pursuant to which Lender agreed that its rights, interests and remedies under
and pursuant to this Mortgage, among other things, is subject and subordinate to
the Participation Agreement.
11. The Mortgagor or its Affiliates (as defined in the Amended and
Restated Agreement) may enter into certain Hedging Agreements (as defined in the
Amended and Restated Credit Agreement) with Bank of America National Trust and
Savings Association, an Affiliate of the Lender, pursuant to the terms of the
Amended and Restated Credit Agreement. It is a condition precedent to the
obligations of the Lender to make Loans under the Amended and Restated Credit
Agreement and to the obligations of Bank of America National Trust and Savings
Association under the Hedging Agreements referred to above, that the Mortgagor
executes and delivers this instrument.
WITNESSETH:
ARTICLE I.
Granting Clauses; Indebtedness
------------------------------
Section 1.1. Grant and Mortgage. The Mortgagor for and in consideration of
-------------------
the sum of Ten Dollars ($10.00) to Mortgagor in hand paid, and in order to
secure the payment of the Indebtedness hereinafter referred to and the
performance of the obligations, covenants, agreements, warranties and
undertakings of Mortgagor hereinafter described, does hereby MORTGAGE AND
WARRANT to the Lender and grant to Lender a POWER OF SALE (pursuant to this
Mortgage and applicable law) with respect to, all of the following described
rights, interests and properties (the "Mortgaged Properties"):
------------------------
A. The easements (collectively herein called the "Easements")
------------
described in Exhibit A attached hereto and made a part hereof or described
in any instrument or document described in Exhibit A attached hereto;
B. Without limitation of the foregoing, all other right, title and
interest of Mortgagor of whatever kind or character (whether now owned or
hereafter acquired by operation of law or otherwise) in and to the lands
which are described in Exhibit A hereto (or which are described in any of
the instruments or documents described in Exhibit A hereto), even though
such interest of Mortgagor may be incorrectly described in, or omitted
from, Exhibit A attached hereto;
C. All of Mortgagor's interest in and rights under (whether now
owned or hereafter acquired by operation of law or otherwise) the contracts
and agreements described on Exhibit B attached hereto and made a part
hereof and all other presently existing and hereafter created gas purchase
agreements, gas sales agreements, product sales agreements, processing
agreements, exchange agreements, gathering agreements, transportation
agreements and other contracts and agreements which cover, affect, or
otherwise relate to the Gathering Systems (below defined) or the gathering
-3-
<PAGE>
and/or transportation of gas through such Gathering Systems, and all other
contracts and agreements (including without limitation, equipment leases,
maintenance agreements, electrical supply contracts and other contracts and
agreements) which cover, affect or otherwise relate to the properties
described in clauses A and B or the Gathering Systems (or to the operation
thereof or the treating, handling, storing, transporting, or marketing of
Production, below defined) (all of the foregoing being collectively herein
called the "Certain Contracts");
---------------------
D. All of Mortgagor's interest (whether now owned or hereafter
acquired by operation of law or otherwise) in and to all gathering systems
and/or pipeline systems, and other improvements now or hereafter located on
or in the lands which are described in Exhibit A hereto (or which are
described in any of the instruments or documents described in Exhibit A
hereto) and all materials, equipment, and other property now or hereafter
located on such lands, or which are used or held for use, regardless of
where the same are located, in connection with, or otherwise related to,
such lands or such gathering systems, pipeline systems, or improvements
(including, but not limited to, materials and supply inventory, surface or
subsurface machinery and equipment, line pipe and pipe connections,
fittings, flanges, wells or interconnects, valves, control equipment,
cathodic or electrical protection units, by-passes, regulators, drips,
meters and metering stations, compression equipment, pump houses and
pumping stations, treating equipment, dehydration equipment, separation
equipment, telephone, and other communication systems, office equipment and
furniture, files and records, computer equipment and software) (all of the
foregoing being herein called the "Gathering Systems"); and
---------------------
E. All of Mortgagor's interest (whether now owned or hereafter
acquired by operation of law or otherwise) in all permits, licenses,
orders, franchises, certificates and other rights and privileges which are
now used, or held for use, in connection with, or otherwise relate to, the
ownership or operation of the Gathering Systems;
TO HAVE AND TO HOLD the Mortgaged Properties unto Lender, and Lender's
successors and assigns, upon the terms, provisions and conditions herein set
forth.
Section 1.2. Grant of Security interest. In order to further secure the
---------------------------
payment of the Indebtedness hereinafter referred to and the performance of the
obligations, covenants, agreements, warranties, and undertakings of Mortgagor
hereinafter described, Mortgagor hereby grants to Lender a security interest in
the entire interest of Mortgagor (whether now owned or hereafter acquired by
operation of law or otherwise) in and to:
(a) all oil, gas, other hydrocarbons and other minerals (and products
processed or obtained from oil, gas, other hydrocarbons, or other minerals)
now or hereafter located in or on, or transported or gathered through, or
otherwise related to the Mortgaged Properties (including, without
limitation, any and all of the same held as inventory) (the "Production"),
--------------
and all proceeds thereof and all accounts, contract rights and general
intangibles under which such proceeds may arise, and together with all
liens and security interests securing payment of the proceeds of the
Production, including, but not limited to, those liens and security
interests provided for under statutes enacted in the jurisdictions in which
the Mortgaged Properties are located;
(b) without limitation of any other provisions of this Section 1.2,
all payments received in lieu of payment for Production (regardless of
whether such payments accrued,
-4-
<PAGE>
and/or the events which gave rise to such payments occurred, on or before or
after the date hereof), including, without limitation, "take or pay" or "minimum
bill" payments and similar payments, payments received in settlement of or
pursuant to a judgment rendered with respect to take or pay or minimum bill or
similar obligations or other obligations under a sales contract, and payments
received in buyout or buydown or other settlement of a contract covered hereby
(the payments described in this subsection (b) being herein called "Payments in
Lieu");
(c) all equipment, inventory, improvements, fixtures, accessions,
goods and other personal property (of whatever nature) of Mortgagor now or
hereafter located on or used or held for use in connection with, or
otherwise related to, the Mortgaged Properties (or in connection with the
operation thereof or the transporting, gathering or marketing of
Production), and all accessions and appurtenances thereto, and all renewals
or replacements of or substitutions for any of the foregoing;
(d) all permits, licenses, orders, franchises, certificates, similar
authorizations, and other rights and privileges now held or hereafter
obtained in connection with the Mortgaged Properties or the Collateral (as
hereinafter defined) (or in connection with the operation thereof or the
transporting, gathering or marketing of Production), and all renewals or
replacements of the foregoing or substitutions for the foregoing;
(e) all contract rights, choses in action (i.e., rights to enforce
contracts or to bring claims thereunder) and other general intangibles
(regardless of whether the same arose, and/or the events which gave rise to
the same occurred, on or before or after the date hereof) of Mortgagor,
including without limitation those related to the Mortgaged Properties (or
the operation thereof or the transporting, gathering or marketing of
Production) including, without limitation, rights under the Certain
Contracts);
(f) Without limitation of the generality of the foregoing, any rights
and interests of Mortgagor under any present or future hedge or swap
agreements, cap, floor, collar, exchange, forward or other hedge or
protection agreements or transactions relating to crude oil, natural gas or
other hydrocarbons, or any option with respect to any such agreement or
transaction now existing or hereafter entered into by or on behalf of
Mortgagor;
(g) all accounting, legal, title, technical and other business data
concerning the Mortgaged Properties, the Production or any other item of
Property (as hereinafter defined) or otherwise relating to Mortgagor's
business which are now or hereafter in the possession of Mortgagor or in
which Mortgagor can otherwise grant a security interest, and all books,
files, records, magnetic media, and other forms of recording or obtaining
access to such data;
(h) all money, documents, instruments, chattel paper, securities,
accounts or general intangibles of Mortgagor, including without limitation
those arising from or by virtue of any transaction (regardless of whether
such transaction occurred on or before or after the date hereof) related to
the Mortgaged Properties, the Production or any other item of Property (all
of the properties, rights and interests described in subsections (a), (b),
(c), (d), (e) (f) and (g) above and this subsection (h) being herein
sometimes collectively called the "Collateral"); and
--------------
(i) all proceeds of the Collateral and of the Mortgaged Properties,
whether such proceeds or payments are
39154715.6
-5-
<PAGE>
goods, money, documents, instruments, chattel paper, securities, accounts,
general intangibles, fixtures, real property, personal property or other
assets including, without limitation, insurance proceeds and condemnation
proceeds (the Mortgaged Properties, the Collateral and the proceeds of the
Collateral being herein sometimes collectively called the "Property").
------------
Section 1.3. Guaranty Note, Loan Documents, Other Obligations. This
-------------------------------------------------
Mortgage is made to secure and enforce the payment and performance of the
following promissory notes, obligations, indebtedness and liabilities:
A. Items of Indebtedness Secured. The following items of
------------------------------
indebtedness are secured hereby:
a. The Guaranty, the Loan Note, and all other obligations and
liabilities of MEC or MPC under the Amended and Restated Credit
Agreement;
b. All indebtedness evidenced by any promissory notes
evidencing additional loans which the Lender may from time to time
make to the Mortgagor or to MEC or to MPC, the Lender not being
obligated, however, to make such additional loans;
c. Any sums advanced or express or costs incurred by the Lender
(or any receiver appointed hereunder) which are made or incurred
pursuant to, or permitted by, the terms hereof, plus interest thereon
at the rate herein specified or otherwise agreed upon, from the date
of the advances or the incurring of such expenses or costs until
reimbursed;
d. Any and all other indebtedness of the Mortgagor or MEC or
MPC to the Lender now or hereafter owing, whether direct or indirect,
primary or secondary, fixed or contingent, joint or several,
regardless of how evidenced or arising, including without limitation
all Hedging Agreements (as defined in the Amended and Restated Credit
Agreement) between the Mortgagor or MEC or MPC or any Affiliate (as
defined in the Amended and Restated Credit Agreement) of the Mortgagor
or MEC or MPC and the Lender or any Affiliate of the Lender,
including, without limitation, Bank of America National Trust and
Savings Association; and
e. Any extensions, refinancings, modifications or renewals of
all such indebtedness described in subparagraphs (a) through (d)
----------------- ---
above, whether or not the Mortgagor or MEC or MPC executes any
extension agreement or renewal instrument.
B. Indebtedness. Notes and Loan Documents Defined. All the above
-----------------------------------------------
items of indebtedness are hereinafter collectively referred to as the
"Indebtedness". Any promissory note evidencing any part of the
--------------
Indebtedness, including, without limitation, the Loan Note, is hereinafter
referred to as a "Note", and all such promissory notes are hereinafter
-------
referred to collectively as the "Notes". Loan Documents" means,
------- ---------------
collectively, the Amended and Restated Credit Agreement, the Guaranty, the
Note, and any all other instruments evidencing or securing the Indebtedness
or otherwise executed in connection with the Amended and Restated Credit
Agreement or the Indebtedness. "MEC Shares" means, as of any date of
determination with respect to any asset, interest or property, the
undivided proportionate beneficial interest of MEC in the Property
represented and measured by MEC's ownership of equity interests in
Mortgagor and Basin pursuant to the Participation Agreement.
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<PAGE>
Section 1.4. Future Advance Mortgage. This is a future advance mortgage
within the meaning of Act. No. 348 of Michigan Public Acts of 1990.
ARTICLE II.
Section 2.1. Mortgagor covenants as follows:
(a) Title and Permitted Encumbrances. Mortgagor covenants to maintain,
----------------------------------
good, defensible and marketable title to the Property, free and clear of
all liens, security interests, and encumbrances except for (i) the liens
and security interests evidenced by this Mortgage, (ii) statutory liens for
taxes and assessments which are not yet delinquent, (iii) mechanics' and
materialmen's liens, with respect to obligations which are not yet due, and
(iv) other liens and security interests (if any) in favor of Lender, and
(v) those items set forth on the Disclosure Schedule to the Participation
Agreement or of record on the date hereof (the matters described in the
foregoing clauses (i), (ii), (iii), (iv) and (v) being herein called the
"Permitted Encumbrances"); Mortgagor will warrant and defend title to the
Property, subject to the aforesaid exceptions, against the claims and
demands of all persons claiming or to claim the same or any part thereof
by, through or under Mortgagor, and not otherwise. There will not be any
unexpired financing statement covering any part of the Property on file in
any public office naming any party other than Lender as secured party. Upon
request by Lender, Mortgagor will deliver to Lender schedules of all
internal and third party information identifying the Property.
(b) Leases and Contracts; Performance of Obligations. Mortgagor agrees
-------------------------------------------------
to maintain each Easement, each Certain Contract, and each other contract
or agreement forming a part of the Property in full force and effect, and
all payments due and payable under the same, or otherwise attendant to the
ownership or operation of the Property will be properly and timely paid.
Mortgagor will fulfill all obligations coming due in the future under such
Easements, Certain Contracts, and other contracts, agreements, or otherwise
attendant to the ownership or operation of any part of the Property, where
failure to do so could adversely affect the ownership or operation of the
Property.
(c) [Not used.]
(d) Condition of Personal Property. The machinery, equipment,
-------------------------------
inventory, improvements, fixtures, goods and other tangible personal
property forming a part of the Property will remain in good repair and
condition and will be adequate for the normal operation of the Property in
accordance with prudent industry standards; all of such Property will
remain, located on the Mortgaged Properties, except for that portion
thereof which is or shall be located elsewhere (including that usually
located on the Mortgaged Properties but temporarily located elsewhere) in
the course of the normal operation of the Property. Upon request of Lender,
Mortgagor will deliver to Lender an inventory and/or financing statements
describing and showing the make, model, serial number and location of all
machinery, equipment, inventory, fixtures, goods and other tangible
personal property forming a part of the Property.
(e) [Not used. ]
(f) Operation of Mortgaged Properties. The Mortgaged Properties
----------------------------------
hereafter will be, operated and maintained in a good and workmanlike
manner, in accordance with prudent
-7-
<PAGE>
industry standards and in conformity with all applicable laws and all
rules, regulations and orders of all duly constituted authorities having
jurisdiction and in conformity with all contracts and agreements forming a
part of the Property, and in conformity with the Permitted Encumbrances.
(g) Sale or disposal. Mortgagor will not, without the prior written
-----------------
consent of Lender or as permitted by Section 5.4 of the Participation
-----------
Agreement, sell, exchange, lease, transfer, or otherwise dispose of any
part of, or interest in, the Property other than (i) sales, transfers and
other dispositions of machinery, equipment and other personal property and
fixtures which are (A) obsolete for their intended purpose and disposed of
in the ordinary course of business or (B) replaced by articles of at least
equal suitability and value owned by Mortgagor free and clear of all liens
except this Mortgage and the Permitted Encumbrances, and (ii) sales of
Production which are made in the ordinary course of business and in
compliance with Section 2.1(c) hereof; provided that nothing in clause (ii)
shall be construed as limiting Lender's rights under Article III of this
Mortgage. Mortgagor shall account fully and faithfully for and, if Lender
so elects, shall promptly pay or turn over to Lender the proceeds in
whatever form received from disposition in any manner of any of the
Property. Mortgagor shall at all times keep the Property and its proceeds
separate and distinct from other property of Mortgagor and shall keep
accurate and complete records of the Property and its proceeds.
(h) Payment and Discharge of Obligations. Mortgagor will pay and
-------------------------------------
discharge when due all of its indebtedness and obligations. Mortgagor will
file all required tax returns and will pay all taxes and other governmental
charges or levies imposed upon or against its income, properties or
profits, before the same became, or becomes, in default, including but not
limited to all ad valorem taxes assessed against the Property or any part
thereof and all franchise taxes, occupation taxes and all production,
severance and other taxes assessed against, or measured by, the Production
or the value, or proceeds, of the Production.
(i) [Not used.]
(j) Environmental.
--------------
(A) Current status. The uses which Mortgagor intends to make
---------------
of the Property will not result in the disposal or other release of
any hazardous substance or solid waste on or to the Property. The
terms "hazardous substance" and "release" as used in this Mortgage
---------
shall have the meanings specified in the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended by the
Superfund Amendments and Reauthorization Act of 1986 (as amended,
hereinafter called "CERCLA"), and the terms "solid waste" and
-------------
"disposal" (or "disposed") shall have the meanings specified in the
---------- -----------
Resource Conservation and Recovery Act of 1976, as amended by the Used
Oil Recycling Act of 1980, the Solid Waste Disposal Act Amendments of
1980, and the Hazardous and Solid Waste Amendments of 1984 (as
amended, hereinafter called "RCRA"); provided, in the event either
--------
CERCLA or RCRA is amended so as to broaden the meaning of any term
defined thereby, such broader meaning shall apply subsequent to the
effective date of such amendment and provided further, to the extent
that the laws of the states in which the Mortgaged Properties are
located establish a meaning for "hazardous substance," "release,"
"solid waste," or "disposal" which is broader than that specified in
-8-
<PAGE>
either CERCLA or RCRA, such broader meaning shall apply.
(B) Future Performance. Mortgagor will not cause or permit
-------------------
the Property or Mortgagor, or cause the Associated Property (as
defined below), to be in violation of, or do anything or permit
anything to be done which will subject the Property to (or do anything
which will subject the Associated Property to), any remedial
obligations under any Applicable Environmental Laws, assuming
disclosure to the applicable governmental authorities of all relevant
facts, conditions and circumstances, if any, pertaining to the
Property and the Associated Property and Mortgagor will promptly
notify Lender in writing of any existing, pending or, to the best
knowledge of Mortgagor, threatened investigation or inquiry by any
governmental authority in connection with any Applicable Environmental
Laws. Mortgagor will take all steps necessary to determine that no
hazardous substances or solid wastes have been disposed of or
otherwise released on or to the Property or the Associated Property,
except as set forth on the Disclosure Statement to the Participation
Agreement, Mortgagor will not cause or permit the disposal or other
release of any hazardous substance or solid waste on or to the
Property or the Associated Property and covenants and agrees to keep
or cause the Property, or to the extent caused by Mortgagor the
Associated Property, to be kept free of any hazardous substance or
solid waste and to remove the same (or if removal is prohibited by
law, to take whatever action is required by law) promptly upon
discovery at its sole expense. Upon Lender's reasonable request, at
any time and from time to time during the existence of this Mortgage,
Mortgagor will provide at Mortgagor's sole expense an inspection or
audit of the Property and the Associated Property from an engineering
or consulting firm approved by Lender, indicating the presence or
absence of hazardous substances and solid waste on the Property and/or
the Associated Property. The term "Associated Property" as used in
this Mortgage shall mean any and all interests in and to (and or
carved out of) the lands included in the Property, or on which the
Property is located, whether or not such property interests are owned
by Mortgagor.
(k) Condemnation of the Property; Proceeds. Immediately upon obtaining
---------------------------------------
knowledge of the institution of any proceedings for the condemnation of the
Property or any portion thereof, or any other proceedings arising out of
injury or damage to the Property, or any portion thereof, Mortgagor will
notify Lender of the pendency of such proceedings. Lender may participate
in any such proceedings, and Mortgagor shall from time to time deliver to
Lender all instruments requested by it to permit such participation.
Mortgagor shall, at its expense, diligently prosecute any such proceedings,
and shall consult with Lender, its attorneys and experts, and cooperate
with them in the carrying on or defense of any such proceedings. All
proceeds of condemnation awards or proceeds of sale in lieu of condemnation
with respect to the Property and all judgments, decrees and awards for
injury or damage to the Property shall be paid to Lender, and shall be
applied toward costs, charges and expenses (including reasonable attorneys'
fees), if any, incurred by Lender in the collection thereof, then to the
payment, in the order determined by Lender in its own discretion, of the
Indebtedness, and any balance remaining shall be subject to the order of
Mortgagor. Mortgagor hereby assigns and transfers all such proceeds,
judgments, decrees and awards to Lender and agrees to execute such further
assignments of
-9-
<PAGE>
all such proceeds, judgments, decrees and awards as Lender may request.
Lender is hereby authorized, in the name of Mortgagor, to execute and
deliver valid acquittance for, and to appeal from, any such judgment,
decree or award. Lender shall not be, in any event or circumstances, liable
or responsible for failure to collect, or exercise diligence in the
collection of, any such proceeds, judgments, decrees and/or awards.
(1) Defense of Mortgage. If the validity or priority of this Mortgage
--------------------
or of any rights, titles, liens or security interests created or evidenced
hereby with respect to the Property or any part thereof or the title of
Mortgagor to the Property shall be endangered or questioned or shall be
attacked directly or indirectly or if any legal proceedings are instituted
against Mortgagor with respect thereto, Mortgagor will give prompt written
notice thereof to Lender and at Mortgagor's own cost and expense will
diligently endeavor to cure any defect that may be developed or claimed,
and will take all necessary and proper steps for the defense of such legal
proceedings, including, but not limited to, the employment of counsel, the
prosecution or defense of litigation and the release or discharge of all
adverse claims, and Lender (whether or not named as a party to legal
proceedings with respect thereto) is hereby authorized and empowered to
take such additional steps as in its judgment and discretion may be
necessary or proper for the defense of any such legal proceedings or the
protection of the validity or priority of this Mortgage and the rights,
titles, liens and security interests created or evidenced hereby, including
but not limited to the employment of independent counsel, the prosecution
or defense of litigation, the compromise or discharge of any adverse claims
made with respect to the Property, the purchase of any tax title and the
removal of prior liens or security interests, and all expenditures so made
of every kind and character shall be a demand obligation (which obligation
Mortgagor hereby expressly promises to pay) owing by Mortgagor to Lender
and shall bear interest from the date expended until paid at the rate
described in Section 2.2 hereof, and the Lender shall be subrogated to all
rights of the person receiving such payment.
(m) Fees and Expenses: Indemnity. Mortgagor will reimburse Lender (for
-----------------------------
purposes of this paragraph, the term "Lender" shall include the directors,
officers, partners, employees and agents of Lender, and any persons or
entities owned or controlled by or affiliated with Lender) for all
expenditures, including reasonable attorneys' fees and expenses, incurred
or expended in connection with (i) the breach by Mortgagor of any covenant,
agreement or condition contained herein or in any other Loan Document, (ii)
the exercise by Lender of any of its rights and remedies hereunder or under
any other Loan Document, and (iii) the protection of the Property and/or
Lender's liens and security interests therein. Mortgagor will indemnify and
hold harmless Lender from and against (and will reimburse Lender for) all
expenditures, including reasonable attorneys' fees and expenses, incurred
or expended in connection with all claims, demands, liabilities, losses,
damages (including without limitation consequential damages), causes of
action, judgments, penalties, costs and expenses (including without
limitation reasonable attorneys' fees and expenses) which may be imposed
upon, asserted against or incurred or paid by Lender on account of, in
connection with, or arising out of (A) any bodily injury or death or
property damage occurring in or upon or in the vicinity of the Property
through any cause whatsoever, (B) any act performed or omitted to be
performed hereunder or the breach of any representation or warranty herein,
(C) the exercise of any rights and remedies hereunder or under any other
Loan Document, (D) any transaction, act,
-10-
<PAGE>
omission, event or circumstance arising out of or in any way connected with
the Property or with this Mortgage or any other Loan Document, (E) any
violation on or prior to the Release Date (as hereinafter defined) of any
Applicable Environmental Law, (F) the presence on or release onto the
Property or Associated Property or the groundwater of either, on or prior
to the Release Date, of any hazardous substance or solid waste, (G) any
act, omission, event or circumstance existing or occurring on or prior to
the Release Date (including without limitation the presence on the Property
or the Associated Property or release from the Property or the Associated
Property of hazardous substances or solid wastes disposed of or otherwise
released), resulting from or in connection with the ownership,
construction, occupancy, operation, use and/or maintenance of the Property
or the Associated Property, regardless of whether the act, omission, event
or circumstance constituted a violation of any Applicable Environmental Law
at the time of its existence or occurrence, and (H) any and all claims or
proceedings (whether brought by private party or governmental agencies) for
bodily injury, property damage, abatement or remediation, environmental
damage or impairment or any other injury or damage resulting from or
relating to any hazardous or toxic substance, solid waste or contaminated
material located upon or migrating into, from or through the Property or
the Associated Property (whether or not the release of such materials was
caused by Mortgagor, a tenant or subtenant or a prior owner or tenant or
subtenant on the Property or the Associated Property and whether or not the
alleged liability is attributable to the handling, storage, generation,
transportation, removal or disposal of such substance, waste or material or
the mere presence of such substance, waste or material on the Property or
the Associated Property), which the Lender may have liability with respect
to due to the making of the loan or loans evidenced by the Note, the
granting of this Mortgage, the exercise of any of its rights under the Loan
Documents, or otherwise. Lender shall have the right to compromise and
adjust any such claims, actions and judgments, and in addition to the
rights to be indemnified as herein provided, all amounts paid by Lender in
compromise, satisfaction or discharge of any such claim, action or
judgment, and all court costs, attorneys' fees and other expenses of every
character expended by Lender pursuant to the provisions of this section
shall be a demand obligation (which obligation Mortgagor hereby expressly
promises to pay) owing by Mortgagor to Lender. The "Release Date" as used
--------------
herein shall mean the earlier of the following two dates: (i) the date on
which the Indebtedness and obligations secured hereby have been paid and
performed in full and this Mortgage has been released of record, or (ii)
the date on which the lien of this Mortgage is foreclosed or a deed in lieu
of such foreclosure is fully effective and recorded. WITHOUT LIMITATION, IT
IS THE INTENTION OF MORTGAGOR AND MORTGAGOR AGREES THAT THE FOREGOING
INDEMNITIES SHALL APPLY TO EACH INDEMNIFIED PARTY WITH RESPECT TO CLAIMS,
DEMANDS, LIABILITIES, LOSSES, DAMAGES, CAUSES OF ACTION, JUDGMENTS,
PENALTIES, COSTS AND EXPENSES (INCLUDING WITHOUT LIMITATION REASONABLE
ATTORNEYS' FEES) WHICH IN WHOLE OR IN PART ARE CAUSED BY OR ARISE OUT OF
THE NEGLIGENCE OF SUCH (AND/OR ANY OTHER) INDEMNIFIED PARTY. However, such
indemnities shall not apply to any particular indemnified party (but shall
apply to the other indemnified parties) to the extent the subject of the
indemnification is caused by or arises out of the gross negligence or
willful misconduct of such particular indemnified party. The foregoing
indemnities shall not terminate upon the Release Date or upon the release,
foreclosure or other termination of this Mortgage but will survive the
Release Date, foreclosure of this Mortgage or conveyance in lieu of
foreclosure, and the repayment of the indebtedness and the discharge and
release of this Mortgage
-11-
<PAGE>
and the other documents evidencing and/or securing the indebtedness. Any
amount to be paid hereunder by Mortgagor to Lender shall be a demand
obligation owing by Mortgagor to Lender and shall be subject to and covered
by the provisions of the last two sentences of Section 2.2 hereof.
(n) Insurance. Mortgagor will carry insurance as provided by the
----------
Participation Agreement. In the event of any loss under any insurance
policies so carried by Mortgagor, Lender shall have the right (but not the
obligation) to make proof of loss and collect the same, and all amounts so
received shall be applied toward costs, charges and expenses (including
reasonable attorneys' fees), if any, incurred by lender in the collection
thereof, then to the payment, in the order determined by Lender in its own
discretion, of the Indebtedness, and any balance remaining shall be subject
to the order of Mortgagor. Lender is hereby authorized but not obligated to
enforce in its name or in the name of Mortgagor payment of any or all of
said policies or settle or compromise any claim in respect thereof, and to
collect and make receipts for the proceeds thereof and Lender is hereby
appointed Mortgagor's agent and attorney-in-fact to endorse any check or
draft payable to Mortgagor in order to collect the proceeds of insurance.
In the event of foreclosure of this Mortgage, or other transfer of title to
the Property in extinguishment in whole or in part of the Indebtedness, all
right, title and interest of Mortgagor in and to such policies then in
force concerning the Property and all proceeds payable thereunder shall
thereupon vest in the purchaser at such foreclosure or Lender or other
transferee in the event of such other transfer of title.
(o) Further Assurances. Mortgagor will, on request of Lender, (i)
-------------------
promptly correct any defect, error or omission which may be discovered in
the contents of this Mortgage, or in any other Loan Document, or in the
execution or acknowledgment of this Mortgage or any other Loan Document;
(ii) execute, acknowledge, deliver and record and/or file such further
instruments (including, without limitation, further deeds of trust,
mortgages, security agreements, financing statements, continuation
statements, and assignments of production, accounts, funds, contract
rights, general intangibles, and proceeds) and do such further acts as may
be necessary, desirable or proper to carry out more effectively the
purposes of this Mortgage and the other Loan Documents and to more fully
identify and subject to the liens and security interests hereof any
property intended to be covered hereby, including specifically, but without
limitation, any renewals, additions, substitutions, replacements, or
appurtenances to the Property; and (iii) execute, acknowledge, deliver, and
file and/or record any document or instrument (including specifically any
financing statement) desired by Lender to protect the lien or the security
interest hereunder against the rights or interests of third persons.
Mortgagor shall pay all costs connected with any of the foregoing.
(p) Name and Place of Business. Mortgagor will not cause or permit any
---------------------------
change to be made in its name, identity, or corporate or partnership
structure, or its federal employer identification number unless Mortgagor
shall have notified Lender of such change at least thirty (30) days prior
to the effective date of such change, and shall have first taken all action
required by Lender for the purpose of further perfecting or protecting the
lien and security interest of Lender in the Property. Mortgagor's principal
place of business and chief executive office, and the place where Mortgagor
keeps its books and records concerning the Property (including,
particularly, the records with respect to "Proceeds", as defined in Section
3.1 hereof, from the Mortgaged Properties) will be (unless Mortgagor
notifies
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<PAGE>
Lender of any change in writing at least thirty (30) days prior to the date
of such change), the address set forth opposite the signature of Mortgagor
to this Mortgage.
Section 2.2. Performance by Lender Mortgagor's Behalf. Mortgagor agrees
-----------------------------------------
that, if Mortgagor fails to perform any act or to take any action which
hereunder Mortgagor is required to perform or take, or to pay any money which
hereunder Mortgagor is required to pay, Lender, in Mortgagor's name or its own
name, may, but shall not be obligated to, perform or cause to be performed such
act or take such action or pay such money, and any expenses so incurred by
Lender and any money so paid by Lender shall be a demand obligation owing by
Mortgagor to Lender (which obligation Mortgagor hereby expressly promises to
pay) and Lender, upon making such payment, shall be subrogated to all of the
rights of the person, corporation or body politic receiving such payment. Each
amount due and owing by Mortgagor to Lender pursuant to this Mortgage shall bear
interest each day, from the date of such expenditure or payment until paid, at a
rate equal to the rate as provided for past due principal under the Note
(provided that, should applicable law provide for a maximum permissible rate of
interest on such amounts, such rate shall not be greater than such maximum
permissible rate); all such amounts, together with such interest thereon, shall
be a part of the Indebtedness and shall be secured by this Mortgage.
ARTICLE III.
Assignment of Rents. Profits, Income, Contracts and Bonds
---------------------------------------------------------
Section 3.1. Assignment. Mortgagor does hereby absolutely and
-----------
unconditionally assign, transfer and set over to Lender all rents, income,
receipts, revenues, profits, proceeds and other sums of money to be derived from
the Property (including but not limited to proceeds from the sale of oil, gas,
other hydrocarbons, and other minerals forming a part of, or transported or
gathered through, the Property, transportation or gathering fees, take or pay or
other minimum bill type payments, all proceeds payable under any policy of
insurance covering the loss of or interruption of business caused by destruction
or damage to the Property, and any sums of money that may become due and payable
to Mortgagor as a result of mineral interests, whether fee or leasehold, royalty
interests, overriding royalties, bonuses, delay rentals, royalties or any other
interest in oil, gas, other hydrocarbons, or other minerals in and under the
lands covered by the Mortgaged Properties), including without limitation the
immediate and continuing right to collect and receive all of such rents, income,
receipts, revenues, profits, proceeds, and other sums of money that may now or
at any time hereafter become due and payable to Mortgagor (the "Proceeds").
Section 3.2. Effectuating Payment of Production Proceeds to Lender.
------------------------------------------------------
Independent of the foregoing provisions and authorities herein granted, and
without limitation, Mortgagor hereby constitutes and appoints Lender as
Mortgagor's special attorney-in-fact (with full power of substitution, either
generally or for such periods or purposes as Lender may from time to time
prescribe) in the name, place and stead of Mortgagor to do any and every act and
exercise any and every power that Mortgagor might or could do or exercise
personally with respect to all Proceeds (the same having been assigned by
Mortgagor to Lender pursuant to Section 3.1 hereof), giving and granting unto
said attorney-in-fact full power and authority to do and perform any and every
act and thing whatsoever necessary and requisite to be done as fully and to all
intents and purposes, as Mortgagor might or could do if personally present. The
powers and authorities herein conferred upon Lender may be exercised by Lender
through any person who, at the time of the execution of the particular
instrument, is an officer of Lender. The power of attorney herein conferred is
granted for valuable consideration and hence
-13 -
<PAGE>
is coupled with an interest and is irrevocable so long as the Indebtedness, or
any part thereof, shall remain unpaid. All persons dealing with Lender or any
substitute shall be fully protected in treating the powers and authorities
conferred by this paragraph as continuing in full force and effect until advised
by Lender that all the Indebtedness is fully and finally paid. Lender may, but
shall not be obligated to, take such action as it deems appropriate in an effort
to collect the Proceeds, and any reasonable expenses (including reasonable
attorneys' fees so incurred by Lender shall be a demand obligation of Mortgagor
and shall be part of the Indebtedness, and shall bear interest each day, from
the date of such expenditure or payment until paid, at the rate described in
Section 2.2 hereof.
Section 3.3. Application of Proceeds. So long as no default has occurred
------------------------
hereunder, the Proceeds received by Lender during each calendar month shall on
the first business day of the next succeeding calendar month (or, at the option
of Lender, on any earlier date) be applied by Lender (a) as provided for in the
Amended and Restated Credit Agreement or (b) if not provided for in the Amended
and Restated Credit Agreement, as follows:
FIRST, to the payment of all Indebtedness then due and payable, in
------
such manner and order as Lender deems advisable;
SECOND, to the prepayment of the remainder of the Indebtedness in such
-------
manner and order and to such extent as Lender deems advisable; and
THIRD, the remainder, if any, of the Proceeds shall be paid over to
------
Mortgagor or to Mortgagor's order or to such other parties as may be
entitled thereto by law.
After a default hereunder has occurred, all Proceeds from time to time in the
hands of Lender shall be applied by it toward the payment of all Indebtedness
(principal, interest, attorneys' fees and other fees and expenses) at such times
and in such manner and order and to such extent as Lender deems advisable.
Section 3.4. Release From Liability: Indemnification. Lender and its
----------------------------------------
successors and assigns are hereby absolved from all liability for failure to
enforce collection of the Proceeds and from all other responsibility in
connection therewith, except the responsibility of each to account to Mortgagor
for funds actually received by each. Mortgagor agrees to indemnify and hold
harmless Lender (for purposes of this paragraph, the term "Lender" shall include
the directors, officers, partners, employees and agents of Lender and any
persons or entities owned or controlled by or affiliated with Lender) from and
against all claims, demands, liabilities, losses, damages (including without
limitation consequential damages), causes of action, judgments, penalties, costs
and expenses (including without limitation reasonable attorneys' fees and
expenses) imposed upon, asserted against or incurred or paid by Lender by reason
of the assertion that Lender received, either before or after payment in full of
the Indebtedness, funds claimed by third persons (and/or which Lender or
Mortgagor was otherwise not entitled to receive), and Lender shall have the
right to defend against any such claims or actions, employing attorneys of its
own selection, and if not furnished with indemnity satisfactory to it, Lender
shall have the right to compromise and adjust any such claims, actions and
judgments, and in addition to the rights to be indemnified as herein provided,
all amounts paid by Lender in compromise, satisfaction or discharge of any such
claim, action or judgment, and all court costs, attorneys' fees and other
expenses of every character expended by Lender pursuant to the provisions of
this section shall be a demand obligation (which obligation Mortgagor hereby
expressly promises to pay) owing by Mortgagor to Lender and shall bear interest,
from the date expended until paid, at the rate described in Section 2.2 hereof.
The foregoing indemnities shall not terminate upon the Release Date or upon the
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<PAGE>
release, foreclosure or other termination of this Mortgage but will survive the
Release Date, foreclosure of this Mortgage or conveyance in lieu of foreclosure,
and the repayment of the Indebtedness and the discharge and release of this
Mortgage and the other documents evidencing and/or securing the Indebtedness.
WITHOUT LIMITATION, IT IS THE INTENTION OF MORTGAGOR AND MORTGAGOR AGREES THAT
THE FOREGOING INDEMNITIES SHALL APPLY TO EACH INDEMNIFIED PARTY WITH RESPECT TO
ALL CLAIMS, DEMANDS, LIABILITIES, LOSSES, DAMAGES (INCLUDING WITHOUT LIMITATION
CONSEQUENTIAL DAMAGES), CAUSES OF ACTION. JUDGMENTS, PENALTIES, COSTS AND
EXPENSES (INCLUDING WITHOUT LIMITATION REASONABLE ATTORNEYS' FEES AND EXPENSES)
WHICH IN WHOLE OR IN PART ARE CAUSED BY OR ARISE OUT OF THE NEGLIGENCE OF SUCH
(AND/OR ANY OTHER) INDEMNIFIED PARTY. However, such indemnities shall not apply
to any particular indemnified party (but shall apply to the other indemnified
parties) to the extent the subject of the indemnification is caused by or arises
out of the gross negligence or willful misconduct of such particular indemnified
party.
Section 3.5. Mortgagor's Absolute Obligation. Nothing herein contained
--------------------------------
shall detract from or limit the obligations of Mortgagor to make prompt payment
of the Guaranty, the Note, and any and all other Indebtedness, at the time and
in the manner provided herein and in the Loan Documents, regardless of whether
the Proceeds herein assigned are sufficient to pay same, and the rights under
this Article III shall be cumulative of all other rights of Lender under the
Loan Documents.
ARTICLE IV.
Remedies Upon Default
---------------------
Section 4.1. The term "default" as used in this Mortgage shall mean the
occurrence of any of the following events:
(a) the occurrence of an "Event of Default" as defined in the Amended
and Restated Credit Agreement, including without limitation, an Event of
Default arising from a breach of the representations and warranties made in
the Amended and Restated Credit Agreement concerning the Mortgaged
Properties and the Mortgagor;
(b) the failure of Mortgagor to make due and punctual payment of the
Guaranty, the Note or of any other Indebtedness or of any installment of
principal thereof or interest thereon, or any part thereof, as the same
shall become due and payable, whether at a date for payment of a fixed
installment or contingent or other payment, or as a result of acceleration,
or otherwise; or
(c) the failure of Mortgagor to pay over to Lender any Proceeds which
are receivable by Lender under this Mortgage but which are paid to
Mortgagor rather than Lender (either as provided in Section 3.2 hereof or
otherwise), except Proceeds paid over to Mortgagor by Lender under clause
THIRD of Section 3.2; or
(d) the failure of Mortgagor timely and properly to observe, perform
or comply with any covenant, agreement, warranty, condition or provision
herein contained, if such failure is not remedied within 30 days after the
occurrence thereof; or
(e) any representation or warranty contained herein shall prove to
have been false or incorrect in any material respect on the date made (or
on the date as of which made); or
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<PAGE>
(f) Mortgagor suffers the entry against it of a judgment, decree or
order for relief by a court of competent jurisdiction in an involuntary
proceeding commenced under any applicable bankruptcy, insolvency or other
similar law of any jurisdiction now or hereafter in effect, including the
United States Bankruptcy Code, as from time to time amended, or has such a
proceeding commenced against it which remains undismissed for a period of
30 days; or
(g) Mortgagor commences a voluntary case under any applicable
bankruptcy, insolvency or similar law now or hereafter in effect, including
the United States Bankruptcy Code, as from time to time amended, or applies
for or consents to the entry of an order for relief in an involuntary case
under any such law; or Mortgagor makes a general assignment for the benefit
of creditors or fails to pay (or admits in writing its inability to pay)
its debts as such debts become due; or Mortgagor takes corporate or other
action in furtherance of any of the foregoing; or
(h) Mortgagor suffers the appointment of or taking of possession by a
receiver, liquidator, assignee, custodian, trustee, sequestrator or similar
official for a substantial part of its assets or for any part of the
Property in a proceeding brought against or initiated by it and (1) such
appointment or taking is neither made ineffective nor discharged within 30
days after the making of such appointment or within 30 days after such
taking, or (2) such appointment or taking is consented to, requested by, or
acquiesced to by Mortgagor; or
(i) Mortgagor suffers a writ or warrant of attachment or any similar
process to be issued by any court against all or any substantial part of
its assets or any part of the Property, and such writ or warrant of
attachment or any similar process is not stayed or released within 30 days
after the entry or levy thereof or after any stay is vacated or set aside;
or
(j) the Property is so demolished, destroyed or damaged that, in the
judgment of Lender, it cannot be restored or rebuilt with available funds
to a profitable condition within a reasonable period of time; or
(k) so much of the Property is taken in condemnation, or sold in lieu
of condemnation, or the Property is so diminished in value due to any
injury or damages to the Property, that the remainder thereof cannot, in
the judgment of Lender, continue to be operated profitably for the purpose
for which it was being used immediately prior to such taking, sale or
diminution.
Section 4.2. Acceleration of Indebtedness. Upon the occurrence of a default
-----------------------------
described in subsection (f), (g), (h) or (i) of Section 4.1 above, all of the
Indebtedness shall thereupon be immediately due and payable, without
presentment, demand, protest, notice of protest, declaration or notice of
acceleration or intention to accelerate, putting the Mortgagor in default,
dishonor, notice of dishonor or any other notice or declaration of any kind, all
of which are hereby expressly waived by Mortgagor, and the liens evidenced
hereby shall be subject to foreclosure in any manner provided for herein or
provided for by law as Lender may elect. During the continuance of any other
default, Lender at any time and from time to time may without notice to
Mortgagor or any other person declare any or all of the Indebtedness immediately
due and payable and all such Indebtedness shall thereupon be immediately due and
payable, without presentment, demand, protest, notice of protest, notice of
acceleration or of intention to accelerate, putting the Mortgagor in default,
dishonor, notice of dishonor or any other notice or declaration of any kind, all
of which are hereby expressly waived by Mortgagor, and the liens evidenced
hereby
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<PAGE>
shall be subject to foreclosure in any manner provided for herein or provided
for by law as Lender may elect.
Section 4.3. Pre-ForeClosure. Remedies. Upon the occurrence of a default,
--------------------------
or any event or circumstance which, with the lapse of time or the giving of
notice, or both, would constitute a default hereunder, Lender is authorized,
prior or subsequent to the institution of any foreclosure proceedings, to enter
upon the Property, or any part thereof, and to take possession of the Property
and all books and records relating thereto, and to exercise without interference
from Mortgagor any and all rights which Mortgagor has with respect to the
management, possession, operation, protection or preservation of the Property.
If necessary to obtain the possession provided for above, Lender may invoke any
and all remedies to dispossess Mortgagor. All costs, expenses and liabilities of
every character incurred by Lender in managing, operating, maintaining,
protecting or preserving the Property shall constitute a demand obligation
(which obligation Mortgagor hereby expressly promises to pay) owing by Mortgagor
to Lender and shall bear interest from date of expenditure until paid at the
rate described in Section 2.2 hereof, all of which shall constitute a portion of
the Indebtedness and shall be secured by this Mortgage and by any other
instrument securing the Indebtedness. In connection with any action taken by
Lender pursuant to this Section 4.3, LENDER SHALL NOT BE LIABLE FOR ANY LOSS
SUSTAINED BY MORTGAGOR RESULTING FROM ANY ACT OR OMISSION OF LENDER IN MANAGING
THE PROPERTY UNLESS SUCH LOSS IS CAUSED BY THE GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT OF LENDER, nor shall Lender be obligated to perform or discharge any
obligation, duty or liability of Mortgagor arising under any agreement forming a
part of the Property or arising under any Permitted Encumbrance or otherwise
arising. Mortgagor hereby assents to, ratifies and confirms any and all actions
of Lender with respect to the Property taken under this Section 4.3.
Section 4.4. Foreclosure.
------------
(a) Upon the occurrence of a default, this Mortgage may be foreclosed as to
the Mortgaged Properties, or any part thereof, in any manner permitted by
applicable law. Cumulative of the foregoing and the other provisions of this
Section 4.4, Lender may commence foreclosure proceedings against the property
through judicial proceedings or by advertisement, at the option of Lender,
pursuant to the statutes in such case made and provided, and sell the property
or to cause the same to be sold at public sale, and convey the same to the
purchaser in accordance with said statutes in a single parcel or in several
parcels at the option of Lender.
A POWER OF SALE HAS BEEN GRANTED IN THIS MORTGAGE. A POWER OF SALE MAY
----------------------------------------------------------------------
ALLOW LENDER TO TAKE THE MORTGAGED PROPERTIES AND SELL THEM WITHOUT GOING TO
- ----------------------------------------------------------------------------
COURT IN A FORECLOSURE ACTION UPON DEFAULT BY MORTGAGOR UNDER THIS MORTGAGE.
- ----------------------------------------------------------------------------
WARNING; THIS MORTGAGE CONTAINS A POWER OF SALE AND UPON DEFAULT MAY BE
-----------------------------------------------------------------------
FORECLOSED BY ADVERTISEMENT. IN FORECLOSURE BY ADVERTISEMENT AND THE SALE OF THE
- --------------------------------------------------------------------------------
PROPERTY IN CONNECTION THERE-WITH, NO HEARING IS REQUIRED AND THE ONLY NOTICE
- -----------------------------------------------------------------------------
REQUIRED IS THE PUBLICATION OF NOTICE IN A LOCAL NEWSPAPER AND THE POSTING OF A
- -------------------------------------------------------------------------------
COPY OF THE NOTICE ON THE PROPERTY.
- -----------------------------------
(b) Upon the occurrence of a default, Lender may exercise its rights of
enforcement with respect to the Collateral under the Uniform Commercial Code or
similar statute in force in Michigan, or in force in any other state to the
extent the same is applicable law. Cumulative of the foregoing and the other
provisions of this Section 4.4:
(i) Lender may enter upon the Mortgaged Properties or otherwise upon
Mortgagor's premises to take possession of, assemble and collect the
Collateral or to render it unusable; and
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<PAGE>
(ii) Lender may require Mortgagor to assemble the Collateral and make
it available at a place Lender designates which is mutually convenient to
allow Lender to take possession or dispose of the Collateral; and
(iii) written notice mailed to Mortgagor as provided herein at least
five (5) days prior to the date of public sale of the Collateral or prior
to the date after which private sale of the Collateral will be made shall
constitute reasonable notice; and
(iv) in the event of a foreclosure of the liens and/or security
interests evidenced hereby, the Collateral, or any part thereof, and the
Mortgaged Properties, or any part thereof may, at the option of Lender, be
sold, as a whole or in parts, together or separately (including, without
limitation, where a portion of the Mortgaged Properties is sold, the
Collateral related thereto may be sold in connection therewith); and
(v) the expenses of sale provided for in clause FIRST of Section 4.6
shall include the reasonable expenses of retaking the Collateral, or any
part thereof, holding the same and preparing the same for sale or other
disposition; and
(vi) should, under this subsection, the Collateral be disposed of
other than by sale, any proceeds of such disposition shall be treated under
Section 4.6 as if the same were sales proceeds.
(c) To the extent permitted by applicable law, the sale by Lender hereunder
of less than the whole of the Property shall not exhaust the powers of sale
herein granted or the right to judicial foreclosure, and successive sale or
sales may be made until the whole of the Property shall be sold, and, if the
proceeds of such sale of less than the whole of the Property shall be less than
the aggregate of the Indebtedness and the expense of conducting such sale, this
Mortgage and the liens and security interests hereof shall remain in full force
and effect as to the unsold portion of the Property just as though no sale had
been made; provided, however, that Mortgagor shall never have any right to
require the sale of less than the whole of the Property. In the event any sale
hereunder is not completed or is defective in the opinion of Lender, such sale
shall not exhaust the powers of sale hereunder or the right to judicial
foreclosure, and Lender shall have the right to cause a subsequent sale or sales
to be made. Any sale may be adjourned by announcement at the time and place
appointed for such sale without further notice except as may be required by law.
The Lender acting under power of sale, may appoint or delegate any one or more
persons as agent to perform any act or acts necessary or incident to any sale
held by it (including, without limitation, the posting of notices and the
conduct of sale). Any and all statements of fact or other recitals made in any
deed or deeds, or other instruments of transfer, given in connection with a sale
as to nonpayment of the Indebtedness or as to the occurrence of any default, or
as to Lender's having declared all of the Indebtedness to be due and payable, or
as to the request to sell, or as to notice of time, place and terms of sale and
the properties to be sold having been duly given, or as to any other act or
thing having been duly done, shall be taken as prima facie evidence of the truth
of the facts so stated and recited. With respect to any sale held in foreclosure
of the liens and/or security interests covered hereby, it shall not be necessary
for Lender, any public officer acting under execution or order of the court or
any other party to have physically present or constructively in his/her or its
possession, either at the time of or prior to such sale, the Property or any
part thereof.
Section 4.5. Receiver. In addition to all other remedies herein provided
---------
for, Mortgagor agrees that, upon the occurrence
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<PAGE>
of a default or any event or circumstance which, with the lapse of time or the
giving or notice, or both, would constitute a default hereunder, Lender shall be
entitled to the appointment of a receiver or receivers for all or any part of
the Property, whether such receivership be incident to a proposed sale (or
sales) of such property or otherwise, and without regard to the value of the
Property or the solvency of any person or persons liable for the payment of the
Indebtedness, and Mortgagor does hereby consent to the appointment of such
receiver or receivers, waives any and all defenses to such appointment, and
agrees not to oppose any application therefor by Lender, and agrees that such
appointment shall in no manner impair, prejudice or otherwise affect the rights
of Lender under Article III hereof. Nothing herein is to be construed to deprive
Lender of any other right, remedy or privilege it may now or hereafter have
under the law to have a receiver appointed. Any money advanced by Lender in
connection with any such receivership shall be a demand obligation (which
obligation Mortgagor hereby expressly promises to pay) owing by Mortgagor to
Lender and shall bear interest, from the date of making such advancement by
Lender until paid, at the rate described in Section 2.2 hereof.
Section 4.6. Proceeds of Foreclosure. The proceeds of any sale held in
------------------------
foreclosure of the liens and/or security interests evidenced hereby shall be
applied:
FIRST, to the payment of all necessary costs and expenses incident to
------
such foreclosure sale, including but not limited to all court costs and
charges of every character in the event foreclosed by suit;
SECOND, to the payment of the Indebtedness (including specifically
-------
without limitation the principal, interest and attorneys' fees due and
unpaid on the Note and the amounts due and unpaid and owed to Lender under
this Mortgage) in such manner and order as Lender may elect; and
THIRD, the remainder, if any there shall be, shall be paid to
------
Mortgagor, or to Mortgagor's heirs, devisees, representatives, successors
or assigns, or such other persons as may be entitled thereto by law.
Section 4.7. Lender as Purchaser. Any party constituting Lender shall have
--------------------
the right to become the purchaser at any sale held in foreclosure of the liens
and/or security interests evidenced hereby, and any Lender purchasing at any
such sale shall have the right to credit upon the amount of the bid made
therefor, to the extent necessary to satisfy such bid, the Indebtedness owing to
such Lender, or if such Lender holds less than all of such Indebtedness, the pro
rata part thereof owing to such Lender, accounting to all other Lenders not
joining in such bid in cash for the portion of such bid or bids apportionable to
such non-bidding Lender or Lenders.
Section 4.8. Foreclosure as to Mature Debt. Upon the occurrence of a
------------------------------
default, Lender shall have the right to proceed with foreclosure of the liens
and/or security interests evidenced hereby without declaring the entire
Indebtedness due, and in such event, any such foreclosure sale may be made
subject to the unmatured part of the Indebtedness and shall not in any manner
affect the unmatured part of the Indebtedness, but as to such unmatured part,
this Mortgage shall remain in full force and effect just as though no sale had
been made. The proceeds of such sale shall be applied as provided in Section 4.6
except that the amount paid under clause SECOND thereof shall be only the
matured portion of the Indebtedness and any proceeds of such sale in excess of
those provided for in clauses FIRST and SECOND (modified as provided above)
shall be applied as provided in clause SECOND and THIRD of Section 3.3 hereof.
Several sales may be made hereunder without exhausting the right of sale for any
unmatured part of the Indebtedness.
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<PAGE>
Section 4.9. Remedies Cumulative. All remedies herein provided for are
--------------------
cumulative of each other and of all other remedies existing at law or in equity
and are cumulative of any and all other remedies provided for in any other Loan
Document, and Lender shall, in addition to the remedies herein provided, be
entitled to avail itself of all such other remedies as may now or hereafter
exist at law or in equity for the collection of the Indebtedness and the
enforcement of the covenants herein and the foreclosure of the liens and/or
security interests evidenced hereby, and the resort to any remedy provided for
hereunder or under any such other Loan Document or provided for by law shall not
prevent the concurrent or subsequent employment of any other appropriate remedy
or remedies.
Section 4.10. Lender's Discretion as to Security. Lender may resort to any
-----------------------------------
security given by this Mortgage or to any other security now existing or
hereafter given to secure the payment of the indebtedness, in whole or in part,
and in such portions and in such order as may seem best to Lender in its sole
and uncontrolled discretion, and any such action shall not in any way be
considered as a waiver of any of the rights, benefits, liens or security
interests evidenced by this Mortgage.
Section 4.11. Mortgagor's Waiver of Certain Rights. To the full extent
-------------------------------------
Mortgagor may do so, Mortgagor agrees that Mortgagor will not at any time insist
upon, plead, claim or take the benefit or advantage of any law now or hereafter
in force providing for any appraisement, valuation, stay, extension or
redemption, and Mortgagor, for Mortgagor, Mortgagor's heirs, devisees,
representatives, successors and assigns, and for any and all persons ever
claiming any interest in the Property, to the extent permitted by applicable
law, hereby waives and releases all rights of appraisement, valuation, stay of
execution, redemption, notice of intention to mature or declare due the whole of
the Indebtedness, notice of election to mature or declare due the whole of the
Indebtedness and all rights to a marshaling of assets of Mortgagor, including
the Property, or to a sale in inverse order of alienation in the event of
foreclosure of the liens and/or security interests hereby created. To the extent
permitted by applicable law, Mortgagor shall not have or assert any right under
any statute or rule of law pertaining to the marshaling of assets, sale in
inverse order of alienation, the exemption of homestead, the administration of
estates of decedents, or other matters whatever to defeat, reduce or affect the
right of Lender under the terms of this Mortgage to a sale of the Property for
the collection of the Indebtedness without any prior or different resort for
collection, or the right of Lender under the terms of this Mortgage to the
payment of the Indebtedness out of the proceeds of sale of the Property in
preference to every other claimant whatever. If any law referred to in this
section and now in force, of which Mortgagor or Mortgagor's heirs, devisees,
representatives, successors or assigns or any other persons claiming any
interest in the Mortgaged Properties or the Collateral might take advantage
despite this section, shall hereafter be repealed or cease to be in force, such
law shall not thereafter be deemed to preclude the application of this section.
Section 4.12. Mortgagor as Tenant Post-Foreclosure. In the event there is a
-------------------------------------
foreclosure sale hereunder and at the time of such sale Mortgagor or Mortgagor's
heirs, devisees, representatives, successors or assigns or any other persons
claiming any interest in the Property by, through or under Mortgagor are
occupying or using the Property, or any part thereof, each and all shall
immediately become the tenant of the purchaser at such sale, which tenancy shall
be a tenancy from day to day, terminable at the will of either landlord or
tenant, at a reasonable rental per day based upon the value of the property
occupied, such rental to be due daily to the purchaser. To the extent permitted
by applicable law, the purchaser at such sale shall, notwithstanding any
language herein apparently to the contrary, have the sole option to demand
immediate possession
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<PAGE>
following the sale or to permit the occupants to remain as tenants at will. In
the event the tenant fails to surrender possession of said property upon demand,
the purchaser shall be entitled to institute and maintain a summary action for
possession of the property (such as an action for forcible entry and detainer)
in any court having jurisdiction.
ARTICLE V.
Miscellaneous
-------------
Section 5.1. Scope of Mortgage. This Mortgage is a mortgage of both real
------------------
and personal property, a security agreement, a financing statement and an
assignment, and also covers proceeds and fixtures.
Section 5.2. Effective as a Financing Statement. This Mortgage shall be
-----------------------------------
effective as a financing statement filed as a fixture filing with respect to all
fixtures included within the Property. This Mortgage is to be filed for record
in the real estate records of each county where any part of the Mortgaged
Properties is situated, and may also be filed in the offices of the Bureau of
Land Management or the Minerals Management Service or state agency (or any
successor agencies). This Mortgage shall also be effective as a financing
statement covering any other Property and may be filed in any other appropriate
filing or recording office. The mailing address of Mortgagor is the address of
Mortgagor set forth at the end of this Mortgage and the address of Lender from
which information concerning the security interests hereunder may be obtained is
the address of Lender set forth at the end of this Mortgage.
Section 5.3. Reproduction of Mortgage as Financing Statement. A carbon,
------------------------------------------------
photographic, facsimile or other reproduction of this Mortgage or of any
financing statement relating to this Mortgage shall be sufficient as a financing
statement for any of the purposes referred to in Section 5.2.
Section 5.4. Notice to Account Debtors. In addition to, but without
--------------------------
limitation of, the rights granted in Article III hereof, Lender may at any time
notify the account debtors or obligors of any accounts, chattel paper,
negotiable instruments or other evidences of indebtedness included in the
Collateral to pay Lender directly.
Section 5.5. Waiver by Lender. Lender may at any time and from time to time
-----------------
in writing waive compliance by Mortgagor with any covenant herein made by
Mortgagor to the extent and in the manner specified in such writing, or consent
to Mortgagor's doing any act which hereunder Mortgagor is prohibited from doing,
or to Mortgagor's failing to do any act which hereunder Mortgagor is required to
do, to the extent and in the manner specified in such writing, or release any
part of the Property or any interest therein or any Proceeds from the lien and
security interest of this Mortgage, or release any party liable, either directly
or indirectly, for the Indebtedness or for any covenant herein or in any other
Loan Document, without impairing or releasing the liability of any other party.
No such act shall in any way impair the rights or powers of Lender hereunder
except to the extent specifically agreed to by Lender in such writing.
Section 5.6. No Impairment of Security. The lien, security interest and
--------------------------
other security rights of Lender hereunder shall not be impaired by any
indulgence, moratorium or release granted by Lender including, but not limited
to, any renewal, extension or modification which Lender may grant with respect
to any indebtedness, or any surrender, compromise, release, renewal, extension,
exchange or substitution which Lender may grant in respect of the Property
(including without limitation Proceeds), or any part thereof or any interest
therein, or any release or
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<PAGE>
indulgence granted to any endorser, guarantor or surety of any indebtedness.
Section 5.7. Acts Not Constituting Waiver by Lender. Lender may waive any
---------------------------------------
default without waiving any other prior or subsequent default. Lender may remedy
any default without waiving the default remedied. Neither failure by Lender to
exercise, nor delay by Lender in exercising, any right, power or remedy upon any
default shall be construed as a waiver of such default or as a waiver of the
right to exercise any such right, power or remedy at a later date. No single or
partial exercise by Lender of any right, power or remedy hereunder shall exhaust
the same or shall preclude any other or further exercise thereof, and every such
right, power or remedy hereunder may be exercised at any time and from time to
time. No modification or waiver of any provision hereof nor consent to any
departure by Mortgagor therefrom shall in any event be effective unless the same
shall be in Writing and signed by Lender and then such waiver or consent shall
be effective only in the specific instances, for the purpose for which given and
to the extent therein specified. No notice to nor demand on Mortgagor in any
case shall of itself entitle Mortgagor to any other or further notice or demand
in similar or other circumstances. Acceptance by Lender of any payment in an
amount less than the amount then due on any Indebtedness shall be deemed an
acceptance on account only and shall not in any way excuse the existence of a
default hereunder.
Section 5.8. Mortgagor's Successors. In the event the ownership of the
-----------------------
Property or any part thereof becomes vested in a person other than Mortgagor,
Lender may, without notice to Mortgagor, deal with such successor or successors
in interest with reference to this Mortgage and to the indebtedness in the same
manner as with Mortgagor, without in any way vitiating or discharging
Mortgagor's liability hereunder or for the payment of the Indebtedness or
performance of the obligations secured hereby. No transfer of the Property, no
forbearance on the part of Lender, and no extension of the time for the payment
of the Indebtedness given by Lender shall operate to release, discharge, modify,
change or affect, in whole or in part, the liability of Mortgagor hereunder or
for the payment of the Indebtedness or performance of the obligations secured
hereby or the liability of any other person hereunder or for the payment of the
Indebtedness.
Section 5.9. Place of Payment. All Indebtedness which may be owing
-----------------
hereunder at any time by Mortgagor shall be payable at the place designated in
the Amended and Restated Credit Agreement (or if no such designation is made, at
the address of Lender indicated at the end of this Mortgage), or at such other
place as Lender may designate in writing.
Section 5.10. Subrogation to Existing Liens. To the extent that proceeds of
------------------------------
the Note are used to pay indebtedness secured by any outstanding lien, security
interest, charge or prior encumbrance against the Property, such proceeds have
been advanced by Lender at Mortgagor's request, and Lender shall be subrogated
to any and all rights, security interests and liens owned by any owner or holder
of such outstanding liens, security interests, charges or encumbrances,
irrespective of whether said liens, security interests, charges or encumbrances
are released, and it is expressly understood that, in consideration of the
payment of such indebtedness by Lender, Mortgagor hereby waives and releases all
demands and causes of action for offsets and payments to, upon and in connection
with the said indebtedness.
Section 5.11. Application of Payments to Certain Indebtedness. If any part
------------------------------------------------
of the Indebtedness cannot be lawfully secured by this Mortgage or if any part
of the Property cannot be lawfully subject to the lien and security interest
hereof to the full extent of such Indebtedness, then all payments made shall be
applied on said Indebtedness first in discharge of that portion thereof which is
not secured by this Mortgage.
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<PAGE>
Section 5.12. Compliance with Usury Laws. It is the intent of Mortgagor,
---------------------------
Lender and all other parties to the Loan Documents to contract in strict
compliance with applicable usury law from time to time in effect. In furtherance
thereof, it is stipulated and agreed that none of the terms and provisions
contained herein shall ever be construed to create a contract to pay, for the
use, forbearance or detention of money, interest in excess of the maximum amount
of interest permitted to be charged by applicable law from time to time in
effect.
Section 5.13. Release of Mortgage. If all of the Indebtedness be paid as
--------------------
the same becomes due and payable and all of the covenants, warranties,
undertakings and agreements made in this Mortgage are kept and performed and
Lender shall have no further obligation to provide credit or advance funds to
Mortgagor or the maker of any promissory note (or other obligor with respect to
other Indebtedness) secured hereby, then, Lender shall, at Mortgagor's request,
release this Mortgage, in due form and at Mortgagor's cost; provided, however,
that, notwithstanding such release, certain indemnifications, and other rights,
which are provided herein to continue following the release hereof, shall
continue in effect unaffected by such release.
Section 5.14. Notices. All notices, requests, consents, demands and other
--------
communications required or permitted hereunder shall be in writing and shall be
deemed sufficiently given or furnished if delivered by personal delivery, by
telecopy, by delivery service with proof of delivery, or by registered or
certified United States mail, postage prepaid, at the addresses specified at the
end of this Mortgage (unless changed by similar notice in writing given by the
particular party whose address is to be changed). Any such notice or
communication shall be deemed to have been given (a) in the case of personal
delivery or delivery service, as of the date of first attempted delivery at the
address and in the manner provided herein, (b) in the case of telecopy, upon
receipt, and (c) in the case of registered or certified United States mail,
three days after deposit in the mail. Notwithstanding the foregoing, or anything
else in the Loan Documents which may appear to the contrary, any notice given in
connection with a foreclosure of the liens and/or security interests created
hereunder, or otherwise in connection with the exercise by Lender of its rights
hereunder or under any other Loan Document, which is given in a manner permitted
by applicable law shall constitute proper notice; without limitation of the
foregoing, notice given in a form required or permitted by statute shall (as to
the portion of the Property to which such statute is applicable) constitute
proper notice.
Section 5.15. Invalidity of Certain Provisions. A determination that any
---------------------------------
provision of this Mortgage is unenforceable or invalid shall not affect the
enforceability or validity of any other provision and the determination that the
application of any provision of this Mortgage to any person or circumstance is
illegal or unenforceable shall not affect the enforceability or validity of such
provision as it may apply to other persons or circumstances.
Section 5.16. Gender: Titles. Within this Mortgage, words of any gender
---------------
shall be held and construed to include any other gender, and words in the
singular number shall be held and construed to include the plural, unless the
context otherwise requires. Titles appearing at the beginning of any
subdivisions hereof are for convenience only, do not constitute any part of such
subdivisions, and shall be disregarded in construing the language contained in
such subdivisions.
Section 5.17. Recording. Mortgagor will cause this Mortgage and all
----------
amendments and supplements thereto and substitutions therefor and all financing
statements and continuation statements relating thereto to be recorded, filed,
re-recorded and refiled in such manner and in such places as
-23-
<PAGE>
Lender shall reasonably request and will pay all such recording, filing, re-
recording and refiling taxes, fees and other charges.
Section 5.18. Reporting Compliance. Mortgagor agrees to comply with any and
---------------------
all reporting requirements applicable to the transaction evidenced by the Note
and secured by this Mortgage which are set forth in any law, statute, ordinance,
rule, regulation, order or determination of any governmental authority, and
further agrees upon request of Lender to furnish Lender with evidence of such
compliance.
Section 5.19. Lender's Consent. Except where otherwise expressly provided
-----------------
herein, in any instance hereunder where the approval, consent or the exercise of
judgment of Lender is required, the granting or denial of such approval or
consent and the exercise of such judgment shall be within the sole discretion of
Lender, and Lender shall not, for any reason or to any extent, be required to
grant such approval or consent or exercise such judgment in any particular
manner, regardless of the reasonableness of either the request or Lender's
judgment.
Section 5.20. Certain Obligations of Mortgagor. Without limiting
---------------------------------
Mortgagor's obligations hereunder, Mortgagor liability hereunder shall extend to
and include all post petition interest, expenses, and other duties and
liabilities with respect to Mortgagor's obligations hereunder which would be
owed but for the fact that the same may be unenforceable due to the existence of
a bankruptcy, reorganization or similar proceeding.
Section 5.21. Restatement of Assigned Mortgages. It is the desire and
----------------------------------
intention of Mortgagor and Lender to renew all liens, rights, powers,
privileges, superior titles, estates and security interests existing by virtue
of the Partially Assigned Mortgage Rights and the Gathering System Mortgage, and
in connection therewith, it is understood and agreed that this Mortgage restates
and amends the Gathering System Mortgage in its entirety. This Mortgage renews
all liens, rights, powers, privileges, superior titles, estates and security
interests existing by virtue of the Gathering System Mortgage but the terms,
provisions and conditions of such liens, powers, privileges, superior titles,
estates and security interests shall hereafter be governed in all respects by
this Mortgage and any amendments or supplements thereto.
Section 5.22. Counterparts. This Mortgage may be executed in several
-------------
counterparts, all of which are identical. All of such counterparts together
shall constitute one and the same instrument.
Section 5.23. Successors and Assigns. The terms, provisions, covenants,
-----------------------
representations, indemnifications and conditions hereof shall be binding upon
Mortgagor, and the successors and assigns of Mortgagor, and shall inure to the
benefit of Lender and its successors and assigns, and shall constitute covenants
running with the Mortgaged Properties. All references in this Mortgage to
Mortgagor or Lender shall be deemed to include all such successors and assigns.
Section 5.24. FINAL AGREEMENT OF THE PARTIES. THE WRITTEN LOAN DOCUMENTS
----------------------------------------------------------
REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY
- --------------------------------------------------------------------------------
EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE
- ------------------------------------------------------------------------
PARTIES. THERE ARE NO MITTEN ORAL AGREEMENT BETWEEN THE PARTIES.
- -----------------------------------------------------------------
Section 5.25. CHOICE OF LAW. THIS MORTGAGE SHALL BE CONSTRUED AND ENFORCED
--------------
IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF ILLINOIS APPLICABLE
TO CONTRACTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE AND THE LAWS OF
THE UNITED STATES OF AMERICA, EXCEPT THAT TO THE EXTENT THAT THE LAW OF A STATE
IN WHICH A PORTION OF THE PROPERTY IS LOCATED (OR WHICH IS OTHERWISE APPLICABLE
TO A PORTION OF THE PROPERTY) NECESSARILY GOVERNS WITH RESPECT TO PROCEDURAL AND
SUBSTANTIVE
-24-
<PAGE>
MATTERS RELATING TO THE CREATION, PERFECTION AND ENFORCEMENT OF THE LIENS,
SECURITY INTERESTS AND OTHER RIGHTS AND REMEDIES OF THE LENDER GRANTED HEREIN,
THE LAW OF SUCH STATE SHALL APPLY AS TO THAT PORTION OF THE PROPERTY LOCATED IN
(OR OTHERWISE SUBJECT TO THE LAWS OF) SUCH STATE.
Section 5.26. After Acquired Interests. If the Mortgagor shall hereafter
-------------------------
acquire any additional interest in any tract or parcel currently a part of the
Mortgaged Properties or shall hereafter acquire any interest in other lands in
the State of Michigan, then the Mortgagor shall promptly thereafter advise the
Lender of such acquisition and enter into such supplemental mortgages, security
agreements and financing statements pertaining thereto as may be reasonably
requested by the Lender to evidence and confirm of record the inclusion of such
interests in the Mortgaged Properties and subject to the lien and security
interest of this instrument.
Section 5.27 No Merger. If both the lessor's and lessee's estates under any
----------
lease or any portion thereof which constitutes a part of the Mortgaged
Properties shall at any time become vested in one owner, this instrument and the
lien and security interest created hereby shall not be destroyed or terminated
by application of the doctrine of merger and, in such event, Lender shall
continue to have and enjoy all of the rights and privileges of Lender as to the
separate estates. In addition, upon the foreclosure of the lien and security
interest created by this instrument on the Mortgaged Properties pursuant to the
provisions hereof, any leases or subleases then existing and created by the
Mortgagor shall not be destroyed or terminated by application of the law of
merger or as a matter of law or as a result of such foreclosure unless Lender or
any purchaser at any such foreclosure sale shall so elect. No act by or on
behalf of Lender or any such purchaser shall constitute a termination of any
lease or sublease unless Lender or such purchaser shall give written notice
thereof to such tenant or subtenant. In addition, no interest held or acquired
by Lender under this instrument shall ever be deemed to merge with or into any
other interest held or acquired by Lender in the lands, properties or interests
comprising the Mortgaged Properties.
Section 5.28. Lender as Agent for its Affiliates. As described above,
-----------------------------------
certain Affiliates of the Lender, including without limitation, Bank of America
National Trust and Savings Association, are or may become parties to certain
Hedging Agreements with the Mortgagor and/or Affiliates of the Mortgagor. This
Mortgage secures the obligations of the Mortgagor and such Affiliates, as the
case may be, under such Hedging Agreements, and the parties hereto acknowledge
for all purposes that the Lender acts as agent on behalf of such Affiliates of
the Lender which are so entitled to share in the rights and benefits accruing to
the Lender under this Mortgage.
Section 5.29. Subordination. Notwithstanding anything to the contrary
--------------
contained herein, Lender hereby agrees for itself and its successors and
assigns, that Lender's rights and remedies hereunder (the "Rights"), and any and
all liens and security interests granted in or pursuant to this Mortgage that
are granted to secure the Rights (the "Liens") as well as any interest in any
property or asset, including the Property, acquired by reason of the enforcement
of any of the Rights or the Liens are subject to the terms of the Subordination
Agreement, which provides, among other things, that the Rights and the Liens are
subject to the Participation Agreement as more particularly set forth therein.
This Section 5.29 shall be deemed a covenant binding upon and running with the
Property.
Section 5.30 Limitation on Recourse. Notwithstanding the general terms of
-----------------------
Mortgagor's obligations under this Mortgage or anything to the contrary
contained herein, Lender hereby agrees not to seek to satisfy Mortgagor's
obligations under this Mortgage out of any property, assets, revenues or funds
of
-25-
<PAGE>
Mortgagor other than (i) MEC's Share of the Property (which shall remain subject
to the Subordination Agreement) or (ii) funds which are distributed to West
Shore and, in turn, to MEG from time to time pursuant to the Participation
Agreement.
-26-
<PAGE>
IN WITNESS WHEREOF, this instrument is executed by Mortgagor
this 2nd day of May, 1996.
Name: Mary Beth Rhodey
WESTSHORE PROCESSING COMPANY, L.L.C.,
By: MarkWest Michigan: its Operator
By: MarkWest Hydrocarbon Partners, Ltd., its Manager
By: MarkWest Hydrocarbon, Inc., its General Partner
Title: Vice President
The address of Lender is: The address of Mortgagor is:
231 South LaSalle Street c/o MarkWest Michigan LLC
Chicago, Illinois 60697 5615 DTC Parkway, Suite 400
Englewood, Colorado 80111
<PAGE>
STATE OF TEXAS (S)
COUNTY OF HARRIS (S)
The foregoing instrument was acknowledged before me on this 2nd day of May,
1996, by Arthur J. Denney, the Vice President of MarkWest Hydrocarbon, Inc., the
General Partner of MarkWest Hydrocarbon Partners, Ltd., the Manager of MarkWest
Michigan LLC, the Operator of West Shore Processing Company, L.L.C., a Michigan
limited liability company, on behalf of said company.
MARY JOSEPHINE GORDON JULY 12, 1997
My commission expires: 7/12/96
Notary Public State of Texas
Mary Josephine Gordon (printed name)
This instrument prepared by:
Kevin L. Shaw
Mayor, Brown &Platt
250 South Grand Avenue
Los Angeles, California 90071-1563
<PAGE>
SCHEDULE 1
Part One
--------
1. Mortgage, Assignment, Security Agreement and Financing Statement dated
December 1, 1993, executed by Manistee Gas Limited Liability Company in favor of
Michigan Gas Fund I, counterparts of which were recorded as follows:
<TABLE>
<CAPTION>
State/County Recording Data Date of filing
- ------------ -------------- --------------
<S> <C> <C>
Michigan/Manistee Liber 586, Page 11 1/7/94
Michigan/Mason Liber 436, Page 701 1/18/94
</TABLE>
2. First Supplement to Mortgage, Assignment, Security Agreement and
Financing Statement dated March 30, 1994, executed by Manistee Gas Limited
Liability Company and Michigan Gas Fund I, recorded as follows:
<TABLE>
<CAPTION>
State/County Recording Data Date of filing
- ------------ -------------- --------------
<S> <C> <C>
Michigan/Manistee Liber 592, Page 55/4/94
Michigan/Mason Liber 439, Page 630 4/14/94
</TABLE>
3. Second Supplement to Mortgage, Assignment, Security Agreement and
Financing Statement dated October 24, 1994, executed by Manistee Gas Limited
Liability Company and Michigan Gas Fund I, recorded as follows:
<TABLE>
<CAPTION>
State/County Recording Data Date of filing
- ------------ -------------- --------------
<S> <C> <C>
Michigan/Manistee Liber 605, Page 69 2/12/94
Michigan/Mason Liber 439, Page 630 12/8/94
</TABLE>
Part Two
1. Collateral Assignment of Notes and Liens dated December 1, 1993 from
Michigan Gas Fund I to Bankers Trust Company, Trustee, recorded as follows:
<TABLE>
<CAPTION>
State/County Recording Data Date of Filing
- ------------ -------------- --------------
<S> <C> <C>
Michigan/Manistee Liber 586, Page 135 1/7/94
Michigan/Mason Liber 436, Page 786 1/18/94
Michigan/Muskegon Liber 1743, Page 532 12/27/93
Michigan/Oceana File No. 9313153 12/27/93
</TABLE>
2. Amended and Restated Collateral Assignment of Notes and Liens dated March
31, 1994 from Michigan Gas Fund I to Bankers Trust Company, Trustee, recorded as
follows:
<TABLE>
<CAPTION>
State/County Recording Data Date of filing
- ------------ -------------- --------------
<S> <C> <C>
Michigan/Manistee
Michigan/Mason
Michigan/Muskegon
Michigan/Oceana
</TABLE>
3. Second Amended and Restated Collateral Assignment of Notes and Liens dated
December 29, 1996 from Michigan Gas Fund I to Bankers Trust Company, Trustee,
recorded as follows:
<TABLE>
<CAPTION>
State/County Recording Data Date of Filing
- ------------ -------------- --------------
<S> <C> <C>
Michigan/Manistee Liber 626, Page 253 2/6/96
Michigan/Mason Liber 460, Page 592 1/18/96
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
State/County Recording Data Date of Filing
- ------------ -------------- --------------
<S> <C> <C>
Michigan/Muskegon Liber 1877, Page 615 1/24/96
Michigan/Oceana File No. 960683 1/18/96
</TABLE>
-1-
<PAGE>
4. Assignment of Notes and Liens dated December 29, 1995, to Bank of America
Illinois, recorded as follows:
<TABLE>
<CAPTION>
State/County Recording Data Date of filing
- ------------ -------------- --------------
<S> <C> <C>
Michigan/Manistee Liber 626, Page 244 2/6/96
Michigan/Mason Liber 460, Page 583 1/18/96
Michigan/Muskegon Liber 1877, Page 606 1/24/96
Michigan/Oceana File No. 960644 1/18/96
</TABLE>
-2-
<PAGE>
EXHIBIT A - EASEMENTS AND LEASES TO MEC
EASEMENTS.
1. Easement and right of way conveyed by Stanley J. Motyka et al. to The Dow
Chemical Company on April 18, 1984, and recorded in the office of the Mason
County Register of Deeds at Liber 313, Page 469, Mason County, Michigan;
2. Easement and right of way conveyed by James A. Nickelson et al. to The Dow
Chemical Company on April 18, 1984, and recorded in the office of the Mason
County Register of Deeds at Liber 313, Page 471, Mason County, Michigan;
3. Easement and right of way conveyed by Consumers Power Company to The Dow
Chemical Company on October 29, 1973, and recorded in the office of the
Mason County Register of Deeds at Liber 86, Page 222, Mason County,
Michigan;
4. Easement and right of way conveyed by Esther Weinert to The Dow Chemical
Company on May 14, 1984 and recorded in the office of the Mason County
Register of Deeds at Liber 314, Page 382, Mason County, Michigan;
5. Easement and right of way conveyed by William C. Groth et at. to The Dow
Chemical Company on June 26, 1973, and recorded in the office of the Mason
County Register of Deeds at Liber 85, Page 375, Mason County, Michigan;
6. Easement and right of way conveyed by George E. Brant et al. to The Dow
Chemical Company on June 26, 1973, and recorded in the office of the Mason
County Register of Deeds at Liber 85, Page 369, Mason County, Michigan;
7. Easement and right of way conveyed by Fredrick L. Bates to The Dow Chemical
Company on June 26, 1973, and recorded in the office of the Mason County
Register of Deeds at Liber 85, Page 371, Mason County, Michigan;
8. Easement and right of way conveyed by Joseph E. O'Brien et al. to The Dow
Chemical Company on June 27, 1973, and recorded in the office of the Mason
County Register of Deeds at Liber 85, Page 373, Mason County, Michigan;
9. Easement and right of way conveyed by Richard H. Kraft et al. to The Dow
Chemical Company on July 28, 1973, and recorded in the office of the Mason
County Register of Deeds at Liber 85, Page 367, Mason County, Michigan;
10. Easement and right of way conveyed by Frederick F. Petersen et al. to The
Dow Chemical Company on June 17, 1978, and recorded in the office of the
Mason County Register of Deeds at Liber 243, Page 436, Mason County,
Michigan;
11. Easement and right of way conveyed by Donald C. Diesing et al. to The Dow
Chemical Company on May 19, 1978, and recorded in the office of the Mason
County Register of Deeds at Liber 243, Page 432, Mason County, Michigan;
A-1
<PAGE>
12. Easement and right of way conveyed by David A. Diesing and Daryl L.
Diesing, to The Dow Chemical Company on May 23, 1978, for David, and May
19, 1978, for Daryl, and recorded in the office of the Mason County
Register of Deeds at Liber 243, Page 430, Mason County, Michigan;
13. Easement and right of way conveyed by Robert A. Raschka to The Dow Chemical
Company on July 20, 1973, and recorded in the office of the Mason County
Register of Deeds at Liber 85, Page 365, Mason County, Michigan;
14. Easement and right of way conveyed by Emmett E. Petersen et al. to The Dow
Chemical Company on August 2, 1973, and recorded in the office of the Mason
County Register of Dens at Liber 85, Page 361, Mason County, Michigan;
15. Easement and right of way conveyed by Birdsill Holly et al. to The Dow
Chemical Company on July 19, 1973, and recorded in the office of the Mason
County Register of Deeds at Liber 85, Page 363, Mason County, Michigan;
16. Easement and right of way conveyed by Frederick F. Peterson et al.. to The
Dow Chemical Company on August 1, 1975, and recorded in the office of the
Mason County Register of Deeds at Liber 89, Page 417, Mason County,
Michigan;
17. Easement and right of way conveyed by Donald Diesing et al. to The Dow
Chemical Company on November 13, 1974, and recorded in the office of the
Mason County Register of Deeds at Liber 89, Page 199, Mason County,
Michigan;
18. Easement and right of way conveyed by Alfred W. Stadler to The Dow Chemical
Company on May 8, 1974, and recorded in the office of the Biason County
Register of Deeds at Liber 89, Page 221, Mason County, Michigan;
19. Easement and right of way conveyed by Bernard O. Stadler el al. to The Dow
Chemical Company on May 9, 1974, and recorded in the office of the Mason
County Register of Deeds at Liber 89, Page 211, Mason County, Michigan;
20. Easement and right of way conveyed by William John Leak et al. to The Dow
Chemical Company on May 9, 1974, and recorded in the office of the Mason
County Register of Deeds at Liber 89, Page 213, Mason County, Michigan;
21. Easement and right of way conveyed by William Sadler to The Dow Chemical
Company on July 17, 1974, and recorded in the office of the Mason County
Register of Deeds at Liber 89, Page 197, Mason County, Michigan;
22. Easement and right of way conveyed by Homer C. Hansen et al. to The Dow
Chemical Company on August 14, 1973, and recorded in the office of the
Mason County Register of Deeds at Liber 85, Page 377, Mason County,
Michigan;
23. Easement and right of way conveyed by Elizabeth Hagen et al. to The Dow
Chemical Company on October 18, 1990, and recorded in the office of the
Mason County Register of Deeds at Liber 405, Page 301, Mason County,
Michigan;
A-2
<PAGE>
24. Easement and right of way conveyed by Esther E. Billow to The Dow Chemical
Company on October 16, 1975, and recorded in the office of the Mason County
Register of Deeds at Liber 90, Page 55, Mason County, Michigan;
25. Easement and right of way conveyed by Charles Williams et al. to The Dow
Chemical Company on July 5, 1973, and recorded in the office of the Mason
County Register of Deeds at Liber 85, Page 357, Mason County, Michigan;
26. Easement and right of way conveyed by Jerry A. Malstrom et al. to The Dow
Chemical Company on August 11, 1973, and recorded in the office of the
Mason County Register of Deeds at Liber 85, Page 349, Mason County,
Michigan;
27. Easement and right of way conveyed by Reva J. Miller et el. to The Dow
Chemical Company on April 22, 1975, and recorded in the office of the Mason
County Register of Deeds at Liber 92, Page 535, Mason County, Michigan;
28. Easement and right of way conveyed by Reva J. Miller et el. to The Dow
Chemical Company on December 8, 1975, and recorded in the office of the
Mason County Register of Deeds at Liber 90, Page 244, Mason County,
Michigan;
29. Easement and right of way conveyed by John O. Swanson et el. to The Dow
Chemical Company on November 6, 1973, and recorded in the office of the
Mason County Register of Deeds at Liber 86, Page 159, Mason County,
Michigan;
30. Easement and right of way conveyed by Jerry A. Malstrom et el. to The Dow
Chemical Company on May 28, 1990, and recorded in the office of the Mason
County Register of Deeds at Liber 267, Page 15, Mason County, Michigan;
31. Easement and right of way conveyed by John Olson to The Dow Chemical ,
Company on May 20, 1974, and recorded in the office of the Mason County
Register of Deeds at Liber 89, Page 219, Mason County, Michigan;
32. Easement and right of way conveyed by Bernard Sterley et al. to The Dow
Chemical Company on August 11, 1973, and recorded in the office of the
Mason County Register of Deeds at Liber 85, Page 351, Mason County,
Michigan;
33. Easement and right of way conveyed by Edgar A. Williams et al. to The Dow
Chemical Company on October 31, 1973, and recorded in the office of the
Mason County Register of Deeds at liber 86, Page 100, Mason County,
Michigan;
34. Easement and right of way conveyed by Edgar A. Williams et el. to The Dow
Chemical Company on November 5, 1974, and recorded in the office of the
Mason County Register of Deeds at Liber 89, Page 191, Mason County,
Michigan;
35. Easement and right of way conveyed by Richard Dennis et el. to The Dow
Chemical Company on February 6, 1975, and recorded in the office of the
Mason County Register of Deeds at Liber 89, Page 187, Mason County,
Michigan;
A-3
<PAGE>
36. Easement and right of way conveyed by Lawrence Timpy et al. to The Dow
Chemical Company on May 20, 1974, and recorded in the office of the Mason
County Register of Deeds at Liber 89, Page 215, Mason County, Michigan;
37. Easement and right of way conveyed by Arthur Swanson et al. to The Dow
Chemical Company on May 16, 1974, and recorded in the office of the Mason
County Register of Deeds at Liber 89, Page 223, Mason County, Michigan;
38. Easement and right of way conveyed by Ray Karboske et al. to The Dow
Chemical Company on January 29, 1975, and recorded in the office of the
Mason County Register of Deeds at Liber 89, Page 193, Mason County,
Michigan;
39. Easement and right of way conveyed by Donald O. Swanson et al. to The Dow
Chemical Company on August 14, 1974, and recorded in the office of the
Mason County Register of Deeds at Liber 89, Page 205, Mason County,
Michigan;
40. Easement and right of way conveyed by Robert Ruby et al. to The Dow
Chemical Company on July 16, 1974, and recorded in the office of the Mason
County Register of Deeds at Liber 89, Page 203, Mason County, Michigan;
41. Easement and right of way conveyed by Ann Raschka to The Dow Chemical
Company on August 16, 1974, and recorded in the office of the Mason County
Register of Deeds at Liber 89, Page 209, Mason County, Michigan;
42. Easement and right of way conveyed by Donald C. Diesing et al. to The Dow
Chemical Company on August 4, 1981, and recorded in the office of the Mason
County Register of Deeds at Liber 281, Page 332, Mason County, Michigan;
43. Easement and right of way conveyed by Thompson Cabinet Company to The Dow
Chemical Company on August 11, 1981, and recorded in the office of the
Mason County Register of Deeds at Liber 281, Page 203, Mason County,
Michigan;
44. Easement and right of way conveyed by Charles F. Larson et al. to The Dow
Chemical Company on August 9, 1981, and recorded in the office of the Mason
County Register of Deeds at Liber 281, Page 201, Mason County, Michigan;
45. Easement and right of way conveyed by Benjamin F. Campeau et al. to The Dow
Chemical Company on June 20, 1981, and recorded in the office of the Mason
County Register of Deeds at Liber 280, Page 40, Mason County, Michigan;
46. Easement and right of way conveyed by Freeman L. Thompson et al. to The Dow
Chemical Company on June 20, 1981, and recorded in the office of the Mason
County Register of Deeds at Liber 280, Page 38, Mason County, Michigan;
47. Easement and right of way conveyed by Freeman L. Thompson et al. to The Dow
Chemical Company on July 23, 1974, and recorded in the office of the Mason
County Register of Deeds at Liber 89, Page 201, Mason County, Michigan;
A-4
<PAGE>
48. Easement and right of 'way conveyed by Howard T. Fugere et al. to The Dow
Chemical Company on May 27, 1980, and recorded in the office of the Mason
County Register of Deeds at Liber 267, Page 13, Mason County, Michigan.
49. Easement Agreement dated August 16, 1993 between City of Manistee and
Manistee Gas Limited Liability Company recorded on August 21, 1993, in
Liber 578, Page 282, Deed of Records of Manistee County, Michigan.
LEASES
1. Lease Agreement from Dow Chemical to Manistee Gas limited Liability Company
dated March 14, 1994, covering the following described land:
Part of the E 1/2 of the NE 1/4 of the NW 1/4 of Section 19, T19N-R17W,
Victory Township, Mason County, Michigan, described as follows: Commencing
at the N 1/4 corner of said Section 19; thence due West along the Section
line 652.32'; thence S 00 degrees 11 '28" W, along the West line of the E
1/2 of the NE 1/4 of the NW 1/4 of said Section 19, 537.03' to the Point of
Beginning; thence S 63 degrees 40'37" E 142.79'; thence S 26 degrees 19'23"
W 206.00'; thence S 63 degrees 40'37" E 142.79; thence S 26 degrees 19'23"
W 206.00'; thence N 63 degrees 40'37" W 41.74'; thence N 00 degrees 11'28"
E 229.45' to the Point of Beginning, 0.44 acres.
2. Sublease from Dow Chemical to Manistee Gas Limited Liability Company, dated
March 14, 1994, covering the Lease Agreement between Emmett Earl Peterson and
Jeanine Peterson, as Landlord, and The Dow Chemical Company, as Tenant.
3. Lease dated effective December 2.7, 1993 by and between Kenneth Dennis and
Noel Parrish and Manistee (Gas Ltd. Liability Co. covering the premises at 356
River St., Manistee, Michigan.
A-5
<PAGE>
EXHIBIT B-CONTRACTS AND AGREEMENTS TO MEC
1. Transportation Agreement dated December 1, 1993 between Manistee Gas
Limited Liability Company, as Shipper, and Basin Pipeline LLC, as
Transporter.
2. Asset Purchase Agreement dated December 1, 1993, between Dow Chemical
Company, as Buyer, and Manistee Gas Limited Liability Company as Seller.
3. Promissory Note dated December 1, 1993 from Manistee to The Dow Chemical
Company in the principal sum of $720,000.00.
4. Pipeline Construction Agreement dated November 30, 1993, by and between
Basin, as owner, and Murphy Bros. Inc., as Contractor, as amended by First
Amendment to the Pipeline Construction Agreement dated November 30, 1993.
5. Agreement dated December 22, 1994 between Basin, West Bay Exploration Co.,
Savoy Oil and Gas Inc. and H&H Star Energy, Inc. for the Filer 1-10 Well.
6. Transportation Agreement dated April 1, 1995, by and between Manistee and
Michigan Consolidated Gas Company.
7. KIF Use Agreement dated October 1, 1991, between Shell Michigan Pipeline
Company and Manistee.
8. Gas and Condensate Processing Agreement - Kalkaska Plant dated April 1,
1995, by and between Shell Western E&P, Inc. and Manistee.
9. Product Purchase Agreement dated July 12, 1994, accepted July 15, 1994, by
and between Enerkon Resources Corporation and Manistee.
10. Gathering Line Construction and Gas Processing Agreement dated December 22,
1994, by and between Manistee, Basin, West Bay Exploration Company, Savoy
Oil & Gas, Inc., and H&H Star Energy, Inc.
B-1
<PAGE>
10. Lease/Purchase of Gas Compressor for the Victory #32 Compressor Station 1
-------------------------------------------------------------------------
Lessor: Gas Compression Services, Inc. ("Gasco").
Lessee: Manistee Gas, L.L.C. "Manistee").
Date of agreement: January 3, 1994
Suction pressure: 300 to 350 psig.
Discharge pressure: 1,000psig.
Specific gravity: 0.70.
Volume: 2.5 to 3.1 Mmcfld.
Operations: Gasco will operate the compressor. Manistee will
furnish all parts, lube oil, and dry sweet fuel
gas.
Terms: Sixty (60) months upon which Manistee will have
option to purchase the compressor unit for
$53,350.42 within thirty (30) days after final
lease payment is made.
Pricing: $3,916.67 per month (includes $750.00 for the
operation of the compressor unit).
11. Lease/Purchase of gas compressor for the Victory #32 Compressor Station #2
--------------------------------------------------------------------------
Lessor: Gas Compression Services, Inc. ("Gasco").
Lessee: Manistee Gas, L.L.C. "Manistee").
Date of agreement: January 3, 1994
Suction pressure: 300 to 350 psig.
Discharge pressure: 1,000psig.
Specific gravity: 0.70.
Volume: 2.5 to 3.1 Mmcfld.
Operations: Gasco will operate the compressor. Manistee will
furnish all parts, lube oil, and dry sweet fuel
gas.
Terms: Sixty (60) months upon which Manistee will have
option to purchase the compressor unit for
$53,350.42 within thirty (30) days after final
lease payment is made.
Pricing: $3,916.67 per month (includes $750.00 for the
operation of the compressor unit).
12. Lease purchase of gas compressor for the Victory #32 Compressor Station #3
--------------------------------------------------------------------------
Lessor: Gas Compression Services, Inc. ("Gasco").
Lessee: Manistee Gas, L.L.C. "Manistee").
Date of agreement: January 3, 1994
Suction pressure: 300 to 350 psig.
Discharge pressure: 1,000psig.
Specific gravity: 0.70.
Volume: 2.5 to 3.1 Mmcfld.
Operations: Gasco will operate the compressor. Manistee will
furnish all parts, lube oil, and dry sweet fuel
gas.
Terms: Sixty (60) months upon which Manistee will have
option to purchase the compressor unit for
$53,350.42 within thirty (30) days after final
lease payment is made.
Pricing: $3,916.67 per month (includes $750.00 for the
operation of the compressor unit).
B-2
<PAGE>
13. Lease/ Purchase of gas compressor for Peterson Facility.
--------------------------------------------------------
Lessor: Gas Compression Services, Inc. ("Gasco").
Lessee: Manistee Gas, L.L.C. ("Manistee").
Date of agreement: February 1, 1995
Suction pressure: 15 to 35 psig.
Suction Temperature: 70 degrees.
Discharge pressure: 350 psig.
Specific gravity: 0.83.
Volume: 0.9 to 1.3 Mmcfld.
Ambient Temperature: 100 degrees.
Operations: Lessor will operate the compressor. Lessee will
furnish all parts, lube oil, and dry sweet fuel
gas.
Terms: Sixty (60) months. Upon final payment, Lessor
will assign lessee the compressor unit for no
additional charge.
Pricing: $2,880.56 per month (includes $0.00 for the
operation of the compressor unit).
14. Letter Agreement regarding Transportation, Compression, Treating and
Processing dated February 23, 1996 between Manistee, Basin and Dynamic
Development, Inc. for the Peterson #1-19 Victory Well in Victory Township,
Mason County.
Table of Vehicle Leases
Including:
Vehicle Description
Payments
Drivers
ID #'s
Leases
Mileage
V.I.D. #'s
<PAGE>
EXHIBIT B - Transferred Brown-19 Assets to MEC
Basin and/or Manistee Assets Located at the Brown 19 Treating Plant
- -------------------------------------------------------------------
The Basin and/or Manistee assets located at the Brown 19 treating plant include:
1. Slug catcher
2. Filter Unit
3. Basin Gas Pack
4. Three 12,000-gallon sour NGL storage tanks and one 24,000 NGL storage tank
5. The spare gas pack
6. The sour NGL truck-loading facilities
7. All spare or unused equipment, facilities and supplies located at or near
the Brown 19 Treating Plant site and in the portion of the Plant commonly
known as the "Bone Yard", excluding however, the Lake Orion NGL amine skid,
NGL plant skid and related equipment.
The above facilities shall include all line-pipe, pipe, connections, fittings,
flanges, interconnect with other pipelines, valves, control equipment, pigs, pig
launchers and receivers, cathodic protection, bypasses, regulators, drips,
meters and metering equipment, all equipment loacted on, at or appurtenant to
the Peterson compressor staion, all other equipment and personal property
and/or fixtures associated therewith including the following:
Delivery Points Valves
- --------------- ------
1) Basin Pipeline Gas Pack a) The first valve (gas) downstream of the
Basin Gas Pack
a) All piping from the 2-inch valve (air) to
the Basin Gas Pack
b) The 2-inch valve (fuel) and piping to the
Basin Gas Pack
c) All piping from the 1-inch and 2-inch
flare valves to the Basin Gas Pack.
2) Sour NGL Storage a) The four (4) 4" x 6" relief valves on the
piping from the sour NGL storage
tanks to the Brown 19 flare system.
b) All piping between the 2inch flash gap
valves and each sour NGL Storage Tank.
c) All piping between the 2-inch valves on
the sour NGL storage tanks to the Brown 19
flare system.
d) All piping between the 2-inch valve (truck
load-out to the Brown 19 flare system) and
the tanks.
e) All piping between the 1-inch valves on
the sour NGL filter vapor water return
dump line in the truck loading area and
the sour NGL filter.
B-4
Unscannable forms follow.
<PAGE>
SECURED GUARANTY
----------------
THIS SECURED GUARANTY (this "Guaranty"), dated as of May 2, 1996, made by
----------
West Shore Processing Company, LLC, a Michigan limited liability company (the
"Guarantor"), in favor of Bank of America Illinois, an Illinois banking
- -----------
corporation (the "Lender"),
W I T N E S S E T H:
-------------------
WHEREAS, pursuant to an Amended and Restated Credit Agreement, dated as of
May 2, 1996 (together with all amendments and other modifications, if any, from
time to time thereafter made thereto, the "Credit Agreement"), among Michigan
------------------
Energy Company, L.L.C., a Michigan limited liability company ("Energy Company")
-----------------
and Michigan Production Company, L.L.C., a Michigan limited liability company
(together with Energy Company, collectively, the "Borrower") and the Lender, the
----------
Lender agreed to make loans (collectively, the "Loan") to the Borrower; and
------
WHEREAS, Energy Company owns 99% of the issued and outstanding membership
interests of the Guarantor; and
WHEREAS, the Borrower has entered or may enter into certain Hedging
Agreements with Bank of America National Trust and Savings Association, an
Affiliate of the Lender, pursuant to the terms of the Credit Agreement; and
WHEREAS, as a condition precedent to the making of the Loan under the
Credit Agreement and to the obligations of Bank of America National Trust and
Savings Association under the Hedging Agreements referred to above, the
Guarantor is required to execute and deliver this Guaranty; and
WHEREAS, it is in the best interests of the Guarantor to execute this
Guaranty inasmuch as the Guarantor will derive substantial direct and indirect
benefits from the Loan made to the Borrower by the Lender pursuant to the Credit
Agreement; and
WHEREAS, the obligations of the Guarantor under this Guaranty are secured
by that certain Amended and Restated Mortgage, Deed of Trust, Assignment,
Security Agreement and Financing Statement dated as of May 2, 1996, from the
Guarantor in favor of the Lender (the "Mortgage") and that certain Security
----------
Agreement dated as of May 2, 1996, from the Guarantor in favor of the Lender
(the "Security Agreement"), each of which is subject to the terms and conditions
--------------------
of the Subordination Agreement;
NOW, THEREFORE, for good and valuable consideration the receipt of which is
hereby acknowledged, and in order to induce the
-1-
<PAGE>
NOTE: PAGE 2 IS MISSING (FROM THE ORIGINAL)
-2-
<PAGE>
"Energy Company's Share" means, as of any date of determination with
------------------------
respect to any asset, interest or property, the proportionate beneficial
interest of Energy Company therein represented by Energy Company's direct and
indirect ownership of equity interests in Basin and West Shore and which are
subject to the Participation Agreement and, to the extent liens against such
assets, interest or property are granted pursuant to the Loan Documents, the
Subordination Agreement.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-------
amended, and any successor statute of similar import, together with the
regulations thereunder, in each case as in effect from time to time. References
to sections of ERISA also refer to any successor sections.
"Event of Default" means an Event of Default under the Credit Agreement.
------------------
"GAAP" means generally accepted accounting principles.
------
"Guarantor" is defined in the preamble.
-----------
"Guaranty" is defined in the preamble.
----------
"Hedging Agreements" means:
--------------------
(a) interest rate swap agreements, basis swap agreements, interest
rate cap agreements, forward rate agreements, interest rate floor
agreements and interest rate collar agreements, and all other agreements or
arrangements designed to protect such Person against fluctuations in
interest rates or currency exchange rates, and
(b) forward contracts, options, futures contracts, futures options,
commodity swaps, commodity options, commodity collars, commodity caps,
commodity floors and all other agreements or arrangements designed to
protect such Person against fluctuations in the price of commodities.
"Hedging Obligations" means, with respect to any Person, all liabilities
---------------------
(including but not limited to obligations and liabilities arising in connection
with or as a result of early or premature termination of a Hedging Agreement,
whether or not occurring as a result of a default thereunder) of such Person
under a Hedging Agreement.
"Lender" is defined in the preamble.
--------
"Loan Document" has the meaning ascribed to it in the Credit Agreement as
---------------
in effect on the date hereof.
-3-
<PAGE>
"MarkWest" means MarkWest Michigan LLC.
----------
"Mortgage" is defined in the sixth recital.
----------
"Note" means the promissory notes of the Borrowers payable to the order of
------
the Lender, (as such promissory notes may be amended, endorsed or otherwise
modified from time to time), evidencing the aggregate debt of each Borrower to
the Lender under the Credit Agreement resulting from outstanding Loans, and also
means all other promissory notes accepted from time to time in substitution
therefor of renewal thereof.
"Obligor" means Michigan Gas Fund I, Tennessee Gas Pipeline Company,
---------
Tenneco Ventures Corporation, EnCap Ventures 1993 Limited Partnership, the
Borrowers, Basin, Guarantor or any other Person (other than the Lender) from
time to time obligated under, or otherwise a party to, any Loan Document.
"Participation Agreement" means that certain Participation, Ownership and
-------------------------
Operating Agreement for West Shore, by and among Energy Company and MarkWest
dated as of May 2, 1996, (the "Participation Agreement").
"Pension Plan" means a "pension plan", as such term is defined in section
--------------
3(2) of ERISA, which is subject to Title IV of ERISA (other than a multiemployer
plan as defined in section 4001(a)(5) of ERISA), and to which a Borrower or any
corporation, trade or business that is, along with such Borrower, a member of a
Controlled Group, may have liability, including any liability by reason of
having been a substantial employer within the meaning of section 4063 of ERISA
at any time during the preceding five years, or by reason of being deemed to be
a contributing sponsor under section 4069 of ERISA.
"Person" means any natural person, corporation, partnership, limited
--------
liability company, firm, association, trust, government, governmental agency or
any other entity, whether acting in an individual, fiduciary or other capacity.
"Pipeline" means the natural gas pipeline and related facilities presently
----------
owned by Basin and those pipelines and related facilities to be constructed by
MarkWest pursuant to the Participation Agreement.
"Plan" means any Pension Plan or Welfare Plan.
------
"Plant" means, as the context requires, the Brown l9 Gas Plant (as defined
-------
in the Participation Agreement), the "Treating Plant" (as defined in the Shell
Contract) and other facilities and equipment, as such combination of assets may
be constituted from
-4-
<PAGE>
time to time and used by West Shore for the processing of natural gas as
contemplated by the Participation Agreement.
"Property" means any interest in any kind of property or asset, whether
----------
real, personal or mixed, or tangible or intangible.
"Security Agreement" is defined in the sixth recital.
--------------------
"Security Documents" means, collectively, the documents, agreements and
--------------------
instruments, including without limitation, the Mortgage and the Security
Agreement, given to secure the Obligations.
"Shell Contract" means the Gas Treating and Processing Agreement dated as
----------------
of May 1, 1996, between Shell Western E & P Inc. and West Shore.
"Subordination Agreement" means the Subordination Agreement dated as of
-------------------------
May 2, 1996, by and among MarkWest, the Lender, Energy Company, Guarantor, and
Basin.
"Welfare Plan" means a "welfare plan", as such term is defined in section
--------------
3(1) of ERISA.
"West Shore" means West Shore Processing Company, L.L.C.
------------
ARTICLE II
GUARANTY PROVISIONS
SECTION 2.1. GUARANTY. The Guarantor hereby absolutely, unconditionally
---------
and irrevocably
(a) guarantees the full and punctual payment when due, whether at stated
maturity, by required prepayment, declaration, acceleration, demand or
otherwise, of all monetary obligations of the Borrower or any 0bligor to the
Lender under the Credit Agreement or any other Loan Document ("Obligations"),
-------------
whether for principal, interest, fees, expenses or otherwise (including all such
amounts which would become due but for the operation of the automatic stay under
Section 362(a) of the United States Bankruptcy Code, 11 U.S.C. symbol 362(a),
and the operation of Sections 502(b) and 506(b) of the United States Bankruptcy
Code, 11 U.S.C. symbol 502(b) and symbol 506(b),
(b) indemnifies and holds harmless the Lender for any and all costs and
expenses (including reasonable attorney's fees and expenses) incurred by the
Lender in enforcing any rights under this Guaranty, and
-5-
<PAGE>
(c) guarantees the full and punctual payment and performance when due
of all of the Borrower's and/or the Guarantor's obligations, to the Lender
or any Affiliate of the Lender, under all Hedging Obligations arising under
Hedging Agreements between the Borrower, the Guarantor or any other
Affiliate of the Guarantor and the Lender or any Affiliate of the Lender,
including without limitation, Bank of America National Trust and Savings
Association, whether now or hereafter owing, whether direct or indirect,
primary or secondary, fixed or contingent, joint or several, regardless of
how evidenced or arising.
This Guaranty constitutes a guaranty of payment when due and not of collection,
and the Guarantor specifically agrees that it shall not be necessary or required
that the Lender or any holder of any Note exercise any right, assert any claim
or demand or enforce any remedy whatsoever against the Borrower or any other
Obligor before or as a condition to the obligations of the Guarantor hereunder,
except as required by the Subordination Agreement.
SECTION 2.2. ACCELERATION OF GUARANTY. The Guarantor agrees that, in the
-------------------------
event of the dissolution or insolvency of the Borrower, any other Obligor or the
Guarantor, or the inability or failure of the Borrower, any other Obligor or the
Guarantor to pay debts as they become due, or an assignment by the Borrower, any
other Obligor or the Guarantor for the benefit of creditors, or the commencement
of any case or proceeding in respect of the Borrower, any other 0bligor or the
Guarantor under any bankruptcy, insolvency or similar laws, and if such event
shall occur at a time when any of the Obligations of the Borrower may not then
be due and payable, the Guarantor will pay to the Lender forthwith the full
amount which would be payable hereunder by the Guarantor if all such Obligations
were then due and payable.
SECTION 2.3. GUARANTY ABSOLUTE, ETC. This Guaranty shall in all
-----------------------
respects be a continuing, absolute, unconditional and irrevocable guaranty of
payment and performance, and shall remain in full force and effect until all
Obligations of the Borrower and each Obligor have been paid in full, all
obligations of the Guarantor hereunder shall have been paid in full and all
Commitments shall have terminated. The liability of the Guarantor under this
Guaranty shall be absolute, unconditional and irrevocable irrespective of:
(a) any lack of validity, legality or enforceability of the Credit
Agreement or any other Loan Document;
(b) the failure of the Lender or any holder of any Note
(i) to assert any claim or demand or to enforce any right
<PAGE>
or remedy against the Borrower, any other Obligor
-6-
<PAGE>
under the provisions of the Credit Agreement, any other Loan Document or
otherwise, or
(ii) to exercise any right or remedy against any other guarantor
of, or collateral securing, any Obligations;
(c) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Obligations, or any other extension,
compromise or renewal of any Obligation;
(d) any reduction, limitation, impairment or termination of the
Obligations for any reason, including any claim of waiver, release,
surrender, alteration or compromise, and shall not be subject to (and the
Guarantor hereby waives any right to or claim of) any defense or setoff,
counterclaim, recoupment or termination whatsoever by reason of the
invalidity, illegality, nongenuineness, irregularity, compromise,
unenforceability of, or any other event or occurrence affecting, the
Obligations or otherwise;
(e) any amendment to, rescission, waiver, or other modification of,
or any consent to departure from, any of the terms of the Credit Agreement
or any other Loan Document;
(f) any addition, exchange, release, surrender or nonperfection of
any collateral, or any amendment to or waiver or release or addition of, or
consent to departure from, any other guaranty, held by the Lender securing
any of the Obligations;
(g) any other circumstance which might otherwise constitute a defense
available to, or a legal or equitable discharge of, the Borrower, any other
Obligor, any surety or any guarantor, other than payment in full of the
Obligations; or
(h) any defense based on any law, regulation or order now or
hereafter in effect in any jurisdiction affecting any of the terms of the
Credit Agreement or the rights of the Lender with respect to the Credit
Agreement or the Loan Documents.
SECTION 2.4. REINSTATEMENT, ETC. The Guarantor agrees that this
-------------------
Guaranty shall continue to be effective or be reinstated, as the case may be, if
at any time any payment (in whole or in part) of any of the Obligations is
rescinded or must otherwise be restored by the Lender or any holder of any Note,
upon the insolvency, bankruptcy or reorganization of the Borrower, any other
Obligor or otherwise, as though such payment had not been made.
-7-
<PAGE>
SECTION 2.5. LIMITED RECOURSE. Notwithstanding the general terms of the
-----------------
Guarantor's obligations under this Guaranty or anything to the contrary
contained herein and subject to the terms and conditions of the Subordination
Agreement, the Lender hereby agrees not to seek to satisfy Guarantor's
obligations under this Guaranty out of any property, assets, revenues or funds
of Guarantor other than (i) Energy Company's Share of the Collateral or (ii)
funds which are distributable to Energy Company from time to time pursuant to
the Participation Agreement to the extent such funds are distributable to Energy
Company. Notwithstanding the foregoing, the Guarantor shall be fully liable to
the Lender, and the Lender may enforce any judgment against the Guarantor, for:
(i) any fraud by the Guarantor in connection with this Guaranty or the Loan
Documents to which it is a party; provided, that any fraud committed by Energy
---------
Company, individually or as a member of the Guarantor, in which MarkWest had no
part shall not be imputed to the Guarantor and shall not constitute fraud on the
part of the Guarantor; (ii) the retention of funds required to be distributed in
respect of Energy Company's Share in Guarantor after the Lender has given notice
that the Guarantor is in default under the Guaranty, the Credit Agreement or any
Loan Document to which it is a party (a "Default Notice"), to the full extent of
----------------
such funds so retained; (iii) the fair market value, as of the time of any
Default Notice, of any personal property or fixtures comprising the Plant
removed or disposed of by the Guarantor, other than in accordance with the terms
of the Participation Agreement; or (iv) the retention or misapplication of any
insurance proceeds or condemnation or other awards, if and to the extent such
sums are required to the extent of Energy Company's Share and subject to the
terms of the Subordination Agreement to be paid or delivered to the Lender
and/or used for restoration of the Plant in accordance with the terms of the
Mortgage or the Security Agreement. The Lender shall have the right to recover
its damages hereunder in a separate proceeding brought for that purpose, or in
any foreclosure action under any of the Loan Documents, or by invocation of any
of the Lender's other rights and remedies thereunder or at law or equity; and
the Guarantor's liability under this Section 275 shall survive foreclosure under
-----------
any Loan Document.
SECTION 2.6. WAIVER, ETC.
------------
(a) The Guarantor hereby waives promptness, diligence, notice of
acceptance and any other notice with respect to any of the Obligations and
this Guaranty and any requirement that the Lender or any holder of any
Credit Agreement protect, secure, perfect or insure any security interest,
or any property subject thereto, or exhaust any right or take any action
against the Borrower, any other Obligor or any other Person or entity or
any collateral securing the Obligations.
-8-
<PAGE>
(b) Based on the representations and warranties of the Guarantor set
forth herein, the Guarantor hereby forever and completely waives any right
the Guarantor might otherwise have to assert or claim, as part of a defense
against any action taken by Lender against the Guarantor under this
Guaranty after the Lender shall have completed an action against the
Borrower or another Obligor for the enforcement of any of the Obligations,
that such action against the Guarantor is barred by operation of the laws
of any applicable jurisdiction, because either (i) this Guaranty and the
Credit Agreement are part and parcel with the Loans as one integrated
transaction loan transaction, rather than related but separate and distinct
transactions, or (ii) that the Borrower is the alter ego of the Guarantor
or the Guarantor is the alter ego of the Borrower.
(c) Without limitation on any of the other waivers of the Guarantor
hereunder, the Guarantor hereby specifically waives the benefit of the laws
of any applicable jurisdiction (and any and all rights arising out of),
which gives a guarantor or surety the power to require a creditor to
proceed against the principal, or to pursue any other remedy in the
creditor's power which the guarantor or surety can not pursue and which
would lighten the guarantor's or the surety's burden; and if the creditor
neglects to do so, exonerating the guarantor or the surety to the extent to
which it is thereby prejudiced.
SECTION 2.7. SUBROGATION, ETC. The Guarantor will not exercise any
-----------------
rights which it may acquire by way of subrogation under this Guaranty, by any
payment made hereunder or otherwise, until the prior indefeasible payment, in
full and in cash, of all Obligations. Any amount paid to the Guarantor on
account of any such subrogation rights prior to the payment in full of all
Obligations shall be held in trust for the benefit of the Lender and shall
immediately be paid to the Lender and credited and applied against the
Obligations, whether matured or unmatured, in accordance with the terms of the
Credit Agreement; provided, however, that if
--------- --------
(a) the Guarantor has made payment to the Lender of all or any part
of the Obligations, and
(b) all Obligations have been indefeasibly paid in full and all
Commitments have been permanently terminated,
the Lender agrees that, at the Guarantor's request, the Lender will execute and
deliver to the Guarantor appropriate documents (without recourse and without
representation or warranty) necessary to evidence the transfer by subrogation to
the Guarantor of an interest in the
<PAGE>
Obligations resulting from such payment by the
-9-
<PAGE>
Guarantor. In furtherance of the foregoing, for so long as any Obligations
remain outstanding, the Guarantor shall refrain from taking any action or
commencing any proceeding against the Borrower or any other Obligor (or its
successors or assigns, whether in connection with a bankruptcy proceeding or
otherwise) to recover any amounts in the respect of payments made under this
Guaranty to the Lender. Upon a default by the Borrower, the Lender, in its sole
discretion, without consent of the Guarantor, may elect to: (i) upon or after
giving notice to Guarantor, foreclose either judicially or nonjudicially against
any real or personal property security granted by Guarantor held from time to
time for the Loans, (ii) after giving notice to Guarantor, accept a transfer of
any such security granted by Guarantor in lieu of foreclosure, (iii) compromise
or adjust any of the Loans or any part of any Loan or make any other
accommodation with the Borrower or any guarantor or surety of any of the Loans
or (iv) exercise any other remedy against the Borrower or any security (other
than security granted by Guarantor). No such action by the Lender shall release
or limit the liability of the Guarantor, who shall remain liable under this
Guaranty after the action, even if the effect of the action is to deprive the
Guarantor of any subrogation rights, rights of indemnity, or other rights to
collect reimbursement from the Borrower for any sums paid to any of the Lender
Parties, whether contractual or arising by operation of applicable law or
otherwise. The Guarantor expressly agrees that under no circumstances shall it
be deemed to have any right, title, interest or claim in or to any real or
personal property to be held by the Lender or any third party after any
foreclosure or transfer in lieu of foreclosure of any security for the Loan,
except as provided in the Participation Agreement and the Subordination
Agreement, and the Lender acknowledges that, the Lender's interest in any such
property will remain subject to the terms and conditions of the Participation
Agreement and the Subordination Agreement.
SECTION 2.8. SUCCESSORS, TRANSFEREES AND ASSIGNS; TRANSFERS OF NOTES,
--------------------------------------------------------
ETC. This Guaranty shall:
- ----
(a) be binding upon the Guarantor, and its successors, transferees
and assigns; and
(b) inure to the benefit of and be enforceable by the Lender, each
holder of any Note and each of their respective successors, transferees and
assigns.
Without limiting the generality of clause (b), the Lender may assign or
otherwise transfer (in whole or in part) the Credit Agreement or Loan held by it
to any other Person or entity, and such other Person or entity shall thereupon
become vested with all rights and benefits in respect thereof granted to the
Lender under any Loan Document (including this
<PAGE>
Guaranty) or otherwise.
-10-
<PAGE>
SECTION 2.9. SUBORDINATION. NOTWITHSTANDING ANYTHING TO THE CONTRARY
--------------
CONTAINED HEREIN, THE LENDER HEREBY AGREES FOR ITSELF AND ITS SUCCESSORS AND
ASSIGNS, THAT THE LENDER'S RIGHTS AND REMEDIES HEREUNDER (THE "RIGHTS"), AND
--------
ANY AND ALL LIENS AND SECURITY INTERESTS THAT ARE GRANTED TO SECURE THE RIGHTS
(THE "LIENS") AS WELL AS ANY INTEREST IN ANY PROPERTY OR ASSET ACQUIRED BY
-------
REASON OF THE ENFORCEMENT OF ANY OF THE RIGHTS OR THE LIENS ARE SUBJECT TO THE
TERMS OF THAT CERTAIN SUBORDINATION AGREEMENT WHICH PROVIDES, AMONG OTHER
THINGS, THAT THE RIGHTS AND THE LIENS ARE SUBJECT TO THE RIGHTS OF MARKWEST AND,
AS APPLICABLE, THE OTHER LENDERS (as defined in the Subordination Agreement) AS
SUCH RIGHTS ARISE UNDER THE PARTICIPATION AGREEMENT, AS MORE PARTICULARLY SET
FORTH THEREIN. THIS SECTION 2.9 SHALL BE DEEMED A COVENANT BINDING UPON AND
-----------
RUNNING WITH THE PROPERTY AND ASSETS SUBJECT TO THE LIENS. NO DEFAULT BY
GUARANTOR OR BORROWER (OR ANY OBLIGOR OR OTHER PARTY) SHALL IN ANY WAY LIMIT THE
EFFECTIVENESS OR ENFORCEABILITY OF THE SUBORDINATION AGREEMENT.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1. REPRESENTATIONS AND WARRANTIES. The Guarantor hereby
-------------------------------
represents and warrants unto the Lender as set forth in this Article III.
SECTION 3.1.1. RELATIONSHIP OF THE PARTIES.
----------------------------
(a) The Guarantor and the Borrower are distinct and separate entities
and neither the Guarantor nor the Borrower is the alter ego of the other.
(b) The Lender has not made any representation or warranty of any
kind or nature whatsoever to the Guarantor regarding the creditworthiness
of the Borrower or the prospects of repayment from sources other than the
Borrower.
(c) This Guaranty is executed at the request of the Borrower.
(d) To the Guarantor's knowledge, based solely on information from
the Borrower and without having made any independent inquiry, the Borrower
is solvent.
(e) The Guarantor assumes full responsibility for keeping fully
informed with respect to the business, operation, condition and assets of
the Borrower and each other Obligor.
-11-
<PAGE>
The Guarantor hereby agrees that the Lender shall not have any duty to
disclose or report to the Guarantor any information now or hereafter known to
the Lender relating to the business, operation, condition and assets of the
Borrower or any other Obligor. The Lender shall have no duty to inquire into the
authority or powers of the Borrower or any other Obligor, or any officer,
employee or agent of the Borrower or any other Obligor, with regard to any
Obligations, and all Obligations made or created in good faith reliance upon the
professed exercise of any such authority or powers shall be guaranteed
hereunder.
SECTION 3.1.2. ORGANIZATION, ETC. The Guarantor is a limited liability
------------------
company validly organized and existing and in good standing under the laws of
the jurisdiction of its formation, is duly qualified to do business and is in
good standing as a foreign limited liability company in each jurisdiction where
the nature of its business requires such qualification, and has full power and
authority and holds all requisite governmental licenses, permits and other
approvals to enter into and perform its obligations under this Guaranty and to
own and hold under lease its property and to conduct its business substantially
as currently conducted by it.
SECTION 3.1.3. DUE AUTHORIZATION, NON-CONTRAVENTION, ETC. The execution,
------------------------------------------
delivery and performance by the Guarantor of this Guaranty are within the
Guarantor's powers, have been duly authorized by all necessary action, and do
not
(a) contravene the Guarantor's Articles of Organization and
Regulations;
(b) contravene or result in any violation of or default under any law
or governmental regulation or any contractual restriction, court decree or
order, in each case binding on or affecting the Guarantor or any of its
properties, businesses, assets or revenues;
(c) to the Guarantor's knowledge, without independent inquiry, result
in, or require the creation or imposition of, any lien on any of the
Guarantor's properties, businesses, assets or revenues.
SECTION 3.1.4. GOVERNMENT APPROVAL, REGULATION, ETC. No authorization or
-------------------------------------
approval or other action by, and no notice to or filing with, any governmental
authority or regulatory body or other Person is required for the due execution,
delivery or performance by the Guarantor of this Guaranty except as set forth in
the Disclosure Schedule to the Participation Agreement.
SECTION 3.1.5. PUBLIC UTILITY HOLDING COMPANY ACT. The Guarantor is not a
-----------------------------------
"holding company" or a "subsidiary company" of a "holding
<PAGE>
company", or an "affiliate" of a "holding company" or of
-12-
<PAGE>
a "subsidiary company" of a "holding company", within the meaning of the Public
Utility Holding Company Act of 1935, as amended.
SECTION 3.1.6. VALIDITY, ETC. This Guaranty constitutes the legal, valid
--------------
and binding obligations of the Guarantor enforceable in accordance with its
terms, subject to the effect of any applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights
generally.
SECTION 3.1.7. SOLVENCY. The Guarantor is not "insolvent", as such term
---------
is used and defined in the United States Bankruptcy Code, 11 U.S.C. symbol 101,
et seq.
- -------
SECTION 3.1.8. REGULATIONS G, U AND X. The Guarantor is not engaged in
-----------------------
the business of extending credit for the purpose of purchasing or carrying
margin stock, and no proceeds of any Loans will be used for a purpose which
violates, or would be inconsistent with, F.R.S. Board Regulation G, U or X.
Terms for which meanings are provided in F.R.S. Board Regulation G, U or X or
any regulations substituted therefor, as from time to time in effect, are used
in this Section with such meanings.
ARTICLE IV
COVENANTS, ETC.
SECTION 4.1. AFFIRMATIVE COVENANTS. The Guarantor covenants and agrees
----------------------
that, so long as any portion of the Obligations shall remain unpaid or
unperformed, the Guarantor will, unless the Lender shall otherwise consent in
writing, perform the obligations set forth in this Section.
SECTION 4.1.1. COMPLIANCE WITH LAWS, ETC. Guarantor will comply in all
--------------------------
material respects with all applicable laws, rules, regulations and orders, such
compliance to include (without limitation):
(a) the maintenance and preservation of its limited liability company
existence and qualification as a foreign limited liability company when the
nature of its business requires such qualification; and
(b) the payment, before the same become delinquent, of all taxes,
assessments and governmental charges imposed upon it or upon its property
except to the extent being diligently contested in good faith by
appropriate proceedings and for which adequate reserves in accordance with
GAAP shall have been set aside on its books.
-13-
<PAGE>
SECTION 4.2. NEGATIVE COVENANTS. The Guarantor covenants and agrees
-------------------
that, so long as any portion of the Obligations shall remain unpaid, the
Guarantor will not, without the prior written consent of the Lender, do anything
prohibited in this Section.
SECTION 4.2.1. The Guarantor will not enter into, or cause, suffer or
permit to exist any arrangement or contract with any of its other Affiliates,
other those in existence as of the date hereof, unless such arrangement or
contract is fair and equitable to the Guarantor and is an arrangement or
contract, of the kind which would be entered into by a prudent Person in the
position of the Guarantor with a Person which is not one of its Affiliates.
ARTICLE V
MISCELLANEOUS PROVISIONS
SECTION 5.1. [NOT USED.]
SECTION 5.2. GUARANTY SECURED. The Guaranty and each of the Guarantor's
-----------------
other obligations under this Guaranty are secured by the Mortgage and the
Security Agreement. The Mortgage and the Security Agreement encumbers, with
respect to the Guarantor and Basin only, among other things, Energy Company's
Share in the Plant, and is expressly subject to the terms and conditions of the
Subordination Agreement.
SECTION 5.3. BINDING ON SUCCESSORS, TRANSFEREES AND ASSIGNS; ASSIGNMENT
----------------------------------------------------------
OF GUARANTY. In addition to, and not in limitation of, Section 2.8, this
- ------------
Guaranty shall be binding upon the Guarantor and its successors, transferees and
assigns and shall inure to the benefit of and be enforceable by the Lender and
its successors and assigns, who shall likewise be subject to the limitations set
forth herein (to the full extent provided pursuant to Section 2.8); provided,
however, that the Guarantor may not delegate or assign any of its obligations
hereunder without the prior written consent of the Lender.
SECTION 5.4. AMENDMENTS, ETC. No amendment to or waiver of any
----------------
provision of this Guaranty, nor consent to any departure by the Guarantor
herefrom, shall in any event be effective unless the same shall be in writing
and signed by the Lender, and then such waiver or consent shall be effective
only in the specific instance and for the specific purpose for which given.
SECTION 5.5. ADDRESSES FOR NOTICES TO THE GUARANTOR. All notices and
---------------------------------------
other communications hereunder to the Guarantor shall be in writing and shall be
hand delivered or sent by overnight courier, certified mail (return receipt
requested), or telecopy to him, addressed to it at the
<PAGE>
address set forth below his signature
-14-
<PAGE>
hereto or at such other address as shall be designated by the Guarantor in a
written notice to the Lender at the following address and complying as to
delivery with the terms of this Section 5.4.:
------------
Bank of America Illinois
231 South LaSalle Street
Chicago, Illinois 60697
Attention: Energy and Minerals Dept.
0il and Gas Group
Facsimile: (312) 987-5614
Without limiting any other means by which a party may be able to provide that a
notice has been received by the other party, a notice shall be deemed to be duly
received (a) if sent by hand, on the date when left with a responsible person at
the address of the recipient; (b) if sent by certified mail or overnight
courier, on the date of receipt by a responsible person at the address of the
recipient; or (c) if sent by telecopy, upon receipt by the sender of an
acknowledgment or transmission report generated by the machine from which the
telecopy was sent indicating that the telecopy was sent in its entirety to the
recipient's telecopy number. All notices and other communications provided to
any party hereto under this Agreement or any other Loan Document shall be in
writing and shall be hand delivered or sent by over night courier, certified
mail (return receipt requested) or by telecopy to such party at its address or
telecopy number set forth above or on the signature pages hereof or at such
other address or telecopy number as may be designated by such party in a notice
to the other parties. Without limiting any other means by which a party may be
able to provide that a notice has been received by the other party, a notice
shall be deemed to be duly received (a) if sent by hand, on the date when left
with a responsible person at the address of the recipient; (b) if sent by
certified mail or overnight courier, on the date of receipt by the sender of an
acknowledgment or transmission reports generated by the machine from which the
telefax was sent indicating that the telefax was sent in its entirety to the
recipient's telefax number.
SECTION 5.6. NO WAIVER; REMEDIES. In addition to, and not in limitation
--------------------
of, Section 2.3 and Section 2.6 no failure on the part of the Lender to
----------- -----------
exercise, and no delay in exercising, any right hereunder shall operate as a
waiver thereof; nor shall any single or partial exercise of any right hereunder
preclude any other or further exercise thereof or the exercise of any other
right. The remedies herein provided are cumulative and not exclusive of any
remedies provided by law.
SECTION 5.7. SECTION CAPTIONS. Section captions used in this Guaranty
-----------------
are for convenience of reference only, and shall not affect the construction of
this Guaranty.
-15-
<PAGE>
SECTION 5.8. SETOFF. In addition to, and not in limitation of, any
-------
rights of the Lender under applicable law, the Lender shall, upon the occurrence
of any Event of Default have the right to appropriate and apply to the payment
of the obligations of the Guarantor owing to it hereunder, whether or not then
due, and the Guarantor hereby grants to the Lender a continuing security
interest in, any and all balances, credits, deposits, accounts or moneys of the
Guarantor then or thereafter maintained with the Lender, to the extent and only
to the extent of Energy Company's Share.
SECTION 5.9. SEVERABILITY. Wherever possible each provision of this
-------------
Guaranty shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Guaranty shall be prohibited by or
invalid under such law, such provision shall be ineffective to the extent of
such prohibition or invalidity, without invalidating the reminder of such
provision or the remaining provisions of this Guaranty.
SECTION 5.10. GOVERNING LAW. THIS GUARANTY SHALL BE G0VERNED BY
--------------
CONSTRUED IN ACCORDANCE WITH INTERNAL LAWS OF THE STATE OF ILLINOIS. FOR
PURPOSES OF ANY ACTION OR PROCEEDING INVOLVING THIS GUARANTY, THE GUARANTOR
HEREBY EXPRESSLY SUBMITS TO THE JURISDICTION OF ALL FEDERAL AND STATE COURTS
LOCATE IN THE STATE OF ILLINOIS.
SECTION 5.11. FORUM SELECTION AND CONSENT TO JURISDICTION. LITIGATION
---------------------------------------------
BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS GUARANTY OR
ANY COURSE OF CONDUCT, COURSE OF DEALING, STATES (WHETHER OPAL OR WRITTEN) OR
ACTIONS OF THE LENDER OR THE GUARANTOR SHALL BE BROUGHT AND MAINTAINED IN THE
COURTS OF THE STATE OF ILLINOIS OR IN THE UNITED STATES DISTRICT COURT FOR THE
NORTHERN DISTRICT OF ILLINOIS. THE GUARANTOR HEREBY EXPRESSLY IRREVOCABLY
SUBMITS TO THE JURISDICTION OF THE COURTS OF THE STATE OF ILLINOIS AND OF THE
UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS FOR THE
PURPOSE OF ANY SUCH LITIGATION SET FORTH ABOVE AND IRREVOCABLY AGREES TO BE
BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH SUCH LITIGATION. THE
GUARANTOR FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY REGISTERED
MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF
ILLINOIS. THE GUARANTOR HEREBY EXPRESSLY IRREVOCABLY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH HE MAY HAVE OR HEREAFTER MAY HAVE
TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED
TO AB0VE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM. TO THE EXTENT THAT THE GUARANTOR HAS OR HEREAFTER MAY
ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM ANT LEGAL PROCESS
(WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN
AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS
-16-
<PAGE>
PROPERTY, THE GUARANTOR HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF
THIS OBLIGATIONS UNDDER THIS GUARANTY.
SECTION 5.12. WAIVER OF JURY TRIAL. THE GUARANTOR HEREBY KNOWINGLY,
---------------------
VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURY
IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN
CONNECTION WITH, THIS GUARANTY OR ANY COURSE OF C0NDUCT, COURSE OF DEALING,
STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF THE LENDER OR THE GUARANTOR.
THE GUARANTOR ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT
CONSIDERATION FOR THIS PROVISION AND TEAT THIS PROVISION IS A MATERIAL
INDUCEMENT FOR THE LENDER ENTERING INTO THIS CREDIT AGREEMENT AND EACH OTHER
LOAN DOCUMENT.
SECTION 5.13. THE LENDER AS AGENT FOR ITS AFFILIATES. As described
---------------------------------------
above, certain Affiliates of the Lender, including without limitation, Bank of
America National Trust and Savings Association, are or may become parties to
certain Hedging Agreements with the Borrower, the Guarantor and/or Affiliates of
the Borrower or the Guarantor. This Guaranty secures the obligations of the
Borrower, the Guarantor and such Affiliates, as the case may be, under such
Hedging Agreements, and the parties hereto acknowledge for all purposes that the
Lender acts as agent. on behalf of such Affiliates of the Lender which are so
entitled to share in the rights and benefits accruing to the Lender under this
Guaranty.
-17-
<PAGE>
IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be duly
executed and delivered by its officer thereunto duly authorized as of the date
first above written.
WESTSHORE PROCESSING COMPANY, L.L.C.
By: MarkWest Michigan LLC, its Operator
By: MarkWest Hydrocarbon Partners, Ltd.,
its Manager
By: MarkWest Hydrocarbon, Inc., its
General Partner
By: /s/ Arthur J. Denney
------------------------------------
Name: Arthur J. Denney
Title: Vice President
Address:
c/o MarkWest Michigan LLC
5613 DTC Parkway, Suite 400
Englewood, Colorado 80111
Telecopy: (303) 290-8769
<PAGE>
SECURITY AGREEMENT
------------------
THIS SECURITY AGREEMENT (this "Security Agreement"), dated as of May 2,
-------------------
1996, made by WEST SHORE PROCESSING COMPANY, L.L.C., a Michigan limited
liability company (the "Grantor"), in favor of BANK OF AMERICA ILLINOIS, an
Illinois banking corporation (the "Lender").
--------
WITNESSETH:
----------
WHEREAS, pursuant to an Amended and Restated Credit Agreement, dated as of
the date hereof (together with all amendments and other modifications, if any,
from time to time thereafter made thereto, the "Credit Agreement"), among
------------------
Michigan Energy Company, L.L.C., a Michigan limited liability company, ("Energy
-------
Company"), Michigan Production Company, L.L.C., a Michigan limited liability
- --------
company ("Reserves Company," together with Energy Company, the "Borrower") and
------------------- ----------
the Lender, the Lender has extended commitments (the "Commitments") to make
-------------
loans (the "Loans") to the Borrower; and
-------
WHEREAS, the Borrower has entered or may enter into certain Hedging
Agreements with Bank of America National Trust and Savings Association, an
Affiliate of the Lender, pursuant to the terms of the Credit Agreement; and
WHEREAS, as a condition precedent to the making of the initial Loan under
the Credit Agreement and to the obligations of Bank of America National Trust
and Savings Association under the Hedging Agreements referred to above, the
Grantor is required to execute and deliver this Security Agreement; and
WHEREAS, the Grantor has duly authorized the execution, delivery and
performance of this Security Agreement;
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and in order to induce the Lender
to make Loans (including the initial Loan) to the Borrower pursuant to the
Credit Agreement, the Grantor agrees, for the benefit of the Lender, as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. Certain Terms. The following terms (whether or not
-------------
underscored) when used in this Security Agreement, including its preamble and
recitals, shall have the following meanings (such
<PAGE>
definitions to be equally applicable to the singular and plural forms thereof):
"Basin" means Basin Pipeline L.L.C.
-------
"Borrower" is defined in the first recital.
---------- -------------
"Collateral" is defined in Section 2.1.
------------ -----------
"Commitments" is defined in the first recital.
------------- -------------
"Computer Hardware and Software Collateral" means:
-------------------------------------------
(a) all computer and other electronic data processing hardware,
integrated computer systems, central processing units, memory units,
display terminals, printers, features, computer elements, card readers,
tape drives, hard and soft disk drives, cables, electrical supply hardware,
generators, power equalizers, accessories and all peripheral devices and
other related computer hardware;
(b) all software programs (including both source code, object code and
all related applications and data files), whether now owned, licensed or
leased or hereafter acquired by the Grantor, designed for use on the
computers and electronic data processing hardware described in clause (a)
----------
above;
(c) all firmware associated therewith;
(d) all documentation (including flow charts, logic diagrams, manuals,
guides and specifications) with respect to such hardware, software and
firmware described in the preceding clauses (a) through (c ); and
----------- ----
(e) all rights with respect to all of the foregoing, including,
without limitation, any and all copyrights, licenses, options, warranties,
service contracts, program services, test rights, maintenance rights,
support rights, improvement rights, renewal rights and indemnifications and
any substitutions, replacements, additions or model conversions of any of
the foregoing.
"Copyright Collateral" means all copyrights and all semi-conductor chip
----------------------
product mask works of the Grantor, whether statutory or common law, registered
or unregistered, now or hereafter in force throughout the world including,
without limitation, all of the Grantor's right, title and interest in and to all
copyrights and mask works registered in the United States Copyright Office or
anywhere else in the world and also including, without limitation, the right to
sue for past, present and future infringements of any thereof, all rights
corresponding thereto throughout the world, all
-2-
<PAGE>
extensions and renewals of any thereof and all proceeds of the foregoing,
including, without limitation, licenses, royalties, income, payments, claims,
damages and proceeds of suit.
"Credit Agreement" is defined in the first recital.
------------------ -------------
"Energy Company" is defined in the first recital.
---------------- -------------
"Energy Company's Share" means, as of any date of determination with
------------------------
respect to any asset, interest or property, the proportionate beneficial
interest of Energy Company therein represented by Energy Company's ownership of
equity interests in Basin and Grantor.
"Environmental Laws" means all applicable federal, state or local statutes,
--------------------
laws, ordinances, codes, rules, regulations and guidelines (including consent
decrees and administrative orders) relating to public health and safety through
protection of the environment.
"Equipment" is defined in clause (a) of Section 2.1.
----------- ---------- -----------
"Grantor" is defined in the preamble.
--------- --------
"Guaranty" means those certain Secured Guaranties, of even date herewith,
----------
executed by Basin and Grantor in favor of the Lender pursuant to the terms of
the Credit Agreement.
"Hazardous Material" means
--------------------
(a) any "hazardous substance", as defined by the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended;
(b) any "hazardous waste", as defined by the Resource Conservation and
Recovery Act, as amended;
(c) any petroleum, crude oil or fraction thereof;
(d) any hazardous, dangerous or toxic chemical, material, waste or
substance within the meaning of any Environmental Law;
(e) any radioactive material, including any naturally occurring
radioactive material, and any source, special or by-product material as
defined in 42 U.S.C. (S) 2011 et seq., and any amendments or
-------
reauthorizations thereof;
(f) asbestos-containing materials in any form or condition; or
(g) polychlorinated biphenyls in any form or condition.
-3-
<PAGE>
"Intellectual Property Collateral" means, collectively, the Computer
----------------------------------
Hardware and Software Collateral, the Copyright Collateral, the Patent
Collateral, the Trademark Collateral and the Trade Secrets Collateral.
"Inventory" is defined in clause (b) of Section 2.1.
----------- -----------
"Lender" is defined in the preamble.
-------- --------
"Loans" is defined in the first recital.
------- -------------
"MarkWest" means MarkWest Michigan LLC.
----------
"Participation Agreement" means that certain Participation, Ownership and
-------------------------
Operating Agreement for Grantor, by and among Energy Company and MarkWest dated
as of May 2, 1996 (the "Participation Agreement").
"Patent Collateral" means:
-------------------
(a) all letters patent and applications for letters patent throughout
the world, including all patent applications in preparation for filing
anywhere in the world;
(b) all patent licenses;
(c) all reissues, divisions, continuations, continuations-in-part,
extensions, renewals and reexaminations of any of the items described in
clauses (a) and (b); and
----------- -----
(d) all proceeds of, and rights associated with, the foregoing
(including license royalties and proceeds of infringement suits), the right
to sue third parties for past, present or future infringements of any
patent or patent application, for breach or enforcement of any patent
license and all rights corresponding thereto throughout the world.
"Receivables" is defined in clause (c) of Section 2.1.
------------- ---------- -----------
"Related Contracts" is defined in clause (c) of Section 2.1.
------------------- ---------- -----------
"Reserves Company" is defined in the first recital.
------------------ -------------
"Secured Obligations" is defined in Section 2.2
--------------------- -----------
"Security Agreement" is defined in the preamble.
-------------------- --------
"Subordination Agreement" means the Subordination Agreement dated May 2,
-------------------------
1996 by and among MarkWest, Lender, Energy Company, Grantor and Basin.
-4-
<PAGE>
"Subsidiary" means as to any Person (a) a corporation of which
------------
outstanding shares of stock having ordinary voting power (other than stock
having such power only by reason of the happening of a contingency) to elect a
majority of the Board of Directors of such corporation are at the time owned,
directly or indirectly through one or more intermediaries, or both, by such
Person and (b) any partnership, association, joint venture or other business
entity the controlling interest of which is at the time owned, directly or
indirectly through one or more intermediaries, or both, by such Person.
"Trademark Collateral" means:
----------------------
(a) all trademarks, trade names, corporate names, company names,
business names, fictitious business names, trade styles, service marks,
certification marks, collective marks, logos, other source of business
identifiers, prints and labels on which any of the foregoing have appeared
or appear, designs and general intangibles of a like nature (all of the
foregoing items in this clause (a) being collectively called a "Trademark")
---------- -----------
now existing anywhere in the world or hereafter adopted or acquired,
whether currently in use or not, all registrations and recordings thereof
and all applications in connection therewith, whether pending or in
preparation for filing, including registrations, recordings and
applications in the United States Patent and Trademark Office or in any
office or agency of the United States of America or any State thereof or
any foreign country;
(b) all Trademark licenses;
(c) all reissues, extensions or renewals of any of the items described
in clauses (a) and (b);
----------- ---
(d) all of the goodwill of the business connected with the use of, and
symbolized by the items described in, clauses (a) and (b); and
------- ---
(e) all proceeds of, and rights associated with, the foregoing,
including any claim by the Grantor against third parties for past, present
or future infringement or dilution of any Trademark, Trademark registration
or Trademark license, including any Trademark, Trademark registration or
Trademark license referred to in clauses (a) and (b), or for any injury to
----------- ---
the goodwill associated with the use of any such Trademark or for breach or
enforcement of any Trademark license.
"Trade Secrets Collateral" means common law and statutory trade secrets
--------------------------
and all other confidential or proprietary or useful information and all know-how
obtained by or used in or contemplated at any time for use in the business of
the Grantor (all of the
-5-
<PAGE>
foregoing being collectively called a "Trade Secret"), whether or not such Trade
--------------
Secret has been reduced to a writing or other tangible form, including all
documents and things embodying, incorporating or referring in any way to such
Trade Secret, all Trade Secret licenses including the right to sue for and to
enjoin and to collect damages for the actual or threatened misappropriation of
any Trade Secret and for the breach or enforcement of any such Trade Secret
license.
"U.C.C." means the Uniform Commercial Code, as in effect in the State of
--------
Illinois.
SECTION 1.2. Guaranty Definitions. Unless otherwise defined herein or the
--------------------
context otherwise requires, terms used in this Security Agreement, including its
preamble and recitals, have the meanings provided in the Guaranty.
SECTION 1.3. U.C.C. Definitions. Unless otherwise defined heroin or the
------------------
context otherwise requires, terms for which meanings are provided in the U.C.C.
are used in this Security Agreement, including its preamble and recitals, with
such meanings.
ARTICLE II
SECURITY INTEREST
SECTION 2.1. Grant of Security. The Grantor hereby assigns and pledges to
-----------------
the Lender, and hereby grants to the Lender a security interest in, Energy
Company's Share of all of the following, whether now or hereafter existing or
acquired (the "Collateral"):
------------
(a) all equipment in all of its forms of the Grantor, wherever
located, including all equipment and facilities used or useful for the
processing, transportation or marketing of oil, gas or other hydrocarbons
or other materials extracted therefrom, and all parts thereof and all
accessions, additions, attachments, improvements, substitutions and
replacements thereto and therefor (any and all of the foregoing being the
"Equipment");
-----------
(b) all inventory in all of its forms of the Grantor, wherever
located, including
(i) all oil, gas or other hydrocarbons or materials extracted
therefrom, raw materials and work in process therefor, finished goods
thereof, and materials used or consumed in the manufacture or
production thereof,
-6-
<PAGE>
(ii) all goods in which the Grantor has an interest in mass or
a joint or other interest or right of any kind (including goods in which
the Grantor has an interest or right as consignee), and
(iii) all goods which are returned to or repossessed by the
Grantor,
and all accessions thereto, products thereof and documents therefor (any and all
such inventory, materials, goods, accessions, products and documents being the
"Inventory");
- -----------
(c) all accounts (including, without limitation, the Accounts), contracts,
contract rights, chattel paper, documents, instruments, and general intangibles
of the Grantor, whether or not arising out of or in connection with the sale or
lease of goods or the rendering of services, and all rights of the Grantor now
or hereafter existing in and to all security agreements, guaranties, leases and
other contracts securing or otherwise relating to any such accounts, contracts,
contract rights, chattel paper, documents, instruments, and general intangibles
(any and all such accounts, contracts, contract rights, chattel paper,
documents, instruments, and general intangibles being the "Receivables,"
-----------
excluding those fees payable under Section 6.11 of the Participation Agreement,
and any and all such security agreements, guaranties, leases and other contracts
being the "Related Contracts," which term shall include each document listed on
-----------------
Schedule 1 attached hereto);
- ----------
(d) all Intellectual Property Collateral of the Grantor;
(e) all books, records, writings, data bases, information and other
property relating to, used or useful in connection with, evidencing, embodying,
incorporating or referring to, any of the foregoing in this Section 2.1;
-----------
(f) all of the Grantor's other property and rights of every kind and
description and interests therein; and
(g) all products, offspring, rents, issues, profits, returns, income and
proceeds of and from any and all of the foregoing Collateral (including proceeds
which constitute property of the types described in clauses (a), (b), (c), (d),
--------------------------
(e) and (f), proceeds deposited from time to time in any lock boxes of the
- -----------
Grantor, and, to the extent not otherwise included, all payments under insurance
(whether or not the Lender is the loss payee thereof), or any indemnity,
warranty or guaranty, payable by reason of loss or damage to or otherwise with
respect to any of the foregoing Collateral).
-7-
<PAGE>
SECTION 2.2. Security for Obligations. This Security Agreement secures
------------------------
the prompt payment when due, whether at stated maturity, by acceleration
or otherwise (including the payment of amounts which would become due but for
the operation of the automatic stay under Section 362 of the Bankruptcy Code) of
(a) all Obligations now or hereafter existing under the Credit Agreement, the
Note, the Hedging Agreements and each other Loan Document, whether for
principal, interest, costs, fees, expenses or otherwise, and (b) all other
obligations of the Borrower to the Lender, howsoever created, arising or
evidenced, whether direct or indirect, absolute or contingent or now or
hereinafter existing or due or to become due (all such Obligations and other
obligations being the "Secured Obligations").
---------------------
SECTION 2.3. Continuing Security Interest; Transfer of Note[s]. This
-------------------------------------------------
Security Agreement shall create a continuing security interest in the Collateral
and shall
(a) remain in full force and effect until payment in full of all
Secured Obligations and the termination of the Commitments and any other
commitments of the Lender to the Borrower;
(b) be binding upon the Grantor, its successors, transferees and
assigns; and
(c) inure, together with the rights and remedies of the Lender
hereunder, to the benefit of the Lender and its successors, transferees and
assigns.
Without limiting the generality of the foregoing clause (c), the Lender may
----------
assign or otherwise transfer (in whole or in part) any Note or Loan to any other
Person or entity, and such other Person or entity shall thereupon become vested
with all the rights and benefits in respect thereof granted to the Lender under
any Loan Document (including this Security Agreement) or otherwise, subject,
however, to any contrary provisions in such assignment or transfer, and to the
provisions of Section 9.11 of the Credit Agreement. Upon the indefeasible
------------
payment in full of all Secured Obligations and the termination of the
Commitments and any other commitments of the Lender to the Borrower, the
security interest granted herein shall terminate and all rights to the
Collateral shall revert to the Grantor. Upon any such termination, the Lender
will, at the Grantor's sole expense, execute and deliver to the Grantor such
documents as the Grantor shall reasonably request to evidence such termination.
SECTION 2.4. Grantor Remains Liable. Anything herein to the contrary
----------------------
notwithstanding
(a) the Grantor shall remain liable under the contracts and agreements
included in the Collateral to the extent set
-8-
<PAGE>
forth therein, and shall perform all of its duties and obligations under
such contracts and agreements to the same extent as if this Security
Agreement had not been executed;
(b) the exercise by the Lender of any of its rights hereunder shall
not release the Grantor from any of its duties or obligations under any
such contracts or agreements included in the Collateral; and
(c) the Lender shall not have any obligation or liability under any
such contracts or agreements included in the Collateral by reason of this
Security Agreement, nor shall the Lender be obligated to perform any of the
obligations or duties of the Grantor thereunder or to take any action to
collect or enforce any claim for payment assigned hereunder.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1. REPRESENTATIONS AND WARRANTIES. The Grantor represents and
------------------------------
warrants unto the Lender as set forth in this Article.
SECTION 3.1.1. Validity, .etc. This Security Agreement creates a valid
--------------
security interest in the Collateral, securing the payment of the Secured
Obligations except as set forth on the Disclosure Schedule to the Participation
Agreement, and all filings and other actions necessary or desirable to perfect
and protect such security interest have been duly taken.
SECTION 3.1.2. AUTHORIZATION, APPROVAL, ETC. NO authorization, approval or
----------------------------
other action by, and no notice to or filing with, any governmental
authority or regulatory body is required either
(a) for the grant by the Grantor of the security interest granted
hereby or for the execution, delivery and performance of this Security
Agreement by the Grantor; or
(b) for the perfection of or except as set forth on the Disclosure
Schedule to the Participation Agreement, the exercise by the Lender of its
rights and remedies hereunder.
-9-
<PAGE>
ARTICLE IV
COVENANTS
SECTION 4.1. CERTAIN COVENANTS. The Grantor covenants and agrees that, so
-----------------
long as any portion of the Secured 0bligations shall remain unpaid or the Lender
shall have any outstanding Commitments or other commitment by the Lender to the
Borrower, the Grantor will, unless the Lender shall otherwise consent in
writing, perform the obligations set forth in this Section.
SECTION 4.1.1. AS TO EQUIPMENT AND INVENTORY. The Grantor hereby agrees
-----------------------------
that it shall keep all the Equipment and Inventory (other than Inventory sold in
the ordinary course of business) in the State of Michigan.
SECTION 4.1.2. AS TO RECEIVABLES. The Grantor shall keep its place(s) of
-----------------
business and chief executive office and the office(s) where it keeps its records
concerning the Receivables, and all originals of all chattel paper which
evidenced Receivables, located at the address set forth below its name on the
signature page hereof, or, upon 30 days' prior written notice to the Lender, at
such other locations in a jurisdiction where all actions required by the first
-----
sentence of Section 4.1.4 shall have been taken with respect to the
- -------- -------------
Receivables; not change its name except upon 30 days' prior written notice to
the Lender; hold and preserve such records and chattel paper; and permit
representatives of the Lender at any time during normal business hours to
inspect and make abstracts from such records and chattel paper.
SECTION 4.1.3. AS TO INTELLECTUAL PROPERTY COLLATERAL. The Grantor shall
--------------------------------------
not, unless the Grantor shall either
(i) reasonably and in good faith determine (and notice of such
determination shall have been delivered to the Lender) that any of the
Patent Collateral is of negligible economic value to the Grantor, or
(ii) have a valid business purpose to do otherwise, do any act,
or omit to do any act, whereby any of the Patent Collateral may lapse
or become abandoned or dedicated to the public or unenforceable.
SECTION 4.1.4. FURTHER ASSURANCES, ETC. The Grantor agrees that, from time
-----------------------
to time at its own expense, the Grantor will promptly execute and deliver all
further instruments and documents, and take all further action, that may be
reasonably necessary or desirable, or that the Lender may request, in order to
perfect, preserve and protect any security interest granted or purported to be
granted hereby or to enable the Lender to exercise and enforce
-10-
<PAGE>
its rights and remedies hereunder with respect to any Collateral. Without
limiting the generality of the foregoing, the Grantor will:
(a) execute and file such financing or continuation statements, or
amendments thereto, and such other instruments or notices (including,
without limitation, any assignment of claim form under or pursuant to the
federal assignment of claims statute, 31 U.S.C. (S) 3726, any successor or
amended version thereof or any regulation promulgated under or pursuant to
any version thereof), as may be necessary or desirable, or as the Lender
may request, in order to perfect and preserve the security interests and
other rights granted or purported to be granted to the Lender hereby; and
(b) furnish to the Lender, from time to time at the Lender's request,
statements and schedules further identifying and describing the Collateral
and such other reports in connection with the Collateral as the Lender may
reasonably request, all in reasonable detail.
With respect to the foregoing and the grant of the security interest hereunder,
the Grantor hereby authorizes the Lender to file one or more financing or
continuation statements, and amendments thereto, relative to all or any part of
the Collateral without the signature of the Grantor where permitted by law, all
of which security interests shall be subject to the terms and conditions of the
Subordination Agreement. A carbon, photographic or other reproduction of this
Security Agreement or any financing statement covering the Collateral or any
part thereof shall be sufficient as a financing statement where permitted by
law.
SECTION 4.1.5. COMPLIANCE WITH LAWS, ETC. Grantor agrees to comply in all
-------------------------
material respects with all applicable laws, rules, regulations and orders, such
compliance to include (without limitation):
(a) the maintenance and preservation of its limited liability company
existence and qualification as a foreign limited liability company; and
(b) the payment, before the same become delinquent, of all taxes,
assessments and governmental charges imposed upon it or upon its property
except to the extent being diligently contested in good faith by
appropriate proceedings and for which adequate reserves in accordance with
GAAP shall have been set aside on its books.
SECTION 4.1.6. ENVIRONMENTAL COVENANT. Grantor agrees to agrees to
----------------------
cause Basin to,
(a) use, operate and maintain all of its facilities and Properties in
material compliance with all Environmental
-11-
<PAGE>
Laws, keep all necessary permits, approvals, certificates, licenses and
other authorizations relating to environmental matters in effect and remain
in material compliance therewith, and handle all Hazardous Materials in
material compliance with all applicable Environmental Laws; and
(b) (i) use all reasonable efforts to have dismissed with prejudice
any actions or proceedings relating to compliance with Environmental Laws
which would or could in the reasonable opinion of the Lender have,
individually or in the aggregate, a material adverse effect, and (ii)
diligently pursue cure of any material underlying environmental problem
which forms the basis of any such claim, complaint, notice or inquiry.
SECTION 4.1.7. BUSINESS ACTIVITIES; ACQUISITIONS. The Grantor will not
---------------------------------
engage in any business activity, except as permitted by the Participation
Agreement and such activities as may be incidental or related thereto.
SECTION 4.1.8. RESTRICTED PAYMENTS, ETC. On and at all times after the
------------------------
Effective Date Grantor will only make distributions as permitted by the
Participation Agreement.
SECTION 4.1.9. CONSOLIDATION, MERGER, ETC. Grantor will not liquidate or
--------------------------
dissolve, consolidate with, or merge into or with, any other limited liability
company, partnership or corporation, or purchase or otherwise acquire all or
substantially all of the assets of any Person (or of any division thereof).
Grantor will not create any Subsidiary except with the prior written consent of
the Lender.
ARTICLE V
THE LENDER
SECTION 5.1. LENDER APPOINTED ATTORNEY-IN-FACT. The Grantor hereby
---------------------------------
irrevocably appoints the Lender the Grantor's attorney-in-fact, with full
authority in the place and stead of the Grantor and in the name of the Grantor
or otherwise, to take any action and to execute any instrument which the Lender
may deem necessary or advisable to accomplish the purposes of this Security
Agreement, including, without limitation:
(a) to ask, demand, collect, sue for, recover, compromise, receive and
give acquittance and receipts for moneys due and to become due under or in
respect of any of the Collateral;
-12-
<PAGE>
(b) to receive, indorse, and collect any drafts or other instruments,
documents and chattel paper, in connection with clause (a) above;
----------
(c) to file any claims or take any action or institute any proceedings
which the Lender may deem necessary or desirable for the collection of any
of the Collateral or otherwise to enforce the rights of the Lender with
respect to any of the Collateral; and
(d) to perform the affirmative obligations of the Grantor hereunder
(including all obligations of the Grantor pursuant to Section 4.1.4).
--------------
The Grantor hereby acknowledges, consents and agrees that the power of attorney
granted pursuant to this Section is irrevocable and coupled with an interest,
but in all events only with respect to matters and interests relating solely to
the Collateral and subject to the Subordination Agreement; and in no event will
Lender exercise the foregoing power of attorney with respect to any of
MarkWest's interest or any interests of the Grantor which are not part of the
Collateral.
SECTION 5.2. LENDER MAY PERFORM. If the Grantor fails to perform any
------------------
agreement contained herein, the Lender may itself perform, or cause performance
of, such agreement, and the expenses of the Lender incurred in connection
therewith shall be payable by the Grantor.
SECTION 5.3. LENDER HAS NO DUTY. In addition to, and not in limitation of,
------------------
Section 2.4, the powers conferred on the Lender hereunder are solely to protect
- -----------
its interest in the Collateral and shall not impose any duty on it to exercise
any such powers. Except for the reasonable care of any Collateral in its
possession and the accounting for moneys actually received by it hereunder, the
Lender shall have no duty as to any Collateral or as to the taking of any
necessary steps to preserve rights against prior parties or any other rights
pertaining to any Collateral.
SECTION 5.4. REASONABLE CARE. The Lender is required to exercise reasonable
---------------
care in the custody and preservation of any of the Collateral in its possession;
provided, however, the Lender shall be deemed to have exercised reasonable care
- -----------------
in the custody and preservation of any of the Collateral, if it takes such
action for that purpose as the Grantor reasonably requests in writing at times
other than upon the occurrence and during the continuance of any Event of
Default, but failure of the Lender to comply with any such request at any time
shall not in itself be deemed a failure to exercise reasonable care.
-13-
<PAGE>
ARTICLE VI
REMEDIES
SECTION 6.1. CERTAIN REMEDIES. If any Event of Default shall have occurred
----------------
and be continuing:
(a) The Lender may exercise in respect of the Collateral, in addition
to other rights and remedies provided for herein or otherwise available to
it, all the rights and remedies of a secured party on default under the
U.C.C. (whether or not the U.C.C. applies to the affected Collateral) and
also may
(i) require the Grantor to, and the Grantor hereby agrees that
it will, at its expense and upon request of the Lender forthwith,
assemble all or part of the Collateral as directed by the Lender and
make it available to the Lender at a place to be designated by the
Lender which is reasonably convenient to both parties and
(ii) without notice except as specified below, sell the
Collateral or any part thereof in one or more parcels at public or
private sale, at any of the Lender's offices or elsewhere, for cash,
on credit or for future delivery, and upon such other terms as the
Lender may deem commercially reasonable.
The Grantor agrees that, to the extent notice of sale shall be required by law,
at least ten days' prior notice to the Grantor of the time and place of any
public sale or the time after which any private sale is to be made shall
constitute reasonable notification. The Lender shall not be obligated to make
any sale of Collateral regardless of notice of sale having been given. The
Lender may adjourn any public or private sale from time to time by announcement
at the time and place fixed therefor, and such sale may, without further notice,
be made at the time and place to which it was so adjourned.
(b) All cash proceeds received by the Lender in respect of any sale of,
collection from, or other realization upon all or any part of the Collateral
may, in the discretion of the Lender, be held by the Lender as collateral for,
and/or then or at any time thereafter applied in whole or in part by the Lender
against, all or any part of the Secured Obligations in such order as the Lender
shall elect. Any surplus of such cash or cash proceeds held by the Lender and
remaining after payment in full of all the Secured Obligations shall be paid
over to the Grantor or to whomsoever may be lawfully entitled to receive such
surplus.
-14-
<PAGE>
(c) The exercise of any right hereunder shall be expressly subject to
and in compliance with the Subordination Agreement.
ARTICLE VII
MISCELLANEOUS PROVISIONS
SECTION 7.1. LOAN DOCUMENT. This Security Agreement is a Loan Document
-------------
executed pursuant to the Credit Agreement and shall (unless otherwise expressly
indicated herein) be construed, administered and applied in accordance with the
terms and provisions thereof subject, however in all events to the Subordination
Agreement.
SECTION 7.2. AMENDMENTS; ETC. No amendment to or waiver of any provision of
---------------
this Security Agreement nor consent to any departure by the Grantor herefrom,
shall in any event be effective unless the same shall be in writing and signed
by the Lender, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.
SECTION 7.3. ADDRESSES FOR NOTICES. All notices and other communications
---------------------
provided for hereunder shall be in writing (including telegraphic communication)
and, if to the Grantor, mailed or telegraphed or delivered to it, addressed to
it at the address set forth below its signature hereto, if to the Lender, mailed
or delivered to it, addressed to it at the address of the Lender specified in
the Guaranty, or as to either party at such other address as shall be designated
by such party in a written notice to each other party complying as to delivery
with the terms of this Section. All such notices and other communications shall,
when mailed or telegraphed, respectively, be effective when deposited in the
mails or delivered to the telegraph company, respectively, addressed as
aforesaid.
SECTION 7.4. SECTION CAPTIONS. Section captions used in this Security
----------------
Agreement are for convenience of reference only, and shall not affect the
construction of this Security Agreement.
SECTION 7.5. SEVERABILITY. Wherever possible each provision of this
------------
Security Agreement shall be interpreted in such manner as to be effective and
valid under applicable law, but if any provision of this Security Agreement
shall be prohibited by or invalid under such law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Security Agreement.
SECTION 7.6. GOVERNING LAW, ENTIRE AGREEMENT, ETC. THIS SECURITY
------------------------------------
AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
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<PAGE>
ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF ILLINOIS, EXCEPT TO THE EXTENT
THAT THE VALIDITY OR PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES
HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE LAWS OF A
JURISDICTION OTHER THAN THE STATE OF ILLINOIS. THIS SECURITY AGREE AND THE OTHER
LOAN DOCUMENTS CONSTITUTE THE ENTIRE UNDERSTANDING AMONG THE PARTIES HERETO WITH
RESPECT TO THE SUBJECT MATTER HEREOF AND SUPERSEDE ANY PRIOR AGREEMENTS, WRITTEN
OR ORAL, WITH RESPECT THERETO.
SECTION 7.7. FORUM SELECTION AND CONSENT TO JURISDICTION. ANY LITIGATION
-------------------------------------------
BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS SECURITY
AGREEMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER
VERBAL OR WRITTEN) OR ACTIONS OF THE LENDER OR THE GRANTOR SHALL BE BROUGHT AND
MAINTAINED EXCLUSIVELY IN THE COURTS OF THE STATE OF ILLINOIS OR IN THE UNITED
STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS; PROVIDED, HOWEVER,
-----------------
THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY
BE BROUGHT, AT THE LENDER'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE SUCH
COLLATERAL OR OTHER PROPERTY MAY BE FOUND. THE GRANTOR HEREBY EXPRESSLY AND
IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS OF THE STATE OF ILLINOIS
AND OF THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS
FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE AND IRREVOCABLY AGREES
TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH SUCH LITIGATION.
THE GRANTOR FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY REGISTERED
MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF
ILLINOIS. THE GRANTOR HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY HAVE OR HEREAFTER MAY HAVE
TO THE LAYING OF VENUE OF SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO
ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT
FORUM. TO THE EXTENT THAT THE GRANTOR HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY
FROM JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH
SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION
OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, THE GRANTOR HEREBY
IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS
SECURITY AGREEMENT.
SECTION 7.8. WAIVER OF JURY TRIAL. THE LENDER AND THE GRANTOR HEREBY
--------------------
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A
TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF,
UNDER, OR IN CONNECTION WITH, THIS SECURITY AGREEMENT, OR ANY COURSE OF CONDUCT,
COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE
LENDER OR THE GRANTOR. THE GRANTOR ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED
FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION (AND EACH OTHER PROVISION
OF EACH OTHER LOAN DOCUMENT TO WHICH IT IS A PARTY) AND THAT THIS PROVISION IS A
MATERIAL INDUCEMENT FOR
-16-
<PAGE>
THE LENDER ENTERING INTO THIS SECURITY AGREEMENT AND EACH SUCH OTHER LOAN
DOCUMENT.
SECTION 7.9. THE LENDER AS AGENT FOR ITS AFFILIATES. As described above,
--------------------------------------
certain Affiliates of the Lender, including without limitation, Bank of America
National Trust and Savings Association, are or may become parties to certain
Hedging Agreements with the Borrower, the Grantor and/or Affiliates of the
Borrower or the Grantor. This Security Agreement secures the obligations of the
Borrower, the Grantor and such Affiliates, as the case may be, under such
Hedging Agreements, and the parties hereto acknowledge for all purposes that the
Lender acts as agent on behalf of such Affiliates of the Lender which are so
entitled to share in the rights and benefits accruing to the Lender under this
Security Agreement.
SECTION 7.10. Subordination. Notwithstanding anything to the contrary
-------------
contained herein, the Lender hereby agrees for itself and its successors and
assigns, that the Lender's rights and remedies hereunder (the "Rights"), and any
------------
and all liens and security interests that are granted to secure the Rights (the
"Liens") as well as any interest in any property or asset acquired by reason of
- -------
the enforcement of any of the Rights or the Liens are subject to the terms of
the Subordination Agreement, which provides, among other things, that the Rights
and the Liens are subject to the Participation Agreement as more particularly
set forth therein. This Section 7.10 shall be deemed a covenant binding upon
------------
and running with the property and assets subject to the Liens.
SECTION 7.11. Limitation On Recourse. Notwithstanding the general terms of
----------------------
the Grantor's obligations under this Security Agreement or anything to the
contrary contained herein, the Lender hereby agrees not to seek to satisfy
Grantor's obligations under this Security Agreement out of any property, assets,
revenues or funds of the Grantor other than (i) Energy Company's Share of the
Collateral (which shall remain subject to the Subordination Agreement) and/or
(ii) funds which are distributable to Energy Company from time to time pursuant
to the Participation Agreement.
-17-
<PAGE>
IN WITNESS WHEREOF, the Grantor has caused this Security Agreement to be
duly executed and delivered by its officer thereunto duly authorized as of the
date first above written.
WESTSHORE PROCESSING COMPANY, L.L.C.
By: MarkWest Michigan LLC, its Operator
By: MarkWest Hydrocarbon Partners, Ltd., its Manager
By: MarkWest Hydrocarbon, Inc., its General Partner
By: /s/ Arthur J. Denney
Name: Arthur J. Denney
Title: Vice President
c/o MarkWest Michigan LLC
Address: 5613 DTC Parkway, Suite 400
-----------------------
Englewood, Colorado 80111
-------------------
Attention: Arthur J. Denney
Telex:
Telecopier: (303) 290-8769
<PAGE>
Schedule I to West Shore Security Agreement
1. Transportation Agreement dated December 1, 1993 between Manistee Gas Limited
Liability Company, as Shipper, and Basin Pipeline LLC, as Transporter.
2. Asset Purchase Agreement dated December 1, 1993, between Dow Chemical
Company, as Buyer, and Manistee Gas Limited Liability Company as Seller.
3. Promissory Note dated December 1, 1993 from Manistee to The Dow Chemical
Company in the principal sum of $720,000.00.
4. Pipeline Construction Agreement dated November 30, 1993, by and between
Basin, as owner, and Murphy Bros. Inc., as Contractor, as amended by the
First Amendment to the Pipeline Construction Agreement dated November 30,
1993.
5. Agreement dated December 22, 1994 between Basin, West Bay Exploration Co.,
Savoy Oil and Gas Inc. and H&H Star Energy, Inc. for the Filer 1-10 Well.
6. Transportation Agreement dated April 1, 1995, by and between Manistee and
Michgan Consolidated Gas Company.
7. KIF Use Agreement dated October 1, 1991, between Shell Michigan Pipeline
Company and Manistee.
8. Gas and Condensate Processing Agreement - Kalkasa Plant dated April 1, 1995,
by and between Shell Western E&P, Inc. and Manistee.
9. Product Purchase Agreement dated July 12, 1994, accepted July 15, 1994, by
and between Enerkon Resources Corporation and Manistee.
10. Gathering Line Construction and Gas Processing Agreement dated December 22,
1994, by and between Manistee, Basin, West Bay Exploration Company, Savoy
Oil & Gas, Inc., and H&H Star Energy, Inc.
11. Gas Treating and Processing Agreement between Shell Offshore, Inc. and West
Shore Processing Company dated as of May 1, 1996.
12. Gas Gathering, Treating and Processing Agreement between Michigan Production
Company and West Shore Processing Company.
13. Second Amended and Restated Operating Agreement for Basin Pipeline L.L.C.
dated May 1, 1996 by and among Basin, West Shore, MarkWest and Michigan
Energy Company, L.L.C.
14. Gas Processing and Treating Agreement for Brown 19 Plant between Manistee
and West Shore dated_________, 1996.
<PAGE>
15. Lease/Purchase of gas compressor for the Victory #32 Compressor Station #1
--------------------------------------------------------------------------
Lessor: Gas Compression Services, Inc. ("Gasco").
Lessee: Manistee Gas, L.L.C. ("Manistee").
Date of agreement January 3, 1994
Suction Pressure: 300 to 350 psig.
Discharge pressure: 1000psig.
Specific gravity: 0.70.
Volume: 2.5 to 3.1 Mmcf/d
Operations: Gasco will operate the compressor. Manistee
will furnish all parts, lube oil, and dry sweet
fuel gas.
Terms: Sixty (60) months upon which Manistee will have
option to purchase the compressor unit for
$53,350.42 within thirty days after final lease
payment is made.
Pricing: $3916.67 per month (includes $750.00 for the
operation of the compressor unit).
16. Lease/Purchase of gas compressor for the Victory #32 Compressor Station #2
--------------------------------------------------------------------------
Lessor: Gas Compression Services, Inc. ("Gasco").
Lessee: Manistee Gas, L.L.C. ("Manistee").
Date of agreement January 3, 1994
Suction Pressure: 300 to 350 psig.
Discharge pressure: 1000psig.
Specific gravity: 0.70.
Volume: 2.5 to 3.1 Mmcf/d
Operations: Gasco will operate the compressor. Manistee
will furnish all parts, lube oil, and dry sweet
fuel gas.
Terms: Sixty (60) months upon which Manistee will have
option to purchase the compressor unit for
$53,350.42 within thirty days after final lease
payment is made.
Pricing: $3916.67 per month (includes $750.00 for the
operation of the compressor unit).
17. Lease/Purchase of gas compressor for the Victory #32 Compressor Station #3
--------------------------------------------------------------------------
Lessor: Gas Compression Services, Inc. ("Gasco").
Lessee: Manistee Gas, L.L.C. ("Manistee").
Date of agreement January 3, 1994
Suction Pressure: 300 to 350 psig.
Discharge pressure: 1000psig.
Specific gravity: 0.70.
Volume: 2.5 to 3.1 Mmcf/d
Operations: Gasco will operate the compressor. Manistee will
furnish all parts, lube oil, and dry sweet fuel
gas.
Terms: Sixty (60) months upon which Manistee will have
option to purchase the compressor unit for
$53,350.42 within thirty days after final lease
payment is made.
Pricing: $3916.67 per month (includes $750.00 for the
operation of the compressor unit).
<PAGE>
18. Lease/Purchase of gas compressor for Peterson Facility
Lessor: Gas Compression Services, Inc. ("Gasco").
Lessee: Manistee Gas, L.L.C. ("Manistee").
Date of agreement February 1, 1995.
Suction Pressure: 15 to 35 psig.
Suction temperature: 70 degrees.
Discharge pressure: 350psig.
Specific gravity: 0.83.
Volume: 0.9 to 1.3 Mmcf/d
Ambient temperature: 100 degrees
Operations: Lessor will operate the compressor. Lessee will
furnish all parts, lube oil, and dry sweet fuel
gas.
Terms: Sixty (60) months. Upon final payment, Lessor
will assign lessee the compressor unit for no
additional charges.
Pricing: $2880.56 per month (includes $0.00 for the
operation of the compressor unit).
19. Letter Agreement regarding Transportation, Compression, Treating and
Processing dated February 23, 1996 between Manistee, Basin and Dynamic
Development, Inc. for the Peterson #1-19 Victory Well in Victory Township,
Mason County.
Vehicle Leases
Table Showing the following:
Vehicle Description, Primary Driver, Monthly payment, Monthly Insurance, Total
Monthly Payment & Insurance, Annual Payment & Insurance, Lease Maturity, Current
Mileage, Vehicle ID#, Ford Motor Lease number.
<PAGE>
Transferred Brown-19 Assets to MEC
Basin and/or Manistee Assets Located at the Brown 19 Treating Plant
- -------------------------------------------------------------------
The Basin and/or Manistee assets located at the Brown 19 treating plant include:
1. Slug catcher
2. Filter unit
3. Basin Gas Pack
4. Three 12, 000-gallon sour NGL storage tanks and one 24,000 NGL storage tank
5. The spare gas pack
6. The spur NGL truck-loading facilities
7. All spare or unused equipment, facilities and supplies located at or
near the Brown 19 Treating Plant site and in the portion of the Plant
commonly known as the "Bone-yard", excluding however, the Lake Orion NGL
amine skid, NGL plant skid and related equipment.
The above facilities shall include all line-pipe, pipe, connections, fittings,
flanges, interconnect with other pipelines, valves, control equipment, pigs, pig
launchers and receivers, cathodic protection, bypasses, regulators, drips,
meters and metering equipment, all equipment located on, at or appurtenant to
the Peterson compressor station, all other equipment and personal property
and/or fixtures associated therewith including the following:
Delivery Points Valves
1) Basin Pipeline Gas Pack a) The first valve (gas) downstream of
the Basin Gas Pack.
b) All piping from the 2-inch valve (air)
to the Basin Gas Pack.
c) The 2-inch valve (fuel) and piping to
the Basin Gas Pack.
d) All piping from the 1-inch and 2-inch
flare valves to the Basin Gas Pack
2) Sour NGL Storage a) The four (4) 4" x 6" relief valves on
the piping from the sour NGL storage tanks
to the Brown 19 flare system.
b) All piping between the 2-inch flash gas
valves and each sour NGL storage tank.
c) All piping between the 2-inch valves
on the sour NGL storage tanks to the
Brown 19 flare system.
d) All piping between the 2-inch valve
(truck load-out to the Brown 19 flare
system) and the tanks.
e) All piping between the 1-inch valves on
the sour NGL filter vapor return dump line
in the truck loading area and the sour NGL
filter.
<PAGE>
(FOLLOWING IS A UNIFORM COMMERCIAL CODE FINANCING STATEMENT-SEE ORIGINAL)
<PAGE>
PLEDGE AGREEMENT
----------------
(LLC Interests)
THIS PLEDGE AGREEMENT (this "Pledge Agreement"), dated as of May 2, 1996,
-------------------
made by WEST SHORE PROCESSING COMPANY, L.L.C., a Michigan limited liability
company (the "Pledgor"), in favor of BANK OF AMERICA ILLINOIS, an Illinois
---------
banking corporation (the "Lender"),
---------
WITNESSETH:
WHEREAS, pursuant to an Amended and Restated Credit Agreement, dated as of
May 2, 1996 (together with all amendments and other modifications, if any, from
time to time thereafter made thereto, the "Credit Agreement"), among Michigan
-------------------
Production Company, L.L.C., a Michigan limited liability company ("MPC"),
-------
Michigan Energy Company, L.L.C., a Michigan limited liability company ("MEC")
------
(together with MPC, the "Borrowers"), and the Lender, the Lender has extended
-----------
commitments ("Commitments") to make loans ("Loans") to the Borrowers; and
--------------- --------
WHEREAS, the Pledgor has executed and delivered to the Lender its Secured
Guaranty of even date herewith (the "Guaranty"), pursuant to which the Pledgor
------------
has guaranteed payment of the Obligations (as defined in the Credit Agreement)
under the Credit Agreement
WHEREAS, the Borrowers have entered or may enter into certain Hedging
Agreements (as defined in the Guaranty) with Bank of America National Trust and
Savings Association, an Affiliate (as defined in the Guaranty) of the Lender,
pursuant to the terms of the Credit Agreement; and
WHEREAS, as a condition precedent to the making of the initial Loan under
the Credit Agreement and to the obligations of Bank of America National Trust
and Savings Association under the Hedging Agreements referred to above, the
Pledgor is required to execute and deliver this Pledge Agreement; and
WHEREAS, the Pledgor has duly authorized the execution, delivery and
performance of this Pledge Agreement; and
WHEREAS, it is in the best interests of the Pledgor to execute this Pledge
Agreement inasmuch as the Pledgor will derive substantial direct and indirect
benefits from the Loans made from time to time to the Borrowers by the Lender
pursuant to the Credit Agreement;
NOW THEREFORE, for good and valuable consideration the receipt of which is
hereby acknowledged, and in order to induce the Lender
<PAGE>
to make Loans (including the initial Loan) to the Borrowers pursuant to the
Credit Agreement, the Pledgor agrees, for the benefit of the Lender, as follows:
DEFINITIONS
SECTION 1.1 Certain Terms. The following terms (whether or not underscored)
--------------
when used in this Pledge Agreement, including its preamble and recitals, shall
have the following meanings (such definitions to be equally applicable to the
singular and plural forms thereof):
"Basin" means Basin Pipeline L.L.C., a Michigan limited liability company.
-------
"Borrowers" is defined in the first recital.
----------- --------------
"Collateral" is defined in Section 2.1.
------------
"Credit Agreement" is defined in the first recital.
------------------ --------------
"Distributions" means all cash distributions made in respect of the Pledged
---------------
interests, whether of net income, return of capital or otherwise, and all other
distributions (whether similar or dissimilar to the foregoing) on or with
respect to any Pledged Interests or other rights or interests constituting
Collateral.
"Energy Company's Share" means, as of any date of redetermination with
------------------------
respect to any asset, interest or property, the proportionate beneficial
interest of MEC therein represented by MEC's direct and indirect ownership of
equity interest in Basin and Pledgor.
"Guaranty" is defined in the second recital.
---------- ---------------
"Lender" is defined in the preamble.
-------- ---------
"MarkWest" means MarkWest Michigan LLC.
----------
"MEC" is defined in the first recital.
------ --------------
"MPC" is defined in the first recital.
------ --------------
"Participation Agreement" means that certain Participation, Ownership and
-------------------------
Operating Agreement for Pledgor, by and among MEC and MarkWest dated as of May
2, 1996.
"Pledge Agreement" is defined in the preamble.
- ------------------ ---------
2
<PAGE>
"Pledged Interests" means all member interests or other ownership interests
-------------------
in Basin described in Attachment 1 hereto, all member interests or other
ownership interests issued by Basin's subsidiaries, all registrations,
certificates, articles or agreements governing or representing any such
interests, all options and other rights, contractual or otherwise, at any time
existing with respect to such interests, and all distributions, cash,
instruments and other property now or hereafter received, receivable or
otherwise distributed in respect of or in exchange for any or all of such
interests.
"Pledged Property" means all Pledged Interests, securities, all assignments
------------------
of any amounts due or to become due, all other instruments which are now being
delivered by the Pledgor to the Lender or may from time to time hereafter be
delivered by the Pledgor to the Lender for the purpose of pledge under this
Pledge Agreement or any other Loan Document, and all proceeds of any of the
foregoing.
"Pledgor" is defined in the preamble.
--------- -------------
"Secured Obligations" is defined in Section 2.2.
--------------------- ------------
"Securities Act" is defined in Section 6.2.
---------------- ------------
"Subordination Agreement" means the Subordination Agreement dated as of May
-------------------------
2, 1996, by and among MarkWest, Lender, MEC, Pledgor and Basin.
"U.C.C." means the Uniform Commercial Code as in effect in the State of
--------
Illinois.
SECTION 1.2 Guaranty Definitions. Unless otherwise defined herein or the
----------------------
context otherwise requires, terms used in this Pledge Agreement, including its
preamble and recitals, have the meanings provided in the Guaranty.
SECTION 1.3 U.C.C. Definitions. Unless otherwise defined herein or the
--------------------
context otherwise requires, terms for which meanings are provided in the U.C.C.
are used in this Pledge Agreement, including its preamble and recitals, with
such meanings.
II
PLEDGE
SECTION 2.1 Grant of Security Interest. The pledgor hereby pledges,
---------------------------
hypothecates, assigns, charges, mortgages, delivers, and transfers to the
Lender, and hereby grants to the Lender a continuing security interest in, all
of the following property (the "Collateral"):
--------------
3
<PAGE>
2.1.1 all Pledged interests identified in Item A of Attachment 1 hereto;
------- ------------
2.1.2 all Other Pledged Interests issued from time to time;
2.1.3 all other Pledged Property, whether now or hereafter delivered to
the Lender in connection with this Pledge Agreement;
2.1.4 all Distributions, interest, and other payments and rights with
respect to any Pledged Property; and
2.1.5 all proceeds of any of the foregoing.
SECTION 2.2 Security for Obligations. This Pledge Agreement secures the
-------------------------
payment in full of all Obligations now or hereafter existing under the Credit
Agreement, the Notes, the Hedging Agreements and each other Loan Document,
whether for principal, interest, costs, fees, expenses, or otherwise, and all
other obligations of the Borrowers to the Lender, howsoever created, arising or
evidenced, whether direct or indirect, absolute or contingent or now or
hereafter existing or due or to become due, and all obligations of the Pledgor
now or hereafter existing under this Pledge Agreement and each other Loan
Document to which it is or may become a party (all such Obligations and other
obligations of the Borrowers and the Pledgor being the "Secured Obligations").
----------------------
SECTION 2.3 Delivery of Pledged Property. All certificates or instruments
-----------------------------
representing or evidencing any Collateral, including all Pledged Interests,
shall be delivered to and held by or on behalf of the Lender pursuant hereto,
shall be in suitable form for transfer by delivery, and shall be accompanied by
all necessary instruments of transfer or assignment, duly executed in blank.
SECTION 2.4 Distributions on Pledged Interests. In the event that any
-----------------------------------
Distribution is to be paid on any Pledged Interests at a time when (x) no
default under the Credit Agreement ("Default") has occurred and is continuing,
and (y) no Event of Default has occurred and is continuing, such Distribution or
payment may be paid directly to the Pledgor. If any such Default or Event of
Default has occurred and is continuing then any such Distribution or payment
shall be paid directly to the Lender.
SECTION 2.5 Continuing Security Interest. This Pledge Agreement shall
-----------------------------
create a continuing security interest in the Collateral and shall
2.5.1 remain in full force and effect until payment in full of all
Secured Obligations and the termination of the
4
<PAGE>
Commitments and any other commitments of the Lender to the Borrowers,
2.5.2 be binding upon the Pledgor and its successors, transferees and
assigns, and
2.5.3 inure to the benefit of the Lender and its successors, transferees,
and assigns.
Without limiting the foregoing clause 2.5.3, the Lender my assign or otherwise
-------------
transfer (in whole or in part) the any Note or Loan to any other Person or
entity, and such other Person or entity shall thereupon become vested with all
the rights and benefits in respect thereof granted to the Lender under any Loan
Document (including this Pledge Agreement) or otherwise, subject, however, to
any contrary provisions in such assignment or transfer, and to the applicable
provisions of the Credit Agreement. Upon the payment in full of all Secured
Obligations and the termination of the Commitments and any other commitments of
the Lender to the Borrowers, the security interest granted heroin shall
terminate and all rights to the Collateral shall revert to the Pledgor. Upon any
such termination, the Lender will, at the Pledgor's sole expense, deliver to the
Pledgor, without any representations, warranties or recourse of any kind
whatsoever, all certificates and instruments representing or evidencing all
Pledged Interests, together with all other Collateral held by the Lender
hereunder, and execute and deliver to the Pledgor such documents as the Pledgor
shall reasonably request to evidence such termination.
SECTION 2.6 Security Interest Absolute. All rights of the Lender and the
---------------------------
security interests granted to the Lender hereunder, and all obligations of the
Pledgor hereunder, shall be absolute and unconditional, irrespective of
2.6.1 any lack of validity or enforceability of the Credit
Agreement, any Note or any other Loan Document,
2.6.2 the failure of the Lender or any holder of any Note
(a) to assert any claim or demand or to enforce any right or remedy against
either Borrower, any other Obligor or any other Person under the provisions of
the Credit Agreement, any Note, any other Loan Document or otherwise, or
(b) to exercise any right or remedy against any other guarantor of, or
collateral securing, any Secured Obligations,
5
<PAGE>
2.6.3 any change in the time, manner or place of payment of, or in
any other term of, all or any of the Secured Obligations or any other
extension, compromise or renewal of any Secured Obligation,
2.6.4 any reduction, limitation, impairment or termination of any
Secured Obligations for any reason, including any claim of waiver, release,
surrender, alteration or compromise, and shall not be subject to (and the
Pledgor hereby waives any right to or claim of) any defense or setoff,
counterclaim, recoupment or termination whatsoever by reason of the
invalidity, illegality, nongenuineness, irregularity, compromise,
unenforceability of, or any other event or occurrence affecting, any
Secured Obligations,
2.6.5 any amendment to, rescission, waiver, or other modification
of, or any consent to departure from, any of the terms of the Credit
Agreement, the any Note or any other Loan Document,
2.6.6 any addition, exchange, release, surrender, or non-perfection
of any collateral (including the Collateral), or any amendment to or waiver
or release of or addition to or consent to departure from any guaranty, for
any of the Secured Obligations, or
2.6.7 any other circumstances which might otherwise constitute a
defense available to, or a legal or equitable discharge of, either
Borrower, any other Obligor, any surety or any guarantor.
SECTION 2.7 Waiver of Subrogation. The Pledgor hereby irrevocably waives
----------------------
any claim or other rights which it may now or hereafter acquire against the
Borrowers or any other Obligor that arise from the existence, payment,
performance or enforcement of the Pledgor's obligations under this Pledge
Agreement or any other Loan Document, including any right of subrogation,
reimbursement, exoneration or indemnification, any right to participate in any
claim or remedy of the Lender against either Borrower or any other Obligor or
any collateral which the Lender now has or hereafter acquires, whether or not
such claim, remedy or right arises in equity, or under contract, statute or
common law, including the right to take or receive from either Borrower or any
other Obligor, directly or indirectly, in cash or other property or by set-off
or in any manner, payment or security on account of such claim or other rights.
If any amount shall be paid to the Pledgor in violation of the preceding
sentence and the Secured Obligations shall not have been paid in cash in full
and the Commitments and any other commitments by the Lender to the Borrowers
have not been terminated, such amount shall be deemed to have been paid to the
Pledgor for the benefit of, and held in trust for, the Lender, and
6
<PAGE>
shall forthwith be paid to the Lender to be credited and applied upon the
Secured Obligations, whether matured or unmatured. The Pledgor acknowledges that
it will receive direct and indirect benefits from the financing arrangements
contemplated by the Credit Agreement and that the waiver set forth in this
Section is knowingly made in contemplation of such benefits.
III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1 Warranties, etc. The Pledgor represents and warrants unto the
----------------
Lender, as at the date of each pledge and delivery hereunder (including each
pledge and delivery, where applicable, of Pledged Interests) by the Pledgor to
the Lender of any Collateral, as set forth in this Article.
SECTION 3.1.1 [Not used.]
SECTION 3.1.2 Valid security Interest. The filing of a financing statement
------------------------
with the Secretary of State of the States of Michigan and Colorado will be
effective to create a valid, perfected, security interest in such Collateral and
all proceeds thereof, securing the Secured Obligations.
SECTION 3.1.3 As to Pledged Interests. In the case of the Pledged Interests
------------------------
constituting such Collateral, such Pledged Interests constitute 100% of the
Pledgor's member interest in Basin.
SECTION 3.1.4 Location of Pledgor and Records. Pledgor's chief executive
--------------------------------
office and principal place of business and the office where the records
concerning the Collateral are kept is located at its address set forth next to
Pledgor's signature hereunder.
SECTION 3.1.5 Pledged Member interests. The Pledged Interests are duly
-------------------------
registered in the permanent ownership records of Basin, and such registration is
maintained in the principal office of such issuer. Such registration continues
valid and genuine and has not been altered. All Pledged Interests have been duly
authorized and validly issued and registered, are fully paid and non-assessable,
and were not issued in violation of the preemptive rights, if any, of any Person
or of any agreement by which Pledgor or Basin is bound. All documentary, stamp
or other taxes or fees owing in connection with the registration, issuance,
transfer or pledge of Collateral have been paid. No restrictions or conditions
exist with respect to the registration, transfer, voting or capital of any
Pledged Interests except as provided in the Operating Agreement of Basin. The
Pledged Interests constitute the percentage of ownership in Basin as indicated
on Attachment 1.
-------------
7
<PAGE>
Basin has no outstanding rights, rights to subscribe, options, warrants or
convertible securities outstanding or any other rights outstanding whereby any
Person would be entitled to acquire member interests or units of Basin.
SECTION 3.1.6 Authorization, Approval, etc. No authorization, approval,
-----------------------------
or other action by, and no notice to or filing with, any governmental authority,
regulatory body or any other Person is required either
(a) for the pledge by the Pledgor of any Collateral pursuant to this
Pledge Agreement or for the execution, delivery, and performance of this
Pledge Agreement by the Pledgor, or
(b) for the exercise by the Lender of the voting or other rights
provided for in this Pledge Agreement, or, except with respect to any
Pledged Interests, as may be required in connection with a disposition of
such Pledged Interests by laws affecting the offering and sale of
securities generally, the remedies in respect of the Collateral pursuant to
this Pledge Agreement.
IV
COVENANTS
SECTION 4.1 Protect Collateral; Further Assurances, etc. The Pledgor will
--------------------------------------------
not sell, assign, transfer, pledge, or encumber in any other manner the
Collateral (except in favor of the Lender hereunder). The Pledgor will warrant
and defend the right and title heroin granted unto the Lender in and to the
Collateral (and all right, title, and interest represented by the Collateral)
against the claims and demands of all Persons whomsoever. The Pledgor agrees
that at any time, and from time to time, at the expense of the Pledgor, the
Pledgor will promptly execute and deliver all further instruments, and take all
further action, that may be necessary or desirable, or that the Lender may
reasonably request, in order to perfect and protect any security interest
granted or purported to be granted hereby or to enable the Lender to exercise
and enforce its rights and remedies hereunder with respect to any Collateral.
SECTION 4.2 Certificates, etc. The Pledgor agrees that all certificates
------------------
evidencing Pledged Interests, if any, delivered by the Pledgor pursuant to this
Pledge Agreement will be accompanied by duly executed undated blank stock
powers, or other equivalent instruments of transfer acceptable to the Lender.
The Pledgor will, from time to time upon the request of the Lender, promptly
deliver to the Lender such stock powers, instruments, and similar documents,
satisfactory in form and substance to the Lender, with
8
<PAGE>
respect to the Collateral as the Lender may reasonably request and will, from
time to time upon the request of the Lender after the occurrence of any Event of
Default, promptly transfer any Pledged Interests into the name of any nominee
designated by the Lender.
SECTION 4.3 Continuous Pledge. Subject to Section 2.4, the Pledgor will, at
------------------ ------------
all times, keep pledged to the Lender pursuant hereto all Pledged Interests and
all other Collateral, all Distributions with respect thereto, and all other
Collateral and other securities, instruments, proceeds, and rights from time to
time received by or distributable to the Pledgor in respect of any Collateral.
SECTION 4.4 Voting Rights; Dividends, etc. The Pledgor agrees:
------------------------------
4.4.1 after any Default or an Event of Default shall have occurred and
be continuing, promptly upon receipt thereof by the Pledgor and without any
request therefor by the Lender, to deliver (properly endorsed where
required hereby or requested by the Lender) to the Lender all
Distributions, all other cash payments, and all proceeds of the Collateral,
all of which shall be held by the Lender as additional Collateral for use
in accordance with Section 6.4; and
----------------
4.4.2 after any Event of Default shall have occurred and be continuing
and the Lender has notified the Pledgor of the Lender's intention to
exercise its voting power under this Section 4.4.2
-------------
(a) the Lender may exercise (to the exclusion of the Pledgor) the
voting power and all other incidental rights of ownership with respect
to any Pledged Interests or other Collateral and the Pledgor hereby
grants the Lender an irrevocable proxy., exercisable under such
circumstances, to vote the Pledged Interests and such other
Collateral, and
(b) promptly to deliver to the Lender such additional proxies and
other documents as may be necessary to allow the Lender to exercise
such voting power.
All Distributions, cash payments, and proceeds which may at any time and from
time to time be held by the Pledgor but which the Pledgor is then obligated to
deliver to the Lender, shall, until delivery to the Lender, be held by the
Pledgor separate and apart from its other property in trust for the Lender. The
Lender agrees that unless an Event of Default shall have occurred and be
continuing and the Lender shall have given the notice referred to in Section
-------
4.4.2, the Pledgor shall have the exclusive voting power
- ------
9
<PAGE>
with respect to any Pledged Interests constituting Collateral and the Lender
shall, upon the written request of the Pledgor, promptly deliver such proxies
and other documents, if any, as shall be reasonably requested by the Pledgor
which are necessary to allow the Pledgor to exercise voting power with respect
to any such Pledged Interests constituting Collateral; provided, however, that
------------------
no vote shall be cast, or consent, waiver, or ratification given, or action
taken by the Pledgor that would impair any Collateral or be inconsistent with or
violate any provision of the Credit Agreement or any other Loan Document
(including this Pledge Agreement).
SECTION 4.5 Delivery of Pledged Collateral. All requisite formalities for
-------------------------------
the granting of a security interest in the Pledged Interests required pursuant
to the Articles of Organization of Basin (the "Articles") and the Operating
Agreement of Basin have been complied with on or prior to the execution and
delivery of this Agreement. All registrations, consents, instruments and
writings required under the Articles have been obtained by Pledgor. All Pledged
Interests are duly registered in the permanent ownership records of Basin and
clearly show Lender's security interest thereon.
SECTION 4.6 Status of Pledged Interests. The registration of the Pledged
----------------------------
interests on the permanent ownership records of Basin shall at all times be
valid and genuine and shall not be altered. The Pledged Interests at all times
shall be duly authorized, validly registered, fully paid, and non-assessable,
and shall not be registered in violation of the Articles or the preemptive
rights of any Person, if any, or of any agreement by which Pledgor or Basin is
bound.
SECTION 4.7 Additional Undertakings. The Pledgor will not, without the
------------------------
prior written consent of the Lender:
4.7.1 enter into any agreement amending, supplementing, or waiving any
provision of any Pledged Interests (including the operating agreement to
which such Pledged Interests relate) or compromising or releasing or
extending the time for payment of any obligation of the maker thereof;
4.7.2 take or omit to take any action the taking or the omission of
which would result in any impairment or alteration of any obligation of
Basin in respect of any Pledged Interests constituting Collateral;
4.7.3 cause or permit any change to be made in its name, identity or
corporate structure, or any change to be made to a jurisdiction other than
as represented in (i) the location of any Collateral, (ii) the location of
any records concerning any Collateral or (iii) in the location of its chief
executive
10
<PAGE>
office or chief place of business, unless Pledgor shall have notified
Lender of such change at least thirty (30) days prior to the effective date
of such change, and shall have first taken all action required by Lender
for the purpose of further perfecting or protecting the security interest
in favor of Lender in the Collateral. In any notice furnished pursuant to
this subsection, Pledgor will expressly state that the notice is required
by this Agreement and contains facts that may require additional filings of
financing statements or other notices for the purposes of continuing
perfection of Lender's security interest in the Collateral;
4.7.4 permit the issuance of (i) any additional member interests or
units of any class of member interests or units of Basin (unless
immediately upon issuance the same are pledged and delivered to Lender
pursuant to the Terms hereof to the extent necessary to give Lender a
security interest after such issue in at least the same percentage of
Basin's outstanding interests or units as before such issue), (ii) any
securities convertible voluntarily by the holder thereof or automatically
upon the occurrence or non-occurrence of any event or condition into, or
exchangeable for, any such member interests or units or shares, or (iii)
any warrants, options, contracts or other commitments entitling any Person
to purchase or otherwise acquire any such interests, units or shares; or
4.7.5 enter into any agreement creating, or otherwise permit to exist,
any restriction or condition upon the transfer, voting or control of any
Pledged Interests, except as contained in Basin's Operating Agreement.
V
THE LENDER
SECTION 5.1 Lender Appointed Attorney-in-Fact. The Pledgor hereby
-----------------------------------
irrevocably appoints the Lender the Pledgor's attorney-in-fact, with full
authority in the place and stead of the Pledgor and in the name of the Pledgor
or otherwise, from time to time in the Lender's discretion, to take any action
and to execute any instrument which. the Lender may deem necessary or advisable
to accomplish the purposes of this Pledge Agreement, including without
limitation:
5.1.1 after the occurrence and continuance of an Event of Default, to
ask, demand, collect, sue for, recover, compromise, receive and give
acquittance and receipts for moneys due and to become due under or in
respect of any of the Collateral;
11
<PAGE>
5.1.2 to receive, endorse, and collect any drafts or other
instruments, documents and chattel paper, in connection with Clause 5.1.1
------------
above; and
----------
5.1.3 to file any claims or take any action or institute any
proceedings which the Lender may deem necessary or desirable for the
collection of any of the Collateral or otherwise to enforce the rights of
the Lender with respect to any of the Collateral.
The Pledgor hereby acknowledges, consents and agrees that the power of attorney
granted pursuant to this Section is irrevocable and coupled with an interest.
SECTION 5.2 Lender May Perform. If the Pledgor fails to perform any
-------------------
agreement contained herein, the Lender may itself perform, or cause performance
of, such agreement, and the expenses of the Lender incurred in connection
therewith shall be payable by the Pledgor.
SECTION 5.3 Lender Has No Duty. The powers conferred on the Lender
-------------------
hereunder are solely to protect its interest in the Collateral and shall not
impose any duty on it to exercise any such powers. Except for the reasonable
care of any Collateral in its possession and the accounting for moneys actually
received by it hereunder, the Lender shall have no duty as to any Collateral or
responsibility for (a) ascertaining or taking action with respect to calls,
conversions, exchanges, maturities, tenders or other matters relative to any
Pledged Property, whether or not the Lender has or is deemed to have knowledge
of such matters, or (b) taking any necessary steps to preserve rights against
prior parties or any other rights pertaining to any Collateral.
SECTION 5.4 Reasonable Care. The Lender is required to exercise reasonable
----------------
care in the custody and preservation of any of the Collateral in its possession;
provided, however, the Lender shall be deemed to have exercised reasonable care
- ------------------
in the custody and preservation of any of the Collateral, if it takes such
action for that purpose as the Pledgor reasonably requests in writing at times
other than upon the occurrence and during the continuance of any Event of
Default, but failure of the Lender to comply with any such request at any time
shall not in itself be deemed a failure to exercise reasonable care.
VI
REMEDIES
SECTION 6.1 Certain Remedies. If any Event of Default shall have occurred
-----------------
and be continuing:
12
<PAGE>
6.1.1 The Lender may exercise in respect of the Collateral, in
addition to other rights and remedies provided for herein or otherwise
available to it, all the rights and remedies of a secured party on default
under the U.C.C. (whether or not the U.C.C. applies to the affected
Collateral) and also may, without notice except as specified below, sell
the Collateral or any part thereof in one or more parcels at public or
private sale, at any of the Lender's offices or elsewhere, for cash, on
credit or for future delivery, and upon such other terms as the Lender may
deem commercially reasonable. The Pledgor agrees that, to the extent notice
of sale shall be required by law, at least ten days' prior notice to the
Pledgor of the time and place of any public sale or the time after which
any private sale is to be made shall constitute reasonable notification.
The Lender shall not be obligated to make any sale of Collateral regardless
of notice of sale having been given. The Lender my adjourn any public or
private sale from time to time by announcement at the time and placed fixed
therefor, and such sale may, without further notice, be made at the time
and place to which it was so adjourned.
6.1.2 The Lender may
(a) transfer all or any part of the Collateral into the name of
the Lender or its nominee, with or without disclosing that such
Collateral is subject to the lien and security interest hereunder,
(b) notify the parties obligated on any of the Collateral to make
payment to the Lender of any amount due or to become due thereunder,
(c) enforce collection of any of the Collateral by suit or
otherwise, and surrender, release or exchange all or any part thereof,
or compromise or extend or renew for any period (whether or not longer
than the original period) any obligations of any nature of any party
with respect thereto,
(d) endorse any checks, drafts, or other writings in the
Pledgor's name to allow collection of the Collateral,
(e) take control of any proceeds of the Collateral,
and
(f) execute (in the name, place and stead of the Pledgor)
endorsements, assignments, stock powers and other instruments of
conveyance or transfer with respect to all or any of the Collateral.
13
<PAGE>
SECTION 6.2 Securities Laws. If the Lender shall determine to exercise its
----------------
right to sell all or any of the Collateral pursuant to Section 6.1, the Pledgor
------------
agrees that, upon request of the Lender, the Pledgor will, at its own expense:
6.2.1 execute and deliver, and cause each issuer of the Collateral
contemplated to be sold and the partners thereof to execute and deliver,
all such instruments and documents, and do or cause to be done all such
other acts and things, as may be necessary or, in the opinion of the
Lender, advisable to permit the Collateral to be privately sold or
transferred in compliance with the provisions of the Securities Act of
1933, as from time to time amended (the "Securities Act"), and the rules
and regulations of the Securities and Exchange Commission applicable
thereto;
6.2.2 use its best efforts to permit the Collateral to be privately
sold or transferred in compliance with the state securities or "Blue Sky"
laws and to obtain all necessary governmental approvals for such sale of
the Collateral, as requested by the Lender;
6.2.3 cause each such issuer to make available to its security
holders, as soon as practicable, an earnings statement that will satisfy
the provisions of Section 11(a) of the Securities Act; and
6.2.4 do or cause to be done all such other acts and things as may be
necessary to make such sale of the Collateral or any part thereof valid and
binding and in compliance with applicable law.
The Pledgor further acknowledges the impossibility of ascertaining the amount of
damages that would be suffered by the Lender by reason of the failure by the
Pledgor to perform any of the covenants contained in this Section and,
consequently, agrees that, if the Pledgor shall fail to perform any of such
covenants, it shall pay, as liquidated damages and not as a penalty, an amount
equal to the value (as determined by the Lender) of the Collateral on the date
the Lender shall demand compliance with this Section.
SECTION 6.3 Compliance with Restrictions. The Pledgor agrees that in any
-----------------------------
sale of any of the Collateral whenever an Event of Default shall have occurred
and be continuing, the Lender is hereby authorized to comply with any limitation
or restriction in connection with such sale as it may be advised by counsel is
necessary in order to avoid any violation of applicable law (including
compliance with such procedures as may restrict the number of prospective
bidders and purchasers, require that such prospective bidders and purchasers
have certain qualifications, and restrict such prospective bidders and
purchasers to persons who
14
<PAGE>
will represent and agree that they are purchasing for their own account for
investment and not with a view to the distribution or resale of such
Collateral), or in order to obtain any required approval of the sale or of the
purchaser by any governmental regulatory authority or official, and the Pledgor
further agrees that such compliance shall not result in such sale being
considered or deemed not to have been made in a commercially reasonable manner,
nor shall the Lender be liable nor accountable to the Pledgor for any discount
allowed by the reason of the fact that such Collateral is sold in compliance
with any such limitation or restriction.
SECTION 6.4 Application of Proceeds. All cash proceeds received by the
------------------------
Lender in respect of any sale of, collection from, or other realization upon,
all or any part of the Collateral may, in the discretion of the Lender, be held
by the Lender as additional collateral security for, or then or at any time
thereafter be applied (after payment of any amounts payable to the Lender
pursuant to the Credit Agreement) in whole or in part by the Lender against, all
or any part of the Secured Obligations in such order as the Lender shall elect.
Any surplus of such cash or cash proceeds held by the Lender and remaining after
payment in full of all the Secured Obligations, and the termination of all
Commitments and any other commitments by the Lender to the Borrowers, shall be
paid over to the Pledgor or to whomsoever may be lawfully entitled to receive
such surplus.
SECTION 6.5 Private Sale of Member Interests. Pledgor recognizes that
---------------------------------
Lender may be unable to effect a public sale or disposition (including, without
limitation, any disposition in connection with a merger of a Subsidiary) of any
or all the Pledged Interests by reason of certain prohibitions contained in the
Securities Act, and applicable state securities laws, but may be compelled to
resort to one or more private sales or dispositions thereof to a restricted
group of purchasers who will be obliged to agree, among other things, to acquire
such securities for their own account for investment and not with a view to the
distribution or resale thereof. Pledgor acknowledges and agrees that any such
private sale or disposition may result in prices and other terms (including the
terms of any securities or other property received in connection therewith) less
favorable to the seller than if such sale or disposition were a public sale or
disposition. Lender shall be under no obligation to delay a sale or disposition
of any of the Pledged Interests to permit Pledgor or the Subsidiary to register
such securities for public sale under the Securities Act, or under applicable
state securities laws, even if Pledgor would agree to do so. Notwithstanding the
foregoing any such sale or disposition shall be made in a commercially
reasonable manner.
Pledgor further agrees to do or cause to be done all such other acts and
things as may be necessary to make such sale or
15
<PAGE>
sales or dispositions of any portion or all of the Pledged interests valid and
binding and in compliance with any and all applicable laws, regulations, orders,
writs, injunctions, decrees or awards of any and all courts, arbitrators or
governmental instrumentalities, domestic or foreign, having jurisdiction over
any such sale or sales or dispositions, all at Pledgor's expense, provided that
Pledgor shall be under no obligation to take any action to enable any or all of
the Pledged Interests to be registered under the provisions of the Securities
Act. Pledgor further agrees that a breach of any of the covenants contained in
this Section 6.5 will cause irreparable injury to Lender, that Pledgee has no
-----------
adequate remedy at law in respect of such breach and, as a consequence, agrees
that each and every covenant contained in this paragraph shall be specifically
enforceable against Pledgor, and Pledgor hereby waives and agrees not to assert
any defenses against an action for specific performance of such covenants except
for a defense that no Event of Default has occurred under the Credit Agreement.
VII
MISCELLANEOUS PROVISIONS
SECTION 7.1 Loan Document. This Pledge Agreement is a Loan Document
--------------
executed pursuant to the Credit Agreement and shall (unless otherwise expressly
indicated heroin) be construed, administered and applied in accordance with the
terms and provisions thereof.
SECTION 7.2 Amendments, etc. No amendment to or waiver of any provision of
----------------
this Pledge Agreement nor consent to any departure by the Pledgor herefrom shall
in any event be effective unless the same shall be in writing and signed by the
Lender, and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which it is given.
SECTION 7.3 Protection of Collateral. The Lender may from time to time, at
-------------------------
its option, perform any act which the Pledgor agrees hereunder to perform and
which the Pledgor shall fail to perform after being requested in writing so to
perform (it being understood that no such request need be given after the
occurrence and during the continuance of an Event of Default) and the Lender may
from time to time take any other action which the Lender reasonably deems
necessary for the maintenance, preservation or protection of any of the
Collateral or of its security interest therein.
SECTION 7.4 Addresses for Notices. All notices and other communications
----------------------
provided for hereunder shall be in writing (including telegraphic communication)
and, if to the Pledgor, mailed or telegraphed or delivered or sent by facsimile
to it at
16
<PAGE>
the address set forth below its signature hereto, if to the Lender, mailed or
delivered to it, addressed to it at the address of the Lender specified in the
Guaranty or, as to either party, at such other address as shall be designated by
such party in a written notice to each other party complying as to delivery with
the terms of this Section. All such notices and other communications shall, when
mailed or telegraphed or sent by facsimile, respectively, be effective when
deposited in the mails or delivered to the telegraph company or machine
confirmation of receipt of the facsimile, respectively, addressed as aforesaid.
SECTION 7.5 Section Captions. Section captions used in this Pledge
-----------------
Agreement are for convenience of reference only, and shall not affect the
construction of this Pledge Agreement.
SECTION 7.6 Severability. Wherever possible each provision of this Pledge
-------------
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Pledge Agreement shall be
prohibited by or invalid under such law, such provision shall be ineffective to
the extent of such prohibition or invalidity, without invalidating the remainder
of such provision or the remaining provisions of this Pledge Agreement.
SECTION 7.7 Governing Law, Entire. Agreement, etc. THIS PLEDGE AGREEMENT
--------------------------------------
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE
STATE OF ILLINOIS, EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE
SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR
COLLATERAL ARE G0VERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF
ILLINOIS. THIS PLEDGE AGREEMENT AND THE OTHER LOAN DOCUMENTS CONSTITUTE THE
ENTIRE UNDERSTANDING AMONG THE PARTIES HERET0 WITH RESPECT TO THE SUBJECT MATTER
HEREOF AND SUPERSEDE ANY PRIOR AGREEMENTS, WRITTEN OR 0RAL, WITH RESPECT
THERETO.
SECTION 7.8 Forum Selection and Consent to Jurisdiction. ANY LITIGATION
--------------------------------------------
BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS PLEDGE
AGREEMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER
VERBAL OR WRITTEN) OR ACTIONS OF THE LENDER OR THE PLEDGOR SHALL BE BROUGHT AND
MAINTAINED EXCLUSIVELY IN THE COURTS OF THE STATE OF ILLINOIS OR IN THE UNITED
STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS; PROVIDED, HOWEVER,
THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY C0LLATERAL OR OTHER PROPERTY MAY
BE BROUGHT, AT THE LENDER'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE SUCH
COLLATERAL OR OTHER PROPERTY MAY BE FOUND. THE PLEDGOR HEREBY EXPRESSLY AND
IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS OF THE STATE OF ILLINOIS
AND OF THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS
FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE AND IRREVOCABLY AGREES
TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH SUCH LITIGATION.
THE PLEDGOR FURTHER
17
<PAGE>
IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE
PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF ILLINOIS. THE
PLEDGOR HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED
BY LAW, ANY OBJECTION WHICH IT MAY HAVE OR HEREAFTER MAY HAVE TO THE LAYING OF
VENUE OF SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY
CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE
EXTENT THAT THE PLEDGOR HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM
JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR
NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR
OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, THE PLEDGOR HEREBY
IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS PLEDGE
AGREEMENT.
SECTION 7.9 WAIVER OF JURY TRIAL. THE LENDER AND THE PLEDGOR HEREBY
---------------------
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A
TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF,
UNDER, OR IN CONNECTION WITH, THIS PLEDGE AGREEMENT, OR ANY COURSE OF CONDUCT,
COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE
LENDER OR THE PLEDGOR. THE PLEDGOR ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED
FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION (AND EACH OTHER PROVISION
OF EACH OTHER LOAN DOCUMENT TO WHICH IT IS A PARTY) AND THAT THIS PROVISION IS A
MATERIAL INDUCEMENT FOR THE LENDER ENTERING INTO THIS PLEDGE AGREEMENT AND EACH
SUCH OTHER LOAN DOCUMENT.
SECTION 7.10 Subordination. Notwithstanding anything to the contrary
--------------
contained heroin, the Lender hereby agrees for itself and its successors and
assigns, that the Lender's rights and remedies hereunder (the "Rights"), and any
--------
and all liens and security interests that are granted to secure the Rights (the
"Liens") as well as any interest in any property or asset acquired by reason of
- -------
the enforcement of any of the Rights or the Liens are subject to the terms of
the Subordination Agreement, which provides, among other things, that the Rights
and the Liens are subject to the Participation Agreement as more particularly
set forth therein. This Section 7.10 shall be deemed a covenant binding upon and
------------
running with the property and assets subject to the Liens.
SECTION 7.11 Limitation on Recourse. Notwithstanding the general terms of
------------------------
the Pledgor's obligations under this Pledge Agreement or anything to the
contrary contained heroin, the Lender hereby agrees not to seek to satisfy
Pledgor's obligations under this Pledge Agreement out of any property, assets,
revenues or funds of the Pledgor other than (i) Energy Company's Share of the
Collateral which shall remain subject to the Subordination Agreement and/or (ii)
funds which are distributable to Energy Company from time to time pursuant to
the Participation Agreement.
18
<PAGE>
SECTION 7.12 The Lender as Agent for its Affiliates. As described above,
---------------------------------------
certain Affiliates of the Lender, including without limitation, Bank of America
National Trust and Savings Association, are or may become parties to certain
Hedging Agreements with the Borrower, the Pledgor and/or Affiliates of the
Borrower or the Pledgor. This Pledge Agreement secures the obligations of the
Borrower, the Pledgor and such Affiliates, as the case may be, under such
Hedging Agreements, and the parties hereto acknowledge for all purposes that the
Lender acts as agent on behalf of such Affiliates of the Lender which are so
entitled to share in the rights and benefits accruing to the Lender under this
Pledge Agreement.
19
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Pledge Agreement to
be duly executed and delivered by their respective officers thereunto duly
authorized as of the day and year first above written.
WESTSHORE PROCESSING COMPANY, L.L.C.
By: MarkWest Michigan LLC, its Operator
By: MarkWest Hydrocarbon Partners, Ltd., its Manager
By: MarkWest Hydrocarbon, Inc., its General Partner
By: /s/ Arthur J. Denney
Name: Arthur J. Denney
Title: Vice President
c/o: Markwest Michigan LLC
5613 DTC Parkway
Suite 400
Englewood, Colorado 80111
Facsimile No.: (303) 290-8769
Attention: Arthur J. Denney
BANK OF AMERICA ILLINOIS
By: /s/ John H. Homier
Title: Vice President
Address: 231 South LaSalle Street
Chicago, Illinois 60697
Facsimile No.: (312) 987-5614
Attention: John H. Homier
--------------
<PAGE>
ATTACHMENT 1
to
Pledge Agreement
Item A. Pledged Interests
-----------------
Limited Liability Company Description
- -------------------------- -----------
Basin Pipeline L.L.C. 100% of its member interest in
such limited liability company
being a 98% interest
21
<PAGE>
PARTICIPATION, OWNERSHIP
AND
OPERATING AGREEMENT
FOR
WEST SHORE PROCESSING COMPANY, LLC
A MICHIGAN LIMITED LIABILITY COMPANY
(COMPRISED OF
MICHIGAN ENERGY COMPANY, L.L.C.
AND
MARKWEST MICHIGAN, LLC)
<PAGE>
PARTICIPATION, OWNERSHIP AND OPERATING AGREEMENT
FOR
WEST SHORE PROCESSING COMPANY, LLC
THIS PARTICIPATION, OWNERSHIP AND OPERATING AGREEMENT ("Agreement"), made
and entered into this 2nd day of May, 1996 by and among MICHIGAN ENERGY COMPANY,
L.L.C., herein referred to as "MEC", and MARKWEST MICHIGAN, LLC, herein referred
to as "Markwest", each of MEC and MarkWest herein referred to from time to time
as a "Party", and collectively as "Parties", or as a "Member" and collectively
as "Members".
RECITALS:
A. The Parties desire to enter into this agreement to create WEST SHORE
PROCESSING COMPANY, LLC, a limited liability company organized under the laws of
the state of Michigan, (the "Company") and to govern their relationship, duties,
rights and obligations pertaining to the Company as further defined herein, and
to provide for the development, installation, acquisition and operation of
properties and rights made part of the Company, including the ownership and
operation of Basin Pipeline Limited Liability Company ("Basin").
NOW THEREFORE, in consideration of the mutual covenants, promises and
agreements contained herein, the Parties hereto agree as follows:
ARTICLE I
THE COMPANY
1.1 Scope and Purpose. This Agreement and the Company shall pertain to
-----------------
and shall include all gas gathering, gas transportation, gas purchasing and
selling, gas treating, and gas processing assets, contracts, agreements, real
and personal properties and activities in which any of the Parties have
interests or hereafter acquire interests (other than in Sole Risk Projects as
defined below) within the areas of Manistee, Mason, Oceana and Muskegon
Counties, Michigan, which area is referred to herein as the "Company Area",
including, without limitation activities and ownership of the following assets
which shall be referred to herein as the "Assets":
a. 98% of the Membership Interests in Basin Pipeline Limited Liability
Company which will own and operate all of the assets of Basin which include
all pipeline facilities, and all related equipment, machinery, supplies,
pipelines, facilities, easements, certificates, licenses, rights of way,
surface leases and agreements, permits and other properties, real or
personal, necessary to ownership and operation thereof, used in connection
therewith or appurtenant thereto as owned as of the date hereof, including,
without limitation, those facilities and properties described on Exhibit M,
attached hereto and made a part hereof.
b. All personal property and equipment, and fixtures located on or
appurtenant to the assets described in paragraph a., above, or used in
-1-
<PAGE>
connection therewith.
c. All accounts receivable attributable to the assets described in
paragraphs a. and b., above accruing on or after the Final Closing Date;
provided, MEC retains the right to all revenues attributable to the Assets
prior to Final Closing, even if received after Final Closing, including,
all rights to refunds or rebates of sales taxes related to the Assets prior
to the Final Closing Date, even if received after Final Closing.
d. All records, maps, data, files, test results, and other information in
MEC's possession related to the portions of the Assets described above (the
"Records").
e. All real property, rights-of-way, easements, surface agreements,
licenses and permits related to or used in connection with the ownership,
operation and maintenance of the portions of the Assets described above,
including those as more fully described on Exhibit B, attached hereto and
made a part hereof, including an easement from Manistee to the Company
and/or Basin providing access across, ingress to and egress from the lands
of Manistee related to the Brown 19 gas plant for the purposes of
permitting the Company access to its and/or Basin's facilities which are
located on the lands utilized by the Brown 19 Gas Plant, which easement
shall be in form and content acceptable to the Company.
f. Those portions of the Brown 19 Gas Plant and other assets of MEC
described on Exhibit A; which shall exclude those portions of the Brown 19
Gas Plant which are subject to the Option Agreement attached as Exhibit V
and which are subject to Section 2.2(c).
g. All contracts and agreements pertaining to the portions of the Assets
described above, to the extent described on Exhibit C, attached hereto and
made a part hereof.
All such activities of all or any of the Parties, and their Affiliates (as
defined in Section 9.2), within the Company Area shall be conducted exclusively
by and through the Company and/or Basin and shall be subject to this Agreement,
including, without limitation, the activities, construction and operation of
facilities related to the Company and/or Basin. The general purposes of the
Company and Basin under this Agreement are for the Parties to acquire, own,
construct, operate and maintain certain pipeline and gas treating and
processing, and related facilities located in the Company Area, to gather,
treat, transport, process and market natural gas and residue gas (under gas
purchase contracts between the Company and producers) and natural gas liquids,
and to do any and all acts incidental to those purposes. The general purposes of
the Company shall not include and nothing herein shall apply to the ownership
and operation of any oil, gas and mineral estates, including but not limited to
leaseholds and fee interests (including all rights and activities incidental to
such ownership and operation, including without limitation exploration,
development and production activities) owned individually by any
-2-
<PAGE>
of the Parties and neither the Company nor Basin shall acquire any ownership
interest in any oil, gas and mineral estates, whether leasehold or fee.
1.2 Effective Date. This Agreement shall be effective as of 12:01 a.m.,
--------------
Eastern Time, on the date hereof, 1996, (the "Effective Date").
1.3 Term. This Agreement shall be in force as of the date hereof and,
----
unless sooner terminated by the provisions herein, shall, after the creation of
the Company, continue for so long as the Company continues in existence, or
until otherwise terminated by the Parties.
1.4 Relationship of the Parties. Until the Final Closing Date, the
---------------------------
Parties and Basin shall be deemed to be individual owners of the Assets as owned
on the date hereof, and with respect to work to be performed by MarkWest and
operations to be conducted by MarkWest, MarkWest shall be deemed an independent
contractor of MEC. Upon the Final Closing Date, the Parties hereto shall be
Members of the Company. Nothing contained herein is intended to nor shall be
construed to create a partnership (except to the extent considered a partnership
solely for tax purposes as set forth in Exhibit E), joint venture or other
relationship with attributes of joint and several liability.
1.5 Formation of Company. At or before Final Closing, the Parties shall
--------------------
create and establish the Company in conformance with the terms hereof, and upon
the Effective Date, this Agreement shall be considered to be the Operating
Agreement of the Company to govern its management and affairs.
ARTICLE II
CAPITAL REQUIREMENTS AND CONTRIBUTIONS
--------------------------------------
2.1 MarkWest's Initial Contributions. (a) Commencing upon the
--------------------------------
Effective Date, MarkWest will undertake the following activities, which until
Final Closing shall be paid for from the Working Capital Fund established by MEC
under Section 6.8, and which, after Final Closing shall be paid for by
contributions of MarkWest of money to the Company towards the ownership,
construction, and development (which contributions will include, without
limitation, all expenditures by MarkWest of amounts which would otherwise be
considered direct charges under the terms of the Accounting Procedures attached
as Exhibit F) of the following:
(i) a nominal 10-inch diameter pipeline extension of the current Basin
pipeline (to be owned by Basin) along the right of way of Consumers Power
to the delivery point at the gathering lateral of the existing Slocum No.
1-21 well, located in Section 21, Township 15 North, Range 16 West,
Elbridge Township, Oceana County, Michigan, (as approximately depicted on
the map attached hereto as Exhibit N), including all matters related to the
acquisition of requisite permits (for which permits MarkWest shall
diligently apply for and use its reasonable efforts to acquire),
installation, construction, and acquisition of necessary easements and
rights of way ("Basin Extension"). The installation and construction of the
Basin Extension shall be conducted in a good and workmanlike manner
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<PAGE>
consistent with prudent industry standards. Should the amount required to
complete that extension exceed $10,000,000, then MEC shall be obligated to
pay 80% of all such excess amounts, and MarkWest shall be obligated to pay
20% of all such excess amounts, which amounts shall not be utilized in
calculating Ownership Interests hereunder. MarkWest will commence
activities related to this installation promptly following the Effective
Date. MarkWest will undertake planning aimed at completing the Basin
Extension by December 31, 1996, and, in any event, will use its reasonable
efforts to complete the Basin Extension, subject to conditions not within
MarkWest's reasonable control, by March 31, 1997. Additionally, MarkWest
will reimburse MEC for costs related to the Basin Extension and which were
incurred before the Effective Date to the extent those costs are specified
on Exhibit D, attached hereto.
(ii) the installation of the Filer 1-10 lateral and related facilities,
located in Section 10, Township 21 North, Range 17 West, Filer Township,
Manistee County, Michigan, and, at Final Closing, MarkWest shall reimburse
MEC for the costs incurred by MEC, or the Parties comprising MEC, which are
directly related to the Filer 1-10 lateral and facility installation and
which are reimbursable by the producers connected to the Filer No.1-10
lateral to the extent specified on Exhibit D,
(iii) constructing and installing compression facilities, turbo expander
extraction facilities designed to recover no less than 80% of the propane
content of the gas, and such other facilities at or near the Shell Western
E&P, Inc., #23 facility, located in Section 23, Township 22 North, Range 16
West, Manistee County, Michigan, ("Shell #23 Plant"), on terms acceptable
to MarkWest and MEC, as necessary to deliver gas into the MichCon dry
header and to extract, depropanize and/or separate natural gas liquids.
Should the amount to be paid for those facilities exceed $5,600,000, then
MEC shall be obligated to pay 80% of all such excess amounts, and MarkWest
shall be obligated to pay 20% of all such excess amounts, which amounts
shall not be utilized in calculating Ownership Interests hereunder. Prior
to the commencement of the construction and installation of those
facilities, MEC shall have the right to propose alternate activities with
regard to the extraction of natural gas liquids from the gas and the basis
upon which MEC believes, based upon its interest in the Company only,
without regard to the interests of producers, that such alternative will be
economically advantageous to the Company. If MarkWest agrees with MEC's
proposal, based solely upon an economic analysis of the effect on the
Company without regard to any economic effect upon producers, then the
character of the facilities to be constructed will be modified accordingly.
MarkWest agrees that its concurrence to MEC's proposal shall not be
unreasonably withheld,
(iv) installation of pipelines, and related metering facilities, to and
from the Brown 19 plant, located in Section 19, Township 22 North, Range 15
West, Manistee County, Michigan, and the Shell #23 Plant; provided, this
obligation may be replaced and discharged by MichCon installing such
-4-
<PAGE>
pipelines and charging a transportation rate acceptable to MarkWest and
MEC,
(v) if Michigan Production Company, L.L.C., ("MPC") does not commence to
install the necessary well production, surface and metering facilities on
the Slocum No. 1-21 well in a timely manner as necessary to equip the well
for production within thirty (30) days following the date that MarkWest
completes the installation of the Basin pipeline extension under i., above,
then MarkWest may, but will have no obligation to, install those
facilities, subject to the reimbursement obligations to the Company of MPC
under the Gas Facilities Agreement described in Section 17.15, hereof,
(vi) to the extent that MarkWest has not then made its maximum required
contributions under this Section 2.1, MEC may cause MarkWest to remedy the
non-compliance of the Assets with the Occupational Safety and Health
Administration's standards contained in 29 CFR Section 1910.119, up to the
first $150,000 of required expenditures, with MEC remaining liable and
responsible for all portions of those remediation expenses exceeding that
amount. To the extent that MEC has remedied those non-compliances in the
Brown 19 Gas Plant before the Company, if ever, acquires the Brown 19 Gas
Plant, then upon the Company acquiring the Brown 19 Gas Plant, and to the
extent, at that time, that MarkWest has not then made its maximum required
contributions under this Section 2.1, MarkWest will reimburse MEC for the
amounts expended by MEC to remedy those non-compliances up to the limits
set forth above,
(vii) installation of basic upgrades to the Basin pipeline as described on
Exhibit O, and
(viii) such other facilities as are unanimously agreed upon by the
Parties.
(b) The maximum aggregate initial contribution by MarkWest for the
items described in this Section 2.1, together with any payments by MarkWest
under Section 3.1(b), shall be $16,800,000. These contributions shall be for the
construction of the facilities described above. Amounts in excess of those
amounts shall be paid by the Parties in accordance with their then applicable
Ownership Interests.
(c) The expenditures for the items in this Section 2.1 shall be in
conformance with the Preliminary Cost Estimates attached to this Agreement as
Exhibit S; and with AFE's to be agreed upon by the Parties before the purchasing
of materials or the commencement of construction. After the Final Closing Date,
MarkWest shall be authorized to pursue the activities required in this Section
2.1, in conformance with the scope specified on the approved AFE's. If MarkWest
proposes to materially change the scope of the activity specified in the
approved AFE's, all such material scope changes shall require the unanimous
approval of the Parties. MEC agrees that its consent to any such scope changes
will not be unreasonably withheld giving due regard to the
-5-
<PAGE>
economic or other justification for those changes or additional expenditures. It
is understood and agreed that the approval of an AFE means, in the absence of
material scope changes, that the Operator shall have the right to complete the
project which is the subject of the AFE and that the Parties shall be
responsible for their proportionate share (as determined under this Agreement)
of all costs and expenses incurred in completing that project, even if the
aggregate amount incurred reasonably exceeds the estimate stated on the AFE.
2.2 MEC's Initial Contributions and Obligations.
-------------------------------------------
(a) On the Final Closing Date, MEC shall contribute all of the
Assets to the Company. Upon those contributions and performance of obligations
under this Section 2.2, MEC shall be deemed to have made a capital contribution
to the Company equal to $11,200,000.
(b) To the extent any lease, contract, right or commitment included
in the Assets is not capable of being assigned or transferred without the
consent or waiver of the issuer thereof or the other party thereto or any third
party (including a government or governmental unit), or if such assignment or
transfer or attempted assignment or transfer would constitute a breach thereof
or a violation of any law, decree, order, regulation or other governmental
edict, this Agreement shall not constitute an assignment or transfer thereof, or
an attempted assignment, transfer or sublease of any such lease, contract, right
or commitment. Anything in this Agreement to the contrary notwithstanding, MEC
is not obligated to transfer to the Company any of its rights and obligations in
and to any such contract without first having obtained all necessary consents
and waivers. For a reasonable period of time after the Final Closing Date, MEC
shall use all reasonable efforts, and the Company shall cooperate with MEC to
obtain all necessary consents and waivers. To the extent that such consents and
waivers are not obtained by MEC, MEC shall use all reasonable efforts to
establish arrangements that are reasonable and lawful as to both MEC and the
Company and which provide the benefits, risks and burdens of the relevant
contract to the Company for the remaining term of such contract. If such
arrangements cannot be established providing to the Company the benefits, risks
and burdens of the relevant contract contemplated hereunder without a material
adverse effect to the Company, then the parties shall determine the economic
value of excluding those from the Company, and such value shall be deducted from
MEC's deemed capital contribution under Section 2.2(a), above.
(c) MEC agrees that it shall provide the Company with reasonable
prior written notice of its intention to exercise its rights set forth in the
Option Agreement, attached as Exhibit V, between MEC and Manistee Gas Limited
Liability Company, which notice shall include a listing of the Brown 19 Gas
Plant assets that MEC intends to acquire from Manistee. In the event that MEC
has not determined to exercise its option thereunder, the Company may, upon
written notice to MEC, cause MEC to exercise that option as to the assets
identified by the Company. Prior to MEC's exercise, the Company shall provide
MEC with a list of those assets which at such time constitute part of the Brown
19 Gas Plant and which the Company desires to take title to, which list may
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<PAGE>
include assets excluded from the list provided to the Company by MEC; provided,
in that event, the Company will expressly assume and be responsible for all
general cleanup and abandonment costs related to the assets which it elected to
have MEC acquire hereunder. MEC shall exercise its option to acquire all assets
(to the extent then owned by Manistee) set forth on both lists, provided that
MEC and the Company shall cause title to any assets requested by the Company to
be transferred directly to the Company. Notwithstanding the terms of the Option
Agreement, no additional consideration shall be paid by the Company to MEC in
connection with such transfer, and MEC shall not be entitled to any increase in
its initial deemed capital account with respect to such transfer. Title to all
other assets not requested by the Company and acquired by MEC pursuant to its
exercise of the option shall remain the property of MEC.
(d) MEC shall be subject to the following requirements, and any
expenditures in connection therewith shall not be utilized in calculating
Ownership Interests:
(i) Should the amount required to complete the Basin Extension exceed
$10,000,000, then MEC shall be obligated to pay 80% of all such excess amounts,
(ii) Should the amount to be paid for the facilities related to the Shell
#23 Plant, as described in Section 2.1(a)(iii), necessary to deliver gas into
the MichCon dry header and to extract, fractionate and/or separate natural gas
liquids at that Plant exceed $5,600,000, then MEC shall be obligated to pay 80%
of all such excess amounts,
(iii) MEC shall pay all amounts in excess of those required to be paid by
MarkWest under Section 2.1(a)(vi) required to remedy the non-compliance of the
Assets with the Occupational Safety and Health Administration's standards
contained in 29 CFR Section 1910.119; and MEC shall pay all amounts to remedy
all other non-compliances or environmental conditions disclosed in the Woodward-
Clyde reports described on Exhibit T, including, without limitation, those
relating to the eleven (11) 20,000-gallon buried tanks.
2.3 Claybanks Extension. (a) MarkWest shall construct all facilities
-------------------
necessary to extend the Basin Extension to the vicinity of the Claybanks 2 Unit,
located in Section 2, Township 13 North, Range 18 West, Claybanks Township,
Oceana County, Michigan, ("Claybanks Extension") which shall be owned by Basin,
in accordance with the specifications of an AFE to be approved by the Parties
before commencement of construction. MarkWest shall commence pre-engineering
activities related to that construction and installation promptly following the
Effective Date and continue with diligence constructing and installing in
accordance with applicable laws and in accordance with prudent practices. The
installation and construction of the Claybanks Extension, from the Effective
Date until the Final Closing Date, shall be paid out of the Company's Working
Capital Fund in accordance with Section 6.8, and the expenses related to the
Claybanks Extension after the Final Closing Date shall be initially at
MarkWest's sole expense, which
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<PAGE>
expenditures shall not be utilized in calculation of the Ownership Interests in
the Company. MarkWest shall maintain separate accounting records relating to the
construction of the Claybanks Extension and will provide MEC with monthly
statements of the cumulative costs incurred.
(b) Upon completion of the Claybanks Extension, MarkWest shall
notify MEC of the total costs incurred in constructing and installing the
Claybanks Extension. MarkWest shall recover those total costs, together with
interest accruing thereon at the rate of 25% per annum, through a processing and
treating fee surcharge under the Gas Gathering, Treating and Processing
Agreement between the Company and MPC, of even date herewith, in the form
attached hereto as Exhibit G, which shall additionally include a surcharge,
measured at the receipt points thereunder, calculated to permit MarkWest to
recover those total costs, and all accrued interest, within two years following
the completion of the Claybanks Extension. The Parties agree that all amounts
received by the Company representing that surcharge shall be immediately
remitted to MarkWest; and, no other Member shall have any rights to any portion
thereof and those remittances shall not be considered as any portion of
MarkWest's distributions to be made under Section 4.1.
(c) Upon one year following the date of initial deliveries of gas
by MEC into the Claybanks Extension, the Company will calculate the amount of
reimbursement which would have been due to MEC under the terms of the Gas
Gathering, Treating and Processing Agreement, attached as Exhibit G, had MEC
actually installed the Claybanks Extension at its expense and shall (i) if MEC
has not repaid the amounts required under (b), above, pay that amount to
MarkWest and accordingly, the amount then due MarkWest from MEC under (b),
above, will be reduced by a corresponding amount, or (ii) if MEC has repaid the
amounts due under (b) above, pay that amount to MEC.
(d) MEC shall use its best efforts to cause MPC to install all
required gathering lines and all other facilities necessary to cause gas to be
delivered into the Claybanks Extension as required under the terms of the Gas
Gathering, Treating and Processing Agreement; and to install those facilities in
a manner so that the existing wells in the Claybanks 2 Unit will be capable of
production and delivery of gas to the Company within thirty (30) days of the
date by which MarkWest has completed the Claybanks Extension. MarkWest agrees to
keep MEC and MPC informed of the plans and progress on the Claybanks Extension
so that MEC may cause MPC to timely complete its facilities.
(e) Notwithstanding any of the provisions of this Section 2.3 to
the contrary, MEC shall have the right to fund, or to cause an Affiliate to
fund, the costs of the Claybanks Extension on a monthly basis as the facilities
are constructed. If MEC or such Affiliate elects to pay such costs, then
Claybanks Extension shall be owned and operated by Basin and the provisions of
Sections 2.3(b) and 2.3(c) shall not apply.
2.4 Additional Capital Expenditures. The commitment by MarkWest to make
-------------------------------
initial monetary contributions under Section 2.1, shall be limited to the items
specified in Section 2.1 and to the aggregate maximum amounts specified
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<PAGE>
therein. Subject to the AFE and budget approval procedures herein, the Parties
understand and acknowledge that the scope of operations and activities, and
other requirements may change, or that actual or other costs to be incurred may
differ from current estimates. Therefore, in the event those actual costs exceed
the maximum aggregate amounts specified in Section 2.1, or if the Company incurs
costs for activities or items other than those specified in Section 2.1, all
Parties agree to pay their proportionate share of all amounts exceeding those
aggregate maximums based upon each Party's then applicable Ownership Interest in
the Company as specified in Article III, below. In the event that any Party is
unable to pay its proportionate share, or elects not to pay its proportionate
share, it shall be subject to the nonconsent provisions below.
2.5 Limited Guaranty. With respect to, and only with respect to the
----------------
obligations of MarkWest under Section 2.1, above, MarkWest Hydrocarbon Partners,
Ltd., absolutely, unconditionally and irrevocably guarantees that it will
provide, or otherwise cause to be made available, sufficient funding to MarkWest
to enable MarkWest to comply in all respects with its obligations under Section
2.1. In the event of a default in the timely payment of MarkWest of any of its
obligations under Section 2.1, MarkWest Hydrocarbon Partners, Ltd., shall
promptly pay or perform or cause to be paid or performed such obligations upon
receipt of written notice of that default and demand for payment from MEC.
MarkWest Hydrocarbon Partners, Ltd., further agrees to pay all reasonable
out-of-pocket expenses (including, without limitation, reasonable expenses for
legal services) actually paid or incurred by MEC in enforcing this guaranty,
provided that MEC prevails in that enforcement. Nothing contained in this
Section 2.5 shall be construed to act as any other or further guaranty by
MarkWest Hydrocarbon Partners, Ltd., of any other or further obligations of
MarkWest under this Agreement.
ARTICLE III
OWNERSHIP INTERESTS AND TAX MATTERS
-----------------------------------
3.1 Ownership Interests in the Company. (a) As of the Effective
----------------------------------
Date, MEC shall be deemed to own 100% of the Assets. The Ownership Interest of
MarkWest and MEC in the Company will be determined, initially at the Final
Closing Date, and from time to time thereafter, based upon its contributions
made under Section 2.1 above, and its repayments to the Working Capital Fund
under Section 6.8, from and after the Effective Date. MarkWest shall earn a
proportionately increasing Ownership Interest in the Company, up to a maximum of
60% of the Ownership Interests in the Company based upon, at any given time, the
ratio that the aggregate capital contributions made by MarkWest under Section
2.1, as of that time, bear to the sum of (i) $11,200,000, plus (ii) the
aggregate capital contributions made by MarkWest under Section 2.1, as of that
time; and, accordingly, as MEC's Ownership Interest will be correspondingly
reduced to equal the difference between 100% and the Ownership Interest of
MarkWest. It is agreed that Ownership Interests are based upon the actual
capital contributions of MarkWest, up to $16,800,000, and the deemed initial
capital contribution of MEC of $11,200,000 without regard to the actual
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capital accounts of the Parties.
(b) If MarkWest has not achieved a 60% Ownership Interest by July
1, 1997, based upon its contributions under Section 2.1, then within 60 days
following July 1, 1997, and upon written notice to MEC, MarkWest shall have the
right, but not the obligation to pay MEC an amount, that if (i) that amount was
added to the contributions then made by MarkWest, and (ii) that amount was at
the same time subtracted from the deemed initial capital contribution of MEC,
would result, based upon the calculation in (a), above, in up to 60% Ownership
Interest for MarkWest. Upon making that payment, the amount paid shall be
deducted from MEC's capital contribution in the Company. If MarkWest does not
elect to acquire those interests, or if after electing to acquire those
interests, MarkWest does not timely pay the amounts required, then as of
September 1, 1997, the Ownership Interests of the Members in the Company shall
be as otherwise determined under Section 3.1(a), above.
3.2 Certain Additional Obligations of MEC.
-------------------------------------
(a) MEC shall be liable for all ad valorem, real and other property
taxes affecting the Assets applicable to taxable periods or portions thereof
ending on or before the Final Closing Date. Ad valorem, real and other property
taxes with respect to the Assets for the taxable year that begins before and
ends after the Final Closing Date shall be apportioned between MEC and the
Company on a pro rata daily basis over the relevant tax period. The Company
assumes the obligation to pay all such taxes for the taxable year beginning
before and ending after the Final Closing Date to the appropriate governmental
entity on or before the applicable due date. MEC will reimburse the Company for
its pro rata share of such taxes. MEC shall be entitled to any refunds of ad
valorem, real and other property taxes relating to the Assets for periods prior
to the Final Closing Date, regardless of when received. Should the Company
receive any refunds of such taxes after Final Closing relating to the Assets and
relating to periods prior to the Final Closing Date, the Operator shall promptly
remit such refunds to MEC.
(b) MEC shall timely pay when due and payable all expenses and
liabilities relating to the Assets and arising or accruing during periods prior
to the Final Closing Date, regardless of when invoiced or asserted. MEC shall be
entitled to all revenues relating to the Assets for periods prior to the Final
Closing Date, regardless of when received. Should MEC receive any revenues after
Final Closing relating to the Assets and relating to periods from and after the
Final Closing Date, MEC shall promptly remit those to the Operator for the
benefit of the Company. Should the Company receive any revenues after Final
Closing relating to the Assets and relating to periods before the Final Closing
Date, the Operator shall promptly remit those to MEC.
3.3 Conveyance of Ownership Interests. (a) As MarkWest makes the
---------------------------------
contributions, from time to time under Section 2.1, or the acquisition under
3.1(b), it shall be deemed to have been conveyed the corresponding Ownership
Interest in the Company without any further action being required upon the part
of MEC or the Company; provided, however, upon request from any Party, MEC and
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<PAGE>
the Company will execute and deliver to the requesting Party a certificate
indicating the then current Ownership Interest of MarkWest. All Ownership
Interests acquired by MarkWest hereunder shall be free and clear from all liens,
encumbrances and adverse claims of any nature, except for liens in favor of
MEC's secured lender which liens are subordinate to the rights and interests of
MarkWest under this Agreement pursuant to the Subordination Agreement attached
as Exhibit H.
(b) The Ownership Interests shall be determined at the end of each
calendar month based upon the cumulative contributions made by MarkWest under
Section 2.1 (and as paid under Section 3.1(b), if applicable) as of the end of
that month and the deemed contribution of MEC under Section 2.2, above.
Contributions by MarkWest shall be based upon actual expenditures made. The
calculation of Ownership Interests at the end of a calendar month shall be
deemed effective for all purposes under this Agreement as of the last day of
that month for which the determination was made.
3.4 Profits, Losses and Other Tax Matters. Profits and losses (except
-------------------------------------
for matters for which a Party indemnifies the others under Article XIII) of the
Company shall be the individual benefits of and liabilities of each of the
Parties allocated in accordance with the individual Party's Ownership Interest
at the given time and as determined and allocated in accordance with the
provisions of Exhibit E. The Parties agree that MarkWest will act in the
capacity of Tax Matters Partner. MarkWest, as Tax Matters Partner, agrees to use
its best efforts to comply with its duties and responsibilities as set forth in
the Internal Revenue Code. MarkWest will prepare the federal, state and local
partnership income tax returns and other returns and reports necessary for the
operations reportable under the Tax Partnership in accordance with the
provisions of the Tax Matters attached hereto as Exhibit E.
3.5 Tax Depreciation. Tax depreciation related to the Company will be
----------------
allocated in accordance with Exhibit E; provided, in all events, MarkWest will
be allocated 100% of depreciation attributable to the capital contributions made
by MarkWest under Section 2.1.
3.6 Ownership of Basin. Upon conveyance of Ownership Interests to
------------------
MarkWest under Section 3.3, above, aggregating at least 1.2%, MarkWest shall be
---
conveyed a 1.2% Membership Interest in Basin and Basin shall be owned in the
---
following proportions: The Company shall own 98% of the membership interests,
--
MEC shall own 0.8% of the membership interests, and MarkWest shall own 1.2% of
--- ---
the membership interests. The direct ownership of membership interests in Basin
shall be taken into consideration at any time at which the respective indirect
undivided ownership interests in Basin is determined. The provisions of this
Agreement shall, to the extent not inconsistent with the amended operating
agreement of Basin as of the Final Closing Date, control the governance and
operation of Basin; and, as used herein "Company" shall include Basin unless the
context otherwise provides.
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<PAGE>
ARTICLE IV
ACCOUNTING MATTERS
------------------
4.1 Cash Distributions. Cash distributions shall be made at least
------------------
monthly and shall equal all cash remaining from operations, (which shall be
after payment of all direct expenses, including producer payments, processing
fees, operating expenses, and overhead charges and after payment of the
marketing fees to MarkWest specified in Section 6.11 and after the payment of
the surcharge to MarkWest referenced in Section 2.3). Distributable cash
available shall be calculated and determined without regard to, and free of the
burden of any obligations of the Members to their respective lenders, whether or
not any of those obligations are guaranteed by the Company. Distributions shall
be made based upon each Party's Ownership Interest. The Operator shall
distribute those distributions within thirty (30) days following the end of the
month for which the distributions relate.
4.2 Distributions All revenues attributable to any of the operations or
-------------
activities of the Company, including Basin, shall be initially received by the
Operator. Each Party which is a party to a contract with the Company under which
revenues are to be received by the Company, shall direct those revenues to be
paid to the Operator. The Operator shall, from those revenues, first discharge
all accounts payable and other obligations attributable to the Company then due
prior to making any distributions to the Parties under Section 4.1, above;
provided, it will withhold distributions for approved capital expenditures, to
the extent that withholding is required as a result of non-consent expenditures
under Section 6.6.
4.3 Payment of Expenses; Cash Shortfall.
-----------------------------------
a. Subject to the Operator's right to bill for approved capital expenses
under Section 6.7, and to require the Working Capital Account under Section
6.8, the Operator shall initially pay all non-capital costs incurred
hereunder, including all costs of gas purchases (under gas purchase
contracts between the Company and producers within the Company Area) and
all non-capital costs incurred in the construction, maintenance, operation,
enlargement, alteration, supervision and management of the Company. Prior
to any distributions under Section 4.1, the Operator shall net out of all
Company revenues amounts due to it for those costs and expenses as
permitted or authorized under the provisions of Exhibit F, Accounting
Procedures. In the event that, during any month, the revenues attributable
to the operations and activities of the Company are insufficient to
discharge all accounts payable and other obligations attributable to the
Company then due, the Operator shall have the right to bill each Party for
its proportionate share of the shortfall. Within fifteen (15) days after it
receives any bill, each Party shall pay to the Operator its proportionate
share of the shortfall. If any Party does not pay that bill within that 15-
day period, then, in addition to the other rights of the Operator, the
unpaid amount shall bear interest monthly, accruing immediately, at the
prime rate per annum as published in the Wall Street Journal, Money Rates,
determined on the
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<PAGE>
first business day of the month in which the delinquency occurs, plus four
(4) percentage points.
b. Should any Party dispute any portion of invoices or charges submitted
or assessed by the Operator for expenditures which (i) have been approved
by the Members pursuant to this Agreement, (ii) which comply with an
approved AFE and (iii) which have been invoiced within the time forecast
for the applicable expenditure or the payment progress schedule as approved
by the Members or as specified in the approved AFE, then that Party shall
nevertheless pay the full invoiced amount, but shall specify, when
remitting payment, the portion and the reasons for its dispute accompanied
by reasonable documentation to substantiate the dispute. If the Parties are
unable to resolve the dispute within thirty (30) days following the
specification of the dispute, the matter shall be resolved according to the
dispute resolution procedures in Article XX, below.
4.4 Accounting Procedures. Operator shall comply with, and the Parties
---------------------
shall be bound by the Accounting Procedures attached as Exhibit F.
ARTICLE V
MANAGEMENT AND RESTRICTIONS
---------------------------
5.1 Management.
----------
a. Representation and Voting Interests.
-----------------------------------
(i) Each Party shall have the right to participate in the
management of the Company (and before Final Closing, in the
management and operations of the Assets) by having a voting interest
("Voting Interest") as specified below, without regard to that
Party's actual Ownership Interest at the time:
MEC 40%
MarkWest 60%
(ii) Notwithstanding the foregoing, if MarkWest is in material
default with respect to any of its material obligations hereunder,
and has not remedied the default within thirty (30) days following
written notice of the default from MEC (or in the case of a default
that cannot be remedied within 30 days, has not commenced and is
diligently pursuing the remedy of that default within that 30-day
period), the Voting Interests of the Parties shall be the same as
their then applicable, from time to time, Ownership Interests until
such time as MarkWest has remedied that material default. Should
MarkWest dispute that it is in material default, the determination
of whether or not MarkWest is in material default shall be submitted
to arbitration under the terms of Article XX; provided, that during
the pendency of the arbitration proceedings, the Voting Interests
shall be based upon the then applicable Ownership
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<PAGE>
Interests of the Members. Additionally, in the event that MarkWest
has not made applicable capital contributions in accordance with
Section 2.1 hereof in the amount of at least $16,800,000 and has not
fully exercised the right to purchase the balance of the 60%
ownership interest as set forth in Section 3.1(b) hereto, then, as
of September 1, 1997, Voting Interests of the Parties shall
thereupon equal the then effective Ownership Interests of such
Parties.
b. Construction Management. Management of all construction activities
-----------------------
of the Company and Basin (or the Assets before Final Closing) will be by
the Operator.
5.2 Voting Procedure. On all matters requiring a vote of the Members
----------------
(or of the Parties before Final Closing) in accordance with the provisions of
this Agreement, the Operator shall conduct the voting either at a meeting of the
Members, by written polling of the Members, or, where capital is proposed to be
spent, by submission from the Operator of written authorites for expenditure
(AFE). On all matters requiring a vote hereunder relating to capital
expenditures or budgets, the unanimous approval of the members shall be
required;and, an affirmative vote of a simple majority affirmative vote of a
simple majority of the Members, based upon the Voting Interests specified above,
shall be binding upon all Parties, except as otherwise specified herein. If
voting occurs other than at a meeting, the time in which a Party has to vote on
the issue presented will be ten (10) days following the date presented.
5.3 Delegation to Operator. As of the Effective Date, the day-to-day
----------------------
managing and operation of the Company, (and of the Assets prior to Final
Closing) including the physical operations of the gas gathering systems, gas
processing and treating plants and other facilities of the Company, shall be
delegated to and shall be the responsibility of the Operator. MarkWest is
hereby designated as the Operator of the Company and shall act in accordance
with the provisions of this Agreement. The Operator shall have the power to
bind the Company within the scope specified by this Agreement.
a. The Operator shall have control and management, subject to the
provisions of this Agreement, regarding the construction, operation,
repair, replacement, expansion, maintenance, alteration and enlargement of
the assets of the Company.
b. The Operator shall conduct all operations hereunder in a good and
workmanlike manner and shall have the right and duty to conduct the
operations in accordance with what a prudent operator would do under the
same or similar circumstances in material compliance with applicable laws,
rules, regulations, permits and licenses, including environmental laws,
rules and regulations. The Operator shall freely consult with the Parties
and shall keep them advised of all matters arising in connection with
operations hereunder which the Operator, in the exercise of its best and
reasonable judgment, considers important or of which matters the Parties
specifically request consultation, advisement and documentation.
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<PAGE>
c. The Operator will act in the best interests of the Company at all
times.
d. The Operator will conduct operations in compliance with the provisions
of Article VI.
5.4 Restrictions on Parties. Notwithstanding the authority delegated
-----------------------
herein to the Operator, no Party, without the unanimous consent of the Parties
obtained in accordance with the voting procedures above shall:
a. Sell, lease, exchange, abandon, encumber, or convey title to or grant
options for sale of all or any portion of the Company's property; provided,
this shall not preclude a Member from mortgaging or encumbering its
Ownership Interest in the Company or any of the assets of the Company in
connection with financing arrangements so long as mortgages or encumbrances
are made subordinate to the rights of the other Parties to this Agreement;
or,
b. Borrow money, or incur any indebtedness or other obligations, or
execute any contract (other than contracts permitted under Section 6.3) on
behalf of the Company; or,
c. Settle or compromise any dispute or litigation matter involving the
Company with any third party for an amount greater than $50,000.00.
5.5 Accounting Records. The Operator shall maintain Company accounting
------------------
records on behalf of the Parties and shall charge all costs and expenses to
those accounts as set out in the Accounting Procedures, Exhibit F. The Company
accounting records shall be maintained by the Operator at the principal place of
business of the Operator and each Party shall, at all times, have access
thereto. The Company's accounting records shall be identified separately from
the Operator's non-Company accounting records. Operator shall keep Company
records in accordance with generally accepted accounting principles, and report
the Company's income for income tax purposes in accordance with the provisions
of Exhibit E. The Operator shall make a final monthly accounting to each Party,
in writing, no later than thirty (30) days following the end of that month. The
written final monthly accounting shall include, but not be limited to, an
"Operating Statement" containing at least the following information: (i)
financial statements including a comparative income statement (current and prior
months), balance sheet with fluctuation analysis between current and prior
months, budget variance comparison report, capital expenditure report, schedule
of cash contributions; and (ii) any other information as determined reasonably
necessary by any Member, upon written notice to the Operator specifying such
additional information and the reasons requested. The Company's books shall be
closed and balanced at the end of each calendar year, and financial statements
shall be prepared by the Operator and delivered to the Parties no later than
ninety (90) days following the close of the calendar year. The Operator shall
cause to be prepared all income tax returns and reports required to be filed by
the Company, in accordance with the
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<PAGE>
Tax Partnership, Exhibit E, and shall furnish copies of those returns or
reports, as well as any schedule to the Parties as soon as it becomes available,
subject to the provisions of Exhibit E. The Operator shall cause, at Company
expense, an annual audited financial statement for the Company, consolidated
with Basin.
5.6 Removal of Operator. The Operator shall be subject to removal from
-------------------
that position upon the occurrence of one or more of the following events:
a. The Operator becomes insolvent, or files for protection from
creditors or for protection under the bankruptcy laws; or,
b. Should the Members determine, by a majority vote in accordance
with the Voting Interests specified above, after excluding the
Voting Interest of the Operator, and of its Affiliates, that there
are material deficiencies in the performance of the Operator's
duties, those Members shall send a written notice to the Operator
specifying, in detail, the deficiencies ("Deficiency Notice"). The
Operator shall have twenty-five (25) days following receipt of the
Deficiency Notice in which to respond, in writing, to the Members
specifying the plans of the Operator to remedy the claimed
deficiencies. Should the Members not approve, by a majority vote,
after excluding the Voting Interest of the Operator, the plans of
the Operator, and if the Operator does not dispute the existence of
the material deficiencies, then the Operator shall be deemed
removed, with no further action on the part of the Members, upon the
expiration of sixty (60) days following the date of the Deficiency
Notice.
c. If the Operator disputes the existence of the material
deficiencies specified in the Deficiency Notice, or contends that it
has sufficiently remedied those deficiencies but the Members (other
than the Operator or its affiliate) do not concur, the determination
of whether or not a material deficiency exists shall be resolved in
accordance with the Alternative Dispute Resolution Procedures of
Article XX, and if it is determined that material unremedied
deficiencies exist, the Operator shall be deemed to be removed
without further notice or opportunity to cure and a new operator
shall be selected pursuant to Section 5.8.
5.7 Resignation. The Operator will have the right to resign its
-----------
position upon providing ninety (90) days advance written notice to the other
Parties.
5.8 Selection of Successor Operator. In the event the Operator resigns
-------------------------------
or is removed pursuant hereto, then a new Operator shall be appointed based upon
a unanimous vote of Members; provided if an Operator was removed under the
provisions of Section 5.6, the removed Operator may not vote for itself unless
at least one other Member also votes for that removed Operator. The new Operator
shall be a Member of the Company unless otherwise agreed by unanimous
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<PAGE>
vote of the Members.
5.9 Effectiveness of Resignation or Removal. Upon the resignation or
---------------------------------------
removal of the then Operator, that Operator shall be released from its further
duties and obligations as Operator, except as specified in this Section 5.9,
upon the earlier of (i) ninety (90) days after the effective date of its removal
or resignation, as provided above, or (ii) upon the date that a successor
Operator is selected by the Parties; provided, the removed or resigned Operator
shall assist the successor Operator, at no expense to the removed or resigned
Operator, during a transition period of sixty (60) days following the date the
removed or resigned Operator is otherwise released from its duties and
obligations under this Section 5.9.
5.10 Consent to Bankruptcy Proceedings. The Members agree that neither
---------------------------------
the Company, nor Basin, shall voluntarily file for protection under any
bankruptcy laws without the unanimous consent of all Members voting in
accordance with the provisions of this Agreement.
ARTICLE VI
OPERATION OF THE COMPANY
6.1 Purpose. The Company shall be operated hereunder, in accordance
-------
with applicable laws and regulations, including environmental laws, rules and
regulations, consistent with sound economic, technical and operating practices
and with the intent of generating the maximum return on investment to the
Parties. Each Party hereby agrees to devote to the business of the Company time
and attention as is reasonably required in order to pursue the Company's
business. The Parties agree that the Company shall be operated for the exclusive
benefit of the Parties without regard to the effect of those operations on any
individual Party.
6.2 Construction Matters. The Operator shall have direct charge and
--------------------
supervision of all matters arising in connection with and pertaining to the
actual construction work, if any, which the Parties determine necessary pursuant
to this Agreement; and the Operator shall discharge that responsibility in a
good and workmanlike manner and in accordance with what a prudent operator would
do under the same or similar circumstances and in compliance with environmental
laws, rules and regulations. Any Party shall have the right to inspect and
observe the construction work of the Company at all reasonable times, and the
Operator shall, during the period of any construction, submit to each of the
Parties periodic written reports (but not less frequently than monthly) showing
the progress of major construction work.
6.3 Operator Duties. The Operator shall have the responsibility of
---------------
operating the Company (and the responsibility on behalf of the Company of
operating Basin), as provided herein or as otherwise directed by the Members,
voting in accordance with this Agreement, and of all activities incidental or
necessary thereto, including the following:
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a. Conduct the day to day operations of the Company;
b. Employ all personnel reasonably required to perform efficiently its
duties hereunder, except personnel that may be employed by contractors and
subcontractors engaged to perform work in connection with the Company, and
pay wages and salaries of personnel working for the Company, who shall be
employees of Operator.
c. Supervise the receipt of gas, the gathering, processing, treating,
compressing and related activities of that gas, the sale and delivery of
residue gas owned by the Company, and liquid hydrocarbons, and the sale and
delivery of other plant products, all in accordance with applicable
contracts.
d. Keep the Company free and clear of all liens and encumbrances on
account of any claims arising out of operations hereunder.
e. Make all reports and returns required to be made to any governmental
body, state or federal, in connection with the Company or its operations.
f. Call meetings of the Members at least once each calendar quarter
(with the one occurring during April of each year to also be designated as
the Annual Meeting of the Company) and at other times as it deems necessary
and at times as a Member requests the calling of a meeting. Quarterly
meetings may be waived by the unanimous agreement of the Parties. It shall
be the duty of the Operator to notify, in writing, at least fourteen (14)
days in advance of any meeting of the time, place, and agenda of the
proposed meeting, except in the event of any emergency meeting, which may
be held upon twenty four (24) hours notice. No changes to the agenda for
any meeting may be made, by the Operator or any Party, later than seven (7)
days before the meeting.
g. Promptly pay and discharge all costs and expenses incurred in
connection with the maintenance, repair, construction, expansion and
operation of the Company, and to take advantage of trade discounts where
available.
h. Keep an accurate and itemized record of Company's accounts and of
all operations of the Company, and report all expenditures made or
incurred;
i. Obtain necessary leases, easements, rights of way and permits for
the Company;
j. Enter into gas purchase and/or processing, treating, marketing, and
transportation contracts, as well as other contracts which may be necessary
for the operation of the Company.
6.4 Activities Requiring Approval. The Operator shall not, without the
-----------------------------
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<PAGE>
prior unanimous approval of the Members, incur any of the following expenditures
or perform any of the following acts:
a. Sell, or otherwise dispose of any materials, equipment or other
property of the Company or Basin; provided, however, that Operator shall be
authorized, in the ordinary course of business, to sell or dispose of
materials, equipment or other Company's or Basin's property having an
original cost of less than $10,000.00. The foregoing restrictions shall not
apply to the sale by the Operator of gas, residue gas, and plant products
of the Company;
b. Make payment in excess of $10,000.00 in settlement or satisfaction
of any claims for injury to or death of person, or for the loss of or
damage to property and institution or defense of litigation involving the
ownership, or arising out of the operation, of the Company's or Basin's
assets; sums paid in any of those settlements or satisfactions shall be
charged as expenses and paid by the Parties in the proportion of their
Ownership Interests;
c. After the Final Closing Date, incur or commit to incur capital
expenditures for any single project for the Company exceeding $50,000.00,
other than for capital expenditures previously approved pursuant to an AFE
or for a Consenting Party under a Sole Risk Project as specified in Section
6.6;
d. Before the Final Closing Date, incur or commit to incur any single
capital expenditure for the Company or Basin exceeding $10,000 before the
Final Closing Date, other than for capital expenditures approved in the
Preliminary Cost Estimates attached as Exhibit S, or for other expenditures
which are otherwise unanimously approved by the Members.
e. Designation of the Company's or Basin's outside, independent auditor
shall require unanimous approval of the Members.
6.5 Budgets.
-------
a. On or before September 1st of each year, the Operator shall provide
the Parties with an annual budget, using a projected income statement
format, covering the monthly estimated revenue (by category) and operating
expenses (by category) and covering the estimated annual capital
expenditures chargeable to the Company and Basin for the twelve (12) month
period ending on the 31st day of December of the following year. Each
budget shall be subject to the unanimous approval of the Members. The
Members will meet to approve the Budgets within 45 days after September
1st. Upon approval of the annual Budget, and notwithstanding any other
provisions of this Agreement, the Operator shall thereafter have the full
authority to perform all work and incur all expenditures provided in the
approved budgets. If any budget is not approved prior to the beginning of
the period for which that budget is to apply, then the Operator shall
nevertheless have the authority to incur
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<PAGE>
normal day-to-day operating and maintenance expenses, but the Operator
shall have no authority to incur capital or extraordinary expenditures
except as otherwise provided herein, or as required for emergencies. The
budgets for the year ending December 31, 1996 shall be agreed upon by the
Parties at Final Closing.
b. If the Operator reasonably anticipates that it will be required to
exceed the total approved budget by more than ten percent (10%) in any
given budget period, it shall notify the Members in writing, providing
specification as to the reasons for the excess and seeking approval for a
supplemental budget. That supplemental budget shall be subject to the same
unanimous approval requirement under a., above, and subject to the other
provisions specified therein.
6.6 Non Consent and Sole Risk Projects.
----------------------------------
a. Expenditures. Notwithstanding the foregoing, if:
------------
(i) any Party fails to pay its share of any approved capital
expenditure hereunder, within the time otherwise required,
(ii) any Party fails to make its contribution to the Working
Capital Fund within the time specified in Section 6.8, or,
(iii) any Party fails to make any other payments required for
capital expenditures hereunder within the time required,
then the Party(ies) not making the capital expenditure shall be considered
a "non-consenting" Party. Upon making that capital expenditure, it is
specifically provided that the non-consenting Party shall relinquish sixty
percent (60%) of all income attributable to that Party's Ownership Interest
in the Company and that income shall accrue to, be allocated to, and be
distributed to the consenting Parties who participated in and made the
expenditure (which shall be deemed a special allocation for tax purposes)
until those Parties have recovered one hundred percent (100%) of that
expenditure, plus interest thereon, accruing from the date the expenditure
is made, at the rate of twenty percent (20%) per annum or the maximum rate
of interest permitted by applicable law, whichever is lesser; at which
time, all Parties will share in any subsequent income in accordance with
each Party's respective Ownership Interest. Operator will establish and
maintain proper accounts to implement the provisions of this paragraph, and
shall furnish monthly statements of those accounts to the Parties.
b. Sole Risk Project.
-----------------
(i) If a capital expenditure proposed by a Party is not unanimously
approved by the Members, then that item may be pursued as a Sole
Risk Project. If a Sole Risk Project can be conducted by
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<PAGE>
one of the Parties separately and distinctly from and without harm
to the Company or Basin operations (including capacity restraints
which may affect gas gathering by the Company or Basin), then the
Party ("Consenting Party") desiring to proceed with that Sole Risk
Project may do so at its own cost, liability, and expenses and
without the Company or the non-approving Party having any obligation
with regard to the cost, liability, or expenses of that Sole Risk
Project. If the Consenting Party proceeds with the Sole Risk
Project, it will do so in its own name at its own cost and expense,
and shall own that Sole Risk Project.
(ii) If due to regulatory considerations, a Sole Risk Project must
be conducted by Basin, in Basin's name, then the Company will
proceed to conduct that Sole Risk Project, in Basin's name, and will
maintain separate accounting for that Sole Risk Project.
(iii) Until "Payout", as defined below, the Consenting Party shall
be entitled to receive all profit attributable to that Sole Risk
Project. Until Payout, the Consenting Party shall be responsible for
and shall pay all expenses attributable to that Sole Risk Project
including compensation to the Company for the use of any Company
assets used by the Party for the Sole Risk Project (which
compensation to the Company shall include, as appropriate, on a
prorata basis a volumetric transportation charge, processing fees,
and other charges that would be assessed to an unaffiliated, third
party utilizing the Company facilities). Upon Payout, of a Sole Risk
Project described under (i), above, the Sole Risk Project shall be
conveyed to the Company or Basin, as directed by the Company, free
and clear of all liens, encumbrances and adverse claims, and
thereafter all costs and revenues attributable to that Sole Risk
Project shall be administered in the same manner as other Company
assets. Upon Payout of a Sole Risk Project described under (ii),
above, that Sole Risk Project shall be considered as any other asset
of Basin and all Members shall share therein in the same manner as
they do with other Company assets.
(iv) As used herein, "Payout" shall mean the date upon which the
Consenting Party has obtained a before tax internal rate of return
(excluding depreciation and interest) on the Sole Risk Project of
25%. To the extent a Sole Risk Project requires right of way owned
by the Company or Basin, and to the extent partially assignable,
Company or Basin, as applicable, will partially and non-exclusively
assign the requisite right of way to the Consenting Party.
6.7 Capital Expenditure Billing. If a capital expenditure is approved
---------------------------
by the Members, and as requested by the Operator, each Party shall contribute to
the Company, on an "as needed" or "progress" basis, to the extent in conformance
with the expenditure forecast contained in the approved AFE, its proportionate
share of that expenditure. The Operator shall submit, on a monthly basis, to
each Party, in writing, a capital cash contribution request
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detailing the cash required by AFE number. Within twenty (20) working days after
receipt of the capital cash contribution request, each Party shall make payment
to the Operator. The Operator shall have the option to request capital cash
contributions on the basis of (1) actual amounts for invoices received by the
Operator and/or (2) projected amounts for invoices anticipated to be paid by the
Operator in the following month. The capital cash contributions paid by each
Party, including the Operator, which relate to projected amounts for invoices
anticipated to be received by the Operator in the following month shall be
deposited in the Company bank account until the time as the actual invoices are
received by the Operator.
6.8 Working Capital Funds. (a) The Parties agree that as of the
---------------------
Effective Date, MEC shall contribute to the MEC working capital fund an amount
equal to $250,000.00, which amount constitutes all of the cash needs anticipated
by the Parties prior to Final Closing Date, and all expenditures required under
Section 2.1 from the Effective Date until the Final Closing Date shall be paid
for from the sums contributed to the MEC working capital fund under this Section
6.8(a). The MEC working capital fund shall be established in a bank account upon
which the Operator shall have the right to draw. Any balance in the MEC working
capital fund on the Final Closing Date shall be transferred to the Working
Capital Fund, and shall be subject to repayment to MEC under Section 6.8(c),
below.
(b) After the Final Closing Date, the Operator shall have the right
to establish a Working Capital Fund for the benefit of the Company. Operator
shall have the right to make cash calls to fund or replenish the Working Capital
Fund to maintain a reserve of cash in an amount as prudently determined by the
Operator taking into consideration estimated expenditures and revenues of the
Company and subject to the limitations in Section 6.8(c) below.
(c) After Final Closing, unless unanimously agreed to by the
Members, this Working Capital Fund shall not exceed $50,000. At Final Closing,
MarkWest shall pay to the Working Capital Fund all amounts expended from the MEC
working capital fund, under Section 6.8(a), above, for activities under Section
2.1, (including amounts paid to third parties under that certain Engineering
Consulting Letter Agreement between MarkWest Hydrocarbon Partners, Ltd., and
Manistee Gas Limited Liability Company, dated February 9, 1996) which amounts
shall be included in MarkWest's capital contribution in the Company and used in
determining the Ownership Interest of MarkWest. Any balance in the Working
Capital Fund in excess of $50,000 on the Final Closing Date, after the payment
obligations of MarkWest under this Section 6.8(c), shall be reimbursed to MEC on
the Final Closing Date.
(e) At Final Closing, and thereafter as MarkWest acquires
additional Ownership Interests in the Company, MarkWest will replace a
proportionate share of the Working Capital Fund by its payment to the Working
Capital Fund, and the replaced portion shall be returned to MEC.
6.9 Bank Accounts. All monies of the Company (and the pre-MEC
-------------
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<PAGE>
working capital fund under Section 6.8(a)) shall be deposited in, and the
Company business transacted from independent, interest bearing Company bank
account(s) as determined by the mutual agreement of the Parties, which
account(s) shall be established to permit transactions only by the Operator.
6.10 Accounting Procedures. The Operator shall invoice and charge the
---------------------
Company for expenses of the Company, and shall otherwise undertake the financial
accounting of the Company according to the procedures set forth in the
Accounting Procedures Exhibit attached hereto as Exhibit F.
6.11 Liquid Marketing Fees. All liquid marketing fees received by the
---------------------
Company under the Gas Gathering, Treating and Processing Agreements entered into
by the Company shall be remitted directly to the Operator to compensate the
Operator for its services in performing those marketing activities. It is
understood that the Overhead Fees payable under Exhibit F are exclusive of
compensation to Operator for liquid marketing services.
ARTICLE VII
INSURANCE
---------
7.1 Insurance Coverage. Upon the Final Closing Date, the Operator shall
------------------
on behalf of, at the Company's expense (as a direct charge in accordance with
Exhibit F) and at all times thereafter during the terms of this Agreement, carry
insurance to protect the Company with reputable and financially sound insurance
companies, authorized to do business in the State of Michigan. The Members shall
review the insurance coverage annually and will revise as deemed necessary upon
a majority vote. Operator shall initially seek to obtain the following coverage
for the Company:
(a) Worker's Compensation and Employer's Liability
(i) Statutory Worker's Compensation for the state in which
operations are conducted, the state in which the
Operator is domiciled and the state(s) in which
Operator's employees reside;
(ii) Employer's Liability Limit: $1,000,000; and
(iii) Policy must contain endorsement waiving underwriter's
right of subrogation against the Operator and Company.
(b) Comprehensive General Liability (Occurrence Form)
(i) Limits of Liability: $1,000,000, each occurrence and
aggregate, Combined Single Limit for Bodily Injury and
Property Damage;
(ii) Policy to include contractual liability, independent
contractors and explosion, blowout and cratering; and
(iii) Policy must contain endorsement waiving underwriter's
right of subrogation against the Operator and each Party
and naming the Operator and each Party as an Additional
Insured.
(c) Comprehensive Auto Liability
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<PAGE>
(i) Limits of Liability: $1,000,000 each occurrence and
aggregate Combined Single Limit for Bodily Injury and
Property Damage;
(ii) Policy to include Owned, Hired and Non-Owned cars; and
(iii) Policy must contain endorsement waiving underwriter's
right of subrogation against the Operator and each Party
and naming the Operator and each Party as an Additional
Insured.
(d) Umbrella Liability (Occurrence Form)
(i) Limits of Liability: $10,000,000 each occurrence and
aggregate for Bodily Injury and Property Damage'
(ii) Policy must be following form coverage over the
Comprehensive General Liability, Comprehensive Auto
Liability and Employer's Liability; and
(iii) Policy must contain endorsement waiving Underwriter's
right of subrogation against the Operator and each Party
and naming the Operator and each Party as an Additional
Insured.
(e) "All" Risk of physical loss, including, boiler and machinery
coverage, for the replacement value of the Plant, compressor
facilities and/or other facilities in excess of $1,000,000
included in this Company.
(f) Other insurance as the Operator deems advisable and/or
necessary subject to the approval of the Members.
ARTICLE VIII
PRIVILEGES OF PARTIES
---------------------
8.1 Inspections. Each Party and its representative, upon notification,
-----------
shall have the right, at all reasonable hours, to inspect the Company's assets
and operations, including access to perform environmental audits (provided those
environmental audits shall not unreasonably interfere with the operations of the
Company) and the Party performing the environmental audit shall do so at its
sole cost, risk and expense.
8.2 Audits. (a) The Operator shall cause an annual audit of the
------
financial records of the Company to be performed by the Company's outside,
independent auditor. The costs of that annual audit shall be considered a direct
charge to the Company under the provisions of Exhibit F.
(b) In addition to the annual audit, any Party may, upon written
notice to the Operator, cause an audit to be performed with respect to any
aspect of Company activities. That audit shall be performed at a time agreed
upon by the Operator and the requesting Party, (or in the absence of an
agreement, commencing within sixty (60) days after that written notice);
provided, however, that in any event there shall be (i) no audits, excluding
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the annual audit to be conducted by the Operator, (covering the same subject
matter) conducted more frequently than once each twelve (12) months; (ii) no
audit may cover a period greater than thirty-six (36) consecutive months; (iii)
no audit (pertaining to the same subject matter) may cover a period that has
been subject to a prior audit, and (iv) no audit may cover any time periods more
than thirty-six (36) months preceding the date of the notice for the audit. The
costs and expenses incurred by any auditor conducting an audit shall not be
charged to the Company account, but shall be borne and paid by the Member(s)
participating in the audit, unless that audit discloses exceptions exceeding
$100,000.00 in the aggregate, in which case the Operator will pay the reasonable
and necessary costs incurred by those Member(s) in conducting that audit. After
a period of three (3) years all statements and records which have not been
subject to an audit shall be deemed correct.
ARTICLE IX
TRANSFER OF OWNERSHIP INTERESTS
-------------------------------
9.1 Restrictions. Except as expressly provided in this Article, no
------------
Party may sell, exchange, encumber, hypothecate, assign, or otherwise dispose of
(except as expressly permitted in this Agreement) all or any portion of its
interest in the Company or its right to receive its prorata share of
distributions of the Company; provided, each Party shall have the right, without
the consent of any other Party, to mortgage, encumber, hypothecate and pledge
its interest in the Company in connection with financing arrangements required
of that Party to perform its obligations hereunder. Any transfer or other
disposition in violation of this Article shall be deemed null and void, and
shall have no legal effect.
9.2 Affiliate Transfers. In the event that a Party desires to transfer
-------------------
all or any part of its undivided interest to an Affiliate of that Party, that
transfer shall not be subject to the restrictions provided herein; provided that
the assigning Party shall remain liable, together with the assignee, for the
obligations of the assignee under this Agreement unless expressly released from
that liability by all of the other Parties. No Party will transfer its interest
to an Affiliate which is subject to the Natural Gas Act. As used herein,
"Affiliate" means, with respect to any Person, (a) any other Person at the time
directly or indirectly controlling, controlled by or under direct or indirect
common control with such Person, (b) any other person of which such Person at
the time owns, or has the right to acquire, directly or indirectly, twenty
percent (20%) or more of any class of the capital stock or beneficial interest,
(c) any other person which at the time owns, or has the right to acquire,
directly or indirectly, twenty percent (20%) or more of any class of capital
stock or beneficial interest of such Person, (d) any executive officer or
director of such Person, (e) with respect to any partnership, joint venture or
similar entity, any general partner thereof, and (f) when used with respect to
an individual, shall include any member of such individual's immediate family or
family trust. As used herein the term "Person" shall mean an individual or any
corporation, firm, unincorporated organization, association,
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partnership, limited liability company, trust (inter vivos or testamentary),
estate of a deceased, insane or incompetent individual, business trust, joint
stock company, joint venture or other organization, entity or business, whether
acting in an individual, fiduciary of other capacity.
9.3 Sale of Individual Interests. Should any Party receive a bona fide
----------------------------
offer to purchase that Party's individual Ownership Interest in the Company, and
if that Party is willing to accept that offer, then that Party shall submit
notice of that offer to the other Parties. That notice shall include all details
of the offer, and shall include a copy of the offer. The Parties receiving that
offer shall have thirty (30) days in which to elect whether or not they will
match the terms of that offer to purchase the interest of the Party submitting
the offer. Should more than one Party elect to purchase the notifying Party's
interest, they will purchase that interest proportionately based on their
relative Ownership Interests at that time in the Company.
ARTICLE X
FORCE MAJEURE AND EMERGENCIES
-----------------------------
10.1 Conditions of Force Majeure.
---------------------------
a. In the event that any Party hereto is rendered unable, wholly or in
part, by force majeure to carry out its obligations under this Agreement,
other than the obligation to make payment of amounts due hereunder, then
effective upon that Party's giving notice and reasonable full particulars
of the force majeure to the other Party hereto, the obligations of the
Party giving the notice, so far as they are affected by the force majeure,
shall be suspended during the continuance of the inability, and the cause
of the force majeure, as far as possible, shall be remedied with all
reasonable dispatch. The Party affected by force majeure conditions shall
nevertheless perform its obligations to the full extent it is otherwise
able.
b. The term "force majeure" means any cause, or condition not
reasonably within the control of the Party claiming suspension.
c. The settlement of strikes, lockouts and other labor difficulty shall
be entirely within the discretion of the Party having the difficulty. The
above requirement that any force majeure shall be remedied with all
reasonable dispatch shall not require the settlement of strikes, lockouts
or other labor difficulty by acceding to the demands of opponents therein
when that is inadvisable in the discretion of the Party having the
difficulty.
10.2 Emergency Actions. In case of blow-out, explosion, fire, flood or
-----------------
other sudden emergency, the Operator shall take steps and incur expenses,
for the Company, as, in its opinion, are required to deal with the
emergency and to safeguard life and property; provided, that the Operator
shall, as promptly as possible, report the emergency to other Parties.
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ARTICLE XI
PARTIES OTHER ACTIVITIES
------------------------
11.1 Other Business Activities. Outside of the Company Area, any Party,
-------------------------
and its Affiliates, may engage in business activities of every nature and
description, including those similar in nature to those of the Company, and
neither the Company nor any Party shall have any rights by virtue of this
Agreement in and to the independent activities of that Party, or the income or
profits derived therefrom. Inside of the Company Area, any Party and its
Affiliates may engage in business activities of every nature and description
other than those which are set out in Section 1.1 as activities reserved
exclusively to the Company.
ARTICLE XII
REPRESENTATIONS OF MEC
----------------------
As used herein, "to MEC's knowledge" means the actual knowledge of MEC, or its
Members, following due inquiry. MEC represents and warrants to MarkWest, as of
the date hereof, and except as disclosed on the Disclosure Schedule attached
hereto as Exhibit P, that:
12.1 Warranty of Title. MEC warrants by, through and under MEC, that, as
-----------------
of the date hereof it has, and at Final Closing, it will have good and
defensible title to all portions of the Assets, free and clear of any and all
adverse claims, encumbrances and liens, except Permitted Encumbrances, as
defined herein. As used herein, "Permitted Encumbrances" shall mean: (a) the
terms and conditions of the agreements, instruments or other documents creating
or reserving to MEC its interest in the Assets, to the extent of record as of
the date hereof; (b) all matters in the public records of the counties where the
Assets are located, to the extent the same are otherwise valid and enforceable,
excluding all deeds of trust and mortgages except for those granted to or
assigned to or in favor of Bank of America Illinois, (c) encumbrances securing
payments to mechanics and materialmen and encumbrances securing payments of
taxes or assessments that are, in either case, not yet delinquent, or, if
delinquent, that are being contested in good faith in the normal course of
business and for which adequate reserve has been made, (d) all matters visible
and apparent on the ground or that would be revealed by a true and correct
survey, (e) easements, rights-of-way, servitudes, permits, surface leases,
surface use restrictions, and other surface uses and impediments on, over, or in
respect of any of the Assets, (f) any matters set forth in Section 12.1 of the
Disclosure Schedule, (g) any of the obligations, terms, covenants or conditions
of any of the contracts and agreements described on Exhibit C, attached, arising
and accruing after the Final Closing Date , (h) all rights to consent by,
required notices to, filings with, or other actions of governmental entities in
connection with the sale or conveyance of any of the Assets which are to be
contributed by MEC to the extent they are customarily obtained subsequent to
sale or conveyance, (i) all rights reserved to or vested in any governmental,
statutory or public authority to control or regulate in any manner any of the
Assets to be contributed by MEC, and all applicable laws,
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rules and order of governmental authorities, (j) all liens, encumbrances,
security interests and rights of MEC's secured lender to the extent such are
subordinated to the interests and rights of MarkWest under this Agreement
pursuant to the Subordination Agreement attached as Exhibit H, and (k) any other
liens, charges, encumbrances, agreements, contracts, instruments, obligations,
defects, irregularities, or restrictions affecting any of the Assets to be
contributed by MEC which individually, or in the aggregate, are not such as to
interfere materially with the ownership, operation, value or use of such Assets.
12.2 Existence. MEC is a limited liability company duly organized,
---------
validly existing and in good standing under the laws of the State of Michigan,
and has authority to conduct business in the State of Michigan.
12.3 Power. MEC has the power to enter into and perform this Agreement
-----
and the transactions contemplated hereby.
12.4 Authorization. The execution, delivery and performance of this
-------------
Agreement and the transactions contemplated hereby have been duly and validly
authorized by all requisite organizational action on the part of MEC.
12.5 Brokers. MEC has incurred no obligation or liability, contingent or
-------
otherwise, for brokers' or finders' fees concerning the matters provided for in
this Agreement for which MarkWest will have any responsibility or liability.
12.6 Litigation. There is no claim, demand, filing, investigation, suit
----------
investigation, suit or proceeding pending or, to MEC's knowledge, threatened,
with respect to the Assets, or the ownership or operation thereof, whether or
not related to periods before MEC's ownership thereof. To MEC's knowledge, there
are no facts or circumstances that could reasonably be expected to give rise to
any claim, demand, filing, investigation, suit or proceeding which would have a
material adverse affect on the Assets.
12.7 ENVIRONMENTAL COMPLIANCE. FOR PURPOSES OF THIS AGREEMENT,
------------------------
"ENVIRONMENTAL LAWS" SHALL MEAN ALL APPLICABLE LAWS, INCLUDING WITHOUT
LIMITATION, FEDERAL, STATE OR LOCAL LAWS, ORDINANCES, RULES, REGULATIONS, ORDERS
OF COURTS OR GOVERNMENTAL AGENCIES OR AUTHORITIES RELATING TO THE PREVENTION,
ABATEMENT OR ELIMINATION OF POLLUTION OR PROTECTION OF THE ENVIRONMENT
(INCLUDING, WITHOUT LIMITATION, THE COMPREHENSIVE ENVIRONMENTAL RESPONSE
COMPENSATION AND LIABILITY ACT OF 1980, THE SUPERFUND AMENDMENTS AND
REAUTHORIZATION ACT OF 1987, THE RESOURCE CONSERVATION AND RECOVERY ACT OF 1976,
THE HAZARDOUS AND SOLID WASTE AMENDMENT OF 1984, THE SAFE DRINKING WATER ACT,
THE TOXIC SUBSTANCES CONTROL ACT, THE FEDERAL WATER POLLUTION CONTROL ACT AND
THE HAZARDOUS MATERIALS TRANSPORTATION ACT), AND ANY OTHER LAWS RELATING TO
POLLUTION OR PROTECTION OF THE ENVIRONMENT, OR TO THE MANUFACTURE, PROCESSING,
DISTRIBUTION, USE, TREATMENT, HANDLING, STORAGE, DISPOSAL OR TRANSPORTATION OR
POLLUTING SUBSTANCES (HEREAFTER DEFINED). FOR THE PURPOSES OF THIS AGREEMENT,
POLLUTING SUBSTANCE MEANS ANY SOLID OR HAZARDOUS WASTE, HAZARDOUS SUBSTANCE,
POLLUTANT, CONTAMINANT, OIL, PETROLEUM PRODUCT, CHEMICAL, COMMERCIAL PRODUCT OR
OTHER SUBSTANCE (I) WHICH IS LISTED, REGULATED OR DESIGNATED AS TOXIC OR
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HAZARDOUS (OR WORDS OF SIMILAR MEANING OR REGULATORY EFFECT) OR WITH RESPECT TO
WHICH REMEDIATION OR CLEANUP OBLIGATIONS MAY BE IMPOSED UNDER ANY ENVIRONMENTAL
LAW OR (II) EXPOSURE TO WHICH MAY POSE A SAFETY OR HEALTH HAZARD. EXCEPT AS TO
MATTERS SET OUT IN THE WOODWARD-CLYDE REPORT:
A. TO MEC'S KNOWLEDGE, MEC HOLDS IN GOOD STANDING ALL ENVIRONMENTAL AND
HEALTH AND SAFETY PERMITS, LICENSES, APPROVALS, CONSENTS, CERTIFICATES AND
OTHER AUTHORIZATIONS NECESSARY FOR THE OWNERSHIP OR OPERATION OF THE ASSETS
("ENVIRONMENTAL PERMITS");
B. TO MEC'S KNOWLEDGE, MEC, THE ASSETS AND THE OWNERSHIP AND OPERATION
THEREOF ARE IN MATERIAL COMPLIANCE WITH ALL APPLICABLE ENVIRONMENTAL LAWS
AND WITH ALL TERMS AND CONDITIONS OF ALL ENVIRONMENTAL PERMITS, AND ALL
PRIOR INSTANCES OF NONCOMPLIANCE OCCURRING DURING THE PERIOD MEC, AND/OR
ANY OF THE PARTIES COMPRISING MEC, HAVE OWNED THE ASSETS HAVE BEEN FULLY
AND FINALLY RESOLVED TO THE SATISFACTION OF (I) ALL GOVERNMENTAL
AUTHORITIES WITH JURISDICTION OVER SUCH MATTERS AND (II) AFFECTED
LANDOWNERS;
C. TO MEC'S KNOWLEDGE, NEITHER THE ASSETS NOR THE OWNERSHIP OR
OPERATION THEREOF HAVE BEEN SUBJECT TO ANY ENVIRONMENTAL, TRESPASS,
NUISANCE, HEALTH OR SAFETY CLAIM, DEMAND, FILING, INVESTIGATION,
ADMINISTRATIVE PROCEEDING, ACTION, SUIT OR OTHER LEGAL PROCEEDING, WHETHER
DIRECT, INDIRECT, CONTINGENT, PENDING, THREATENED OR OTHERWISE WHICH HAS
NOT BEEN RESOLVED ("ENVIRONMENTAL CLAIMS");
D. TO MEC'S KNOWLEDGE, NO NOTICES OF ANY ENVIRONMENTAL CLAIM OR ANY
VIOLATION OR NON-COMPLIANCE WITH ANY ENVIRONMENTAL PERMIT, ARISING FROM,
BASED UPON, ASSOCIATED WITH OR RELATED TO THE ASSETS OR THE OWNERSHIP OR
OPERATION THEREOF HAVE BEEN RECEIVED WHICH HAS NOT BEEN RESOLVED;
E. TO MEC'S KNOWLEDGE, NO POLLUTING SUBSTANCE HAS BEEN HANDLED,
MANAGED, STORED, TRANSPORTED, PROCESSED, TREATED, DISPOSED OF, RELEASED, OR
ESCAPED, ON, IN, FROM, UNDER OR IN CONNECTION WITH THE ASSETS OR THE
OWNERSHIP OR OPERATION THEREOF SUCH AS TO CAUSE A CONDITION OR CIRCUMSTANCE
THAT COULD REASONABLY BE EXPECTED TO RESULT IN AN ENVIRONMENTAL CLAIM OR A
VIOLATION OF ANY ENVIRONMENTAL LAW;
F. TO MEC'S KNOWLEDGE, MEC HAS PROVIDED MARKWEST COPIES OF ALL
ENVIRONMENTAL, HEALTH OR SAFETY REPORTS, SITE ASSESSMENTS, LABORATORY DATA
OR OTHER STUDIES PREPARED BY OR ON BEHALF OF MEC, OR THE PARTIES COMPRISING
MEC, OR ANY THIRD PARTY FOR ANY OF THE ASSETS; OR WHICH WERE PREPARED BY OR
ON BEHALF OF ANY THIRD PARTY AND WHICH ARE IN THE CUSTODY OF MEC;
G. TO MEC'S KNOWLEDGE, THERE ARE NO FACTS, CONDITIONS OR CIRCUMSTANCES
THAT COULD REASONABLY BE EXPECTED TO GIVE RISE TO ANY ENVIRONMENTAL CLAIM.
12.8 Consents and Preferential Rights. MEC does not require or will
---------------------------------
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have obtained by Final Closing the consent or approval of any third party or of
any governmental authority to enter into this Agreement or to consummate the
transactions contemplated by this Agreement, other than (i) required consents,
which by their express terms, may not be unreasonably withheld, and (ii)
consents and approvals of governmental authorities which are customary obtained
after the consummation of a sale transaction. No party has, or claims any
preferential rights to acquire any portions of the Assets except for those
rights conferred under the terms of this Agreement.
12.9 Contracts. Except as described on Exhibit C, there are no contracts
---------
or agreements materially affecting the Assets or the operation thereof, written
or oral, which would bind the Company following Final Closing. With respect to
the Contracts described on Exhibit C, MEC represents that neither it nor, to the
best of its knowledge, any other party subject to or bound by those contracts is
in a material violation or breach of any of the terms or conditions stated
therein, that those Contracts are in full force and effect, and that those
Contracts are assignable to Buyer.
12.10 Compliance with Laws and Permits. (a) Except as disclosed in the
--------------------------------
Woodward-Clyde Reports described on Exhibit T, the Assets are currently being
operated, and MEC and the Assets are, in material compliance with the provisions
and requirements of all laws, rules, regulations, ordinances, orders, decisions
and decrees of all governmental authorities having jurisdiction with respect to
the Assets or the ownership or operation thereof, and all necessary governmental
permits, licenses, approvals, consents, certificates and other authorizations
with regard to the ownership and operation of the Assets are in effect and no
violations exist in respect of such permits, licenses, approvals, consents,
certificates or authorizations.
(b) Except as disclosed on MEC's Disclosure Schedule, Exhibit P,
Basin has been owned and operated in material compliance with all laws, rules,
regulations, orders and certificates, including, without limitation, all laws,
rules, regulations, orders of, and certificates issued by, the Michigan Public
Service Commission, and of all local governmental authorities having
jurisdiction.
12.11 Taxes. Except for taxes not yet due and payable and taxes otherwise
-----
being contested in good faith, all ad valorem, property, production, severance,
and other taxes based on or measured by the ownership of the Assets will be
current (including the payment of any interest and penalties) by Final Closing.
12.12 Rights of Way. The entire and continuous length of the existing
-------------
gathering and transmission pipelines of Basin and of MEC are covered by recorded
rights of way, easements, permits, licenses or other instruments which (i)
purport to be from the owners of the land covered thereby and purport to grant
to Basin and Basin's successors and assigns, or to MEC and MEC's successors and
assigns, as applicable (or to the applicable predecessors in title and their
successors and assigns) the right (for so long as such right shall renewed
and/or not be abandoned) to construct, operate and maintain those
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pipelines in, over, under and across such land for the purpose of gathering and
transporting natural gas and liquid hydrocarbons produced from such land and
other lands and (ii) with respect to those owned by MEC, will be specifically
assigned and conveyed by MEC to the Company at the Effective Date.
12.13 Accuracy of Representations. No representations or warranty by MEC
---------------------------
in this Agreement or any agreement or document delivered by MEC pursuant to this
agreement contains an untrue statement of a material fact or omits to state a
material fact necessary to make the statements contained in any such
representation or warranty, in light of the circumstances under which it was
made, not misleading. There is no fact known to MEC that constitutes an adverse
effect on the operation, value or use of any portion of Assets that has not been
set forth in this Agreement.
12.14 Survival of MEC Representations and Warranties. The representations
----------------------------------------------
and warranties of MEC hereunder shall survive the Final Closing Date for a
period of two (2) years, except for the special warranty of title which shall be
perpetual in duration.
ARTICLE XIII
REPRESENTATIONS OF MARKWEST
MarkWest represents and warrants to MEC that:
13.1 Existence. MarkWest is a limited liability company duly organized,
---------
validly existing and in good standing under the laws of the State of Colorado,
and as of the Effective Date will have authority to conduct business in the
State of Michigan.
13.2 Power. MarkWest has the power to enter into and perform this
-----
Agreement and the transactions contemplated hereby.
13.3 Authorization. The execution, delivery and performance of this
-------------
Agreement and the transactions contemplated hereby have been duly and validly
authorized by all requisite partnership action on the part of Buyer.
13.4 Brokers. MarkWest has incurred no obligation or liability,
-------
contingent or otherwise, for brokers' or finders' fees concerning matters
provided for in this Agreement.
13.5 Litigation. There is no litigation, pending or threatened, which
-----------
would seek to prevent the consummation of the transactions contemplated
hereunder.
13.6 No Financial Contingency. MarkWest's ability to Close the
------------------------
transactions and fund and perform its obligations hereunder is not contingent
upon obtaining financing.
13.7 Consents. MarkWest does not require or will have obtained by Final
---------
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Closing the consent or approval of any third party or of any governmental
authority to enter into this Agreement or to consummate the transactions
contemplated by this Agreement, other than (i) required consents, which by their
express terms, may not be unreasonably withheld, and (ii) consents and approvals
of governmental authorities which are customary obtained after the consummation
of a sale transaction.
13.8 Contracts. Except as disclosed in writing to MEC, there are no
---------
contracts or agreements materially affecting MarkWest or its assets, written or
oral, which would bind the Company following Final Closing.
13.9 Survival of MarkWest Representations and Warranties. The
---------------------------------------------------
representations and warranties of MarkWest hereunder shall survive the Final
Closing Date for a period of two (2) years.
ARTICLE XIV
PRE-FINAL CLOSING OBLIGATIONS OF MEC
14.1 Quiet Period. From the date of this Agreement until the earlier of
------------
either Final Closing Date or the termination of this Agreement, MEC agrees that
it shall not negotiate, either on a solicited or unsolicited basis, directly or
indirectly, with any other person, firm or entity with regard to the sale of any
portion of the Assets.
14.2 Access to Records and Due Diligence Review. Upon the execution of
------------------------------------------
this Agreement, MEC shall grant to MarkWest, reasonable access during normal
business hours to the MEC's records and shall allow MarkWest to copy such
information it deems necessary at MarkWest's sole expense concerning the Assets,
and shall permit access to MEC's officers, employees, agents and consultants
with knowledge of matters related to the Assets and shall permit access to all
of the Assets. MarkWest shall have the right to conduct a due diligence review
of the Assets and all matters related thereto, including, without limitation,
confirmation of all representations contained herein and matters related to
title, environmental conditions, physical conditions, contractual arrangements,
regulatory matters, operating conditions, and other circumstances and conditions
related to the construction, installation, ownership and operation of the
Assets, provided however, that MarkWest shall be liable for and shall hold MEC
harmless from all damages, claims and demands arising out of or caused by such
examination. It is understood and agreed by the Parties however, that the
failure of MarkWest's due diligence review to discover or disclose any defects
in the Assets or in any of MEC's representations or MEC's special warranty of
title shall not alter, eliminate reduce or diminish any of MEC's representations
or warranty of title contained in this Agreement; provided, however, if MarkWest
has actual knowledge, prior to Final Closing, that there is a material breach of
any of MEC's representations or warranty of title, then by proceeding to Final
Closing MarkWest shall be deemed to have waived any claim of damage or remedy
hereunder arising from that breach.
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14.3 Operations. From and after execution hereof until the Effective
----------
Date MarkWest shall have the right to have a person designated by it to be
present in the offices of MEC or upon the Assets for the purpose of observing
the activities of MEC with regard to the Assets.
ARTICLE XV
OBLIGATIONS OF MARKWEST
-----------------------
15.1 Return of Data. MarkWest agrees that if this Agreement is
--------------
terminated for any reason whatsoever, MarkWest shall, at MEC's request, promptly
return to MEC all information and data furnished to MarkWest in connection with
this Agreement and shall maintain confidentiality in connection therewith.
ARTICLE XVI
MEC'S CONDITIONS OF FINAL CLOSING
---------------------------------
MEC's obligation to consummate the transactions provided for herein is
subject to the satisfaction or waiver by MEC of the following conditions:
16.1 Representations. The representations and warranties of MarkWest
---------------
contained herein shall be true and correct in all material respects on the date
of Final Closing as though made on and as of that date.
16.2 Performance. MarkWest shall have performed in all material respects
-----------
the obligations, covenants and agreements hereunder to be performed by it at or
prior to the Final Closing.
16.3 Pending Matters. No suit, action or other proceeding by a third
---------------
party or a governmental authority shall be pending or threatened which seeks
substantial damages from MEC in connection with, or seeks to restrain, enjoin or
otherwise prohibit the consummation of the transactions contemplated by this
Agreement.
16.4 Lender's Consent. MEC shall have obtained the approval and consent
----------------
of its lender(s) to enter into and perform its obligations hereunder.
16.5 Section 2.1 AFE's. MarkWest and MEC shall have agreed upon the
-----------------
AFE's for the activities to be performed by MarkWest under the terms of Section
2.1.
16.6 1996 Budgets. MarkWest and MEC shall have agreed upon the budgets
------------
for the year ending December 31, 1996 pursuant to the provisions of Section 6.5.
16.7 Receipt of Third Party Consents. MEC shall have received all
-------------------------------
consents and approvals listed in Section 12.8 of the Disclosure Schedule.
16.8 Brown 19 Gas Plant. MPC shall have entered into, and assigned to the
------------------
Company, an agreement, reasonably satisfactory to MEC, with Manistee Gas
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Limited Liability Company ("Manistee") providing that the facilities of the
Brown 19 Gas Plant (as specified on Exhibit A) shall not initially be acquired
by the Company, but shall remain the property of Manistee; and, that from and
after the Effective Date, Manistee shall continue to operate the facilities of
the Brown 19 Gas Plant for the benefit of the Company, which operations shall be
conducted pursuant to the Brown 19 Gas Processing and Treating Agreement
attached hereto as Exhibit J, and which shall be assigned to the Company at
Closing. MEC shall have the right to require, and upon the request of the
Company the obligation to require, Manistee to convey the portions of the Brown
19 facilities in accordance with the Option Agreement attached as Exhibit V,
subject to the rights of the Company under Section 2.2(c), above.
16.9 Shell Agreement. The Company shall have entered into an agreement
---------------
with Shell in the form attached as Exhibit Y.
16.10 Formation of the Company. The Parties shall have formed the Company
------------------------
and filed Articles of Organization with the Secretary of State of Michigan.
16.11 Reimbursement Agreement. MPC shall have entered into an agreement
-----------------------
with the Company, reasonably satisfactory to MarkWest providing for MPC to
reimburse the Company for an amount equal to 110% of all required costs and
expenses, of any nature, incurred by MarkWest for lateral gathering, well
production, surface and metering facilities installed on the Slocum No. 1-21
well by MarkWest; together with all remedial operations and work-overs conducted
by MarkWest as necessary to have the Slocum No. 1-21 well ready and capable of
production at the time that the Basin Extension is completed and ready to
receive gas from that well. These amounts shall be reimbursed to the Company
through the payment by MPC of a processing and treating fee surcharge under the
Gas Gathering, Treating and Processing Agreement which MEC shall cause MPC to
enter into with the Company in the form attached as Exhibit G. That surcharge
will be calculated upon completion of those facilities to equal an amount
estimated to repay those amounts in twelve months commencing with the first day
of the month following the date upon which completion of the installation of
those facilities occurs, and continuing until paid in full. If actual production
indicates a change to the surcharge in order to obtain full repayment within
that 12-month period, MPC shall have agreed to amend the surcharge as necessary.
16.12 General Conveyance and Assumption Agreement. The Company shall have
-------------------------------------------
executed the General Conveyance and Assumption Agreement in form substantially
similar to that attached hereto as Exhibit I to memorialize its assumption of
the Assumed Liabilities, as defined in Article XIX.
Should any of the foregoing conditions not be satisfied at Final Closing, or
waived by MEC in writing, then MEC shall have no obligation to proceed with
Final Closing and may cause this Agreement to be terminated pursuant to Article
XXI, and in electing not to proceed to Final Closing, MEC shall have no further
liability or obligation, of any nature, to MarkWest, or any of the parties
comprising MarkWest hereunder; provided, the foregoing termination shall not
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<PAGE>
affect the obligations of any parties under the Letter Agreement dated September
29, 1995, and the guaranty of Michigan Gas Fund I and MPC, under letter of
September 29, 1995, or under that certain Engineering Consulting Letter
Agreement between MarkWest Hydrocarbon Partners, Ltd., and Manistee Gas Limited
Liability Company, date February 9, 1996.
ARTICLE XVII
MARKWEST'S CONDITIONS OF FINAL CLOSING
--------------------------------------
MarkWest's obligation to consummate the transactions provided for herein is
subject to the satisfaction by MEC or waiver by MarkWest of the following
conditions:
17.1 Representations. The representations and warranties of MEC
---------------
contained herein shall be true and correct in all material respects on the date
of Final Closing as though made on and as of that date.
17.2 Performance. MEC shall have performed in all material respects the
-----------
obligations, covenants and agreements hereunder to be performed by it at or
prior to the Final Closing.
17.3 Pending Matters. No suit, action, or other proceeding by a third
---------------
party or a governmental authority shall be pending or threatened which seeks
substantial damages from MarkWest in connection with, or seeks to restrain,
enjoin or otherwise prohibit, the consummation of the transactions contemplated
by this Agreement.
17.4 Oceana Drilling Program. MarkWest and Oceana Acquisition Company,
-----------------------
L.L.C., ("Oceana) shall have entered into an agreement, in the form of Exhibit
W.
17.5 Title to Assets.
---------------
a. Title to all portions of the Assets (including the Company's and
MarkWest's membership interests in Basin) shall be free and clear of all
liens, encumbrances, and adverse claims of any nature arising by, through
or under MEC, except for Permitted Encumbrances, and shall be conveyed to
the Company in that condition.
b. MEC shall have furnished MarkWest with a title insurance policy,
insuring title to all portions of real property included within the Assets
at a value equal to the deemed initial capital contribution of MEC, showing
title in MEC and without exceptions other than for the Permitted
Encumbrances, effective as of the Final Closing Date.
c. MEC shall provide an assignment to the Company of all contracts and
agreements related to the ownership, use or operation of the Assets, which
are described on Exhibit C, pursuant to the form of assignment and
assumption agreement attached hereto as Exhibit Q, including all gas
purchase, sales, transportation and processing agreements.
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17.6 Permits. MEC shall assign to the Company all assignable permits,
-------
licenses and certificates necessary or required to own and operate the Assets in
accordance with all applicable laws, rules, statutes, regulations and orders.
17.7 Casualty Loss. There shall be no unremedied casualty loss
-------------
materially affecting the Assets occurring between the date of this Agreement and
the Final Closing Date.
17.8 Consumers Power Rights of Way. MEC shall deliver an executed copy
-----------------------------
of the commitment letter in form and substance substantially as attached hereto
as Exhibit R, from Consumers Power.
17.9 Lender's Consent. MarkWest shall have received written evidence of
----------------
the consent of MEC's secured lender(s) consenting to this transaction.
17.10 Shell Agreement. The Company shall have entered into an agreement
---------------
with Shell in the form of Exhibit Y.
17.11 Subordination Agreements. The Company shall have received, from
------------------------
the secured lender of MPC and MEC a subordination agreement in the form attached
as Exhibit H.
17.12 Brown 19 Gas Plant. MPC shall have entered into, and assigned to
------------------
the Company, an agreement, reasonably satisfactory to MarkWest, with Manistee
Gas Limited Liability Company ("Manistee") providing that the facilities of the
Brown 19 Gas Plant (as specified on Exhibit A) shall not initially be acquired
by the Company, but shall remain the property of Manistee; and, that from and
after the Effective Date, Manistee shall continue to operate the facilities of
the Brown 19 Gas Plant for the benefit of the Company, which operations shall be
conducted pursuant to the Brown 19 Gas Processing and Treating Agreement
attached hereto as Exhibit J, which shall be assigned to the Company at Closing.
MEC shall have the right to require, and upon the request of the Company, the
obligation to require Manistee to convey the portions of the Brown 19 facilities
in accordance with the Option Agreement attached as Exhibit V, subject to the
rights of the Company under Section 2.2(c), above.
17.13 Section 2.1 AFE's. MarkWest and MEC shall have agreed upon the
-----------------
AFE's for the activities to be performed by MarkWest under the terms of Section
2.1.
17.14 1996 Budgets. MarkWest and MEC shall have agreed upon the budgets
------------
for the year ending 1996 pursuant to the provisions of Section 6.5.
17.15 Gas Facilities Reimbursement Agreement. MPC shall have entered into
--------------------------------------
an agreement with the Company in the form of Exhibit X.
17.16 Formation of the Company. The Parties shall have formed the Company
------------------------
and filed Articles of Organization with the Secretary of State of
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<PAGE>
Michigan.
From time to time, should MEC determine that there are conditions to Final
Closing that, despite the good faith diligent efforts of MEC, will not be able
to be satisfied by Final Closing, and if MarkWest does not expressly waive that
condition within five business days of written notification from MEC, in
writing, then either Party, upon written notice to the other, may cause this
Agreement to be terminated pursuant to Article XXI, and neither Party shall have
any further liability or obligation, of any nature, to the other, or to any of
the Parties comprising MEC; provided, the foregoing termination shall not affect
the obligations of any parties under the Letter Agreement dated September 29,
1995, and the guaranty of Michigan Gas Fund I and MPC, under letter of September
29, 1995, or under that certain Engineering Consulting Letter Agreement between
MarkWest Hydrocarbon Partners, Ltd., and Manistee Gas Limited Liability Company,
date February 9, 1996.
Should any of the foregoing conditions not be satisfied at Final Closing, or
waived by MarkWest in writing, then MarkWest shall have no obligation to proceed
to Final Closing and may cause this Agreement to be terminated pursuant to
Article XXI, and in electing not to proceed to Final Closing, MarkWest shall
have no further liability or obligation, of any nature, to MEC, hereunder, or
any of the Parties comprising MEC; provided, the foregoing termination shall not
affect the obligations of any parties under the Letter Agreement dated September
29, 1995, and the guaranty of Michigan Gas Fund I and MPC, under letter of
September 29, 1995, or under that certain Engineering Consulting Letter
Agreement between MarkWest Hydrocarbon Partners, Ltd., and Manistee Gas Limited
Liability Company, date February 9, 1996.
ARTICLE XVIII
FINAL CLOSING
18.1 Time and Place of Final Closing. If the conditions to Final Closing
-------------------------------
have been satisfied or waived, the consummation of the transactions contemplated
hereby (the "Final Closing") shall be held on or before April 30, 1996, at the
offices of MarkWest, Englewood, Colorado, or at such other location as mutually
agreed.
18.2 Final Closing Obligations. At Final Closing:
-------------------------
a. MEC shall execute, acknowledge and deliver the General Conveyance
and Assumption Agreement, in the form attached hereto as Exhibit I,
all of which together will convey title to the Assets to the Company
(including the Company's 98% membership interest in Basin); together
with such other forms of conveyance as may be required by
governmental entities to effect the transfer of the Assets, and
shall execute and deliver to MarkWest an assignment of MarkWest's
1.2% membership interest in Basin. MEC shall further deliver
possession thereof to the Company, and shall further deliver copies
of the Records to MarkWest as Operator;
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b. MEC will deliver to MarkWest all items required to be furnished or
supplied under MarkWest's Conditions of Final Closing;
c. MEC shall pay MarkWest, or cause MarkWest to be paid, all amounts
due to MarkWest under the repayment and repurchase obligations of
Manistee contained in the Letter Agreement of September 29, 1995, in
cash or other immediately available funds; and MarkWest shall
transfer to MPC the title of all previously acquired oil and gas
leaseholds, which were acquired by MarkWest pursuant to that Letter
Agreement dated September 29, 1995;
d. MarkWest will pay MEC the amounts required under Section 2.1(a)(ii);
e. The Parties shall calculate the then effective Ownership Interests
of the Parties;
f. MarkWest will repay MEC for MarkWest's share of the amounts required
to the Working Capital Fund under Section 6.8; and,
g. MarkWest and MEC shall execute such other instruments and take such
other action as may be necessary to carry out their respective
obligations under this Agreement.
ARTICLE XIX
INDEMNIFICATION, LIABILITY AND CONFIDENTIALITY
----------------------------------------------
19.1 Assumption of Liabilities. (a) At the Final Closing, the Company
-------------------------
shall assume all of the Assumed Liabilities pursuant to the terms of the General
Conveyance and Assumption Agreement. As used herein, the term "Assumed
Liabilities" means any and all obligations, liabilities, debts, costs, expenses,
liens, encumbrances, demands, claims, actions, losses and damages of any kind
whatsoever affecting the Assets or any portion thereof (the "Obligations")
including but not limited to all of the Obligations arising out of or connected
with any of the contracts or agreements listed on Exhibit C; provided, the
Company's assumption of Environmental Obligations, as defined below, shall be
subject to the provisions of Section 19.2 below; and further provided, the
Assumed Liabilities shall not include Obligations arising or related to the
violation, breach or default by Basin under any applicable laws, rules,
regulations, orders and certificates of all local governmental authorities
having jurisdiction, including, without limitation, all laws, rules,
regulations, orders of, and certificates issued by, the Michigan Public Service
Commission, regardless of whether or not specified on MEC's Disclosure Schedule
attached as Exhibit P, (herein the "Basin Obligations"), for which MEC shall be
responsible in accordance with Section 19.3(b), below; nor shall Assumed
Liabilities include any Obligations for which a party is responsible under the
terms of Section 19.3(a), below. Further, Assumed Liabilities shall not include
any Obligations relating to or arising from the matters disclosed
-38-
<PAGE>
on Exhibit P which are marked with a single asterisk (*) or a double asterisk
(**), which Obligations shall be subject to the provisions stated on Exhibit P,
and to the extent that those Obligations are not assumed by the Company pursuant
to the provisions of Exhibit P, they shall be called the "Retained Liabilities".
MEC shall indemnify the Company against and hold the Company harmless from all
Retained Liabilities pursuant to Section 19.3.
(b) If the Company incurs Obligations resulting from Assumed
Liabilities then as between MarkWest and MEC those Obligations shall be
apportioned as of the applicable Ownership Interests of the parties at the time
that the claim leading to the Obligations first arose. Accordingly in the event
that the Company is required to make payments upon those obligations, then in
determining distributable cash under Section 4.1, above, payment of those
Obligations shall be allocated in accordance with those Ownership Interests;
and, in the event there is insufficient cash available to satisfy those
Obligations and if the Members voting in accordance with the provisions of this
Agreement elect to advance the Company amounts to satisfy those Obligations then
the Members shall advance those amounts in proportion to their Ownership
Interests as they existed at the time that the claim first arose.
19.2 Environmental Indemnification.
-----------------------------
a. MEC's Indemnification of Certain Disclosed Obligations. MEC hereby
------------------------------------------------------
agrees to indemnify and hold the Company and MarkWest harmless from and
reimburse the Company and MarkWest for all Obligations arising from any
noncompliance or required remediation under applicable Environmental Laws
disclosed in the Woodward-Clyde Reports described on Exhibit T.
b. Indemnification of Environmental Obligations. As used herein, an
--------------------------------------------
"Environmental Obligation" is an Obligation resulting from acts or
omissions, or conditions or circumstances occurring or existing before
Final Closing (excluding, however, any Obligations arising solely and
directly from the operations of Operator hereunder during the period from
and after the Effective Date until the Final Closing Date), regardless of
when asserted, that violates or could reasonably be expected to result in a
violation of any Environmental Law (as defined in Section 12.7) and which
are not disclosed in the Woodward-Clyde Reports described on Exhibit T.
With regard to Environmental Obligations:
i. The first $300,000 of expenditures by the Company related to
Environmental Obligations shall be paid sixty percent (60%) by
MarkWest and forty percent (40%) by MEC. It is provided that the
difference in the amount paid by MarkWest and the amount it would
have paid based upon the actual Ownership Interests of the Parties
at the time of discovery of the Environmental Obligation shall be
added to MarkWest's initial capital contribution and used in
calculating the Ownership Interests of the Parties.
ii. Amounts expended by the Company related to Environmental
Obligations above the first $300,000 up to $1,500,000.00 shall be
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paid by the Parties in proportion to their respective Ownership
Interests existing at the time of discovery of the Environmental
Obligation.
iii. Amounts expended by the Company related to Environmental
Obligations above the first $1,500,000 up to $5,000,000.00 shall be
paid seventy percent (70%) by MEC and thirty percent (30%) by
MarkWest.
iv. With respect to amounts to be expended by the Company related
to Environmental Obligations exceeding the first $5,000,000.00, the
following shall apply:
A. Those amounts shall be paid seventy percent (70%) by MEC
and thirty percent (30%) by MarkWest; provided, however,
B. MEC shall have the right, exercisable within 30 days
following the discovery of Environmental Obligations which
would reasonably be expected to result in expenditures
exceeding the first $5,000,000.00, to purchase the Membership
of MarkWest in the Company. If MEC exercises this option, then
subject to the provisions of C., below, MEC shall within 90
days following its written notice of exercise, pay MarkWest an
amount equal to all costs and expenses incurred by MarkWest in
connection with the Company, including, without limitation, all
of MarkWest's initial capital contribution; and, upon that
payment MarkWest will convey its Membership Interest in the
Company, free and clear of liens and encumbrances created by
MarkWest. Upon that conveyance, MEC shall indemnify MarkWest
against and hold MarkWest harmless from all Obligations
(including without limitation, all Environmental Obligations)
of the Company or otherwise related to the Assets regardless of
when occurring or asserted.
C. In the event that MEC exercises its purchase option under
B., above, then MarkWest shall have 30 days following receipt
of that election in which to agree, in writing, to pay sixty
percent (60%) of the Environmental Obligations exceeding
$5,000,000, with MEC paying forty percent (40%) thereof,
without regard to the applicable Ownership Interests. Upon
making that agreement, MEC's exercise of its purchase option
under B., above, shall be deemed revoked and of no force and
effect.
v. The foregoing procedures with respect to Environmental
Obligations shall apply
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<PAGE>
only to those Environmenta l Obligations discovered within two (2)
years follow ing the Final Closing Date. Any Environmenta l
Obligations discovered after that 2-year period shall be deemed an
Obligation assumed by the Company.
The provisions of this paragraph b., shall be applicable to all of the
Assets; and, further, should the Company acquire the Brown 19 Gas Plant,
shall be applicable to the Brown 19 Gas Plant. This Section 19.2 shall be
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<PAGE>
the sole and exclusive remedy for Environmental Obligations under this
Agreement.
19.3 Breach of Representations, Warranties or Covenants.
--------------------------------------------------
(a) As between the Parties, each Party shall indemnify and hold the
other Party harmless from any and all Obligations (including reasonable
attorney's and legal fees) arising out of or related to any breach of any
representation, warranty or covenant hereunder of that Party (except for
breaches which constitute Environmental Obligations, with respect to which
Section 19.2 shall be the sole and exclusive remedy), subject to the survival
periods set forth in Sections 12.14 and 13.9. With respect to Obligations
arising under the contracts or agreements described on Exhibit C and which, if
asserted, would constitute a breach of MEC's representations under Section 12.9,
MEC shall be relieved of liability with respect to contracts or agreements on
which MEC has obtained an estoppel certificate which is reasonably satisfactory
to MarkWest in the form similar to that attached as Exhibit U.
(b) MEC shall indemnify and hold MarkWest harmless from any and all
Basin Obligations and Retained Liabilities (as such terms are defined in Section
19.1, above).
(c) Notwithstanding the foregoing, neither Party shall be required
to indemnify or reimburse the other Party for any single Obligation arising out
of or related to any breach of any representation, warranty or covenant
hereunder, or arising out of or related to a Basin Obligation, or a Retained
Liability, unless the amount of that Obligation exceeds $5,000.00.
19.4 Procedures. If a claim arises or is made for which a Party intends
----------
to seek indemnity with respect thereto under this Article XIX, that
Party shall promptly notify the Indemnifying Party of such claims. The
Indemnifying Party shall have 30 days after receipt of such notice to undertake,
conduct and control, through counsel of its own choosing and at its own expense,
the settlement or defense thereof,
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<PAGE>
and the Indemnified Party shall cooperate with it in connection therewith;
provided, however, that (a) the Indemnifying Party shall permit the Indemnified
Party to participate in such settlement or defense through counsel chosen by
such Indemnified Party, provided that the fees and expenses of such counsel
shall be borne by such Indemnified Party and (b) the Indemnifying Party shall
promptly assume and hold such Indemnified Party harmless from and against the
full amount of any liability resulting therefrom. So long as the Indemnifying
Party is reasonably contesting any such claim in good faith, the Indemnified
Party shall not pay or settle any such claim. Notwithstanding the foregoing, the
Indemnified Party shall have the right to pay or settle any such claim, provided
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<PAGE>
that in such event it shall waive any right to indemnity therefor by the
Indemnifying Party for such claim. If the Indemnifying Party does not notify the
Indemnified Party within 30 days after the receipt of the Indemnified Party's
notice of a claim of indemnity hereunder that it elects to undertake the defense
thereof, the Indemnified Party shall have the right to contest, settle or
compromise the claim but shall not thereby waive any right to indemnity therefor
pursuant to this Agreement. The Indemnifying Party shall not, except with the
consent of the Indemnified Party, enter into any settlement that does not
include as an unconditional term thereof the giving by the person or persons
asserting such claim of unconditional release to all Indemnified Parties from
all liability with
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<PAGE>
respect to such claim or consent to entry of any judgment.
19.5 Mitigation. Each Party entitled to indemnification hereunder or
----------
otherwise to damages in connection with the transactions contemplated in this
Agreement shall take all reasonable steps to mitigate all losses, costs,
expenses and damages after becoming aware of any event or circumstance that
could reasonably be expected to give rise to any losses, costs, expenses and
damages that are indemnifiable or recoverable hereunder or in connection
herewith.
19.6 No Incidental or Consequential Damages. No party hereto shall be
--------------------------------------
entitled to recover from any other party hereto for any Obligations, or
otherwise, in an amount in excess of the actual damages suffered by such party.
Each party waives any right to recover punitive, special, exemplary, incidental
and consequential damages.
19.7 Limitation on Operator's Liability. The Operator shall manage and
----------------------------------
control the affairs of the Company in good faith and to the best of its ability,
and in accordance with what a prudent operator under similar conditions would
do, and shall use its best efforts to carry out the purposes of the Company and
for the benefit of all of the Parties. The Operator shall not, however, have any
liability to the Company or any Party, independent of its liability as a Party,
because of any act or omission made in good faith in the absence of gross
negligence or willful misconduct.
19.8 Confidentiality. Each Party, for itself and for its respective
---------------
officers, partners, members, employees and representatives, agrees to keep
proprietary information regarding the Company confidential. This proprietary
information includes identity of customers, suppliers, producers, and markets,
the terms of gas processing, gas purchase, gas transportation, marketing and
sales contracts, results of operations, business plans, strategies and
forecasts, together with other information deemed proprietary by the Members,
including, without limiting the generality of the foregoing, drilling plans of
any Party within the Dedication Area described in the Gas Gathering, Treating
and Processing Agreement attached as Exhibit G. Despite the foregoing,
proprietary information may be disclosed (i) to the extent required by
applicable laws, regulations or court orders, or (ii) to the extent required in
connection with a Party's efforts to obtain lending or financing related to its
interest in the Company, or (iii) to a third party who is a potential equity
investor in one of the Party's ownership in the Company (or to financial
advisors engaged to locate such potential equity investors) upon obtaining from
that third party a written agreement to keep information confidential and not to
use that information for its own commercial benefit other than in connection
with evaluating its potential investment.
ARTICLE XX
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<PAGE>
ALTERNATIVE DISPUTE RESOLUTION
------------------------------
20.1 Dispute Resolution. The Parties to this Agreement, agree that any
------------------
disputes arising hereunder shall be resolved by dispute resolution procedures
which are alternatives to litigation in state or federal courts. Accordingly,
the Parties agree that upon the occurrence of a dispute between them regarding
any matter under this Agreement, representatives shall meet to negotiate in good
faith to resolve the dispute. Should those representatives be unable to resolve
the dispute within fifteen (15) days of the occurrence of the dispute, then the
executive management of each Party shall meet to negotiate in good faith to
resolve the dispute. Should the executive management representatives be unable
to resolve the dispute within thirty (30) days following the occurrence of the
dispute, the Parties shall attempt to determine other appropriate procedures for
resolving that dispute, including further negotiation between the Parties,
mediation, mini-trials, or arbitration. In the event the Parties are unable to
agree upon the procedures to be utilized in resolving the dispute, then
arbitration, as provided herein, shall be the deemed procedure.
20.2 Arbitration. All arbitration proceedings shall be conducted in
-----------
accordance with the Commercial Arbitration Rules of the American Arbitration
Association (AAA) and shall be conducted at the AAA Offices in Denver, Colorado.
The Parties agree that the AAA procedures shall be modified to provide that an
evidentiary hearing before the arbitrators shall be held within sixty (60) days
following the date the matter is submitted to the AAA and that an award or other
determination of the arbitrators shall be made in writing within fifteen (15)
days following the conclusion of the evidentiary hearing. The Parties agree that
the resolution of the dispute shall by the manner agreed upon or otherwise
utilized (for instance, the award of arbitrators) be binding upon the Parties
and no court action may be commenced with respect to that dispute. Provided, in
the event of arbitration, the arbitration award may be reduced to a judgment in
any court of competent jurisdiction.
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<PAGE>
ARTICLE XXI
TERMINATION AND DISSOLUTION
---------------------------
21.1 Termination of this Agreement to Prior Final Closing. This
----------------------------------------------------
Agreement may terminated upon the following causes or conditions:
(a) If a Party exercises any of its termination rights otherwise
provided in this Agreement; or,
(b) If Final Closing hereunder has not occurred by May 10, 1996.
If this Agreement is terminated pursuant to the provisions hereof prior to Final
Closing, then all of the operations of the Assets shall be transferred to MEC.
MEC shall thereafter assume and be responsible for all obligations, liabilities
and expenses of the related to the Assets arising before or after the date of
termination, except for liabilities, claims, damages and losses arising solely
and directly from the gross negligence or wilful misconduct of MarkWest; and,
except for that assumption, neither Party shall have any further liabilities or
obligations to the other; provided, however, the termination shall not affect
the obligations of any parties under the Letter Agreement dated September 29,
1995, and the guarantee of Michigan Gas Fund I and MPC under letter of September
29, 1995, to make certain repayments to and repurchases from MarkWest, and under
that certain Engineering Consulting Letter Agreement between MarkWest
Hydrocarbon Partners, Ltd., and Manistee Gas Limited Liability Company, dated
February 9, 1996.
21.2 Grounds for Dissolution of the Company. In addition to any
--------------------------------------
dissolution of the Company provided for in any other provisions of this
Agreement, the Company shall be terminated and dissolved upon the happening of
any of the following events:
(a) Expiration of the fixed term, as set forth in the Company's Articles
of Organization;
(b) Upon the unanimous written consent of all Members;
(c) Upon the withdrawal, expulsion, bankruptcy, dissolution of a Member
or occurrence of any other event which terminates the continued
ownership of a Member if it results in only one remaining Member.
21.3 Termination of the Company After Final Closing. If the Company is
----------------------------------------------
dissolved or terminated, after Final Closing, pursuant to the provisions above,
the Company shall cause a Statement of Intent to Dissolve to be filed with the
Michigan Secretary of State and a liquidating agent shall be designated by the
Members. That liquidating agent shall immediately commence to conclude the
Company's affairs and liquidate. The liquidating agent, on behalf of the
Company, shall engage the services of an independent investment banking firm or
other expert, to obtain the highest possible price for the assets of the
Company. Any Member shall have the right during this period to also seek
potential purchasers of the Company's assets. The Company's assets shall be
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<PAGE>
distributed in payment of liabilities of the Company and to the Members in
liquidation of the Company in the following order:
(a) To creditors by the payment, or provision for payment, of the
debts and liabilities of the Company (other than any loans or advances that may
have been made by any of the Members to the Company) and the expenses of
liquidation;
(b) To the setting up of any reserves that the Members may deem
reasonably necessary for any contingent or unforeseen liabilities or obligations
of the Company. Such reserves shall be paid over by the Members to a bank or
other institutional escrow agent to be held in an interest bearing account for
the purpose of ultimately disbursing such reserves in payment of the
aforementioned contingencies, and at the expiration of that period as the
Members may deem advisable, to distribute the balance in the manner provided in
this Section, and in the order named herein;
(c) To the payment to Members in respect of their share of the
profits and other compensation by way of income on their contributions;
(d) To the payment to the Members of their respective capital
accounts at the date of distribution; if any Owner's Capital Account is
negative, that Member shall make a capital contribution so as to restore its
capital account balance to zero (0), which contribution shall be distributed to
Company creditors or to Members with positive capital account balances in
accordance with the terms of this Agreement; and,
(e) The balance, if any, shall be divided among the Members in
accordance with their Ownership Interests.
21.4 Inadequate Assets. Should the assets of the Company be insufficient
-----------------
to satisfy its debts, expenses, and liabilities then no Member shall have any
liability with respect thereto (other than the restoration of negative capital
account balances to zero) and no Member shall be required to make contributions
to satisfy those debts, expenses and liabilities. In such event, the Members
agree to comply with applicable statutes and laws regarding the filing of
Articles of Dissolution, and no such Articles shall be filed unless the Company
complies with all requirements thereof.
ARTICLE XXII
MISCELLANEOUS
-------------
22.1 Benefits. This Agreement shall be binding upon the Parties and
--------
their legal representatives, successors and assigns.
22.2 Amendments. This Agreement is subject to amendment only by a
----------
written statement executed by all the Parties.
22.3 Notices. Delivery of any notice, decision, consent, waiver,
-------
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<PAGE>
direction, request, vote or other instrument or communication provided for under
this Agreement may be effected by personal delivery, by registered, certified or
express United States mail, postage prepaid, or by any recognized private
courier or delivery service which is capable of providing verification of
delivery and will do so upon request, or by facsimile transmission sent and
received in legible form during regular business hours of the intended
recipient; but no such notice shall be effective until it is in fact received at
the address so provided for receipt of notices; and no notice given by facsimile
shall be deemed received unless receipt in legible form is confirmed by the
recipient and a record thereof maintained by the sender. Each Party, by written
notice to all other Parties, shall specify its address and facsimile numbers for
the receipt of notices.
22.4 Integration. This Agreement, together with the Exhibits and the
-----------
Related Agreements specified above, embodies the entire agreement and
understanding among the Parties and supersedes all prior agreements and
understandings.
22.5 Applicable Law. THIS AGREEMENT AND THE RIGHTS OF THE PARTIES SHALL
--------------
BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF MICHIGAN WITHOUT REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS.
22.6 Severability. In case any one or more of the provisions contained
------------
in this Agreement, or any application thereof, shall be invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein and any other application thereof shall
not in any way be affected or impaired thereby.
22.7 Headnotes. Headnotes are used merely for reference purposes and do
---------
not affect context in any manner.
22.8 Gender. Wherever applicable, the pronouns designating the masculine
------
or neuter gender shall equally apply to the feminine, neuter and masculine
genders. Furthermore, whenever applicable within this Agreement, the singular
shall include the plural.
22.9 Exhibits. The provisions of all Exhibits attached hereto are
--------
incorporated herein and made a part of this Agreement.
22.10 Time of the Essence. Any and all activities of the Parties governed
-------------------
by the terms of this Agreement shall be accomplished with the utmost expediency
by the Parties hereto.
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<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
day and year first above written.
Michigan Energy Company, L.L.C.
By: /s/ Michael V. Roncha
----------------------------
Michael V. Roncha, Manager
and
By: /s/ Robert L. Zorich
----------------------------
Robert L. Zorich, Manager
MARKWEST MICHIGAN LLC
By: MarkWest Hydrocarbon Partners, Ltd., its manager
By: MarkWest Hydrocarbon, Inc., its general partner
By: /s/ Arthur J. Denney
-------------------------
Vice President
FOR THE PURPOSES, AND ONLY FOR THE PURPOSES, OF SECTION 2.5:
-------------------------
MARKWEST HYDROCARBON PARTNERS, LTD.
By: MarkWest Hydrocarbon, Inc., its general partner
By: /s/ Arthur J. Denney
--------------------------
Vice President
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<PAGE>
LIST OF EXHIBITS
EXHIBIT A BROWN 19 GAS PLANT
EXHIBIT B REAL PROPERTY, EASEMENTS
EXHIBIT C CONTRACTS
EXHIBIT D FILER 1-10 EXPENSES
EXHIBIT E TAX MATTERS PROCEDURES
EXHIBIT F ACCOUNTING PROCEDURES
EXHIBIT G GAS GATHERING, TREATING AND PROCESSING AGREEMENT
Exhibit H SUBORDINATION AGREEMENT
Exhibit I GENERAL CONVEYANCE, SPECIAL WARRANTY DEED AND
ASSUMPTION AGREEMENT
EXHIBIT J BROWN 19 GAS PROCESSING AND TREATING AGREEMENT
EXHIBIT K -- no Exhibit K --
EXHIBIT L -- no Exhibit L --
EXHIBIT M BASIN PIPELINE ASSETS
EXHIBIT N BASIN EXTENSION
EXHIBIT O BASIN PIPELINE UPGRADES
EXHIBIT P MEC DISCLOSURE SCHEDULE
EXHIBIT Q FORM OF ASSIGNMENT
EXHIBIT R CONSUMERS POWER OPTION AND COMMITMENT
EXHIBIT S PRELIMINARY COST ESTIMATES
EXHIBIT T WOODWARD-CLYDE REPORT
EXHIBIT U ESTOPPEL CERTIFICATE
EXHIBIT V BROWN 19 OPTION AGREEMENT
EXHIBIT W DRILLING AGREEMENT
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<PAGE>
EXHIBIT X FACILITIES CONSTRUCTION REIMBURSEMENT AGREEMENT
EXHIBIT Y SHELL AGREEMENT
Exhibit C - Page 2
<PAGE>
EXHIBIT A
BROWN 19 PLANT ASSETS
Generally, the Brown 19 Plant assets are spray painted red, with the adjacent
connecting piping with production, the Basin Pipeline, those assets excluded
from the Brown 19 Plant and MichCon fuel gas spray painted orange, blue, yellow
and yellow-orange striped respectively.
Brown 19 Plant Assets
- ---------------------
Amine Unit
TEG Unit
o. NGL Unit (shut down T.H. Russell refrigeration unit)
o. Flare
o. Used NGL and sulphur recovery units in bone yard
Dow Amine System (Ludington)
Dow Amine System used for parts (Ludington)
Dow Clause unit (Ludington)
Stock tank
Programmable logic controller (Allen-Bradley)
o. Controll Building
o. Office/Warehouse Bldg.
o. Inventory garage
o. Electrical Bldg. (now for NGL unit)
Instr. air bldg.
Air packs, 4 at plant, 1 in truck
Specifically Excluded from Brown 19 Assets
- ------------------------------------------
Krause/Adamczak/flash gas compressor
LoCat unit & sulphur purification unit *
o. Acid gas injection compressor and acid gas piping
o. Acid gas injection well, Miller-Lyman #1-18B
o. Acid gas (Miller-Lyman #1-18B) pipeline
o. Lake Orion System
Amine System
Mechanical recovery unit
Large Building 40 x 60 x 115
Two well heads, 3000#
*Purification unit not owned by MGLLC - Still owned by ARI Technologies (Dale
Sands, contact)
The piping breaks are as follows:
1. Brown 19 Plant/Basin Pipeline - red/blue
Exhibit A - Page 1
<PAGE>
A. Basin Pipeline Gas Pack
a. 3" valve gas
b. 2" valve air
c. 2" valve fuel
d. 1" and 2" valves - flare
B. Sour NGL Storage
a. (4) 4" x 6" relief valves on storage tanks to flare
b. (4) 2" valves - flash gas
c. 2" valve - blowdown to flare
d. 2" valve - truck loadout to flare
e. 1" valve - sour NGL filter vapor return dump line (truck
loadout area)
2. Brown 19 Plant/Production - red/orange
A. Adamczak Gas Pack
a. 1" union - flare
b. 2" valve - air
c. (2) 2" valves - fuel
d. 2" valve - inlet gas blowdown to flare
e. 2" valve - outlet gas to Brown 19 (out of service)
3. Brown 19 Plant/Excluded from Brown 19 Plant - red/yellow
A. Krause-Adamczak-Flash Gas Compressor
a. 2" valve - discharge gas on compressor skid in building
b. (2) 3" 90's before flare header tie-in for flare gas
c. 2" valve - fuel inside building
d. 2" valve - air under grating inside building
e. 3" valve - Brown 19 Plant flash gas compressor, outside
f. 1" valve - compressor liquid dump to Brown 19 Plant stock tank
B. Acid Gas Compressor
a. (2) 3" valves - upstream of pressure control valve
(plus bypass) on acid gas downstream from still reflux
accumulator, inside building
a. (2) 3" valves - upstream of pressure control valve
(plus bypass) on acid gas downstream from still reflux
accumulator,
Exhibit A - Page 2
<PAGE>
inside building
b. 4" valve - acid gas to flare, inside building, near 3.
B. a., above
c. 1" nipple - on Brown 19 flare header weldolet - for 2"
suction safety relief and 1" drip tank vent, outside
d. 1" nipple - on Brown 19 flare header weldolet - for 1"
compressor relief valve and 1" blowdown valve, outside
e. 2" valve - fuel to engine, on compressor skid
f. 2" valve - compressor purge, in building
g. 1" valve - knock out purge, in building
h. 1" valve - drip tank pressurizing, in building
i. 2" valve - air, in building
j. 1" nipple - compressor liquid dump to slop tank weldolet, in
amine building
C. LoCat Unit
a. 2" coupling - fuel gas, downstream of pressure
regulator in piperack on ground
b. 2" valve - air, in piperack
D. All spare or unused equipment, facilities and supplies located at or
near the Plant site and in the portion commonly known as the "Boneyard";
excluding, however, the Lake Orion NGL skid.
Exhibit A - Page 3
<PAGE>
Exhibit E
TAX MATTERS AND PROCEDURES
Section 1.1 Tax Definitions. Capitalized words and phrases used in
---------------
this Agreement have the following meanings:
1. "Adjusted Capital Account Deficit" means, with respect to any Partner, the
deficit balance, if any, in such Partner's Capital Account as of the end of
the relevant Fiscal Year, after giving effect to the following adjustments:
a. Credit to such Capital Account any amounts which such Partner
is obligated to restore pursuant to any provision of this Agreement
or is deemed to be obligated to restore pursuant to the penultimate
sentences of Regs. (S) 1.704-2(g)(1) and 1.704-2(i)(5); and
b. Debit to such Capital Account the items described in (S)(S)
1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5) and 1.704-
1(b)(2)(ii)(d)(6) of the Regulations.
The foregoing definition of Adjusted Capital Account Deficit is intended to
comply with the provisions of (S) 1.704-1(b)(2)(ii)(d) of the Regulations
and shall be interpreted consistently therewith.
2. "Affiliate" means, with respect to any Person, (i) any Person directly or
indirectly controlling, controlled by or under common control with such
Person, (ii) any Person owning or controlling ten percent (10%) or more of
the outstanding voting interests of such Person, (iii) any officer,
director, or general partner of such Person, or (iv) any Person who is an
officer, director, general partner, trustee, or holder of ten percent (10%)
or more of the voting interests of any Person described in clauses (i)
through (iii) of this sentence. For purposes of this definition, the term
"controls," "is controlled by," or "is under common control with" shall
mean the possession, direct or indirect, of the power to direct or cause
the direction of the management and policies of a person or entity, whether
through the ownership of voting securities, by contract or otherwise.
3. "Agreement" means the Participation and Operating Agreement as amended from
time to time, to which this Exhibit is attached. Words such as "herein,"
"hereinafter," "hereof," "hereto," and "hereunder," refer to this Agreement
as a whole, unless the context otherwise requires.
4. "Bankruptcy" means, with respect to any Person, a "Voluntary Bankruptcy" or
an "Involuntary Bankruptcy." A "Voluntary Bankruptcy" means, with respect
to any Person, the inability of such Person generally to pay its debts as
such debts become due, or an admission in writing by such Person of its
inability to pay its debts generally or a general assignment by such Person
for the benefit of creditors; the filing of any petition or answer by such
Person seeking to adjudicate it a bankrupt or insolvent,
Exhibit E - Page 1
<PAGE>
or seeking for itself any liquidation, winding up, reorganization,
arrangement, adjustment, protection, relief, or composition of such Person
or its debts under any law relating to bankruptcy, insolvency or
reorganization or relief of debtors, or seeking, consenting to, or
acquiescing in the entry of an order for relief or the appointment of a
receiver, trustee, custodian or other similar official for such Person or
for any substantial part of its property; or corporate action taken by such
Person to authorize any of the actions set forth above. An "Involuntary
Bankruptcy" means, with respect to any Person, without the consent or
acquiescence of such Person, the entering of an order for relief or
approving a petition for relief or reorganization or any other petition
seeking any reorganization, arrangement, composition, readjustment,
liquidation, dissolution or other similar relief under any present or
future bankruptcy, insolvency or similar statute, law or regulation, or the
filing of any such petition against such Person which petition shall not be
dismissed within ninety (90) days, or, without the consent or acquiescence
of such Person, the entering of an order appointing a trustee, custodian,
receiver, or liquidator of such Person or of all or any substantial part of
the property of such Person which order shall not be dismissed within sixty
(60) days.
5. "Capital Account" means, with respect to any Partner, the Capital Account
maintained for such Person in accordance with the following provisions:
a. To each Person's Capital Account there shall be credited such
Person's Capital Contributions, such Person's distributive share of Profits
and any items in the nature of income or gain which are allocated pursuant
to Sections 2.2, 2.3 or 2.4 hereof, and the amount of any Tax Partnership
liabilities assumed by such Person or which are secured by any Property
distributed to such Person.
b. To each Person's Capital Account there shall be debited the amount
of cash and the Gross Asset Value of any Property distributed to such
Person pursuant to any provision of this Agreement, such Person's
distributive share of Losses and any items in the nature of expenses or
losses which are allocated pursuant to Sections 2.2, 2.3 or 2.4 hereof, and
the amount of any liabilities of such Person assumed by the Tax Partnership
or which are secured by any property contributed by such Person to the Tax
Partnership.
c. In the event all or a portion of an interest in the Tax Partnership
is transferred in accordance with the terms of this Agreement, the
transferee shall succeed to the Capital Account of the transferor to the
extent it relates to the transferred interest.
d. In determining the amount of any liability for purposes of this
Agreement, there shall be taken into account Code (S) 752(c) and any other
applicable provisions of the Code and Regulations.
The foregoing provisions and the other provisions of this Agreement
Exhibit E - Page 2
<PAGE>
relating to the maintenance of Capital Accounts are intended to comply with
Regs. (S) 1.704-1(b), and shall be interpreted and applied in a manner
consistent with such Regulations.
6. "Capital Contributions" means, with respect to any Partner, the amount of
money and the initial Gross Asset Value of any property (other than money)
contributed to the Tax Partnership with respect to the interest in the Tax
Partnership held by such Person. The principal amount of a promissory note
which is not readily traded on an established securities market and which
is contributed to the Tax Partnership by the maker of the note (or a Person
related to the maker of the note within the meaning of Regs. (S) 1.704-
1(b)(2)(ii)(c)) shall not be included in the Capital Account of any Person
until the Tax Partnership makes a taxable disposition of the note or until
(and to the extent) principal payments are made on the note, all in
accordance with Regs. (S) 1.704-1(b)(2)(iv) (d)(2).
7. "Code" means the Internal Revenue Code of 1986, as amended from time to
time (or any corresponding provisions of succeeding law).
8. "Tax Partnership Minimum Gain" has the meaning set forth in (S)(S) 1.704-
2(b)(2) and 1.704-2(d) of the Regulations.
9. "Depreciation" means, for each Fiscal Year, an amount equal to the
depreciation, amortization, or other cost recovery deduction allowable with
respect to an asset for such Fiscal Year, except that if the Gross Asset
Value of an asset differs from its adjusted basis for federal income tax
purposes at the beginning of such Fiscal Year, Depreciation shall be an
amount which bears the same ratio to such beginning Gross Asset Value as
the federal income tax depreciation, amortization, or other cost recovery
deduction for such Fiscal Year bears to such beginning adjusted tax basis;
provided, however, that if the adjusted basis for federal income tax
purposes of an asset at the beginning of such Fiscal Year is zero,
Depreciation shall be determined with reference to such beginning Gross
Asset Value using any reasonable method selected by the Operator.
10. "Fiscal Year" means (i) the period commencing on the effective date of this
Agreement and ending on December 31; (ii) any subsequent twelve (12) month
period commencing on January 1 and ending on December 31, or (iii) any
portion of the period described in clause (ii) for which the Tax
Partnership is required to allocate Profits, Losses and other items of Tax
Partnership income, gain, loss or deduction pursuant to Section 2 hereof.
11. "Gross Asset Value" means, with respect to any asset, the asset's adjusted
basis for federal income tax purposes, except as follows:
a. The initial Gross Asset Value of any asset contributed by a Partner
to the Tax Partnership shall be the gross fair market value of such
Exhibit E - Page 3
<PAGE>
asset, as determined by the contributing Partner.
b. The Gross Asset Values of all Tax Partnership assets shall be
adjusted to equal their respective gross fair market values, as determined
by the Operator, as of the following times: (1) the acquisition of an
additional interest in the Tax Partnership by any new or existing Partner
in exchange for more than a de minimis Capital Contribution; (2) the
distribution by the Tax Partnership to a Partner of more than a de minimis
amount of Property as consideration for an interest in the Tax Partnership;
and (3) the liquidation of the Tax Partnership within the meaning of Regs.
(S) 1.704-1(b)(2)(ii)(g): provided, however, that adjustments pursuant to
clauses (1) and (2) above shall be made only if the Operator reasonably
determines that such adjustments are necessary or appropriate to reflect
the relative economic interests of the Partners in the Tax Partnership;
c. The Gross Asset Value of any Tax Partnership asset distributed to
any Partner shall be adjusted to equal the gross fair market value of such
asset on the date of distribution as determined by the distributee and the
Operator; and
d. The Gross Asset Values of Tax Partnership assets shall be increased
(or decreased) to reflect any adjustments to the adjusted basis of such
assets pursuant to Code (S) 734(b) or Code (S) 743(b), but only to the
extent that such adjustments are taken into account in determining Capital
Accounts pursuant to Regs. (S) 1.704-1(b)(2)(iv)(m) and pursuant to this
Agreement; provided, however, that Gross Asset Values shall not be adjusted
pursuant to this Section to the extent the Operator determines that an
adjustment pursuant to paragraph 11(b), above, is necessary or appropriate
in connection with a transaction that would otherwise result in an
adjustment pursuant to this paragraph (d).
If the Gross Asset Value of an asset has been determined or adjusted pursuant to
paragraphs (a) or (b), above, or pursuant to this paragraph (d), such Gross
Asset Value shall thereafter be adjusted by the Depreciation taken into account
with respect to such asset for purposes of computing Profits and Losses.
12. "Partner Nonrecourse Debt" has the meaning set forth in (S) 1.704-2(b)(4)
of the Regulations.
13. "Partner Nonrecourse Debt Minimum Gain" means an amount, with respect to
each Partner Nonrecourse Debt, equal to the Tax Partnership Minimum Gain
that would result if such Partner Nonrecourse Debt were treated as a
Nonrecourse Liability, determined in accordance with (S) 1.704-2(i)(3) of
the Regulations.
14. "Partner Nonrecourse Deductions" has the meaning set forth in (S)(S) 1.704-
2(i)(1) and 1.704-2(i)(2) of the Regulations.
Exhibit E - Page 4
<PAGE>
15. "Nonrecourse Deductions" has the meaning set forth in (S) 1.704-2(b)(1) of
the Regulations.
16. "Nonrecourse Liability" has the meaning set forth in (S) 1.704-2(b)(3) of
the Regulations.
17. "Ownership Interest" means a Party's ownership interest in the Tax
Partnership based upon that Party's ownership interest in the Company.
18. "Partner" means a Party to the Participation Agreement to which this
Exhibit is attached.
19. "Profits" and "Losses" means, for each Fiscal Year, an amount equal to the
Tax Partnership's taxable income or loss for such Fiscal Year, determined
in accordance with Code (S) 703(a) (for this purpose, all items of income,
gain, loss, or deduction required to be stated separately pursuant to Code
(S) 703(a)(1) shall be included in taxable income or loss), with the
following adjustments:
a. Any income of the Tax Partnership that is exempt from federal income
tax and not otherwise taken into account in computing Profits or Losses
pursuant to this Section shall be added to such taxable income or loss;
b. Any expenditures of the Tax Partnership described in Code (S)
705(a)(2)(B) or treated as Code (S) 705(a)(2)(B) expenditures pursuant to
Regs. (S) 1.704-1(b)(2)(iv)(i), and not otherwise taken into account in
-
computing Profits or Losses pursuant to this Section shall be subtracted
from such taxable income or loss;
c. In the event the Gross Asset Value of any Tax Partnership asset is
adjusted pursuant to paragraphs 11(b) and (c) hereof, the amount of such
adjustment shall be taken into account as gain or loss from the disposition
of such asset for purposes of computing Profits or Losses;
d. Gain or loss resulting from any with respect to which gain or loss
is recognized for federal income tax purposes shall be computed by
reference to the Gross Asset Value of the property disposed of,
notwithstanding that the adjusted tax basis of such property differs from
its Gross Asset Value;
e. In lieu of the depreciation, amortization, and other cost recovery
deductions taken into account in computing such taxable income or loss,
there shall be taken into account Depreciation for such Fiscal Year,
computed in accordance with paragraph 9, above;
f. To the extent an adjustment to the adjusted tax basis of any Tax
Partnership asset pursuant to Code (S) 734(b) or Code (S) 743(b) is
required pursuant to Regs. (S) 1.704-1(b)(2)(iv)(m)(4) to be taken into
account in determining Capital Accounts as a result of a distribution other
than in
Exhibit E - Page 5
<PAGE>
complete liquidation of the Tax Partnership, the amount of such adjustment
shall be treated as an item of gain (if the adjustment increases the basis
of the asset) or loss (if the adjustment decreases the basis of the asset)
from the disposition of the asset and shall be taken into account for
purposes of computing Profits or Losses; and
20. "Regulations" or "Regs." means the Income Tax Regulations, including
Temporary Regulations, promulgated under the Code, as such regulations may
be amended from time to time (including corresponding provisions of
succeeding regulations).
21. "Regulatory Allocations" has the meaning set forth in Section 2.4 hereof.
22. "Tax Matters Partner" shall be the Operator. The Tax Matters Partner shall
represent the Tax Partnership in all tax matters as provided in Code (S)
6221 through 6231.
23. "Transfer" and "Transferred" means the passage of a legal or equitable
interest in an Ownership Interest pursuant to a sale, exchange, gift,
assignment, pledge, hypothecation, foreclosure or other conveyance,
disposition or encumbrance, and including without limitation the passage of
a legal or equitable interest in the Ownership Interest by judicial order,
bequest, devise, intestate succession or other operation of law. "Transfer"
means, as a noun, any voluntary or involuntary transfer, sale, or other
disposition and, as a verb, voluntarily or involuntarily to transfer, sell,
or otherwise dispose of."
2.1 Profits. Subject to the limitations and rules set forth in Section
-------
2.3, 2.4, and 2.5, Profits for each Fiscal Year shall be allocated among the
Partners based upon the Ownership Interest of the Parties.
2.2 Allocations of Losses. Subject to the special allocations,
---------------------
limitations, and rules set forth in Sections 2.3, 2.4, and 2.5, Losses occurring
in any Fiscal Year shall be allocated to the Partners based upon the Ownership
Interests of the Parties.
2.2.1 Allocations of Losses Creating Deficit Capital Accounts. The losses
-------------------------------------------------------
allocated herein shall not exceed the maximum amount of Losses that can be so
allocated without causing any Partner to have an Adjusted Capital Account
Deficit at the end of any fiscal year. In the event some, but not all, of the
Partners would have Adjusted Capital Account Deficits as a consequence of
allocation of Losses pursuant to Section 2.1 hereof, the limitations set forth
in this Section 2.2.1 shall be applied on a Partner by Partner basis so as to
allocate the maximum permissible Losses to each Partner under (S) 1.704-
1(b)(2)(ii)(d) of the Regulations.
2.3 Special Allocations. The following special allocations shall be
-------------------
made in the following order:
Exhibit E - Page 6
<PAGE>
2.3.1 Minimum Gain Chargeback. Except as otherwise provided in (S) 1.704-
-----------------------
2(f) of the Regulations, notwithstanding any other provision of this Section 2,
if there is a net decrease in Tax Partnership Minimum Gain during any Fiscal
Year, each Partner shall be specially allocated items of Tax Partnership income
and gain for such Fiscal Year (and, if necessary, subsequent Fiscal Years) in an
amount equal to such Person's share of the net decrease in Tax Partnership
Minimum Gain, determined in accordance with Regs. (S) 1.704-2(g). Allocations
pursuant to the previous sentence shall be made in proportion to the respective
amounts required to be allocated to each Partner pursuant thereto. The items to
be so allocated shall be determined in accordance with (S)(S) 1.704-2(f)(6) and
1.704-2(j)(2) of the Regulations. This Section 2.3.1 is intended to comply with
the minimum gain chargeback requirement in (S) 1.704-2(f) of the Regulations and
shall be interpreted consistently therewith.
2.3.2 Partner Minimum Gain Chargeback. Except as otherwise provided in
-------------------------------
(S) 1.704-2(i)(4) of the Regulations, notwithstanding any other provision of
this Section 2, if there is a net decrease in Partner Nonrecourse Debt Minimum
Gain attributable to a Partner Nonrecourse Debt during any Tax Partnership
Fiscal Year, each Person who has a share of the Partner Nonrecourse Debt Minimum
Gain attributable to such Partner Nonrecourse Debt, determined in accordance
with (S) 1.704-2(i)(5) of the Regulations, shall be specially allocated items of
Partner income and gain for such Fiscal Year (and, if necessary, subsequent
Fiscal Years) in an amount equal to such Person's share of the net decrease in
Partner Nonrecourse Debt Minimum Gain attributable to such Partner Nonrecourse
Debt, determined in accordance with Regs. (S) 1.704-2(i)(4). Allocations
pursuant to the previous sentence shall be made in proportion to the respective
amounts required to be allocated to each Partner pursuant thereto. The items to
be so allocated shall be determined in accordance with (S)(S) 1.704-2(i)(4) and
1.704-2(j)(2) of the Regulations. This Section 2.3.2 is intended to comply with
the minimum gain chargeback requirement in (S) 1.704-2(i)(4) of the Regulations
and shall be interpreted consistently therewith.
2.3.3 Qualified Income Offset. In the event any Partner unexpectedly
-----------------------
receives any adjustments, allocations, or distributions described in (S)(S)
1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5) or (S) 1.704-1(b)(2)(ii)(d)(6)
of the Regulations, items of Tax Partnership income and gain shall be specially
allocated to each such Partner in an amount and manner sufficient to eliminate,
to the extent required by the Regulations, the Adjusted Capital Account Deficit
of such Partner as quickly as possible, provided that an allocation pursuant to
this Section 2.3.3 shall be made only if and to the extent that such Partner
would have an Adjusted Capital Account Deficit after all other allocations
provided for in this Section 2 have been tentatively made as if this Section
2.3.3 were not in the Agreement.
2.3.4 (S) 754 Adjustments. To the extent an adjustment to the adjusted
-------------------
tax basis of any Tax Partnership asset pursuant to Code (S) 734(b) or Code (S)
743(b) is required, pursuant to Regs. (S) 1.704-1(b)(2)(iv)(m)(2) or Regs. (S)
1.704-1(b)(2)(iv)(m)(4), to be taken into account in determining Capital
Accounts as the result of a distribution to a Partner in complete liquidation of
its interest in the Tax Partnership, the amount of such adjustment to
Exhibit E - Page 7
<PAGE>
Capital Accounts shall be treated as an item of gain (if the adjustment
increases the basis of the asset) or loss (if the adjustment decreases such
basis) and such gain or loss shall be specially allocated to the Partners in
accordance with their interests in the Tax Partnership in the event that Regs.
(S) 1.704-1(b)(2)(iv)(m)(2) applies, or to the Partner to whom such distribution
was made in the event that Regs. (S) 1.704-1(b)(2)(iv)(m)(4) applies.
2.4 Curative Allocations. The allocations set forth in Sections 2.2 and
--------------------
2.3 hereof (the "Regulatory Allocations") are intended to comply with certain
requirements of the Regulations. It is the intent of the Partners that, to the
extent possible, all Regulatory Allocations shall be offset either with other
Regulatory Allocations or with special allocations of other items of Tax
Partnership income, gain, loss or deduction pursuant to this Section 2.4 (in the
current Fiscal Year, or in subsequent Fiscal Years, if necessary). Therefore,
notwithstanding any other provision of this Section 2 (other than the Regulatory
Allocations), the Operator shall make such offsetting special allocations of Tax
Partnership income, gain, loss or deduction in whatever manner it determines
appropriate (in the current Fiscal Year, or in subsequent Fiscal Years, if
necessary) so that, after such offsetting allocations are made, each Partner's
Capital Account balance is, to the extent possible, equal to the Capital Account
balance such Partner would have had if the Regulatory Allocations were not part
of the Agreement and all Tax Partnership items were allocated pursuant to
Sections 2.1, and 2.2.
2.5 Other Allocation Rules. For purposes of determining the Profits,
----------------------
Losses, or any other items allocable to any period, Profits, Losses, and any
such other items shall be determined on a daily, monthly, or other basis, as
determined by the Partner using any permissible method under Code (S) 706 and
the Regulations thereunder.
2.6 Tax Allocations.
---------------
2.6.1 In accordance with Code (S) 704(c) and the Regulations thereunder,
income, gain, loss, and deduction with respect to any property contributed to
the capital of the Tax Partnership shall, solely for tax purposes, be allocated
among the Partners so as to take account of any variation between the adjusted
basis of such property to the Tax Partnership for federal income tax purposes
and its initial Gross Asset Value (computed in accordance with Section 2.2
hereof).
2.6.2 If the Gross Asset Value of any Tax Partnership asset is adjusted
pursuant to Section 2.2 hereof, subsequent allocations of income, gain, loss,
and deduction with respect to such asset shall take account of any variation
between the adjusted basis of such asset for federal income tax purposes and its
Gross Asset Value in the same manner as under Code (S) 704(c) and the
Regulations thereunder.
2.6.3 Any elections or other decisions relating to the allocations in this
Section 2.6 shall be made by the Operator in any manner that reasonably
Exhibit E - Page 8
<PAGE>
reflects the purpose and intention of this Agreement. Allocations pursuant to
this Section 2.6 are solely for purposes of federal, state, and local taxes and
shall not affect, or in any way be taken into account in computing, any Person's
Capital Account or share of Profits, Losses, other items, or distributions
pursuant to any provisions of this Agreement.
2.7 Compliance With Certain Requirements of Regulations; Deficit Capital
--------------------------------------------------------------------
Accounts. In the event the Tax Partnership is "liquidated" within the meaning
- --------
of Regs. (S) 1.704-1(b)(2)(ii)(g), (a) distributions shall be made pursuant to
this Section 2.7 to the Partners who have positive Capital Accounts in
compliance with Regs. (S) 1.704-1(b)(2)(ii)(b)(2). If any Partner has a deficit
balance in its Capital Account (after giving effect to all contributions,
distributions and allocations for all taxable years, including the year during
which such liquidation occurs) such Partner shall have no obligation to make any
contribution to the capital of the Tax Partnership solely for the purpose of
eliminating the deficit balance, and such deficit shall not be considered a debt
owed to the Tax Partnership or any other person; provided, the foregoing shall
not relieve any Partner from amounts otherwise due under the provisions of the
Agreement or under the Operating Agreement attached to the Agreement. In the
discretion of the Operator, a pro rata portion of the distributions that would
otherwise be made to the Partners pursuant to this Agreement may be:
2.7.1 distributed to a trust established for the benefit of the Partners
for the purposes of liquidating Tax Partnership assets, collecting amounts owed
to the Tax Partnership, and paying any contingent or unforeseen liabilities or
obligations of the Tax Partnership or of the Partners arising out of or in
connection with the Tax Partnership. The assets of any such trust shall be
distributed to the Partners from time to time, in the reasonable discretion of
the Operator, in the same proportions as the amount distributed to such trust by
the Tax Partnership would otherwise have been distributed to the Partners
pursuant to this Agreement; or
2.7.2 withheld to provide a reasonable reserve for Tax Partnership
liabilities (contingent or otherwise) and to reflect the unrealized portion of
any installment obligations owed to the Tax Partnership, provided that such
withheld amounts shall be distributed to the Partners as soon as practicable.
2.8 Method. The Tax Partnership shall keep its accounts using the
------
accrual method of accounting.
2.9 Take-in-Kind. Where any Party has retained the right to take his
------------
share of production in-kind and during the taxable year such Party actually
exercises such right, any revenue associated with such production from the sale
of such production by such Party shall be accounted for separately by that
Party.
2.10 Partnership Items and Audits.
----------------------------
2.10.1 Tax Matters Partner. The parties hereto agree that MarkWest shall
-------------------
Exhibit E - Page 9
<PAGE>
act in the capacity of Tax Matters Partner. MarkWest, as Tax Matters Partner,
agrees to use its best efforts to comply with its duties and responsibilities as
set forth in the Code of this Exhibit but, in doing so, shall incur no liability
to any other Party for its actions as Tax Matters Partner, including, but not
limited to liability for any additional taxes, interest, or penalties owed by
any Party due to adjustment of partnership items at the Tax Partnership level.
2.10.2 Consistency. No Party shall knowingly treat a partnership item on
-----------
its federal income tax return in a manner inconsistent with the treatment of
such item on the Tax Partnership's federal income tax return filed by MarkWest
without first giving reasonable advance notice of such intended action
(including the proposed treatment of such partnership items) to the other
parties.
2.10.3 Communication. The Parties shall furnish Tax Matters Partners with
-------------
such information including, without limitation, information specified in Section
6230(e) of the Code, as it may reasonably request to permit it to provide the
Internal Revenue Service with sufficient information to allow proper notice to
the Parties in accordance with Section 6223 of the Code. The parties shall also
furnish to each other copies of all correspondence with the Internal Revenue
Service or the Department of Treasury regarding any aspect of any partnership
items or the Tax Partnership's tax returns. The Tax Matters Partner shall keep
such Party informed of all administrative and judicial proceedings for the
adjustment at the Tax Partnership level of partnership items in accordance with
Section 6223(g) of the Code.
2.10.4 Extension of Limitation Periods. The Tax Matters Partner shall not
-------------------------------
enter into any extension of the period of limitations for making assessments
with respect to partnership items, as provided under Section 6229 of the Code,
without first giving reasonable advance notice to all other Parties of such
intended action and obtaining their unanimous written consent.
2.10.5 Settlement Negotiations.
-----------------------
(a) No Party shall enter into settlement negotiations with
the Internal Revenue Service or the Department of Treasury with respect to the
federal income tax treatment of partnership items without first giving
reasonable notice of such intended action (including any proposal for
settlement) to the other Parties. No Parties other than the Tax Matters Partner,
as provided herein, shall enter into any settlement agreement which binds or
purports to bind the Tax Partnership, or any other Party without their written
concurrence. Any Party who enters into a settlement agreement with the Internal
Revenue Service or the Department of the Treasury with respect to any
partnership items shall immediately notify the other Parties of such settlement
agreement and its terms.
(b) The Tax Matters Partner shall not enter into
settlement negotiations with respect to tax treatment of partnership items
without first giving reasonable advance notice of such intended action
(including any
Exhibit E - Page 10
<PAGE>
proposal for settlement) to the other Parties. The Tax Matters Partner shall not
bind any other Party to a settlement agreement without obtaining the written
concurrence of such Party who would be bound by such agreement.
2.10.6 Requests for Administrative Adjustments and Judicial Proceedings.
----------------------------------------------------------------
The Tax Matters Partner shall not file on behalf of the Tax Partnership (a) a
request for an administrative adjustment of any partnership item under Section
6227(b) of the Internal Revenue Code, (b) a petition for readjustment of
partnership items under Section 6226(a) of the Code, or (c) a petition for an
adjustment with respect to partnership items under Section 6228(a) of the Code
without first giving reasonable advance notice to all other Parties and securing
their written consent.
If the requisite approval for filing a petition for readjustment of
partnership items under Section 6226(a) of the Code is secured, the Tax Matters
Partner shall file the petition within 90 days after the date on which a notice
of final partnership administrative adjustment is mailed to the Tax Matters
Partner in a court competent jurisdiction approved in writing by the Parties.
If the requisite approval for filing a petition for an adjustment with
respect to partnership items under Section 6228(a) of the Code is secured, the
Tax Matters Partner shall file a petition within the time period specified in
Section 6228(a)(2)(A) of the Code in a court of competent jurisdiction approved
in writing by the Parties.
No Party (including the Tax Matters Partner) shall individually file (a) a
request for an administrative adjustment of partnership items under Section
6227(a) of the Code, (b) a petition for readjustment of partnership items under
Section 6626(b) of the Code, or (c) petition for an adjustment under Section
6228 of the Code (or under any other section of the Code) with respect to any
partnership item or other tax matters involving the Tax Partnership without
first giving reasonable advance notice of such intended action and the nature of
the contemplated proceeding (including the proposed treatment of the partnership
items and the proposed court, if applicable) to the other Parties.
2.10.7 Fees and Expenses. The Tax Matters Partner shall have the right to
-----------------
engage legal counsel, certified public accountants, or others with respect to
Tax Partnership level tax audits or contests without the prior written consent
of the other parties. Any Party may engage legal counsel, certified public
accountants, or others on its own behalf and at its sole cost and expense. Any
reasonable item of expense with respect to such matters, including but not
limited to fees and expenses for legal counsel, certified public accountants,
and others which the Tax Matters Partner incurs in connection with any Tax
Partnership level audit, assessment, litigation, or other proceeding regarding
any partnership item, shall constitute proper charges under the Agreement and
shall be borne by the Parties as any other operating expense under the
Agreement.
2.10.8 Other Income Based Taxes. The provisions of this Article shall
------------------------
apply for state and local income tax purposes (and for other taxes computed
Exhibit E - Page 11
<PAGE>
with respect to income) to the extent similar to Code Section 6221 through 6233
are applicable to such taxes.
2.11.1 Termination. The Tax Partnership shall terminate upon: (a) the
-----------
withdrawal, dissolution, bankruptcy or insolvency of any Party; (b) the
termination of this Agreement; (c) the unanimous consent of the Parties; or (d)
as provided by Law.
2.11.2 Procedure Upon Termination. Upon termination of the Tax
--------------------------
Partnership, the capital accounts shall be updated and the properties of the Tax
Partnership shall be deemed to have been sold at their fair market value
determined by using daily market prices for production and in accordance with an
independent appraisal for other assets, and the unrealized gains or loss from
such deemed sale shall be credited or charged to the Parties' capital accounts.
2.11.3 Deemed Distribution and Recontribution. Notwithstanding any other
--------------------------------------
provisions of this Agreement, in the event the Tax Partnership is liquidated
within the meaning of Regs. (S) 1.704-1(b)(2)(ii)(g) but no Liquidating Event
has occurred, the Property shall not be liquidated, the Tax Partnership's
liabilities shall not be paid or discharged, and the Tax Partnership's affairs
shall not be wound up. Instead, solely for federal income tax purposes, the Tax
Partnership shall be deemed to have distributed the Property in kind to the
Partners, who shall be deemed to have assumed and taken subject to all Tax
Partnership liabilities, all in accordance with their respective Capital
Accounts. Immediately thereafter, the Partners shall be deemed to have
recontributed the Property in kind to the Tax Partnership which shall be deemed
to have assumed and taken subject to all such liabilities.
2.12 Survival. The provisions of this Exhibit regarding partnership
--------
items and audits, including but not limited to the obligation to pay fees and
expenses, shall survive the termination of the Agreement, the Tax Partnership
and the termination of any Party's interest under the Agreement or the Tax
Partnership and shall remain binding on the Parties thereto for a period of time
necessary to resolve with the Internal Revenue Service or the Department of the
Treasury any and all matters regarding the federal income taxation of the Tax
partnership for the applicable tax year.
Exhibit E - Page 12
<PAGE>
Exhibit F
ACCOUNTING PROCEDURES
I. DEFINITIONS
"Company Property" shall mean the real and personal property
subject to the Agreement to which this Accounting Procedure is attached.
"Company Operations" shall mean all operations necessary or
proper for the development, operation, protection and maintenance of the Company
Property.
"Company Account" shall mean the account (identified separately
from the Operator's non-Company Property accounts) showing the charges paid and
credits received in the conduct of the Company Operations which are to be shared
by the Parties.
"Operator" shall mean the Party designated to conduct the Company
Operations, and is the same as the Operator referred to in the body of this
Agreement.
"Non-Operators" shall mean the other Parties other than the
Operator.
"Parties" shall mean Operator and Non-Operators.
"Supervisors" shall mean those employees whose primary function
in Company Operations is the direct supervision of other employees and/or
contract labor directly employed on the Company Property in a field operating
capacity.
"Technical Employees" shall mean those employees having special
and specific engineering, geological or other professional skills, and whose
primary function in Company Operations is the handling of specific operating
conditions and problems for the benefit of the Company Property.
"Personal Expenses" shall mean travel and other reasonable
reimbursable expenses of Operator's employees incurred in connection with the
Company Operations.
"Material" shall mean personal property, equipment or supplies
acquired or held for use on the Company Property.
"Controllable Material" shall mean Material which at the time is
so classified in the Material Classification Manual as most recently recommended
by the Council of Petroleum Accountants Societies.
Exhibit F - Page 1
<PAGE>
II. DIRECT CHARGES
Operator shall charge the Company Account with the following items:
1. Rentals
Rentals and lease payments paid by Operator for the Company
Operations.
2. Labor
A. (1) Salaries and wages of Operator's field employees
directly employed on the Company Property in the conduct of
Company Operations.
(2) Salaries of Supervisors in the field directly employed
on the Company Property in the conduct of Company
Operations.
(3) Salary of all employees located in the State of
Michigan and directly responsible to the Company.
B. (i) Operator's cost of holiday, vacation, sickness and
disability benefits and other customary allowances paid to
employees whose salaries and wages are chargeable to the
Company Account; (ii) expenditures or contributions made
pursuant to assessments imposed by governmental authority
which are applicable to Operator's costs; (iii) Operator's
current costs of established plans for employees' group
medical and life insurance, hospitalization, pension
retirement, stock purchase, thrift, bonus, and other benefit
plans of a like nature, applicable to Operator's labor cost
are chargeable to the Company Account. The costs under this
Paragraph 2B will be charged on a "percentage assessment" of
the amount of salaries and wages chargeable to the Company
Account under Paragraph 2A of this Section II. The rate
shall be based on the Operator's verifiable cost experience
and unanimously approved by the Members in the Annual
Operating Budget. During the first year of operation the
percentage assessment will be thirty-five percent (35%).
C. Reimbursable Personal Expenses of those employees whose
salaries and wages are chargeable to the Company Account
under Paragraph 2A of this Section II.
3. Employee Relocation
Proportionate share of expenses involved in relocating employee's
to the Company or moving an employee within the Company as set
forth in Operator's relocation policy based upon amount of time
Exhibit F - Page 2
<PAGE>
that employee will be directly engaged in conduct of Company
business.
4. Material
Material purchased or furnished by Operator for use on the
Company Property as provided under Section IV. Only such Material
shall be purchased for or transferred to the Company Property as
may be required for immediate use and is reasonably practical and
consistent with efficient and economical operations. The
accumulation of surplus stocks shall be avoided.
5. Transportation and Travel
Transportation and Material necessary for the Company Operations
but subject to the following limitations:
A. If Material is moved to the Company Property from the
Operator's warehouse or other properties, no charge shall be
made to the Company Account for a distance greater than the
distance from the nearest reliable supply store where like
material is normally available or railway receiving point
nearest the Company Property unless agreed to by the
Parties.
Travel expenses of Operator's employees while directly engaged on
Company business.
6. Services
The cost of contract services (including gas treating), equipment
and utilities provided by outside sources. The cost and expenses
of professional consultant services and contract services of
technical personnel directly engaged on the Company Property.
7. Damages and Losses to Company Property.
All costs or expenses necessary for the repair or replacement of
Company Property made necessary because of damages or losses
incurred by fire, flood, storm, theft, accident, or other cause,
except those resulting from Operator's gross negligence or
willful misconduct. Operator shall furnish Non-Operator written
notice of damages or losses incurred as soon as practicable after
a report thereof has been received by Operator.
Exhibit F - Page 3
<PAGE>
8. Legal Expense
Subject to the restrictions set out in Section 5.4 of the
Agreement to which this Accounting Procedure is attached,
expenses of handling, investigating and settling litigation or
claims, discharging of liens, payment of judgments and amounts
paid for settlement of claims incurred in or resulting from
Company Operations under this Agreement or necessary to protect
or recover the Company Property, as well as outside legal
expenses in connection with contract preparations and
negotiations in connection with Company Operations.
9. Taxes
All taxes of every kind and nature (other than income taxes and
taxes covered by the labor burden under 2.B., above) assessed or
levied upon or in connection with the Company Property, the
operation thereof, or the production therefrom, and which taxes
have been paid by the Operator for the benefit of the Parties.
10. Insurance
Net premiums paid for insurance required to be carried for the
Company Operations for the protection of the Parties.
11. Abandonment and Reclamation
Costs incurred for abandonment of the Company Property, including
costs required by governmental or other regulatory authority.
12. Communications
Cost of acquiring, leasing, installing, operating, repairing and
maintaining communication systems, or area networks, including
radio and microwave facilities and telecopiers, telephones and
computers directly serving the Company Property. In the event
communication facilities/systems serving the Company Property are
Operator owned, charges to the Company Property shall for those
facilities/systems shall be direct charges hereunder.
13. Other Expenditures
Any other expenditure not covered or dealt with in the foregoing
provisions of this Section II, or in Section III, and which is of
direct benefit to the Company Property and is incurred by the
Operator in the necessary and proper conduct of the Company
Operations. Chart Integration is a direct charge.
III. OVERHEAD
Exhibit F - Page 4
<PAGE>
1. Administrative and General Overhead - Company Operations:
During the initial twelve (12) month period following the
Effective Date of the Agreement to which this Exhibit is
attached, Operator shall charge the Company Account an amount
equal to $35,000.00 per month as overhead (which shall be deemed
----------
to cover all expenses other than Direct Charges hereunder; and
thereafter Operator shall charge the Company Account an amount
equal to $30,000.00 per month as overhead, which monthly amount
----------
shall be subject to adjustment as provided below.
2. Overhead - Adjustments
The overhead rates shall be adjusted as of the 1st day of April
each year commencing upon the second April following the
effective date of the agreement to which this Exhibit is
attached. The adjustment shall be computed by multiplying the
rate currently in effect by the percentage increase or decrease
in the average weekly earnings of crude petroleum and gas
production workers for the last calendar year compared to the
calendar year preceding as shown by the index of average weekly
earnings of crude petroleum and gas fields production workers as
published by the United States Department of Labor, Bureau of
Labor Statistics. The adjusted rate shall be the rates currently
in use, plus or minus the computed adjustment.
IV. PRICING OF COMPANY ACCOUNT MATERIAL PURCHASES, TRANSFERS AND
DISPOSITIONS
Operator is responsible for Company Account Material and shall make
proper and timely charges and credits for all Material movements
affecting the Company Property. Operator shall provide all Material
for use on the Company Property; however, at Operator's option, that
Material may be supplied by a non-operator. Operator shall make timely
disposition of idle and/or surplus Material, that disposal being made
either through sale to Operator or Non-Operator, division in kind, or
sale to outsiders. Operator may purchase, but shall be under no
obligation to purchase, interest of Non-Operators in surplus condition
A or B Material. The disposal of surplus Controllable Material, having
an original cost in excess of Twenty-five Thousand Dollars
$25,000.00 shall be subject to agreement by the Parties.
-----------
1. Purchases
Material purchased shall be charged at the price paid by Operator
after deduction of all discounts received. In case of Material
found to be defective or returned to Vendor for any other
reasons, credit shall be passed to the Company Account when
adjustment has
Exhibit F - Page 5
<PAGE>
been received by the Operator.
2. Transfers and Dispositions
Material furnished to the Company Property and Material
transferred from the Company Property or disposed of by the
Parties shall be priced on the following basis, exclusive of cash
discounts:
A. New Material (Condition A)
(1) All Material shall be priced at the current new price
as invoiced, plus transportation costs, if applicable.
(2) Unused new Material, moved from the Company Property
shall be priced in accordance with A(1), above.
B. Good Used Material (Condition B)
(1) Material moved to the Company Property
(a) At seventy-five percent (75%) of current new
price, as determined by Paragraph A.
(2) Material used on and moved from the Company Property
(a) At seventy-five percent (75%) of current new
price, as determined by Paragraph A, if Material
was originally charged to the Company Account as
new Material or
(b) At sixty-five percent (65%) of current new price,
as determined by Paragraph A, if Material was
originally charged to the Company Account as used
Material.
(3) Material not used on and moved from the Company
Property
(a) At seventy-five percent (75%) of current new price
as determined by Paragraph A.
The cost of reconditioning, if any, shall be absorbed by the
Party receiving the property.
C. Other Used Material
(1) Condition C
Material which is not in sound and serviceable
condition and not suitable for its original function
until after reconditioning shall be priced at fifty
percent (50%) of current new price as determined by
Paragraph A. The cost of reconditioning shall be
charged to the receiving property, provided Condition C
Exhibit F - Page 6
<PAGE>
value plus cost of reconditioning does not exceed
Condition B value.
(2) Condition D
Material, excluding junk, no longer suitable for its
original purpose, but usable for some other purpose
shall be price on a basis commensurate with its use.
Operator may dispose of Condition D Material under
procedures normally used by Operator without prior
approval of Non-Operators.
(3) Condition E
Junk shall be price at prevailing prices. Operator may
dispose of Condition E Material under procedures
normally utilized by Operator without prior approval of
Non-Operators.
D. Obsolete Material
Material which is serviceable and usable for its original
function but condition and/or value of such Material is not
equivalent to that which would justify a price as provided
above may be specially priced as agreed to by the Parties.
Such price should result in the Joint Account being charged
with the value of the service rendered by such Material.
3. Warranty of Material Furnished by Operator
Operator does not warrant the Material furnished. In case of
defective Material, credit shall not be passed to the Company
Account until adjustment has been received by Operator from the
manufacturers or their agents.
V. INVENTORIES
The Operator shall maintain detailed records of Controllable Material,
as well as inventories of feedstock, plant products and of exchange
balances.
1. In order to minimize the costs tied up in parts inventory while
also avoiding operations interruptions, the Operator will be
responsible for preparing a detail of parts deemed essential for
the operation of the facility. Operator shall inform Non-
Operators annually of the value of the inventory to be maintained
during the ensuing year. Purchases of inventoriable items made in
order to keep the parts inventory at the previously approved
level will be expensed and charged as incurred.
Exhibit F - Page 7
<PAGE>
2. Periodic Inventories, Notice and Representation
Physical inventories shall be taken by Operator of the Company
Account Controllable Material as determined are necessary.
Written notice of intention to take inventory shall be given by
Operator at least thirty (30) days before any inventory is to
begin so that Non-operators may be represented when any inventory
is taken. Written election by Non-operators to not be represented
at an inventory shall bind Non-operators to accept the inventory
taken by Operator.
3. Reconciliation and Adjustment of Inventories
Adjustment to the Company Account resulting from the
reconciliation of a physical inventory shall be made in the month
following the taking of that physical inventory. Inventory
adjustments will be made by Operator to the Company Account for
overages and shortages, but, Operator shall be held accountable
only for shortages due to lack of reasonable diligence.
4. Special Inventories
Special inventories may be taken whenever there is any sale,
change of interest, or change of Operator in the Company
Property. A special inventory may be taken at the request of any
Party but not more often than once every two (2) years. The cost
of any special inventory shall be the sole responsibility of the
requesting Party. It shall be the duty of the Party selling to
notify all other Parties as quickly as possible after the
transfer of interest takes place. In those cases, both the MEC
and the purchaser shall be governed by that inventory. In cases
involving a change of Operator, all Parties shall be governed by
that inventory.
5. Expense of Conducting Inventories
A. The expense of conducting periodic inventories shall not be
charged to the Company Account unless agreed to by the
Parties.
B. The expense of conducting special inventories shall be
charged to the Parties requesting the inventories, except
inventories required due to change of Operator, shall be
charged to the Company Account.
Exhibit F - Page 8
<PAGE>
EXHIBIT I
GENERAL CONVEYANCE, SPECIAL WARRANTY DEED
AND ASSUMPTION AGREEMENT
KNOW ALL MEN BY THESE PRESENTS:
THIS GENERAL CONVEYANCE AND SPECIAL WARRANTY DEED (referred to hereinafter
as "Conveyance"), effective as of 7:00 A.M., Mountain time, as of the date
hereof, (referred to as "Effective Time"), from MEC, (referred to hereinafter as
"Assignor"), to WEST SHORE PROCESSING COMPANY, LLC, A MICHIGAN LIMITED LIABILITY
COMPANY, 5613 DTC Parkway, Suite 400, Englewood, Colorado 80111, (referred to
hereinafter as "Assignee").
W I T N E S S E T H:
- - - - - - - - - -
FOR Ten Dollars and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Assignor hereby GRANTS, SELLS,
TRANSFERS, BARGAINS, CONVEYS and ASSIGNS to Assignee, all of the following
right, title and interest of Assignor in and to the following assets (such
right, title and interest in and to the following being referred to herein as
the "Assets"):
a. A 98% membership interest in Basin Pipeline Limited Liability Company
("Basin"), it being understood that Basin owns all pipeline facilities, and
all related equipment, machinery, supplies, pipelines, facilities,
easements, certificates, licenses, rights of way, surface leases and
agreements, permits and other properties, real or personal, necessary to
ownership and operation thereof, used in connection therewith or
appurtenant thereto as owned as of the Agreement, as defined below,
including, without limitation, those facilities and properties described on
Exhibit M, attached hereto and made a part hereof.
b. All personal property and equipment, and fixtures located on or
appurtenant to the assets described in paragraph a., above, or used in
connection therewith.
c. All accounts receivable attributable to the assets described in
paragraphs a. and b., above accruing on or after the Effective Time;
provided, Assignor retains the right to all revenues attributable to the
Assets prior to the Effective Time, even if received after the Effective
Time, including, all rights to refunds or rebates of sales taxes related to
the Assets prior to the Effective Time, even if received after the
Effective Time.
d. All records, maps, data, files, test results, and other information in
Assignor's possession related to the portions of the Assets described above
(the "Records").
Exhibit I - Page 1
<PAGE>
e. All real property, rights-of-way, easements, surface agreements,
licenses and permits related to or used in connection with the ownership,
operation and maintenance of the portions of the Assets described above,
including those as more fully described on Exhibit B, attached hereto and
made a part hereof, including an easement from Manistee Gas Limited
Liability Company ("Manistee") to the Assignee providing access across,
ingress to and egress from the lands of Manistee related to the Brown 19
gas plant for the purposes of permitting Assignee access to the facilities
acquired from Basin and which are located on the lands utilized by the
Brown 19 Gas Plant.
f. Those portions of the Brown 19 Gas Plant specifically designated on
Exhibit A.
g. All contracts and agreements pertaining to the portions of the Assets
described above, to the extent described on Exhibit C, attached hereto and
made a part hereof.
All properties, real, personal or mixed, and rights (contractual or otherwise)
included hereinabove are sometimes referred to hereinafter as the "Assets".
TO HAVE AND TO HOLD the Assets forever subject to the following terms and
conditions:
1. Observance of Laws. This Conveyance is subject to all applicable
------------------
laws, ordinances, rules, and regulations affecting the Assets.
2. Successors and Assigns. The terms, covenants, and conditions hereof
----------------------
bind and inure to the benefit of the parties hereto and their respective
successors and assigns.
3. Authority. Assignor represents that (i) it has the full authority
---------
to execute this Conveyance, (ii) this Conveyance is enforceable in accordance
with its terms.
4. Participation, Ownership and Operating Agreement. This Conveyance
------------------------------------------------
is made expressly subject to and in accordance with the terms and conditions of
that certain Participation, Ownership and Operating Agreement between Assignor
and MarkWest Michigan LLC, dated ___________ __, 1996 (the "Agreement"), and all
representations, warranties, covenants, indemnities and obligations of the
parties under the Agreement shall survive the execution and delivery of this
Conveyance in accordance with the terms of the Agreement.
5. Further Assurances. The parties agree to execute any and all other
------------------
instruments reasonably required to effectuate and consummate the transactions
between them as contemplated by this Conveyance and by the Agreement to Acquire.
6. Warranty of Title. Assignor shall and hereby specially warrants
-----------------
Exhibit I - Page 2
<PAGE>
title to the Assets and will defend Assignee against all claims whatsoever made
against any or all of the Assets arising by, through or under Assignor, but not
otherwise.
7. Assumption of Obligations. Assignee hereby assumes all of the
-------------------------
Assumed Liabilities, as defined herein. As used herein, the term "Assumed
Liabilities" means any and all obligations, liabilities, debts, costs, expenses,
liens, encumbrances, demands, claims, actions, losses and damages of any kind
whatsoever affecting the Assets or any portion thereof (the "Obligations")
including but not limited to all of the Obligations arising out of or connected
with any of the contracts or agreements listed on Exhibit C to the Agreement;
provided, as between the parties comprising the Company, the Company's
assumption of Environmental Obligations, as defined in the Agreement shall be
subject to the provisions of the Agreement.
THE PARTIES AGREE THAT, TO THE EXTENT REQUIRED TO BE OPERATIVE, THE
DISCLAIMERS OF CERTAIN WARRANTIES CONTAINED HEREIN "CONSPICUOUS" DISCLAIMERS FOR
THE PURPOSES OF ANY APPLICABLE LAW, RULE OR ORDER. THIS CONVEYANCE IS MADE AND
ACCEPTED UPON THE UNDERSTANDING AND AGREEMENT THAT ALL TANGIBLE PERSONAL
PROPERTY, MACHINERY, FIXTURES, EQUIPMENT AND MATERIALS CONVEYED HEREBY ARE SOLD
AND ASSIGNED AND ACCEPTED BY ASSIGNEE, IN THEIR "WHERE IS, AS IS" CONDITION
WITHOUT ANY WARRANTIES WHATSOEVER, EXPRESS OR IMPLIED OR STATUTORY, OF
MARKETABILITY, QUALITY, CONDITION, MERCHANTABILITY AND/OR FITNESS FOR A
PARTICULARLY PURPOSE OR USE, ALL OF WHICH ARE EXPRESSLY DISCLAIMED.
EXECUTED this _____ day of __________, 1996.
By:_____________________________
Title: Manager
Exhibit I - Page 3
<PAGE>
THE STATE OF ________ )
)
COUNTY OF __________ )
The foregoing instrument was acknowledged before me this ____ day of
___________, 1996, by ____________________________, the _______________Manager
of MEC.
Witness my Hand and Official Seal.
My Commission expires: _______________________
___________________________________
Notary Public
Exhibit I - Page 4
<PAGE>
EXHIBIT M
BASIN PIPELINE ASSETS
Generally, the Basin Pipeline assets are spray painted blue, with the adjacent
connecting piping with production, the Brown 19 Plant, those assets excluded
from the Brown 19 Plant and MichCon fuel gas spray painted orange, red, yellow
and yellow-orange striped respectively. Notwithstanding any failure to correctly
paint assets, it is the intention that the Basin Pipeline Assets include all
properties, equipment, facilities, machinery, supplies, rights or way,
easements, permits, contract, certificates and licenses, and all other realty,
personalty or mixed property, wherever located, owned by Basin as of the date of
this Agreement, including, without limitation, the following:
Basin Pipeline Assets
- ---------------------
Victory Compressor Station
Peterson Compressor Station
. Basin Pipeline
. Slug catcher, filter unit and gas pack at Brown 19 location
. Sour liquids storage at Brown 19 location
. Flare trailer
PC, monitor & keyboard and printer for SCADA in Brown 19 control room (Gateway
2000 and Epson)
SCADA System
RTU 3310 in Brown 19 control room
Dedicated modem
RTU 3310's at Murray State and Lakeland
Radios (6 handheld, 4 base units) batteries and chargers
Vehicle tool boxes and tools and inventory
. Portable flare
7 air packs (Murray State, Lakeland, Victory, pumper's trucks, John's & Brian's
trucks
3 portable H\2\S monitors
. 20 MMSCFD Gas Pack
The piping breaks are as follows:
1. Production/Basin Pipeline - orange/blue
A. Lakeland
a. 3" safety shutoff valve in building
b. (2) 1" valve to Lakeland flare on pig launcher
B. Olsen
a. 3" valve upstream of meter run outside building
C. Wierbowski
Exhibit M - Page 1
<PAGE>
a. 3" valve upstream of meter run outside building
D. Peterson Well (Dynamic Development) at Peterson Compressor Station
a. 2" valve - Peterson well gas in meter run area
b. 2" valve - Peterson compressor (Basin Pipeline) dehydrator water
dump into Peterson well treater
c. 2" valve - Peterson compressor (Basin Pipeline) fuel gas to
Peterson well treater downstream of meter run
d. 2" ball check valve - Peterson well treater vent to Peterson
compressor (Basin Pipeline) flare
E. Abrahamson at Peterson Compressor Station
a. 3" valve upstream of meter run
F. Billows
a. 3" valve upstream of meter outside of building
G. Stolberg (with Lunde)
a. 3" valve upstream of meter outside building
H. Lunde (with Stolberg)
a. 3" valve tieing into line that is downstream of Stolberg
(Basin's) meter (downstream of Ominmex's meter)
I. Welnerts (Miller Bros.)
a. 3" shutoff valve upstream of meter outside building
j. Murray State
a. 4" flange downstream from meter outside building
b. 1/2" valve of 3/8" tubing from corrosion inhibitor tank
2. Basin Pipeline/Brown 19 Plant - blue/red
A. Basin Pipeline Gas Pack
a. 3" valve gas
b. 2" valve air
c. 2" valve fuel
d. 1" and 2" valves - flare
B. Sour NGL Storage
Exhibit M - Page 2
<PAGE>
a. (4) 4" x 6" relief valves on storage tanks to flare
b. (4) 2" valves - flash gas
c. 2" valve - blowdown to flare
d. 2" valve - truck loadout to flare
e. 1" valve - sour NGL filter vapor return dump line
(truck loadout area)
3. Basin Pipeline/MichCon - blue/yellow-orange striped
A. Peterson Compressor
a. 2" valve downstream from MichCon's valving set
B. Victory Compressors
a. 2" flange at downstream edge of MichCon's valving set
Exhibit M - Page 3
<PAGE>
SECOND AMENDED AND RESTATED OPERATING AGREEMENT
FOR
BASIN PIPELINE L.L.C.
A Michigan Limited Liability Company
THIS SECOND AMENDED AND RESTATED OPERATING AGREEMENT (this "Operating
Agreement") is made and entered into as of May 2, 1996 by and among Basin
Pipeline L.L.C, a Michigan Limited Liability Company (the "Company"), and the
persons executing this Operating Agreement as members of the Company and all of
those who shall hereafter be admitted as members (individually, a "Member" and
collectively, the "Members") who agree as follows:
RECITALS:
A. Pursuant to Articles of Organization filed with the Michigan
Department of Commerce on June 16, 1993 (the "Articles"), the Company was
organized as a limited liability company under the laws of the State of
Michigan.
B. Dwain M. Immel, Hi P Limited Partnership and Montana BC Limited (the
"Original Members"), the original Members of the Company, executed and delivered
the Operating Agreement (the "Original Agreement") dated October 27, 1993
providing for the operation of the Company.
C. Effective December 1, 1993, Michigan Gas Fund I (the "Preferred
Member") was admitted as a Member of the Company.
D. Effective December , 1993, the Original Agreement was amended and
restated by the Members by that Amended and Restated Operating Agreement (the
"First Amendment").
E. Effective as of May 2, 1996, the Original Common Members and the
Preferred Member no longer owned any membership interest in the Company and the
Members executing this Operating Agreement (the "New Members") were the sole
Members of the Company.
F. Simultaneously with the execution of this Operating Agreement,
Member Michigan Energy Company, L.L.C. ("MEC') and Member MarkWest Michigan, LLC
("MarkWest") entered into that Participation, Ownership and Operating Agreement
(the "Participation Agreement") whereby Member West Shore Processing Company,
LLC ("West Shore") was organized and the terms of its ownership and operation
were set out and whereby Mark West was designated as its "Operator" in
accordance with the terms thereof. Certain terms and provisions of the
Participation Agreement are incorporated herein by the references thereto
contained in this Operating Agreement and in the manner prescribed herein.
<PAGE>
G. The Members desire to amend and restate the Original Agreement, as
amended and restated by the First Amendment in order to evidence admission of
the New Members as Members of the Company and make certain additional changes
thereto.
In consideration of the foregoing and of the mutual agreements, provisions
and covenants herein contained and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, and in order to effect
the intentions of the Members as set forth above, the Members hereby agree to
amend and restate the Original Agreement, as amended and restated by the First
Amendment as follows:
ARTICLE I
ORGANIZATION
------------
1.1 Formation. The Company has been organized as a Michigan Limited
----------
Liability Company under and pursuant to the Michigan Limited Liability Company
Act, being Act No. 23, Public Acts of 1993 (the "Act"), by the filing of the
Articles with the Department of Commerce of the State of Michigan as required by
the Act.
1.2 Name. The name of the Company shall be Basin Pipeline L.L.C. The
-----
Company may also conduct its business under one or more assumed names.
1.3 Purposes. The purposes of the Company are to engage in any activity
---------
for which Limited Liability Companies may be formed under the Act, including,
but not limited to, the construction and operation of a pipeline gathering
system in Michigan pursuant to authority granted under 1929 PA 9, as amended
(MCL 483.109). The Company shall have all the powers necessary or convenient to
effect any purpose for which it is formed, including all powers granted by the
Act.
1.4 Duration. The Company shall continue in existence for the period fixed
---------
in the Articles for the duration of the Company or until the Company shall be
sooner dissolved and its affairs wound up in accordance with the Act or this
Operating Agreement.
1.5 Registered Office and Resident Agent. The Registered Office and
-------------------------------------
Resident Agent of the Company shall be as designated in the initial Articles or
any amendment thereof. The Registered Office and/or Resident Agent may be
changed from time to time. Any such change shall be made in accordance with the
Act. If the Resident Agent shall ever resign, the Company shall promptly appoint
a successor.
1.6 Intention for Company. The Members have formed the Company as a
----------------------
Limited Liability Company under and pursuant to the Act. The Members
specifically intend and agree that the Company not be a partnership (including,
a limited partnership) or any other venture, but a Limited Liability Company
under and pursuant to the Act. No Member or Manager shall be construed to be a
partner in the Company or a partner of any other Member, Manager or person
-2-
<PAGE>
and the Articles, this Operating Agreement and the relationships created thereby
and arising therefrom shall not be construed to suggest otherwise.
1.7 Effective Date. (the "Effective Date").
---------------
This Operating Agreement shall be effective as of May 2, 1996
ARTICLE II
BOOKS, RECORDS AND ACCOUNTING
-----------------------------
2.1 Books and Records. The Company shall maintain complete and accurate
------------------
books and records of the Company's business and affairs as required by the Act
and such books and records shall be kept at the Company's Registered Office.
2.2 Fiscal Year: Accounting. The Company's fiscal year shall be the
------------------------
calendar year. The particular accounting methods and principles to be followed
by the Company shall be selected by the Manager from time to time.
2.3 Reports. The Manager shall provide reports concerning the financial
--------
condition and results of operation of the Company and the Capital Accounts of
the Members to the Members in the time, manner and form as provided in the
Participation Agreement.
2.4 Member's Accounts. Separate capital accounts for each Member shall be
------------------
maintained by the Company in accordance with the applicable provisions of the
Participation Agreement.
ARTICLE III CAPITAL CONTRIBUTIONS
---------------------
3.1 Initial Capital. The agreed value of the capital of the Company to
----------------
be credited to each Member on the Effective Date is set forth on the attached
Exhibit A. The Sharing Ratios (herein so called) of the Members in the Company
as of the Effective Date shall be as set forth on Exhibit A hereto. Any
additional Member (other than an assignee of a membership interest who has been
admitted as a Member), who shall be admitted only upon the approval of all
Members shall make the capital contribution set forth in an Admission Agreement.
No interest shall accrue on any capital contribution and no Member shall have
any right to withdraw or to be repaid any capital contribution except as
provided in this Operating Agreement.
3.2 Additional Contributions. In addition to the initial capital
-------------------------
contributions heretofore made by the Members additional contributions shall be
governed by the applicable provisions of the Participation Agreement and the
obligations of the members for additional contributions and remedies for
failures to make such as may be specified in the Participation Agreement
ARTICLE IV
ALLOCATIONS AND DISTRIBUTIONS
-----------------------------
-3-
<PAGE>
4.1 Allocations.
------------
(a) Profits and losses shall be determined and allocated to the Members
consistent with the provisions of the Participation Agreement.
(b) All items of income, gain, loss, deduction or credit of the Company,
shall be allocated to and shared by the Members in accordance with their
respective Sharing Ratios.
4.2 Distributions. All distributions shall be made in conformance with
--------------
distribution provisions set out in Section 4.1 and other applicable Sections of
the Participation Agreement.
ARTICLE V
DISPOSITION OF MEMBERSHIP INTERESTS
-----------------------------------
5.1 General. MEC And MarkWest shall each have the right to dispose of or
--------
transfer their respective membership interests in the Company and to cause West
Shore, on their respective behalves, to dispose of portions of West Shore's
membership interests in the Company in amounts of interest proportionate to
their respective ownership interests in West Shore and on terms equivalent to
those set out in Article IX of the Participation Agreement governing transfer
and dispositions by MEC and MarkWest of their interest in West Shore.
5.2 Admission of Substitute Members. A permitted transferee of a
--------------------------------
membership interest shall be admitted as a subtitute Member and shall be
entiltled to all the rights and powers of the assignor.
ARTICLE VI
MEETING AND REPRESENTATIONS OF MEMBERS
--------------------------------------
6.1 Voting. voting all matters requiring a vote of the Members shall be
-------
governed by the voting procedures set out in Section 5.2 of the Participation
Agreement. MEC and Mark West shall each be entitled to vote their respectives
membership interests. The designated Operator of West Shore shallbe entitled to
vote the West Shores membership interest, provided, however, that any such vote
shall be exercised in conformance with an appropriate vote of the Members of
West Shore in accordance with the voting procedures under the Participation
Agreement.
6.2 Required Vote. Unless a greater vote is required by the Act, the
--------------
Articles or would be required under the Participation Agreement had the vote
been with regard to the same or similar issue the affirmative vote or consent of
a majority of the Sharing Ratios of all the Members entitled to vote or consent
on such matter shall be required. For purposes of this Agreement, any reference
to a majority of Members or majority of remaining Members shall be defined as
those Members holding a majority of the Sharing Ratios of the Members or
remaining Members if applicable.
-4-
<PAGE>
6.3 Meetings. An annual meeting of Members for the transaction of such
---------
business as may properly come before the Meeting, shall be held at such place,
on such date and at such time as the annual meeting of the Members of West
Shore. Special meetings of Members for any proper purpose or purposes may be
called at any time by the Manager or any Member. The Company shall deliver or
mail written notice stating the date, time, place and purposes of any meeting to
each Member entitled to vote at the meeting. Such notice shall be given not less
than five (5), no more than sixty (60) days before the date of the meeting. All
meetings of the Members shall be presided over by a Chairperson who shall be a
representative or a Member so designated by the Manager.
6.4 Consent. Any action required or permitted to be taken at an annual
--------
or special meeting of the Members may be taken without a meeting, without prior
notice, and without a vote, if consents in writing, setting forth the action so
taken are signed by the Members having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all membership interests entitled to vote on the action were present and voted.
Every written consent shall bear the date and signature of each Member who signs
the consent. Prompt notice of the taking of action without a meeting by less
than unanimous written consent shall be given to all Members who have not
consented in writing to such action.
6.5 Representations and Warranties. Each Member, and in the case of an
-------------------------------
organization, the person(s) executing the Company Agreement on behalf of the
organization, hereby represents and warrants to the Company and each other
Member that: (a) if the Member is an organization, that it is duly organized,
validly existing and in good standing under the laws of its state of
organization and that it has full organizational power to execute and agree to
this Operating Agreement to perform its obligations hereunder; (b) that the
Member is acquiring its interest in the Company for the Member's own account as
an investment and without an intent to distribute the interest; (c) the Member
acknowledges that the interests in the Company have not been registered under
the Securities Act of 1933 or any state securities laws, and may not be resold
or transferred by the Member without appropriate registration or the
availability of an exemption from such requirements.
ARTICLE VII
MANAGEMENT
----------
7.1 Management of Business. The Company shall be managed by one (1)
-----------------------
person ("Manager"). The Manager shall be the party serving, from time to time,
as Operator under the terms of the Participation Agreement. The terms, duties,
compensation and benefits, if any, of the Manager not provided for herein shall
be determined by the Members. The Manager shall serve at the will and pleasure
of the Members.
7.2 Powers of Manager. The Manager shall have the same powers and
------------------
authority with respect to the Company and its assets as were granted to the
Operator of West Shore with respect to West Shore and its assets pursuant to
Section 5.3 of the Participation Agreement. Likewise, the Manager's authority
shall be limited in the same manner as the authority of the Operator is
-5-
<PAGE>
limited in Section 5.4 of the Participation Agreement and elsewhere in the
Participation Agreement.
7.3 Standard of Care: Liability. Manager shall discharge its duties as a
----------------------------
manager in good faith, with the care an ordinarily prudent person in a like
position would exercise under similar circumstances, and in a manner it
reasonably believes to be in the best interests of the Company. Manager shall
not be liable for any monetary damages to the Company for any breach of such
duties except for receipt of a financial benefit to which Manager is not
entitled; voting for or assenting to a distribution to Members in violation of
this Operating Agreement or the Act; or a knowing violation of the law.
7.4 Other Activities of Members. Except as similar activities would have
----------------------------
been prohibited for parties or members under the terms and provisions of the
Participation Agreement, any Member or Manager may, without notice to or consent
from any other Member, engage and invest in other business ventures or
properties of any nature, including, without limitation, all aspects of the
hydrocarbon and mineral business, and the pipeline transportation and marketing
business, whether or not competitive with the business of the Company. No Member
or Manager shall, by virtue of the Articles or this Operating Agreement, have
any right or interest in the other Member's or Manager's ventures or
investments, or in the income and profits therefrom.
7.5 Tax Matters Member. The Members shall designate one of their number as
------------------
the tax matters member of the Company pursuant to (s)6231 (a)(7) of the Code.
Any Member designated as tax matter shall take suchaction as may be nececssary
to cause each other Members to become a noticememmber within the meaning of
(s)6223 of Code. Any Member who is designated tax matter member may not take any
action contemplated by (s)(s)6222 through 6232 of the Code without the consent
of the Manager, if any. Until changed by the Company, the tax matters member is
West Shore.
ARTICLE VIII
EXCULPATION OF LIABILITY; INDEMNIFICATION
-----------------------------------------
8.1 Exculpation of Liability. Unless other,vise provided by law or
-------------------------
expressly assumed, a person who is a Member or Manager, or both, shall not be
liable for the acts, debts or liabilities of the Company.
8.2 Indemnification. It is intended that all matters of indemnification
----------------
and allocation of liabilities and obligations among MEC, MarkWest and the
Company shall be treated in the same manner as prescribed under Sections 19.2
through 19.6 of the Participation Agreement and in the same manner such matters
would have been treated had the applicable liabilities and obligations related
to that portion of the Assets (as defined in the Participation Agreement) other
than membership interests in the Company (i.e. Basin Pipeline L.L.C.). The
provisions of Section 19.2(a) of the Participation Agreement regarding
indemnification and holding harmless of West Shore and MarkWest by MEC shall
apply to the cumulative Obligations (as defined in the Participation Agreement)
of the type covered by Section 19.2(a) of both the Company as well as West Shore
and shall apply to indemnification and holding harmless of the Company as welt
-6-
<PAGE>
as West Shore. The provisions of Section 19.2(b) of the Participation Agreement
allocating "Environmental Obligations" (as defined in the Participation
Agreement) of "the Company" (i.e. West Shore) among MEC and MarkWest are
intended to and shall hereafter apply to the cumulative Environment Obligations
of both West Shore and the Company. The provisions of Sections 19.2(b)(iv)(B)
and(C) shall likewise apply in such a manner that MEC's option to purchase the
membership interests of Mark West in West Shore shall also include the right of
MEC to purchase Mark West's membership interest in the Company for no additional
consideration.
ARTICLE IX
DISSOLUTION AND WINDING UP
--------------------------
9.1 Dissolution. The Company shall dissolve and its affairs shall be
------------
wound up on the first to occur of the following events: (a) at any time
specified in the Articles or this Operating Agreement; (b) upon the happening of
any event specified in the Articles or this Operating Agreement; (c) by the
unanimous consent of all of the Members; or (d) upon the expulsion, withdrawal,
bankruptcy, or dissolution of a Member.
9.2 Winding Up and Liquidation. Upon dissolution of the Company, the
---------------------------
Company's affairs shall be wound up in the same manner as and consistent with
that set out in Section 21.3 of the Participation Agreement.
ARTICLE X
MISCELLANEOUS PROVISIONS
------------------------
10.1 Terms. Nouns and pronouns will be deemed to refer to the masculine,
------
feminine, neuter, singular and plural, as the identity of the person or persons,
firm or corporation may in the context require.
10.2 Article Headings. The Article headings contained in this Operating
-----------------
Agreement has been inserted only as a matter of convenience and for reference,
and in no way shall be construed to define, limit or describe the scope or
intent of any provision of this Operating Agreement.
10.3 Counterparts. This Operating Agreement may be executed in several
-------------
counterparts, each of which will be deemed an original but all of which will
constitute one and the same.
10.4 Severability. The invalidity or unenforceability of any particular
-------------
provision of this Operating Agreement shall not affect the other provisions
hereof, and this Operating Agreement shall be construed in all respects as if
such invalid or unenforceable provisions were ommitted.
-7-
<PAGE>
10.7 Binding Effect. Subject to the provisions of this Operating Agreement
---------------
relating to transferability, this Operating Agreement will be binding upon and
shall inure to the benefit of the parties, and their distributees, heirs,
successors and assings.
10.8 Governing Law. This Operating Agreement is being executed and
-------------
delivered in the State of Michigan and shall be government by, construed and
enforced in accordance with the laws of the State of Michigan.
IN WITNESS WHEREOF, The parties hereto make and execute this Operating
Agreement on the dates set forth, to be effective on the date first above
written.
THE COMPANY:
Date: May 2 1996
----------
BASIN PIPELINE L.L.C
By West Shores Processing Company, LLC, its manager, By Mark West Michigan, LLC,
its opertor,
By Mark West Hydrocarbon Partners, Ltd., its manager, Mark West Hydrocarbon,
Inc., its general manager
By: /s/ Arthur J. Denney
Name: Arthur J. Denney
Title: Vice President
--------------
MEMBERS:
Date: May 2 1996
----------
WEST SHORES PROCESSING COMPANY, LLC By Mark West Michigan, LLC, its operator,
By Mark West Hydrocarbon Partners, Ltd., its manager, by Mark West Hydrocarbon,
Inc., its general manager
BY: /s/ Arthur J. Denney
Name: Arthur J. Denney
Title: Vice President
--------------
Date: May 2 1996
----------
MARKWEST MICHIGAN, LLC,
By Mark West Hydrocarbon Partners, Ltd., its manager,
By Mark West Hydrocarbon, Inc., its general partner
By: /s/ Arthur J. Denney
Name: Arthur J. Denney
----------------
Title:Vice President
--------------
-8-
<PAGE>
MICHIGAN ENERGY COMPANY, L.L.C.
Date: May 2, 1996
BY: /s/ Michael V. Ronca
Michael V. Ronca, Manager
BY: /s/ Robert L. Zorich
Robert L. Zorich, Manager
-9-
<PAGE>
Member
- ------
West Shore Processing Company, LLC
MarkWest Michigan, LLC
Michigan Energy Company, L.L.C.
TOTAL
EXHIBIT A
Capital $98.0O $1.20 $ .80
-------
$100.00
Sharing Ratio 98.0%
-------------
1.2% 0.8%
100.00%
-1-
<PAGE>
EXHIBIT H
SUBORDINATION AGREEMENT
-----------------------
THIS SUBORDINATION AGREEMENT ("Agreement") is entered into as of the 2nd
-------------
day of May, 1996, among MarkWest Michigan LLC, a Colorado limited liability
company ("MarkWest"), Bank of America Illinois, an Illinois banking corporation
-------------
(including any Transferee, "Bank"), West Shore Processing Company, L.L.C., a
--------
Michigan limited liability company ("West Shore"), Basin Pipeline L.L.C., a
---------------
Michigan limited liability company ("Basin"; Basin and West Shore sometimes
---------
being referred to collectively as the "Companies"), and Michigan Energy Company,
-------------
L.L.C., a Michigan limited liability company ("MEC")
-------
RECITALS:
---------
A. Michigan Production Company, L.L.C. ("MPC") is now indebted or may in
-------
the future become indebted to the Bank, which indebtedness is now or may in the
future become secured, as provided in the Credit Agreement (defined below), by
mortgages, assignments of proceeds and/or production, security agreements, and
financing statements encumbering and granting the Bank a lien in its favor as to
the oil and gas leaseholds, lands and other interests described on Attachment A,
-------------
attached hereto and made a part hereof (the "MPC Assets")
-------------
B. MEC, which is on the date hereof the owner of a majority of the
outstanding membership interests in West Shore (subject to the right of MarkWest
to acquire up to 60% of the membership interests in West Shore), which in turn
is owner of a majority of the outstanding membership interests of Basin, is now
indebted to the Bank or may in the future become indebted to the Bank pursuant
to the Credit Agreement.
C. The indebtedness of MPC and MEC from time to time owing to the Bank
is guaranteed by the Companies pursuant to certain secured guaranties of even
date herewith delivered pursuant to the Credit Agreement and, as provided in the
Credit Agreement, is secured by, among other things, mortgages, assignments of
proceeds and/or production, security agreements, deeds of trust and financing
statements encumbering the assets now or hereafter owned by the Companies and by
MEC's ownership interest in the Companies, including without limitation, (i) the
assets contributed by MEC to West Shore under that certain Participation,
Ownership and Operating Agreement for West Shore Processing Company, L.L.C.,
between MEC and MarkWest, dated as of May 2, 1996 ("West Shore Agreement"), (ii)
-------------------------
the assets of Basin subject to that certain Amended and Restated Operating
Agreement for Basin Pipeline L.L.C.,
<PAGE>
between MEC, West Shore and MarkWest, dated as of May 2, 1996 ("Basin
-------
Agreement"; the Basin Agreement and the West Shore Agreement being referred to
- -----------
herein collectively as the "Operating Agreements"), and (iii) the membership
------------------------
interests of MEC in West Shore and Basin.
D. Under the Operating Agreements, MarkWest will acquire from time to
time certain additional membership interests in West Shore (the membership
interests in West Shore and Basin being referred to as "LLC Units").
-------------
E. West Shore does or will own certain assets including assets
contributed by MEC under the West Shore Agreement, and certain Gas Gathering,
Treating and Processing Agreements, now or hereafter entered into, between West
Shore and MPC pertaining to gas produced from the MPC Assets ("Gas Agreements")
------------------
and which are to or may in the future become subject to liens in favor of the
Bank.
F. The obligation of MarkWest to proceed to "Final Closing" (as defined
in the West Shore Agreement) is conditioned on, among other things, the granting
of the subordination by the Bank herein.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the foregoing, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties to this Agreement hereby agree as follows:
1. Certain Definitions. As used in this Agreement, the terms set forth
--------------------
below in this Section 1 shall have the meanings provided below:
---------
"Bankruptcy Code" means 11 U.S.C. (S) 101 et seq., as from time to time
----------------- --------
hereafter amended, and any successor or similar statute.
"Bank Obligations" means the indebtedness and other obligations of MEC, MPC
------------------
and the Companies to the Bank pursuant to the Credit Agreement, the Guarantees
and the other Loan Documents, it being understood that the term "Bank
Obligations" does not include the LSNRC Obligations.
"Company Assets" means, collectively, the assets, rights and properties of
----------------
West Shore and Basin (other than LLC Units).
"Credit Agreement" means that certain Amended and Restated Credit Agreement
------------------
of even date herewith among MEC, MPC and the Bank, as the same may be amended,
restated, modified or supplemented from time to time in accordance with its
terms.
- 2 -
<PAGE>
"Energy Company's Share" shall have the meaning provided in the Secured
------------------------
Guaranty as in effect on the date hereof, and as hereafter amended from time to
time with the consent of MarkWest.
"Gas Agreements" is defined in the fifth recital.
---------------- --------------
"Loan Documents" shall have the meaning provided in the Credit Agreement as
----------------
in effect on the date hereof, and as hereafter amended from time to time with
the consent of MarkWest.
"LSNRC Obligations" means the obligations of the MEC and MPC to LaSalle
-------------------
Street Natural Resources Corporation pursuant to the Agreement Concerning NPI
Interests and Preferred LLC Interests of even date herewith among MEC, MPC, the
Bank and LaSalle Street Natural Resources Corporation.
"Person" means and includes an individual, a partnership, a joint venture,
--------
a corporation, a trust, an unincorporated organization and a government or any
department or agency thereof.
"Transferee" means the Bank's successors, the assigns of any of the Bank
------------
Obligations or of any Liens on any of the Company Assets or any LLC Units owned
by MEC, and any transferee of any interest in any Company Assets or LLC Units
owned by MEC acquired by, through or under any foreclosure proceeding or other
exercise of remedies by the Bank or any such successor or assign.
2. Subordination and Related Provisions.
-------------------------------------
2.1 Subordination to MarkWest Interests. (a) The Bank acknowledges
------------------------------------
that, the interests in the LLC Units which may be acquired from time to time by
MarkWest pursuant to the West Shore Agreement are to be acquired free and clear
of all liens, including the liens in favor of the Bank pursuant to the Loan
Documents. In furtherance of the foregoing, the Bank hereby covenants and agrees
that, to the extent and in the manner hereinafter set forth in this Section 2,
----------
all liens on the Company Assets and the LLC Units securing the Bank Obligations
are hereby expressly made subordinate and subject as provided in this Section 2
---------
to the MarkWest Interests, to the extent that such rights and interests have,
from time to time, accrued in favor of MarkWest and been paid for or granted
pursuant to capital contributions made by MarkWest in accordance with the terms
of the Operating Agreements. The "MarkWest Interests" means all of the
--------------------
following, but without duplication: (i) MarkWest's interest from time to time in
the LLC Units; (ii) an undivided beneficial percentage interest in the Company
Assets equal to the percentage of the LLC Units owned directly and indirectly by
MarkWest; and (iii) Mark West's rights and interests under the West Shore
Agreement and the Basin Agreement (including, without limitation, rights to
receive payments, distributions and indemnities). The MarkWest Interest
- 3 -
<PAGE>
shall be calculated and determined pursuant to the West Shore Agreement and
without regard to, and free of the burden of, the obligations of MEC, MPC and
any other obligor to the Bank.
(b) The Bank hereby covenants and agrees that it shall execute and deliver
such documents and instruments as may be reasonably necessary to release, or at
any election by MarkWest and any Other Lender (as defined in Section 8 below) to
---------
assign to the Other Lenders, to the extent of the MarkWest Interests, the liens
in favor of the Bank encumbering the Company Assets and the LLC Interests
securing the Bank Obligations; provided, that the Bank shall not be required to
---------
execute and deliver releases (i) on more than one occasion during any calendar
month or (ii) on more than 17 occasions in the aggregate during the period
commencing on the date hereof and ending on the earlier of (x) September 1, 1997
and (y) the date on which MarkWest has made its entire maximum contribution to
the Companies under the Operating Agreements.
(c) The agreements of the Bank under this Agreement shall be binding upon
the Bank including each Transferee. The Bank shall cause each of the Loan
Documents executed by West Shore or Basin or encumbering any Company Asset or
LLC Unit to contain a provision expressly subjecting such Loan Document to the
terms of this Subordination Agreement. Without limiting the foregoing provisions
of this Section 2.1, the Bank further agrees as follows:
------------
(i) No foreclosure, or transfer in lieu thereof, of any interest in
any Company Asset shall be made by the Bank if such foreclosure or transfer
in lieu thereof would cause a suspension or termination of any governmental
permit, license or right necessary for the operation of any Company Asset
of Basin until any required governmental consent, approval or replacement
permit, license or right has been obtained.
(ii) If the Bank shall acquire any interest in Company Assets it shall
hold such undivided interest, in the case of assets owned by Basin, as a
tenant in common (in the case of real property interests) or as a co-owner
(in the case of personal property interests) with Basin (or any successor
or assign of the remaining portion of West Shore's interest in such Company
Assets), and in the case of assets owned by West Shore, as a tenant in
common (in the case of real property interests) or as a co-owner (in the
case of personal property interests) with MarkWest (or any successor or
assign of the remaining portion of MarkWest's interest in such Company
Assets), subject to all of the terms of the West Shore Agreement, and each
of the parties hereto hereby absolutely waives any right to seek or obtain
a partition of any of such Company Assets. The foregoing shall not be
construed to modify any provision of Section 21.3 of the West Shore
------------
Agreement.
- 4 -
<PAGE>
(iii) No foreclosure, or transfer in lieu thereof, of any interest in any
Company Asset shall be made by the Bank until (A) it contemporaneously initiates
actions to enforce its liens on all collateral (other than the Company Assets)
securing the obligations of MEC, MPC and all other obligors to the Bank (the
"Other Collateral") and (B) it has given notice to MarkWest and the Other
- -------------------
Lenders of its intent to foreclose. The Bank shall also have the right to
release portions of the Other Collateral from its liens.
(iv) If the condition in Section 2.1(c)(iii) has been satisfied and
-------------------
the Bank commences a foreclosure action against any Company Asset, then it
agrees to foreclose only upon Energy Company's Share of such asset (determined
as of the date of the foreclosure), which interest in such asset shall be
subject in all events to MarkWest's right to earn interests pursuant to the West
Shore Agreement.
The West Shore Agreement contains provisions that provide for the
physical operation and management of the Company Assets, as well as the
Companies, to be controlled by the manager of West Shore (initially MarkWest)
and the parties expressly acknowledge and agree that the intent of this section
is that after any foreclosure by the Bank, (1) the Bank shall not receive or be
entitled to any interest in the LLC Units or the Company Assets that exceeds
Energy Company's Share thereof and (2) any LLC Units received by the Bank in
such foreclosure shall remain subject to the terms of the Operating Agreements.
2.2 Subordination to Gas Agreements.
--------------------------------
(a) The Bank hereby covenants and agrees that, to the extent and in
the manner hereinafter set forth in this Section 2, any and all liens and
----------
security interests encumbering the MPC Assets in favor of the Bank shall be
expressly subordinate to the rights and interests of West Shore under the Gas
Agreements. In furtherance of the foregoing, the Bank agrees that a
foreclosure by the Bank upon the MPC Assets shall not operate to terminate the
Gas Agreements, which shall remain in full force and effect with respect to the
MPC Assets, in accordance with their respective terms and conditions.
(b) The Bank hereby covenants and agrees that it shall execute and
deliver such documents and instruments as may be reasonably necessary to reflect
and give effect to the subordination set forth in the foregoing subsection
----------
2.2(a).
- -------
2.3 Effect of Bankruptcy. In the event of (a) any insolvency or
---------------------
bankruptcy case or proceeding, or any receivership, liquidation, reorganization
or other similar case or proceeding in connection therewith, relative to MEC,
West Shore or Basin, or to
- 5 -
<PAGE>
the properties or assets of either of them, or the rejection of the Operating
Agreements as executory contracts in any such proceeding or (b) any liquidation,
dissolution or other winding-up of MEC or West Shore, whether voluntary or
involuntary and whether or not involving insolvency or bankruptcy, or (c) any
assignment for the benefit of creditors or any other marshaling of assets or
liabilities of MEC or West Shore, then and in any such event the Operating
Agreements and the Gas Agreements shall continue in full force and effect and
shall not be terminated as a result of any foreclosure by the Bank on any
Company Assets or LLC Interests securing the Bank Obligations.
2.4 Payments to be Held in Trust. MarkWest and the Bank hereby agree
-----------------------------
that in the event that either of them shall receive any payment or distribution
of assets of any Company of any kind or character in respect of the Bank
Obligations or the MarkWest Interests in excess of (a) in the case of MarkWest,
the portion of such payment or distribution represented by the MarkWest
Interests or otherwise payable or distributable to MarkWest for any reason,
under the terms of the Operating Agreements, or (b) in the case of the Bank, the
portion of such payment or distribution represented by Energy Company's Share
therein as pledged to the Bank or otherwise payable or distributable to the Bank
for any reason under the terms of the Operating Agreements, then and in such
event the party receiving such excess payment or distribution shall be deemed to
have received such excess amount in trust for the party entitled thereto, and
shall pay over or deliver such excess amount forthwith to the party entitled
thereto, in the same form in which the payment or distribution was made.
2.5. Obligations of Borrowers and Companies Unconditional. Nothing
-----------------------------------------------------
contained in this Section 2 or elsewhere in this Agreement is intended to or
shall impair, as between the Borrowers and the Companies, and their creditors
other than the Bank, the obligations of the Borrower and the Companies to the
Bank to pay the Bank Obligations as and when the same shall become due and
payable in accordance with their terms, or to affect the relative rights of the
Bank and creditors of the Borrowers and the Companies other than MarkWest, nor
shall anything herein prevent the Bank from exercising all remedies otherwise
permitted by applicable law upon the happening of an Event of Default under the
Credit Agreement, subject to the rights, if any, under this Section 2 of
---------
MarkWest with respect to assets, whether in cash, property or securities, of the
Companies received upon the exercise of any such remedy.
Nothing contained in this Section 2 or elsewhere in this Agreement
---------
shall affect the obligation of the Borrowers and the Companies to make, or
prevent any of the Borrowers or the Companies from making at any time, payment
of the Bank Obligations. The fact that a failure to make payment on account of
the Bank Obligations
- 6 -
<PAGE>
results from any provision of this Section 2 shall not be construed as
---------
preventing the occurrence or continuance of an Event of Default under the Credit
Agreement.
2.6. Bank Entitled to Assume Payments Not Prohibited in
--------------------------------------------------
Absence of Notice. The Bank shall not at any time be charged with knowledge of
- ------------------
the existence of any facts which would prohibit the making of any payment to it,
unless and until the Bank shall have received written notice thereof at its
principal office from the Companies or from MarkWest thereof; and prior to the
receipt of any such written notice the Bank shall be entitled to assume
conclusively that no such facts exist, without, however, limiting any such
rights of MarkWest under this Section 2 to recover from the Bank any payment
---------
made to the Bank which it is not entitled under this Section 2 to retain.
---------
2.7. Distribution of Companies' Cash. In furtherance of the terms of
--------------------------------
Section 2.1 above, it is hereby agreed among the Companies, MEC, MarkWest and
- -----------
the Bank that under the Operating Agreements and the Loan Documents, the
Companies shall be required to distribute, all available cash to their members
in accordance with the West Shore Agreement.
2.8. Additional Liens. West Shore and Basin each hereby agree to grant
-----------------
to the Lender from time to time liens and security interests in all newly
arising, acquired or constructed Company Assets ("New Assets") pursuant to
--------------
documents supplementary to or in the form of the Loan Documents executed by West
Shore and Basin contemporaneously with this Agreement. MarkWest expressly
consents to the granting of such additional liens and security interests, with
the understanding that such additional liens and security interests shall be
subject to the terms of this Agreement. The Bank hereby similarly acknowledges
that pursuant to credit agreements with the Other Lenders, the Other Lenders may
be granted additional liens and security interests in New Assets by West Shore
or Basin. The Bank expressly consents to the granting of such additional liens
and security interests provided that they shall be subject to the terms of this
Agreement.
3. Waiver. Each Company hereby waives presentment, demand for payment,
-------
notice of protest and all other demands and notices in connection with the
delivery, acceptance, performance or enforcement hereof.
4. No Disposition. The Bank will not sell, assign, pledge, encumber or
---------------
otherwise dispose of any of the Bank Obligations owed to it unless such sale,
assignment, pledge, encumbrance or disposition is made expressly subject to this
Agreement.
5. Amendments to MarkWest Documents. No provision of either of the
---------------------------------
Operating Agreements shall, without the prior written
- 7 -
<PAGE>
consent of the Bank, be amended, supplemented, modified or waived in any
respect.
6. Successors, Assigns, Beneficiaries. This Agreement is being entered
-----------------------------------
into for the benefit of, and shall be binding upon and inure to the benefit of
MarkWest, the Bank, the Companies, and their respective successors and assigns.
This Agreement shall remain in full force and effect so long as any Operating
Agreement remains in effect. It is expressly understood that this Agreement is
being entered into for the additional benefit of the Other Lenders from time to
time.
7. Notices; Amendments. All notices pursuant to this Agreement shall
--------------------
be addressed and delivered in the manner provided in the Credit Agreement. No
amendment, waiver or modification of any term of this Agreement shall be
effective unless made in accordance with the Credit Agreement.
8. MarkWest Financing. To the extent required to enable MarkWest to
-------------------
obtain financing with respect to its obligations regarding West Shore and/or
Basin, the Bank will enter into mutually satisfactory intercreditor agreements
and other documents as may be reasonably required by MarkWest's lender(s) (the
"Other Lenders") consistent with the terms of this Agreement. The Other Lenders
- ----------------
will (a) from time to time enter into Subordination Agreements containing
reciprocal terms and conditions to this Agreement (or otherwise agree, in a
separate agreement, satisfactory in form and substance to the Bank, to be bound
by and to affirmatively assume identical duties and obligations in respect of
the MarkWest Interests as the Bank has done in respect of Energy Company's Share
of the LLC Units and the Company Assets), (b) be entitled to receive liens and
security interests in the LLC Units and the Company Assets on the same terms and
conditions as liens and security interests in the LLC Units and the Company
Assets have been granted to the Bank, and (c) be entitled to receive limited
recourse guaranties from Basin and West Shore in respect of MarkWest's
obligations to such Other Lenders on the same terms and conditions as the
guaranties made by Basin and West Shore in favor of the Bank.
9. Governing Law. This Agreement shall be governed by and construed in
--------------
accordance with the laws of the State of Michigan, without regard to the
conflict of laws principles of such State.
10. Equitable Remedies. The rights of the Bank, MarkWest and the Other
-------------------
Lenders pursuant to this Agreement shall be enforceable in any foreclosure
proceeding commenced with regard to any LLC Units or any Company Asset and shall
entitle the parties hereto to any and all equitable remedies appropriate to
protect their rights under this Agreement.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered as of the date first above written.
MARKWEST MICHIGAN LLC, a Colorado limited liability
company
By: MarkWest Hydrocarbon Partners, Ltd., its Manager
By: MarkWest Hydrocarbon, Inc., its General
Partner
By: /s/ Arthur J. Denney
Name: Arthur J. Denney
Title: Vice President
BASIN PIPELINE L.L.C., a Michigan limited liability
company
By: MarkWest Michigan LLC, its Manager
By: MarkWest Hydrocarbon Partners,
Ltd., its Manager
By: MarkWest Hydrocarbon,
Inc., its General Partner
By: /s/ Arthur J. Denney
Name: Arthur J. Denney
Title: Vice President
WESTSHORE PROCESSING COMPANY, L.L.C., a Michigan
limited liability company
By: MarkWest Michigan LLC, its Operator
By: MarkWest Hydrocarbon Partners, Ltd., its Manager
By: MarkWest Hydrocarbon, Inc., its General Partner
By: /s/ Arthur J. Denney
Name: Arthur J. Denney
Title: Vice President
<PAGE>
MICHIGAN ENERGY COMPANY, L..L.C., a
Michigan limited liability company
By: /s/ Michael V. Ronca
Name: Michael V. Ronca
Title: Manager
By: /s/ Michael V. Ronca
Name: Robert L. Zorich
Title: Manager
BANK OF AMERICA ILLINOIS
By: /s/ John H. Homier
Name:
Title:
<PAGE>
STATE OF TEXAS (S)
(S)
COUNTY OF HARRIS (S)
The foregoing instrument was acknowledged before me on this the 2nd day of
May, 1996, by Arthur J. Denney, the Vice President of MarkWest Hydrocarbon,
Inc., the General Partner of MarkWest Hydrocarbons Partners, Ltd., the Manager
of MarkWest Michigan LLC, a Colorado limited liability company, on behalf of
said company.
Note: Notary Stamp appears on original /s/ Mary Josephine Gordon
NOTARY PUBLIC, State of Texas
Mary Josephine Gordon
(printed name)
My commission expires:
STATE OF TEXAS (S)
(S)
COUNTY OF HARRIS (S)
The foregoing instrument was acknowledged before me on this the 2nd day of
May, 1996, by Arthur J. Denney, the Vice President of MarkWest Hydrocarbon,
Inc., the General Partner of MarkWest Hydrocarbons Partners, Ltd., the Manager
of MarkWest Michigan LLC, the Manager of Basin Pipeline L.L.C., a Michigan
limited liability company, on behalf of said company.
Note: Notary stamp appears on original
/s/ Mary Josephine Gordon
NOTARY PUBLIC, State of Texas
Mary Josephine Gordon
(printed name)
My commission expires:
<PAGE>
STATE OF TEXAS (S)
(S)
COUNTY OF HARRIS (S)
The foregoing instrument was acknowledged before me on this the 2nd day of
May, 1996, by Arthur J. Denney, the Vice President of MarkWest Hydrocarbon,
Inc., the General Partner of MarkWest Hydrocarbons Partners, Ltd., the Manager
of MarkWest Michigan LLC, the Operator of Westshore Processing Company, a
Michigan limited liability company, on behalf of said company.
Note: Notary stamp appears on original
/s/ Mary Josephine Gordon
NOTARY PUBLIC, State of Texas
Mary Josephine Gordon
(printed name)
My commission expires:
STATE OF TEXAS (S)
(S)
COUNTY OF HARRIS (S)
The foregoing instrument was acknowledged before me on this the _______ day
of May, 1996, by Michael V. Ronca and Robert L. Zorich, the Managers of Michigan
Energy Company, L.L.C., a Michigan limited liability company, on behalf of said
company.
NOTARY PUBLIC, State of Texas
(printed name)
My commission expires:
<PAGE>
Attachment A
<PAGE>
EXHIBIT Y
GAS TREATING
AND
PROCESSING AGREEMENT BETWEEN
WEST SHORE PROCESSING COMPANY, LLC
AND
SHELL OFFSHORE, INC.
May 1, 1996
<PAGE>
GAS TREATING AND PROCESSING AGREEMENT
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C>
Article I - Definitions.................................. 1
Article II - Scope and Term.............................. 6
Article III - Facilities................................. 7
Article IV - Quantity.................................... 8
Article V - Deliver of Gas............................... 12
Article VI-Quality....................................... 13
Article VII - Meters and Computation of Volumes.......... 15
Article VIII - Treating Products and NGL Plant Products.. 18
Article IX - Allocation and Plant Thermal Reduction...... 19
Article X - Consideration Due SOI........................ 21
Article XI - Natural Gas Liquid Recovery................. 23
Article XII - Billing and Payment........................ 25
Article XIII - Redelivery of Gas to West Shore........... 26
Article XIV -Unprofitability and Preferential Rights..... 27
Article XV - Payment of Royalty and Taxes................ 30
Article XVI - Laws, Regulations and Force Majeure........ 30
Article XVII - Miscellaneous............................. 32
Exhibit A................................................ 36
Exhibit B - Wells Producing SOI-Owned Gas................ 37
Exhibit C - Wells Producing West Shore Gas............... 38
Exhibit D - Lease........................................ 39
</TABLE>
<PAGE>
Draft of April 30, 1996
GAS TREATING AND
PROCESSING AGREEMENT
THIS GAS TREATING AND PROCESSING AGREEMENT "AGREEMENT") made and entered
into this day of , 1996, by and between WEST SHORE
PROCESSING COMPANY, LLC, hereinafter designated as "West Shore" and SHELL
OFFSHORE, INC., hereinafter referred to as "SOI".
WITNESSETH
WHEREAS, SOI owns and operates the Treating Plant (as defined below) in
Manistee County, Michigan, for the purpose of removing certain gas contaminants
from gas produced from the Manistee area; and
WHEREAS, West Shore owns or controls a sour gas pipeline extending from the
Ludington, Michigan area to the West Shore facility in Section 19 of Brown
Township, Manistee County, Michigan; and
WHEREAS, West Shore owns or controls the treating and processing rights of
certain sour gas being transported in said pipeline; and
WHEREAS, West Shore desires that such gas be treated for the removal of
certain gas contaminants, and desires to have SOI provide these Services to West
Shore in accordance with this Agreement.
NOW, THEREFORE, in consideration of the premises and of other valuable
considerations and of the agreements and covenants hereinafter contained, the
parties hereto agree as follows:
ARTICLE I
DEFINITIONS
For all purposes of this Agreement, the terms and expressions herein used
are defined as follows:
1.1 "Accounting Period" means a period of one month, commencing at
seven (7) o'clock a.m. local time on the first day of a calendar month and
ending at seven (7) o'clock a.m. local time on the first day of the next
succeeding month.
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<PAGE>
1.2 "ACID GAS" shall mean carbon dioxide (C02), hydrogen sulfide (H2s) and
any other gases containing sulfur, such as mercaptans and carbonyl sulfide
(COS).
1.3 "ACTUAL DOWNTIME PERCENTAGE" shall mean the amount of time, in hours,
during any given period of time, in hours, during which the Treating Plant is
not operational or otherwise not capable of receiving and treating the full
First Priority Capacity of West Shore in accordance with this Agreement,
expressed as a percentage. In determining the amount of downtime, downtime due
to (a) conditions of force majeure described in Sections 16.2 (i) and (iii), but
not conditions of force majeure described in section 16.2(ii), (b) activities
necessary for expanding the plant capacity, or (c) activities related to
restoring plant capacity pursuant to Section 4.3 shall be excluded. During each
calendar year, SOI shall be permitted up to a maximum of 10 days of downtime for
catalyst change out which days shall not be included as time during which the
Treating Plant is not operational in calculating downtime hereunder.
1.4 "BTU" (British Thermal Unit) shall mean the quantity of heat required
to raise the temperature of one (1) pound of pure water one (1) degree on the
Fahrenheit temperature scale (i.e. from 58.5 degrees to 59.5 degrees).
1.5 "DIRECT EXPENSES" shall mean all necessary and reasonable expenses
incurred by SOI at the Treating Plant location associated with the operation,
maintenance and repair of Treating Plant. Direct Expenses shall include, but not
be limited to, salaries, wages and expenses of Treating Plant employees,
including costs of holiday, vacation, sickness and disability expenses; actual
costs of employee benefits; the costs of material, equipment and supplies used
at the Treating Plant; and the cost of outside contract services, utilities and
equipment rental.
1.6 "PRIMARY TERM" Shall have the meaning given such term in section 2.3.
1.7 "EXPANDED CAPACITY" Shall have the meaning given such term in Section
4.7(a).
1.8 "EXPANSION RATIO" Shall have the meaning given such term in Section
4.7 (b).
1.9 "SLUG CATCHER" Shall have the meaning given such term in Section
6.1(a).
1.10 "TREATING PLANT FUEL" Shall have the meaning given
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<PAGE>
such term in Section 9.2 (b).
1.11 "PLANT THERMAL REDUCTION" Shall have the meaning given such term in
Section 9.2.
1.12 "THEORETICAL TOTAL GROSS HEATING VALUE" Shall have the meaning given
such term in Section 9.2(a).
1.13 "THEORETICAL VOLUME OF RESIDUE GAS" Shall have the meaning given such
term in Section 9.4.
1.14 "THEORETICAL FUEL" Shall have the meaning given such term in Section
9.4.
1.15 "BASE TREATING FEE" Shall have the meaning given such term in Section
10.1.
1.16 "INDEX" Shall have the meaning given such term in Section 10.1(b).
1.17 "MAKEUP PAYMENT" Shall have the meaning given such term in Section
14.1.
1.18 "THEORETICAL YEARLY TREATING REVENUE" Shall have the meaning given
such term in Section 14.1(b).
1.19 "UNECONOMIC" Shall have the meaning given such term in Section 14.2
(a).
1.20 "FIRST POINT OF DELIVERY" Shall mean the centerline of the upstream
flange of the block valve located at the interconnection of West Shore's
pipeline with the inlet facilities of the Treating Plant.
1.21 "FIRST PRIORITY CAPACITY" Shall mean capacity at the Treating Plant
for receiving, treating and redelivering West Shore Gas in accordance with the
specifications of this Agreement, which capacity shall be available to West
Shore at all times except for conditions of force majeure. First Priority
Capacity granted to West Shore is subject to SOI's right to use unutilized
portions as provided in Article IV, below.
1.22 "GAS" Shall mean all or any portion of the hydrocarbons and
concomitant material delivered to SOI's Treating Plant, as hereinafter defined.
"WEST SHORE GAS" shall mean all Gas owned or controlled by West Shore. "SOI-
OWNED GAS" shall mean all Gas attributable to oil and gas leasehold working
interests owned bY SOI. "THIRD-PARTY GAS" shall mean all Gas owned or controlled
by
3
<PAGE>
parties other than West Shore or SOI.
1.23 "GROSS HEATING VALUE" means the number of BTU's produced by the
combustion, at a constant pressure, of the amount of the Gas which would occupy
a volume of one (1) Cubic Foot at a temperature of sixty degrees Fahrenheit (60
degrees f), if saturated with water vapor and under a pressure equivalent to
that of thirty (30) inches of mercury at thirty-two degrees Fahrenheit (32
degrees f) and under standard gravitational force (acceleration 980.665
centimeters per second squared) with air of the same temperature and pressure as
the Gas, when the products of combustion are cooled to the initial temperature
of the Gas and air and when the water formed by combustion is condensed to the
liquid state.
1.24 "MCF" shall mean one thousand (1,000) standard cubic feet of Gas.
1.25 "MMBTU" shall mean one million (1,000,000) BTUs.
1.26 "MMCF" shall mean one million (1,000,000) standard cubic feet of Gas.
1.27 "NGL PLANT" shall mean the natural gas liquids plant to be installed
by West Shore and shall include facilities for the recovery of natural gas
liquids, depropanization, liquid storage, truck loading and hydrocarbon liquid
treating if required.
1.28 "NGL PLANT PRODUCTS" means finished commercial products and other
products, or any mixtures thereof, other than Residue Gas, which is from time to
time extracted or separated from the Treated Gas processed in the NGL plant,
including, but not limited to ethane, propane, iso-butane, normal butane, and
natural gasoline.
1.29 "PIPELINE" shall mean the sour gas gathering line extending from the
Ludington, Michigan area to the West Shore-operated facilities located in
Section 19, Township 22 North, Range 15 West of Manistee County, Michigan, and
any extensions theretO.
1.30 "RESIDUE GAS" means Gas, expressed in MMBTU's, remaining after the
extraction from the Treated Gas of NGL Plant Products, and after consumption of
NGL Plant Fuel, and after other Unmeasured Gas Uses and Losses incident to or
occasioned by the treating and processing of Gas hereunder.
1.31 "RESIDUE GAS DELIVERY POINT" means the point(s) at which the Residue
Gas is delivered by SOI at the tailgate of the NGL
4
<PAGE>
Plant.
1.32 "SCRUBBER LIQUIDS" shall mean any liquids recovered by SOI from Gas
entering the Treating Plant prior to treating by use of conventional mechanical
separation equipment.
1.33 "STANDARD CUBIC FOOT" shall mean the quantity of Gas which would
occupy one (1) cubic foot at a base temperature of sixty degrees Fahrenheit (60
degrees f) and at a pressure base of fourteen and sixty-five hundredths (14.65)
pounds per square inch absolute. Whenever the bases of pressure and temperature
differ from the above standard, conversion of the volume from these conditions
to the standard conditions shall be made in accordance with the Ideal Gas Laws.
1.34 "SULFUR NET BACK PRICE" shall equal the difference, if any, during any
12-month calendar year of (1) the Sulfur Rail Price per long ton multiplied by
the number of sulfur long tons sold, minus (2) trucking costs and other costs
directly attributable to the aforementioned sulfur so that the foregoing
calculation results in a net price at the Treating Plant for the sulfur.
1.35 "SULFUR RAIL PRICE" shall be defined as the net price received by SOI
for sulfur at the rail loading facilities.
1.36 "THERMAL CONTENT" for Gas means the product of the measured volume in
dry MCF's and the Gross Heating Value in dry BTU's per MCF, adjusted to the same
pressure base; for NGL Plant Products means the product of the gross heat of
combustion per gallon (BTU per gallon, fuel as ideal gas) multiplied by the
total gallons of the product stream. Numerical values for gross heat of
combustion per gallon shall be those published in the Standard Table of Physical
Constants of Paraffin Hydrocarbons in GPA Publication 2145-93, as revised.
1.37 "TREATED GAS" shall mean that portion of Gas delivered to the Treating
Plant which remains after removal of Scrubber Liquids, if any, removal of Acid
Gas, extraction of Treating Products, consumption as fuel in the Treating Plant
("Plant Fuel"), and after any unavoidable flare or loss of Treating Products or
Gas.
1.38 "TREATED GAS DELIVERY POINT" shall mean the point or points at or near
the outlet of the Treating Plant at which, prior to the installation of the NGL
Plant, Treated Gas is redelivered to West Shore or West Shore's designee, and at
which, after installation of the NGL Plant, Treated Gas is delivered to the NGL
Plant.
5
<PAGE>
1.39 "TREATING PLANT" shall mean the Sulfur Plant and associated
facilities presently owned by SOI, located in Section 23, Township 22 North,
Range 16 West in western Manistee County, Michigan.
1.40 "TREATING PRODUCTS" shall mean all sulfur and carbon dioxide contained
in the Gas which are removed therefrom by treating in the Treating Plant.
1.41 "UNMEASURED GAS USES AND LOSSES" means any Gas used, lost or not
otherwise accounted for in the Treating Plant or the NGL Plant incident to the
operation of the Treating Plant or the NGL Plant, including volumes of Gas
released through relief valves, ruptured pipelines or vessels, blow down of
vessels, etc.
ARTICLE II
SCOPE AND TERM
2.1 This Agreement supersedes, and shall replace in their entirety all
prior or existing contracts between the parties relating to the treating and/or
processing of West Shore's Gas by SOI at the Treating Plant, and upon completion
of the NGL Plant installation, that certain agreement between the SOI and West
Shore's predecessor-in-interest dated April 1, 1995, providing for the
processing of West Shore Gas at SOI's Kalkaska plant.
2.2 Delivery of Gas hereunder by West Shore shall commence as promptly
as is reasonably possible after the completion of the installation of the
facilities provided for in Article III hereof.
2.3 This Agreement shall be effective as of
, 1996, and shall remain in full force and effect for fifteen (15)
years following the first day of the month of initial delivery of Gas by West
Shore to SOI for treating (the "Primary Term"), subject to the rights of
termination as herein provided. After the Primary Term, this Agreement shall
remain in effect from year to year thereafter unless terminated by either
party's giving six months' prior written notice, or unless terminated as
provided hereinafter.
2.4 If West Shore is unable to deliver Gas to SO1 for treating at the
Treating Plant by June 1, 1997, then at either party's option, this Agreement
may be terminated upon written notice to the other party prior to July 1, 1997
and West Shore shall reimburse SOI, within thirty days' of receipt of an
itemized invoice, for all capital and Direct Expenses incurred by SOI, after
6
<PAGE>
January 1, 1996, in modifying the Treating Plant to the extent reasonably
required to treat West Shore's Gas.
2.5 The indemnity provisions of Articles 5.1 and 17.1 shall survive any
termination of this Agreement.
ARTICLE III
FACILITIES
3.1 West Shore or West Shore's designee, at its sole expense, shall
provide, operate and maintain the Pipeline and all facilities necessary to
separate, gather, condition for transporting and deliver to the First Point of
Delivery the Gas covered hereby, including, the pipeline facilities necessary to
deliver Gas from the Brown 19 Gas Plant to SOI's Treating Plant. Details of the
tie-in between West Shore's facilities and the Treating Plant such as schedule,
engineering design, construction responsibility, and minimum operating pressures
shall be agreed upon by both parties. Any capital expenditures (including the
purchase and installation of metering and sampling equipment) or Direct Expenses
incurred by SOI which are directly attributable to the tie-in of the West
Shore's facilities shall be paid by West Shore at one hundred percent of SOI's
actual cost. SOI will provide West Shore with an estimate of costs for any tie-
in work which proposed work and cost estimate shall conform to standards
generally accepted in the industry. The pipeline connecting West Shore to SOI
will be owned and operated by West Shore or its affiliate. SOI will own all
facilities downstream of the upstream flange of the block valve located at the
terminus of that pipeline, which shall include the metering facilities described
in Article VII, subject to West Shore's reimbursement obligations under Section
7.1. In addition, West Shore will install and operate, on West Shore's property,
all separation equipment required to deliver Gas meeting the specifications
contained in this Agreement; and SOI will provide West Shore, at no cost to West
Shore, with an easement in the area of SOI's Treating Plant site at which West
Shore may install slug catchers or other facilities to reduce or eliminate the
delivery of liquids to SOI.
3.2 SOI, or its designee, at its sole expense, shall provide, operate
and maintain all facilities necessary to treat and dehydrate West Shore's Gas
after delivery thereof by West Shore to SOI at the First Point of Delivery, and
SOI shall redeliver the resulting Treated Gas attributable to West Shore's Gas
(i) before the installation of the NGL Plant, to West Shore, or West Shore's
designee, at the Treated Gas Delivery Point, and (ii) after the
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<PAGE>
installation of the NGL Plant, to the NGL Plant at the Treated Gas Delivery
Point for processing under the terms hereof.
ARTICLE IV QUANTITY
4.1 The designated design treating capacity of the Treating Plant is 35
MMcf per day when treating Gas containing approximately 2.0% H2S with a designed
sulfur recovery capacity of twenty-five (25) long tons per day.Presently, the
Treating Plant is not capable of meeting design capacity performance without
additional modifications, and current operating capacity is approximately 12.5
long tons per day of sulfur recovery.
4.2 Notwithstanding the above, SOI hereby agrees to provide West Shore
First Priority Capacity equal to the lesser of (i) thirty (30) MMcfD (21.4 long
tons per day of sulfur capacity), subject to increases under Section 4.7, below,
or (ii) the capacity of the Treating Plant, subject to increases under Section
4.7, below, until this Agreement is terminated. That First Priority Capacity
shall have a higher priority than any other Gas received by SOI for treating at
the Treating Plant; provided the First Priority Capacity shall be subordinate to
SOI-Owned Gas production from wells described on Exhibit "B", limited to the
greater of five (5) Mmcf/d of SOI-Owned Gas production or 6 long tons per day of
sulfur recovered from that Gas production. As SOI's production from wells
described on Exhibit "B" declines, the resulting available capacity shall first
be allocated to West Shore until West Shore has the full First Priority Capacity
described above (subject to SOI's rights as to unutilized First Priority
Capacity under Section 4.4, below).
4.3 Upon written notice from West Shore substantiating to SOI's reasonable
satisfaction that West Shore requires the Treating Plant capacity to be restored
to its design capacities specified in 4.1, above, SOI shall exercise good faith
efforts to restore at its sole expense, within six (6) months following receipt
of that notice, the actual treating capacity of the Treating Plant to treat a
minimum of thirty-five (35) MMcf/d of Gas (meeting the specifications in Article
VI), subject to the provisions below. Should the hydrogen sulfide content of
West Shore's Gas exceed two percent (2.0%), the treating capacity shall be
redefined as the product of (1) thirty-five (35) MMcf/d, and (2) a fraction, the
numerator of which is two percent (2%) and denominator of which shall be the
actual hydrogen sulfide content of West Shore's Gas, expressed as a percentage.
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<PAGE>
4.4 During any period that West Shore is not utilizing its full First
Priority Capacity for treating Gas at the Treating Plant, SOI shall have the
right to use any portion of the unutilized First Priority Capacity for treating
SOI-Owned Gas or Third-Party Gas by providing written notice to West Shore of
its intention to use a portion of the unutilized First Priority Capacity,
stating the quantity to be used. SOI's right to use unutilized First Priority
Capacity of West Shore shall be subject to the recall of that First Priority
Capacity upon 72 hours advance notice by West Shore; provided, West Shore
covenants with SOI and represents to SOI that it will not recall First Priority
Capacity in quantities greater than that required for the quantity of proven
deliverability of West Shore Gas then available from wells connected to the
wellhead facilities of West Shore and as necessary to fulfill contractual
arrangements to which it is, from time to time, a party.
4.5 During any period of time in which the Treating Plant is partially
shut down for any reason or in the event the Treating Plant is not able to treat
all of the Gas delivered (both from SOI, West Shore and/or Third-Party Gas) SOI-
Owned Gas shall be given the highest priority in the use of Treating Plant
capacity up to a maximum of the greater of (i) five (5) MMcf/d of Gas production
or (ii) the equivalent of six (6) long tons per day of sulfur. West Shore's
First Priority Capacity shall be given second highest priority of the Treating
Plant capacity. All other Gas, including SOI-Owned Gas in excess of five (5)
MMcf/d of Gas production or the equivalent of six (6) long tons per day of
sulfur shall be subordinate to the First Priority Capacity of West Shore.
4.6 West Shore agrees that all Gas from wells listed on the attached
Exhibit C, (other than Antrim formation gas and gas that does not require
treating), which is owned or controlled by West Shore, will be transported in
the Pipeline and will be delivered to the Treating Plant for treating for the
term of this Agreement; and during periods when the Pipeline is transporting Gas
in quantities substantially equal to its capacity, then West Shore may deliver
Gas volumes to the Treating Plant equivalent to the volumes produced from the
wells listed on Exhibit C, without regard to source. The sale or transfer of any
wells owned by West Shore and described on Exhibit C shall be made expressly
subject to the terms of this Agreement. Further, and notwithstanding anything
contained in this Agreement to the contrary, the treating of Antrim formation
gas is not included within this Agreement. West Shore shall have the right to
add to this Agreement (by providing SOI with an amended Exhibit C reflecting
such additional wells) at any time during the term of this Agreement and at the
terms of this Agreement any additional wells producing West Shore Gas.
9
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4.7 (a) At any time during the term of this Agreement, West Shore
may request that SOI expand, or SOI may determine to expand by providing written
notice of such request or determination to the other party (in either case, such
notice shall be referred to herein as the "Expansion Notice"), the Treating
Plant in order to treat Gas at a rate in excess of [CONFIDENTIAL TREATMENT
REQUESTED],and SOI will expand the Treating Plant up to a capacity equal to the
then existing capacity plus the additional amount of capacity requested in such
Expansion Notice Any capacity in excess of [CONFIDENTIAL TREATMENT REQUESTED]
shall be referred to as "Expanded Capacity", and capacity up to [CONFIDENTIAL
TREATMENT REQUESTED] shall be referred to as "Base Capacity". At the time that
West Shore or SOI provides Expansion Notice to the other party, SOI and West
Shore will each identify all wells for which such expansion is required and the
treating fees under which the gas will be treated. This provision for expansion
of the Treating Plant shall not expire upon its application but may be exercised
from time to time for additional expansions in increments as set forth in an
Expansion Notice provided by either party, and the remaining provisions of this
Section 4.7 shall likewise apply to each such additional expansion modified as
applicable to such additional expansion in accordance with the terms hereof.
(b) Before commencing that expansion but not more than 120 days
from the date of West Shore's or SOI's Expansion Notice, SOI will (i) provide
West Shore with a detailed estimate of the total costs to be incurred in
providing that Expanded Capacity referred to in the Expansion Notice, (ii) (A)
provide West Shore with an election as to whether or not SOI will participate in
up to 55% of those costs to the extent related to Expanded Capacity to treat all
Gas other than SOI-Owned Gas ("Expansion Ratio"), if West Shore is the party
providing the Expansion Notice, or (B) provide West Shore with an option,
exercisable within 30 days from the date of notification of estimated total
costs, as to whether or not West Shore will participate in up to 1 minus the
Expansion Ratio of those costs to the extent related to Expanded Capacity to
treat all Gas other than SOI-Owned Gas, if SOI is the party providing the
Expansion Notice; provided further, if West Shore elects not to participate in
an expansion, SOI may participate in 100% of the Treating Plant expansion and
(iii) in the case of any Expansion Notice submitted by West Shore, obtain from
West Shore written confirmation to proceed with the expansion. In all events,
SOI will pay 100% of the costs related to the Expanded Capacity to be utilized
for SOI-Owned Gas.
(c) In addition to the treating fees described in Article X, West
Shore will pay to SOI in thirty-six (36) equal monthly payments a fee which will
allow the recovery of [CONFIDENTIAL TREATMENT REQUESTED] of the actual capital
and Direct Expenses incurred by SOI in the expansion, for which West Shore is
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<PAGE>
responsible based upon (b), above. Such payments shall begin on the first day
of the calendar month following the date upon which the Expanded Capacity is
available to West Shore. After West Shore has completed its thirty-six month
payment obligation, West Shore will cease paying SOI for reimbursement of
expansion expenses and will then pay only the treating fees described in Article
X. To secure payment of these expenses, upon the written request of SOI, West
Shore will provide a third party guarantee or letter of credit acceptable to SOI
in advance of SOI incurring the subject expense. At West Shore's discretion,
West Shore may elect to directly fund its proportionate share of the actual
capital and Direct Expenses, for which it is responsible, associated with this
expansion. Should West Shore choose this option, SOI will furnish West Shore an
estimate of the total initial cost expected to be associated with said expansion
and West Shore will furnish SOI, before the beginning of each month, with a
certified check for one hundred percent of the total estimated expansion costs,
for which West Shore is responsible, to be incurred in that month. SOI will
apply any overpayment from one month to amounts due for the next succeeding
month, and West Shore will make up any shortfalls in those costs in a month in
the payment for the next succeeding month.
(d) SOI shall retain one hundred percent of the ownership of the
Treating Plant and payment of these expenses shall not entitle West Shore to any
ownership interest whatsoever in the Treating Plant.
(e) If SOI elects not to participate in the expansion, then in
addition to payments for the recovery of SOI's actual capital and Direct
Expenses, West Shore shall continue to pay a treating fee as specified in
Article X. Should SOI in good faith incur additional operating expenses as a
result of the Treating Plant expansion to handle additional West Shore Gas, West
Shore agrees to reimburse SOI for those incremental unrecovered expenses in
addition to paying all treating fees specified in Article X. The monthly
incremental operating expense shall not exceed five cents per MCF of incremental
capacity plus escalation as calculated in accordance with Article X.
(f) If West Shore Gas deliveries from the wells listed on Exhibit
C decreases below the First Priority Capacity described in Section 4.2, then
West Shore may add additional wells to this Agreement, and until the aggregate
of deliveries from the wells listed on Exhibit C together with deliveries from
such new wells exceeds the First Priority Capacity, then the Gas from those new
wells will be added under the terms of section 4.4 and 4.6 and shall be deemed
to use the Base Capacity and not the Expanded Capacity.
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(g) If either party not initiating an Expansion Notice elects to
participate in such Expanded Capacity of the expansion under 4.7(b)(ii), above,
then with respect to all volumes delivered to the Treating Plant from the
additional wells attributable to such Expanded Capacity identified herein under
4.7 (a) and for any subsequent well, whether owned or controlled by SOI or West
Shore, for which the Gas is treated at the Treating Plant and for which the
Expanded Capacity is required, either initially or at any time thereafter, to
treat any portion of the Gas produced from such subsequent well, the following
shall be allocated to SOl in a proportion equal to the Expansion Ratio and to
West Shore in a proportion equal to 1 minus the Expansion Ratio.:
i. The incremental operating costs attributable to operating
all of the Expanded Capacity (which, in the case of West
Shore, shall be in lieu of any volumetric treating fees for
West Shore Gas utilizing the Expanded Capacity);
ii. The treating revenues received by either SOI or West
Shore for Gas which is being treated utilizing the Expanded
Capacity, excluding, however, SOl-Owned Gas on which West
Shore will not participate in revenues.
(h) At the completion of construction of said Expanded Capacity,
the term of this Agreement shall be extended to the greater of (i) ten (10)
years following the date that the said expansion is completed, or (ii) the
expiration of the otherwise effective Primary Term under Section 2.3.
(i) SOI and West Shore agree that neither party shall contract to
utilize the Expanded Capacity to treat Gas at the Treating Plant under a
contract in which the full compensation is not derived solely from treating
fees.
ARTICLE V
DELIVERY OF GAS
5.1 The Gas to be treated and processed hereunder shall be delivered by
West Shore to SOI at the First Point of Delivery for the sole account of West
Shore. West Shore represents and warrants that it owns and/or has the right to
have treated and processed all Gas delivered by West Shore to the First Point of
Delivery and to recover remove and sell any and all extractable or recoverable
components, including Treating Products, NGL Plant Products, and
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Scrubber Liquids, as are contained in the Gas delivered by West Shore. If the
right or title of West Shore is involved in any claim, action or litigation,
West Shore shall indemnify SOI against any loss, damage, claim, suit, judgment,
liability, cost and expense (including reasonable attorneys' fees) and other
costs of litigation in connection with such claims and actions, and further, SOI
may refuse to accept deliveries of the affected Gas from West Shore until said
right or title issue is cleared to SOI's reasonable satisfaction, or until West
Shore provides a bond or other surety reasonably acceptable to SOI to protect
SOI.
5.2 Until installation of the NGL Plant, West Shore shall deliver the Gas
at a pressure sufficient to overcome the operating pressure of the pipeline
system receiving the Gas; however, in no event shall such delivery pressure
exceed the maximum allowable operating pressure of the system receiving the Gas.
Subject to the provisions of Articles IV and VI hereof, and except as otherwise
provided herein, SOI shall accept delivery of West Shore's Gas from West Shore
at the First Point of Delivery for treating hereunder.
5.3 After the installation of the NGL Plant, West Shore shall deliver the
Gas at a pressure sufficient to operate the NGL plant, but in no event shall
West Shore deliver the Gas at a pressure of less than 700 psig or shall such
delivery pressure exceed the maximum allowable operating pressure of the system
receiving the Gas. West Shore shall install as part of the NGL Plant sufficient
gas compression equipment to overcome the operating pressure of the pipeline
system receiving the Gas.
ARTICLE VI
QUALITY
6.1 West Shore's Gas delivered hereunder shall be as produced in its
natural state except that said Gas shall be of such quality as to meet the
following quality specifications, and except for compositional changes due to
the operation of the separation equipment of West Shore required under Article
III, and due to dehydration of the Gas before delivery:
(a) Be commercially free of liquid hydrocarbons and liquid water that can
be removed with ordinary mechanical separators at a location no further upstream
of the Treating Plant than the Brown 19 facility. More specifically, West Shore
shall continue to operate and maintain the liquid separation facilities ("Slug
Catcher") at the Brown 19 Facility or another facility chosen by West Shore;
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(b) Be commercially free of grease, dust, gum, gum forming constituents,
and other foreign substances, gasoline and other solid and/or liquid matter that
can be removed with ordinary field separators;
(c) Contain not more than three percent (3.0%)by volume hydrogen sulfide;
(d) Contain not more than five percent (5.0%) by volume carbon dioxide (it
being understood however, that the designated capacity under Section 4.1 can
only be guaranteed when West Shore's Gas contains not more than three and six
tenths percent (3.6%) by volume carbon dioxide; provided, that SOI will make
available all portions of West Shore's First Priority Capacity that it is
otherwise able to provide when West Shore's Gas exceeds three and six tenths
percent (3.6%) by volume carbon dioxide);
(e) Contain not more than one-tenth of one percent (0.1%) by volume
oxygen;
(f) Contain a Gross Heating Value of at least 1000 BTUs per standard cubic
foot at 14.65 psia dry;
(g) Contain not more than one thousand (1000) parts per million by weight
total sulfur, excluding sulfur contained in hydrogen sulfide;
(h) Have a temperature not exceeding one hundred twenty degrees Fahrenheit
( 120 degrees F); and
(i) Not contain any solid-forming component in a concentration which could
cause the formation of solid material at any point in the Treating Plant which
in turn could result in an impairment to the operation of the Treating Plant.
6.2 The delivery of any liquids by West Shore to SO1 may cause SOI to
incur significant costs for the recovery and disposal of such liquids. If any
Scrubber Liquids are recovered from West Shore's Gas stream, SOI may, at its
option, dispose of those liquids and bill West Shore for the disposal costs, or
require West Shore to dispose of those liquids. If after providing West Shore
thirty (30) days notice that the Gas delivered by West Shore contains
nonconforming amounts of liquid hydrocarbons, SOI may refuse to accept some or
all of West Shore's Gas, at no cost to SOI, until (a) SOI is able, at its
discretion, to blend the liquids delivered by West Shore into its own oil
facilities, and/or (b) West Shore has remedied, to SOI's reasonable
satisfaction, the situation that caused the delivery of such liquids. In the
event
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of such refusal by SOI to accept Gas, West Shore shall not be relieved of any of
its financial obligations hereinafter described in this Agreement, including the
obligation to pay a fixed monthly treating fee as hereinafter described in
Article 10.1.
6.3 SOI shall have the option from time to time to accept Gas even if the
above quality specifications are not met; provided, however, that such
acceptance shall not operate as a waiver of such quality specifications and SOI
may decline to accept Gas which at any time does not meet such specifications.
It is further provided, that SOI shall not cease receiving West Shore Gas that
fails to conform to any of the specifications set forth in Section 6.1 unless
SOI also ceases to receive all other Gas which does not meet the specifications
set forth in Section 6.1.
ARTICLE VII
METER AND COMPUTATION OF VOLUMES
7.1 West Shore shall reimburse SOI for its actual, documented, out of
pocket expenses incurred in acquiring and installing the measuring equipment and
a continuous sapling device or a chromatograph as required for the accurate
measurement of the volume and heating content of West Shore's Gas delivered for
treating hereunder. Where available, SOI shall use "Good Used Material" in SOI's
inventory, and will charge West Shore for such material at seventy-five percent
(75%) of current new price of that material, plus the cost of reconditioning, if
any. SOI or SOI's designee shall maintain and operate, or cause to be maintained
and operated, at no cost or expense to West Shore, that measuring equipment.
7.2 In addition to the metering equipment referenced in Section 7.1, SOI
shall install, operate and maintain, or cause to be installed, operated and
maintained, a suitable meter or meters and/or other necessary equipment for the
purpose of measuring the following:
(a) The volume of each type of Treating Product recovered from West Shores
Gas and from Gas delivered to the Treating Plant from other sources.
(b) The volume, heating content and composition of Gas delivered to the
Treating Plant from sources other than West Shore.
7.3 SOI's measurement equipment shall be used in determining the total
Treating Plant Fuel and PTR (as defined in Article IX
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hereof) in treating West Shore's Gas hereunder.
7.4 In the event of Treating Plant or Pipeline emergency conditions and/or
circumstances which, in the sole judgment of SOI, necessitate venting or flaring
or cause other losses of West Shore's Gas delivered hereunder, the volume of
West Shore's Gas so vented, flared, or otherwise lost shall be reasonably
estimated by SOI. West Shore shall not be entitled to any compensation for any
of its Gas lost under these circumstances but SOI shall not charge any
volumetric treating fee for treating such Gas.
7.5 a. The volume of West Shore's Gas delivered for treating hereunder,
the total volume of Gas delivered from all sources to SOI's Treating Plant and
the total volume of Gas consumed as Treating Plant fuel shall be measured by
orifice meters of standard make and manufacture, producing a permanent record.
Said orifice meters shall be installed and operated, and computations shall be
made, as prescribed in Gas Measurement Committee Report No. 3 of the American
Gas Association, as such report may be amended or revised from time to time.
b. The unit of volume shall be one (1) cubic foot of Gas at a base
temperature of sixty degrees Fahrenheit (60 degrees F) and at a pressure base of
fourteen and sixty-five hundredths (14.65) pounds per square inch absolute.
Whenever the bases of pressure and temperature differ from the above standard,
conversion of the volume from these conditions to the standard conditions shall
be made in accordance with the Ideal Gas Laws.
c. Temperature shall be determined by use of a recording
thermometer so installed that it may continuously record the temperature of Gas
passing through the meters, or the temperature of the Gas shall be measured by a
temperature transmitter or a resistance temperature device (RTD) and the value
inputted on a continual basis into a flow computer for use in the computation of
the Gas flow.
d. The specific gravity shall be determined in the same manner as
gross heating value of West Shore's Gas as specified in Article 7.4.
e. Corrections for deviation from Ideal Gas Laws shall be made for
all Gas metered hereunder. Such corrections shall be made by use of the American
Gas Association Manual for the Determination of Supercompressibility Factors for
Natural Gas (PAR) Project NX-t9) as the same may be amended or revised from time
to time.
f. The accuracy of all measuring equipment specified in
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this Agreement shall be verified at least once each calendar month. Each party
shall have the right to be present at the time of any installing, reading,
cleaning, changing, repairing, inspecting, testing, calibrating, or adjusting
done in connection with the other's measuring equipment used in any measuring
required hereunder. If, after twenty-four (24) hours notice, the other party
fails to have a representative present, the results of the test shall be
considered accurate until the next tests are made. All tests of West Shore's
measuring equipment shall be made at West Shore's sole expense and all tests of
SOI's measuring equipment shall be made at SOI's sole expense, except that any
party requesting additional tests shall bear the sole expense of any such
additional tests where the results of such additional tests show any
inaccuracies in the measuring equipment tested to be one percent (1%) or less.
g. If at any time any of the measuring or testing equipment is
found to be out of service or registering inaccurately in any percentage, it
shall be adjusted at once to register accurately, within the limits prescribed
by the manufacturer. If such equipment is out of service or inaccurate by an
amount exceeding one percent (1%) at a reading corresponding to the average rate
of flow for the period since the last preceding test, the previous readings of
such equipment shall be disregarded for any period definitely known or agreed
upon, or for a period of one-half of the time elapsed since the last test of the
measuring equipment affected, not to exceed sixteen (16) days. The volume of Gas
measured during such period shall be estimated by (a) using the data recorded by
any check measuring equipment, if installed, and registering accurately, or if
not installed or not registering accurately, (b) by correcting the error if the
percentage of error is ascertainable by calibration, test, or mathematical
calculation, or if neither such method is feasible, (c) by estimating the
quantity or quality measured, based upon deliveries under similar conditions
during a period when the equipment was registering accurately. No correction
shall be required for recorded inaccuracies of one percent (1%) or less.
h. At all times during business hours, West Shore and SOI shall
have the right to inspect equipment installed or furnished by the other and the
charts and other measurement or testing data of the other. However, the reading,
calibration and adjustment of SOI's measuring equipment and changing of the
associated charts shall only be performed by SOI. Likewise, the reading,
calibration and adjustment of West Shore's Gas measuring equipment and changing
of the associated charts shall only be performed by West Shore.
i. SO1 and West Shore shall preserve all original test
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<PAGE>
data, charts, and other similar records in their possession for a period of at
least two (2) years, or longer if required by law or regulation.
7.6 a. The Gross Heating Value of West Shore's Gas shall be determined
each calendar month by continuous sampler or continuous gas chromatography. SOI
shall compute, or cause to be computed, the Gross Heating Value of West Shore's
Gas from chromatographic analysis of a sample of its Gas. The result shall be
applied to West Shore's Gas deliveries for the calendar month when the sample is
taken; provided, however, that upon request of West Shore, SOI shall take a
second duplicate sample and furnish same to West Shore as a check on the Gross
Heating Value of West Shore's Gas. Gross Heating Value so determined shall be
corrected from the condition of testing to the actual water vapor content of
West Shore's Gas as delivered. For purposes of this Agreement, hydrogen sulfide
shall have a Gross Heating Value of zero.
b. In the event of a dispute between the parties as to the
composition of West Shore's Gas as determined in accordance herewith, another
sample shall be taken immediately and sent to an independent testing laboratory
acceptable to both parties for determination of the composition of West Shore's
Gas in accordance herewith. The results of that laboratory testing will be
binding on both parties for the month for which the sample was taken.
ARTICLE VIII
TREATING PRODUCTS AND NGL PLANT PRODUCTS
8.1 Subject to the following, title to West Shore's Gas and the resulting
Treated Gas and Residue Gas shall remain with West Shore upon delivery of such
Gas to SOI at the First Point of Delivery. Title to any Treating Products and
Scrubber Liquids shall pass to SOI upon delivery of West Shore's Gas at the
First Point of Delivery. Title to all NGL Plant Products attributable to West
Shore's Gas shall remain with West Shore.
8.2 Should carbon dioxide ever be recovered as a Treating Product, title
to such carbon dioxide shall pass to SOI upon delivery of West Shore's Gas at
the First Point of Delivery and West Shore will be entitled to no compensation
for said carbon dioxide.
8.3 Determinations of the hydrogen sulfide content of West Shore's Gas
shall be made by SOI at SOI's sole cost and expense monthly by gas
chromatography or by any other method mutually agreed upon by the parties for
testing Gas for hydrogen sulfide
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content. The quantity of sulfur resulting from the recovery of hydrogen sulfide
attributable to Gas delivered to the Treating Plant by West Shore at the First
Point Of Delivery shall be determined by multiplying the total quantity of
sulfur recovered and saved in the Treating Plant each month by a fraction, the
numerator of which is the quantity of hydrogen sulfide in the Gas delivered to
the Treating Plant by West Shore, and the denominator of which is the total
quantity of hydrogen sulfide contained in all Gas delivered to the Treating
Plant from all sources.
8.4 SOI shall give West Shore reasonable notice of tests to determine
hydrogen sulfide content so that West Shore may witness such tests if it so
desires.
8.5 All sulfur recovered from West Shore's Gas shall be retained and
marketed by SOI. In the event that the Sulfur Net Back Price, determined over
any 12-month calendar year beginning January 1, 1997, should be a negative
amount, West Shore shall reimburse SOI for the net negative amount of the Sulfur
Net Back Price determined for that particular 12-month calendar year. If the
Sulfur Net Back Price over any 2 consecutive year period is negative, then in
addition to reimbursing SOI for that Sulfur Net Back Price, West Shore shall
also commence paying SOI a marketing fee of $5.00 per long ton of sulfur for as
long as the Sulfur Net Back Price continues to be a negative amount.
8.6 All NGL Plant Products shall be delivered to West Shore, or for West
Shore's account at the outlet of the NGL Plant Product recovery facilities at
the NGL Plant.
ARTICLE IX
ALLOCATION AND PLANT THERMAL REDUCTION
9.1 The Treated Gas, as determined by measurement at the Treated Gas
Delivery Point, shall be allocated among the various producers delivering Gas to
SOI by multiplying the total actual measured Thermal Content of Gas remaining
after treating all Gas delivered to SOI by a fraction, the numerator of which is
the Thermal Content of West Shore's Gas delivered at the First Point of Delivery
and the denominator of which is the Thermal Content of all Gas, including West
Shore's Gas, delivered to SOI during the same period.
9.2 It is recognized that there will be a reduction in Gas volumes and
associated MMBTUs in the Gas delivered to SOI attributable to the processing of
the Treated Gas for NGL Plant Product recovery, and attributable to the use of
such Gas as
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Treating Plant Fuel and NGL Plant Fuel, the flaring of such Gas, and other uses
of such Gas incident to or occasioned by treating and processing of the Gas and
the extraction of Scrubber Liquids, if any. Said reduction in Gas volumes and
associated MMBTUs, herein called Plant Thermal Reduction ("PTR"), shall be
accounted for (except with respect to Scrubber Liquids) on a monthly basis, and
shall be calculated and allocated to each party furnishing Gas to the Treating
Plant and NGL Plant in accordance with the following:
a. That portion of an individual NGL Plant Product at the NGL Plant which
is attributable to each Gas stream shall be determined by multiplying the total
volume, expressed in gallons, of each individual NGL Plant Product recovered in
the NGL Plant during such Accounting Period by a fraction, the numerator of
which shall be the "Theoretical total Gross Heating Value" of that NGL Plant
Product contained in West Shore's Gas entering the Treating Plant which is
delivered during the Accounting Period, and the denominator of which shall be
the "Theoretical total Gross Heating Value" of that NGL Plant Product contained
in each Gas stream delivered to the NGL Plant during such Accounting Period. The
"Theoretical total Gross Heating Value" of an NGL Plant Product in any stream of
Gas shall be calculated by multiplying the Gross Heating Value of that NGL Plant
Product determined from chromatographic analysis by the quantity of NGL Plant
Product in that Gas stream.
b. The PTR shall be separately calculated as to each Gas stream delivered
to the First Point of Delivery (including West Shore's Gas Stream) and shall be
the sum of the following:
i. The Thermal Content of the NGL Plant Products allocated to the
Gas stream; plus
ii. The Thermal Content of each Gas stream consumed as Treating Plant
Fuel, as defined in Section 9.4 in treating such Gas and the Thermal Content of
each Gas stream consumed as NGL Plant Fuel as defined in Section 9.5. in
processing such Gas.; plus
iii. The Thermal Content of each Gas stream consumed as Unmeasured Gas
Uses and Losses in treating and processing such Gas.
9.3 The Residue Gas, as determined by measurement at the Residue Gas
Delivery Point, shall be allocated among the various parties delivering Gas to
SOI by multiplying the total actual measured Thermal Content of Residue Gas by a
fraction, the numerator of which is the "Theoretical Volume of Residue Gas"
remaining from each Gas stream and the denominator of which is the "Theoretical
Volume of Residue Gas" remaining from all Gas,
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including West Shore's Gas, delivered to the NGL Plant during the Accounting
Period. The "Theoretical Volume of Residue Gas" shall be determined by
subtracting the PTR, as determined above, from the Thermal Content determined at
the First Point of Delivery.
9.4 The total fuel used in all Treating Plant treating and related
operations ("Treating Plant Fuel") shall be measured. Whenever practical, SOI
shall use Residue Gas for fuel. The quantity of Treating Plant Fuel attributable
each Gas stream shall be determined by multiplying the total fuel actually used
by a fraction, the numerator of which is the total Theoretical Fuel attributable
to the deliveries from such Gas and the denominator of which is the "Theoretical
Fuel" attributable to production or deliveries from all Gas treated at the.
Treating Plant. The Theoretical Fuel for each Gas or liquid stream is the
product of (i) the applicable fuel factor for all operations requiring fuel
involved in treating the particular stream and (ii) the particular stream
production rate. SOI, shall determined by sound engineering estimates performed
by SOI on an annual basis, (i) the applicable fuel factor, and (ii) the
operations for which fuel shall be allocated (the operations for which fuel is
currently being allocated include separator preheating, sour gas treating, oil
treating, produced water disposal, gas dehydration, and compression). Promptly
after making its determination, SOI shall furnish West Shore with written
statements specifying the applicable fuel factor and the operations requiring
fuel, together with its basis for those determinations. Since separator pre-
heating, oil treating, produced water disposal and compression (excluding
compression used in the NGL Plant operations) are not included in this
Agreement, fuel shall not be allocated for Gas delivered by West Shore.
9.5 The total fuel used in all NGL Plant operations ("NGL Plant Fuel")
shall be measured. The quantity of NGL Plant Fuel attributable to each Gas
stream shall be determined by multiplying the Thermal Content of the NGL Plant
Fuel used by a fraction, the numerator of which is the Thermal Content of each
Gas stream at the First Point of Delivery which is further processed at the NGL
Plant and the denominator of which is the Thermal Content of all Gas delivered
at the First Point of Delivery, which is further processed at the NGL Plant.
ARTICLE X
CONSIDERATION DUE SOI
10.1 (a) West Shore shall pay SOI a monthly treating fee ("Base
Treating Fee") of [CONFIDENTIAL TREATMENT REQUESTED]. The Base
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Treating Fee shall commence upon the delivery of Gas from West Shore to the
First Point of Delivery. The first month in which the Base Treating Fee shall
apply will be adjusted on a prorata basis to the days utilized during the month.
(b) The Base Treating Fee shall be subject to annual adjustment
beginning April 1, 1997, and on each April 1, thereafter. The Base Treating Fee
shall be adjusted in proportion to the change in the "Average Weekly Earnings of
Crude Petroleum and Gas Production Workers" ("Index") for the previous calendar
year as compared to the Index for the calendar year of 1995, as published by the
United States Department of Labor, Bureau of Labor Statistics. If the resulting
fee is less than the fee for the previous year, then the fee for the previous
year shall be used.
10.2 In addition to the Base Treating Fee specified in Article 10.1, West
Shore will pay SOI a volumetric treating fee of [CONFIDENTIAL TREATMENT
REQUESTED] for the West Shore Gas stream delivered to the Treating Plant. This
volumetric fee, as well as all incremental fees subsequently described in this
Article shall be subject to annual adjustment beginning April 1, 1997, and on
each April 1, thereafter. Those fees shall be adjusted in proportion to the
change in the "Average Weekly Earnings of Crude Petroleum and Gas Production
Workers" ("Index") for the previous calendar year as compared to the Index for
the calendar year of 1995, as published by the United States Department of
Labor, Bureau of Labor Statistics. If the resulting fee(s) is less than the
fee(s) for the previous year, then the fee(s) for the previous year shall be
used. If, at any time, West Shore's Gas deliveries averaged over the number of
days SOI operated its Treating Plant during a calendar month exceed
[CONFIDENTIAL TREATMENT REQUESTED] then the volumetric treating fee for the
incremental volume shall be reduced from [CONFIDENTIAL TREATMENT REQUESTED] to
[CONFIDENTIAL TREATMENT REQUESTED] for that particular month. (Example: At
[CONFIDENTIAL TREATMENT REQUESTED], the treating fee paid would be [CONFIDENTIAL
TREATMENT REQUESTED] for the first [CONFIDENTIAL TREATMENT REQUESTED] and
[CONFIDENTIAL TREATMENT REQUESTED] for the remaining [CONFIDENTIAL TREATMENT
REQUESTED]. Furthermore, should West Shore's Gas deliveries averaged over the
number of days SOI operated its Treating Plant during a calendar month exceed
[CONFIDENTIAL TREATMENT REQUESTED], then the volumetric treating fee for the
incremental volume over [CONFIDENTIAL TREATMENT REQUESTED] shall be reduced from
[CONFIDENTIAL TREATMENT REQUESTED] to [CONFIDENTIAL TREATMENT REQUESTED] for
that particular month. Example: At [CONFIDENTIAL TREATMENT REQUESTED], the
treating fee paid would be [CONFIDENTIAL TREATMENT REQUESTED] for the first
[CONFIDENTIAL TREATMENT REQUESTED] for the second [CONFIDENTIAL TREATMENT
REQUESTED] and [CONFIDENTIAL TREATMENT REQUESTED] for the remaining
[CONFIDENTIAL TREATMENT REQUESTED].
10.3 Should SOI commence charging any third party treating fees less than
[CONFIDENTIAL TREATMENT REQUESTED], then, effective on the date upon which SOI
commences that fee and for so long as that fee is in effect, the Base Fee
hereunder shall be reduced by an amount equal
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to [CONFIDENTIAL TREATMENT REQUESTED] of the otherwise applicable Base Fee
for each [CONDIDENTIAL TREATMENT REQUESTED] that the lowest third party
treating fee is below [CONFIDENTIAL TREATMENT REQUESTED].
10.4 (a) In the event the Treating Plant experiences Actual Downtime
Percentage, during any month, of 5% or more, SOI shall reduce the Base Treating
Fee for that month by the Actual Downtime Percentage of the Treating Plant. The
foregoing reduction shall not be effective during any period in which reductions
under paragraph (b) below are applicable.
(b) In the event the Treating Plant experiences Actual Downtime
Percentage, exceeding the amounts specified in the following table, averaged
over any six (6) continuous fixed calendar month period, then the Base Treating
Fee and the volumetric treating fees, above, shall be reduced by the
corresponding percentage, retroactive to the beginning of that 6-month period,
and within 10 days of the determination that the Actual Downtime Percentage
exceeded those allowances, SOI shall refund to West Shore the fees representing
the following reductions:
<TABLE>
<CAPTION>
Actual Downtime Percentage Reduction in Fees
- --------------------------- -----------------
<S> <C>
10% to 14.99% [CONFIDENTIAL TREATMENT REQUESTED]
15% to 19.99% [CONFIDENTIAL TREATMENT REQUESTED]
20% or greater [CONFIDENTIAL TREATMENT REQUESTED]
</TABLE>
Once a refund has been paid for any 6-month period, the foregoing shall not be
applied to require the payment of any additional refunds for a period of 6
months following the end of the period for which the refund was made.
ARTICLE XI
NATURAL GAS LIQUID RECOVERY
11.1 West Shore will install the NGL Plant at SOI's Treating Plant site on
land leased to West Shore by SOI under a long term contract mutually acceptable
to both parties, and with a lease payment of $10.00 per year in the form
substantially similar to that form in Exhibit D, and which shall be coterminous
with this Agreement. The NGL Plant will be constructed under West Shore's
supervision; provided, SOI shall have approval of all design and construction
specifications, which approval shall not be unreasonably withheld. SOI hereby
grants West Shore rights of ingress to and egress from the NGL Plant site across
SOI's lands as necessary for all construction, pipeline, maintenance, operation
and related activities in connection with the NGL Plant. West Shore shall
indemnify and hold SOI harmless against any loss,
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damage, claim, suit, liability, judgment and expense, including attorneys' fees,
and other costs of litigation arising out of injury or death of persons or
damage to or loss of property or environment arising out of or in connection
with exercise of such rights of ingress and egress. SOI will be allowed to
recover the costs of any employees or contractors employed by SOI related to the
design and construction of the NGL plant.
11.2 The NGL Plant will be owned by West Shore and SOI will operate the NGL
Plant. West Shore shall reimburse SOI for only the reasonable, incremental
direct operating and direct regulatory expenses actually incurred by SOI and
which are directly associated with the operation of NGL Plant and which are
allocated to Treated Gas delivered to the NGL Plant by West Shore, plus 12% of
those expenses to compensate SOI for its related overhead expenses. SOI will
operate the NGL Plant in accordance with prudent oilfield operating standards
consistent with good industry practice.
11.3 During any given month, SOI shall be granted daily processing capacity
in the NGL Plant during such month equal to its deliverability from the wells
listed on Exhibit B, not to exceed [CONFIDENTIAL TREATMENT REQUESTED]; and, SOI
shall not be charged any processing fee on that Gas, but will be responsible for
its proportionate share of the operating expenses in connection with operating
the NGL Plant.
11.4 SOI acknowledges that certain upgrades and modifications to its
Treating Plant will be paid for or the costs thereof reimbursed by West Shore.
That arrangement, together with the availability of processing at the NGL Plant
to be installed by West Shore, at West Shore's cost, provides significant
consideration and value to SOI. In recognition thereof, SOI agrees to pay West
Shore a surcharge of [CONFIDENTIAL TREATMENT REQUESTED] per gallon of propanes,
butanes and pentanes (or combinations or isomers thereof) contained in that
Treated Gas that is not subsequently delivered to West Shore for processing at
the NGL Plant, excluding, however, SOI-Owned Gas produced from wells described
on Exhibit B, and West Shore Gas that West Shore elects not to have processed in
the NGL Plant.
11.5 SO1 and West Shore agree that West Shore shall have the right to
market all NGL Plant Products recovered from the NGL Plant, including NGL Plant
Products allocated to SOI or to other producers. West Shore agrees that the NGL
Plant Products allocated to SOI or to other producers will be sold not more than
45 days after the last day of the month in which the Products were produced and
at market prices not less than those at which West Shore's NGL Plant Products
are sold. West Shore will remit the proceeds received for the sale of SOI's
allocated NGL Plant Products to SOI within 45 days after the last day of the
month in which said Plant
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Products were produced.
ARTICLE XII
BILLING AND PAYMENT
12.1 On or about the twentieth (20th) day of each calendar month, SOI shall
send a statement to West Shore via U.S. mail, overnight mail or telecopy, at
SOI's discretion, detailing the charges specified in Article X and any
additional fees or amounts owing for the prior month. West Shore shall pay SOI
the amount billed in that statement within fifteen (15) days of receipt of the
statement. All such payments shall be made in the form of immediately available
funds directed to a bank account designated by SOI.
12.2 West Shore shall have the right at all reasonable and mutually
agreeable times to examine the books, records, and charts of S0I to the extent
necessary to verify the accuracy of any statement, charge or computation made
under or pursuant to any provisions of this Agreement.
12.3 Should West Shore fail to pay any undisputed amount of any statement
sent by SOI as herein provided by the time such payment is due, a late payment
charge equal to one and one-half percent (1.5%) per month of the undisputed
amount of the statement, net of taxes, not compounded, shall be added to the
statement and shall be payable by West Shore. In the event said late payment
charges exceed the maximum allowed under the laws of the State of Michigan, the
late payment charge shall be reduced to the maximum amount allowed under the
laws of the State of Michigan.
12.4 Should West Shore fail to pay any undisputed amount of any statement
sent by SOI as herein provided by the time such payment is due, SOI in its sole
discretion may, if such undisputed amount remains unpaid for a period of thirty
days after written notice of said failure to pay is given to West Shore,
terminate this Agreement, or suspend further service to West Shore, or both.
12.5 If West Shore finds at any time within twenty-four (24) months after
the date of any statement rendered to it by SOI that it has been overcharged in
the amount billed in such statement, and if said overcharged amount has been
previously paid by West Shore, the overcharged amount, if verified by SOI, shall
be refunded to West Shore within thirty (30) days. If SOI finds at any time
within twenty-four (24) months after the date of any statement rendered to West
Shore by SOI that there has been an undercharge in
25
<PAGE>
the amount billed to West Shore in such statement, SOI may submit a statement
for such undercharged amount, and West Shore, upon verifying the same, shall pay
such amount within thirty (30) days. Should West Shore determine within twenty-
four (24) months after a statement is rendered that there has been an
undercharge in the amount billed to West Shore by SOI, or should SOI determine
within twenty-four (24) months after a statement is rendered that there has been
an overcharge in the amount billed to West Shore, the party discovering the
error shall bring such error to the attention of the other party for further
handling. Billing statements shall be deemed accurate if not challenged by
either party within twenty-four (24) months after the statement is rendered.
ARTICLE XIII
REDELIVERY OF GAS TO WEST SHORE
13.1 In addition to treating and dehydrating West Shore's Gas, SOI shall
redeliver, or cause to be redelivered, to West Shore, or West Shore's designee,
(i) before the installation of the NGL Plant, at the Treated- Gas Delivery
Point, and (ii) after the installation of the NGL Plant, at the Residue Gas
Delivery Point, a quantity of Gas containing MMBTUs equivalent to the MMBTUs
contained in West Shore's Gas delivered to SOI at the First Point of Delivery,
less West Shore's proportionate share of PTR, as specified in Article IX hereof.
13.2 The Treated Gas redelivered by SOI to West Shore at the Treated Gas
Delivery Point shall be of such quality as to meet the following quality
specifications:
(a) Be commercially free of liquid hydrocarbons and liquid water, and not
contain more than five (5) pounds of water vapor per MMcf;
(b) Be commercially free of grease, dust, gum, gum forming constituents,
and other foreign substances, gasoline and other solid and/or liquid matter that
can be removed with ordinary field separators;
(c) Contain not more than one-quarter grain hydrogen sulfide;
(d) Contain not more than one and eight tenths percent(1.8%) by volume
carbon dioxide;
(e) Contain not more than one-tenth of one percent (0.1%) by volume
oxygen; provided that West Shore's Gas delivered to the
26
<PAGE>
Treating Plant conformed to the specification contained in Section
6. 1 (E);
(f) Contain a Gross Heating Value of at least 1000 BTUs per standard cubic
foot at 14.65 psia dry;
(g) Contain not more than five(5) grains of total sulfur per 100 cubic
feet;
(h) Have a temperature not exceeding one hundred twenty degrees Fahrenheit
( 120 degrees F);
13.3 The Residue Gas redelivered by SO1 to West Shore at the Residue Gas
Delivery Point shall be of such quality as to meet the quality specifications
set forth above.
13.4 SOI shall redeliver the Treated Gas at a pressure sufficient to
overcome the operating pressure of the facilities receiving the Treated Gas at
the Treated Gas Delivery Point; however, in no event shall such delivery
pressure exceed the maximum allowable operating pressure of the system receiving
the Gas; provided, SOI shall have no obligation to compress the Gas to effect
delivery other than to operate and maintain compression and other equipment
associated with the installation of the NGL Plant.
ARTICLE XIV
UNPROFITABILITY AND PREFERENTIAL RIGHTS
14.1 (a) Beginning in the calendar year 2000, should the yearly
Direct Expenses incurred by SOI to operate the Treating Plant exceed the yearly
revenue derived from all treating fees received by SOI, whether from West Shore
or from any other person, then SOI shall have the right, but not the obligation,
to bill West Shore for an amount equal to West Shore's prorata share (based on
the proportion that West Shore Gas delivered to the Treating Plant bears to the
total of all Gas delivered to Treating Plant) of the difference in SOI's Direct
Expenses and SOI's treating revenue ("Makeup Payment") for that calendar year.
(b) In determining SOI's treating revenue for purposes of
calculating the Makeup Payment, SOI shall use the otherwise applicable Base
Treating Fees and volumetric treating fees provided for in this Agreement to
calculate the treating revenues with respect to all West Shore Gas and with
respect to all Gas other than West Shore's Gas as if such Gas were covered by a
single Base Treating Fee and volumetric treating fees substantially equivalent
to those in this Agreement applied to each individual
27
<PAGE>
producer, without regard to whether the Gas treated was West Shore's Gas, SOI-
Owned Gas or Third-Party Gas, and without regard to any actual reductions to
those fees resulting from Actual Downtime Percentages exceeding the limitations
in this Agreement. This shall herein be defined as the "Theoretical Yearly
Treating Revenue". Provided, however, if Third-Party Gas and SOI-owned Gas
deliveries together average 15,000 Mcf per day or less, then the combined Base
Treating Fee and volumetric treating fees for the Third-Party Gas, in
determining the Theoretical Yearly Treating Revenue, will be assumed to be $.228
per Mcf. The following is an example of the calculation of Theoretical Yearly
Treating Revenue, assuming West Shore Gas deliveries of 25,000 Mcf per day, and
SOI-Owned Gas and Third-Party Gas deliveries of 5,000 Mcf per day:
Theoretical Yearly
Treating Revenue = West Shore Revenue + Other Gas Revenue
West Shore
Revenue = [CONFIDENTIAL TREATMENT REQUESTED]
Other Gas Revenue = [CONFIDENTIAL TREATMENT REQUESTED]
Theoretical Yearly
Treating Revenue = [CONFIDENTIAL TREATMENT REQUESTED]
(c) Notwithstanding the actual expenses and revenues, in no
event will SO1 have the right to bill West Shore, nor shall West Shore have any
obligation for Makeup Payments for more than any two years within any
consecutive five year period.
(d) Makeup Payments hereunder shall be due within thirty days
of receipt of SOI's invoice by West Shore and shall be subject to the same
conditions specified in Article XII.
14.2 In addition to SOI's rights under 14.1 above, should the volume of all
gas delivered to the Treating Plant be less than [CONFIDENTIAL TREATMENT
REQUESTED], averaged over any six (6) continuous month period, then SOI shall
have the right to charge West Shore a treating fee such that if that treating
fee were applied to all Gas delivered to the Treating Plant, SOI would derive
operating revenues equal to [CONFIDENTIAL TREATMENT REQUESTED] the actual direct
operating expenses of the Treating Plant. That treating fee will continue in
effect for as long as the volume of all Gas delivered to the Treating Plant is
less than [CONFIDENTIAL TREATMENT REQUESTED], averaged over any six (6)
continuous month
28
<PAGE>
period; provided, West Shore shall have the right, upon 60 days advance written
notice, during any time that such treating fee is being charged hereunder, to
terminate this Agreement.
14.3 Should SOI decide to sell the Treating Plant to an unaffiliated
company at any time during the term of this Agreement and should SOI receive a
bona fide offer to purchase the Treating Plant on terms that it is willing to
accept, it shall provide written notice thereof to West Shore specifying the
purchase price and other terms and conditions offered by that third party,
including a true and correct copy of the written offer. West Shore shall have
the right to purchase the Treating Plant by agreeing to match the terms and
conditions offered by such third party. West Shore shall notify SOI in writing
of its decision to purchase the Treating Plant within thirty (30) days of
receipt of written notice from SOI. Should West Shore decline to purchase the
Treating Plant, SOI shall have the option, but not the obligation, to sell the
Treating Plant to the party which made that offer on terms and conditions no
less favorable to SOI than those contained in the written notice to West Shore.
Should SOI elect not to sell to such third party, the right of first refusal
granted West Shore herein shall be applicable to any offer thereafter. Should
West Shore elect to purchase the Treating Plant, the purchase price otherwise
specified in the third party offer will be reduced by an amount equal to the sun
of (i) the lesser of (x) the amount of Base Fees paid by West Shore hereunder as
of that date, not to exceed $1,500,000 or (y) the total of all direct capital
and Direct Expenses incurred by SOI in restoring the Base Capacity of the
Treating Plant under Section 4.3, plus (ii) all payments made by West Shore for
Expanded Capacity under 4.7, as of the date of West Shore's purchase, and upon
that purchase all repayment obligations under Section 4.7 shall be deemed
extinguished.
14.4 Upon any sale of the Treating Plant to West Shore under this Article,
this Agreement shall terminate. Upon any sale, or other transfer or disposition,
of the Treating Plant to any party other than West Shore, this Agreement shall
continue in full force and effect, shall bind the purchaser thereof, and SOI
agrees that such transfer shall include the express adoption and ratification of
this Agreement by the assignee or transferee of SOI and SOI shall be released
from all obligations relating to or arising hereunder.
14.5 At any time after the expiration of four (4) years following initial
deliveries under this Agreement, should West Shore determine in that it is
economically unprofitable to continue having its Gas treated by SOI hereunder,
West Shore shall notify SOI of this fact (which notification shall include
reasonable documentation to substantiate West Shore's claim of economic
29
<PAGE>
unprofitability) and this Agreement shall be terminated 120 days from such
notification. The availability of lower treating fees from other treaters of Gas
shall not be a condition which would give West Shore the right to assert its
rights under this Section 14.5.
14.6 Upon request by West Shore, SOI shall obtain hazard and property
insurance coverage for the Treating Plant; provided that West Shore shall
reimburse SOI for premiums attributable to such coverage. In the event of a
catastrophic loss to the Treating Plant, SOI shall be obligated to restore the
Treating Plant to its original condition (immediately prior to such catastrophic
loss); provided however, SOI shall have no obligation to restore the Treating
Plant if West Shore failed to request that SOI obtain hazard and property
insurance coverage as described above.
ARTICLE XV
PAYMENT OF ROYALTY AND TAXES
15.1 SOI shall not be responsible for the payment of any monies due or
calculated on the production of West Shore's Gas and/or on the Treating Products
derived therefrom. West Shore shall retain sole responsibility for making any
such payments due to lessors, royalty owners, overriding royalty owners,
production payment owners, etc.
15.2 SOI shall. not be responsible for payment of any severance, gathering
or equivalent taxes due on the production, severance and handling of the Gas
delivered by West Shore for treating hereunder, nor any severance or similar
taxes due on West Shore's share of Treating Products derived from West Shore's
Gas. West Shore shall retain sole responsibility for payment of any such taxes.
15.3 Should any taxes (other than state or federal income taxes, or the
Michigan single business tax), fees, assessments, etc., be imposed upon SOI
subsequent to the signing of this Agreement which are directly attributable to
SOI's treating of West Shore's Gas, then SOI shall invoice West Shore for and
West Shore agrees to pay all such taxes, fees, etc. in accordance with all terms
and conditions contained in Article XII hereunder.
ARTICLE XVI
LAWS, REGULATIONS AND FORCE MAJEURE
16.1 This Agreement shall be subject to all valid and applicable laws,
orders, rules and regulations made by duly
30
<PAGE>
constituted governmental authorities having jurisdiction TO THE EXTENT SUCH LAWS
ARE NOT PREEMPTED BY OTHER APPLICABLE LAWS. THIS AGREEMENT AND THE LEGAL
RELATIONS BETWEEN THE PARTIES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF MICHIGAN.
16.2 In the event any party hereto is rendered unable, wholly or in part,
by force majeure to perform its obligations under this Agreement, other than to
make any payments or accounting required hereunder, then the obligations of such
party, insofar as they are affected by such force majeure, shall be suspended
during the continuance of any inability so caused, but for no longer period, and
such cause shall, so far as possible, be remedied with reasonable dispatch. In
the event SOI is rendered unable by force majeure to perform its obligations to
West Shore under this Agreement, West Shore shall not be obligated to pay for
treating services during the continuance of any inability so caused, but for no
longer period. The term "force majeure" as employed herein shall mean:
(i) acts of God; acts of the public enemy; wars; blockades;
insurrections; strikes or differences with workmen; riots; disorders;
epidemics; landslides; lightning; earthquakes; fires; storms; floods;
washouts; arrests and restraints; civil disturbances; explosions; freezing
of wells or lines of pipe; requisitions, directives, diversions, embargoes,
priorities or expropriations of government or governmental authorities,
legal or de facto, whether purporting to act under some constitution,
decree, law or otherwise; failure of pipelines or other carriers to
transport or furnish facilities for transportation; rules and regulations
with regard to transportation by common carriers;
(ii) failures, disruptions, or breakdowns of machinery or of facilities of
production, manufacture, transportation, distribution and consumption
(including, but not by way of limitation, SOI's Treating Plant); breakage
or accident to machinery or lines of pipe; the necessity for making
repairs, alterations, enlargements or connections to machinery, facilities
or lines of pipe; and,
(iii) without limitation by enumeration, any other cause or causes, whether
of the kind enumerated or otherwise, not reasonably within the control of
the party claiming suspension, the term "force majeure" shall likewise
include (a) in those instances where any party hereto is required to obtain
servitudes, rights of-way grants, permits or licenses to enable such party
to fulfill its obligations hereunder, the inability of such party to
acquire or the delays on the part
31
<PAGE>
of such party in acquiring, at reasonable cost and after the exercise of
reasonable diligence, such servitudes, rights-of-way grants, permits or
licenses; and (b) in those instances where any party hereto is required to
furnish materials and supplies for the purpose of constructing or
maintaining facilities or is required to secure permits or permissions from
any governmental agency to enable such party to fulfill its obligations
hereunder, the inability of such party to acquire, or the delays on the
part of such party in acquiring, at reasonable cost and after the exercise
of reasonable diligence, such materials and supplies, permits and
permissions.
It is understood and agreed that the settlement of strikes or lockouts shall be
entirely within the discretion of the party having the difficulty and that the
above requirement that any force majeure shall be remedied with all reasonable
dispatch shall not require the settlement of strikes or lockouts by acceding to
the demands of the opposition when such course is inadvisable in the discretion
of the party having the difficulty. In the event that SOI claims suspension of
its performance hereunder for a period exceeding 30 consecutive days, then,
notwithstanding the provisions of Section 10.4, the Base Fee under Article X
shall be suspended for all times following that 30-day period until the force
majeure condition is remedied and SOI recommences the performance of its
obligations.
ARTICLE XVII
MISCELLANEOUS
17.1 From and after the First Point of Delivery and prior to the Treated
Gas Delivery Point, SOI shall indemnify and hold West Shore harmless against any
loss, damage, claim, suit, liability, judgment and expense, including attorneys'
fees, and other costs of litigation arising out of injury or death of person(s)
or damage to or loss of property or the environment resulting from the
operations conducted by or on the behalf of SOI. Prior to the First Point of
Delivery and from and after the Treated Gas Delivery Point, West Shore shall
indemnify and hold SOI harmless against any loss, damage, claim, suit,
liability, judgment and expense, including attorneys fees, and other cost of
litigation arising out of injury or death of person or damage to or loss of
property or the environment resulting from the operations conducted by or on
behalf West Shore, including, expressly, operations conducted by SOI, except to
the extent arising from the wilful misconduct or gross negligence of SOI.
32
<PAGE>
17.2 SOI shall have the right of ingress and egress to and from the
premises of West Shore for all purposes necessary or convenient to the
performance of this Agreement, insofar as West Shore has the authority to grant
such rights. West Shore shall have the right of ingress and egress to and from
the premises of SOI for all purposes necessary or convenient to the performance
of this Agreement, insofar as SOI has the authority to grant such rights.
17.3 All notices and correspondence from West Shore to SOI on matters
pertaining to this Agreement shall be addressed to:
SHELL OFFSHORE, INC.
P. 0. BOX 576
HOUSTON, TX 77001
or to such other address as may be designated hereafter in writing by SOI; and
all correspondence on matters pertaining to this Agreement from SOI to West
Shore shall be addressed to West Shore at:
WEST SHORE PROCESSING COMPANY, LLC
5613 DTC PARKWAY, SUITE 400
ENGLEWOOD, COLORADO 80111
or to such other address as may be designated hereafter in writing by West
Shore.
17.4 This Agreement shall extend to and be binding upon the parties hereto,
their successors and assigns, and the rights and obligations of any party
hereunder may be assigned or conveyed in whole or in undivided part and from
time to time, (subject to the provisions of this Agreement) but all such
assignments and conveyances shall be made expressly subject to this Agreement.
No assignment or conveyance of, nor succession to, a party's interest hereunder
shall affect or bind the other party until such time as the other party shall
have been furnished, at its address given above, with a copy of any document or
documents (recorded, if applicable) evidencing same. If the interests of West
Shore are assigned in part, then all successors of West Shore, and West Shore if
it still owns any interest, shall designate a single party to receive all
billing herein and otherwise give and receive notice and correspondence and
shall act under this Agreement according to the majority vote, by ownership
interest, of West Shore and its successors.
17.5 Nothing in this Agreement shall prevent SOI or West Shore from
contracting with any third parties to treat their Gas in the
33
<PAGE>
Treating Plant in its existing configuration. Furthermore, subject to the
provisions of Section 4.7, nothing in this Agreement shall restrict SOI's or
West Shore's ability to expand, or cause to be expanded, the capacity of the
Treating Plant in order to treat Third-Party Gas. Provided however, such
contracts to treat Third-Party Gas shall be subordinate to West Shore's First
Priority Capacity, subject to SOI's rights to use unutilized First Priority
Capacity under Section 4.4.
17.6 The obligations under this Agreement are intended to be separate and
not joint or collective, and nothing in this Agreement shall ever be construed
as creating a partnership or Joint venture. Each party shall be responsible only
for its own obligations as set out in this Agreement and shall be liable only
for its proportionate share of the costs and expenses as above stipulated.
17.7 No waiver by either party hereto of any one or more defaults by the
other in the performance of any of the provisions of this Agreement shall
operate or be construed as a waiver of any future default or defaults whether of
a like or different character.
17.8 This Agreement constitutes the entire agreement between the parties
hereto pertaining to the subject matter hereof and supersedes all prior
agreements, understandings, negotiations and discussions, whether oral or
written, of the parties, and there are no other agreements between the parties
in connection with the subject matter hereof. No supplement, modification or
waiver of this Agreement shall be binding unless duly executed in writing by the
party to be bound thereby.
IN TESTIMONY WHEREOF, this Agreement is executed by the parties hereto to be
effective as of the date first above enumerated.
WEST SHORE PROCESSING COMPANY, LLC
By: Michigan Production Company LLC, its member
By:
Title: Manager
By: Michigan Energy Company LLC, its member
By:
Title: MANAGER
34
<PAGE>
SHELL OFFSHORE, INC.
BY:
Title:
35
<PAGE>
EXHIBIT A
This exhibit left intentionally blank.
36
<PAGE>
EXHIBIT "B"
WELLS PRODUCING SOI-OWNED GAS
<TABLE>
<S> <C>
1. Bahr 4-24
2. Bahr 5-24
3. Gauthier 1-14
4. Kamaloski 4-23
5. Lutheran Homes 2-27
6. Manistee 1-27
7. Manistee 3-23
8. Manistee 3-27
9. McNeil 5-13A
10. Michigan State Manistee 1-25
11. Olson 2-13
12. Olson-Webb 2-23
13. PCA 10-24
14. PCA Gillespie 5-23A
15. Reid 1-23
16. Ryder 1-24
</TABLE>
<PAGE>
EXHIBIT "C"
WELLS CONTROLLED BY WEST SHORE PROCESSING, LLC
<TABLE>
<S> <C>
1. Adamczak # 1-24
2. Murray-State # 1-8
3. Lakeland Association, et al. # 1-32 well
4. Lakeland Association, et al. # 1-33 well
5. Lakeland Association, et al. #2-33A well
6. Claybanks 2 Unit (gas)
7. Isley 1-22
8. Miller-Fox 1-11
9. Schultz 2-22
10. Slocurn 1-21
11. Dykstra 1-8
12. Bailey 1-24
13. Dow (Lunde 5-27)
14. Dow (Williams-Fugere 2-18)
15. Dow (Olsen 3-18)
16. Dow (Weinert 1.6)
17. Dow (Weinert 1-31)
18. Dow (Abrahamson 3-7)
19. Dow (Stolberg 1-25)
20. Dow (Stolberg 2-25)
21. Dow (Stolberg 3-25)
22. Dow (Miller 5-13)
23. Dow (Malstrom-Wms. 1-13)
24. Dow (Billow-Wrege 6-13 )
25. Dow Wierzbowski 5-13)
</TABLE>
<PAGE>
EXHIBIT D
LEASE
dated ,1996
between
SHELL OFFSHORE, INC.
as Lessor
and
WEST SHORE PROCESSING COMPANY, LLC
as Lessee
Affecting premises in Manistee County, Michigan
39
<PAGE>
LEASE
-----
LEASE, dated as of ______, 1996, between SHELL WESTERN EXPLORATION
& PRODUCTION, INC. , ( "Lessor" ), and WEST SHORE PROCESSING COMPANY, LLC, a
limited liability company, ("Lessee").
1. THE DEMISED PREMISES AND LEASE TERM
-----------------------------------------
In consideration of the Rent hereinafter reserved and the terms,
covenants and conditions set forth in this Lease to be observed and performed by
Lessee, Lessor hereby demises and leases to Lessee, and Lessee hereby rents and
takes from Lessor, the following property (collectively hereinafter referred to
as the "Demised Premises"): (a) all the land (the "Land") described in Exhibit A
hereto, but excluding the buildings and improvements thereon (the
"Improvements"); and (b) all rights of way or of use, servitudes, licenses,
tenements, appurtenances and easements now or hereafter belonging or pertaining
to the Land; TO HAVE AND TO HOLD the Demised Premises unto Lessee, and the
permitted successors and assigns of Lessee, upon and subject to all of the
terms, covenants and conditions herein contained, for a term (the "Lease Term")
commencing on the date hereof and expiring upon the expiration, cancellation or
termination of that certain Gas Treating and Processing Agreement between Lessor
and Lessee dated , 1996, unless the Lease Term shall sooner
terminate pursuant to any of the conditional limitations or other provisions of
this Lease.
2. Rent
-------
Lessee covenants to pay to Lessor as a net minimum rent (the "Fixed
Rent") during the Lease Term $10.00 per annum.
The Fixed Rent shall be payable in advance in equal annual
installments commencing on the date hereof and continuing each anniversary of
said date during the Lease Term. The first installment of Fixed Rent shall be
paid simultaneously with the execution of this Lease. Each date on which Fixed
Rent is payable hereunder is hereinafter referred to as a "Rent Payment Date".
3. USE OF DEMISED PREMISES
--------------------------
Lessee covenants that the Demised Premises shall be used solely for
the purposes of constructing, installing, operating, maintaining, repairing,
enlarging and owning a natural gas liquids
<PAGE>
extraction plant and related facilities necessary or useful in connection
therewith.
Lessee shall not do or permit any act or thing which is contrary to
any applicable laws.
Lessee shall not do or suffer any waste, damage, disfigurement or
injury to the Demised Premises.
Lessee shall not permit the spilling, discharge, release, deposit or
placement on the Demised Premises or any part thereof, whether in containers or
other impoundments, of any substance which is a hazardous or toxic substance
within the meaning of any applicable environmental law.
4. CONDITION OF DEMISED PREMISES
----------------------------------
Lessee represents that Lessee has examined and is fully familiar with
the physical condition of the Demised Premises, the Improvements thereon, the
sidewalks and structures adjoining the same, subsurface conditions, and uses
thereof. Lessee accepts the same, without recourse to Lessor, in the condition
and state in which they now are, and agrees that the Demised Premises complies
in all respects with all requirements of this Lease. Lessor makes no
representation or warranty, express or implied in fact or by law, as to the
nature or condition of the Demised Premises, or its fitness or availability for
any particular use, or the income from or expenses of operation of the Demised
Premises.
5. CONSTRUCTION OF NGL PLANT
------------------------------
After the commencement of the Lease Term, Lessee shall have the right
to construct, develop and complete on the Demised Premises a new natural gas
extraction plant and related facilities (the NGL Plant). The NGL Plant shall be
constructed in accordance with the terms of the Gas Treating and Processing
Agreement between Lessor and Lessee. Title to the NGL Plant shall be and remain
in Lessee.
6. COMPLIANCE WITH LAWS
-------------------------
Lessee, at all times during the Lease Term and at Lessee's expense,
promptly and diligently shall comply with all applicable laws.
<PAGE>
7. Liens
--------
Lessee shall not directly or indirectly create or permit to be created
or to remain, and shall discharge, any mortgage, lien, security interest,
encumbrance or charge on, pledge of or conditional sale or other retention
agreement with respect to the Demised Premises or any part thereof, Lessee's
interest therein, other than Deeds of Trust, if any, in connection with Lessee's
financing of the NGL Plant; liens not yet payable, or payable without the
addition of any fine, penalty, interest or cost for nonpayment, or being
contested; and the liens of mechanics, materialmen, suppliers or vendors, or
right thereto, incurred in the ordinary course of business for sums which under
the terms of the related contract are not at the time due, provided that
adequate provision for the payment thereof shall have been made.
8. UTILITY SERVICES
--------------------
Lessee shall pay all charges for all public or private utility
services and all sprinkler systems and protection services at any time rendered
to or in connection with the Demised Premises or any part thereof; shall comply
with all contracts relating to any such services; and shall do all other things
required for the maintenance and continuance of all such services.
9. INDEMNIFICATION
-------------------
Lessee hereby agrees to indemnify and hold harmless Lessor from any
and all causes of action, claims and demands of any kind or character asserted
by other parties for damages resulting from use of the Demised Premises or
operations on the Demised Premises by or on behalf of Lessee, including any
environmental cleanup requirements which may be imposed by any governmental
agency having jurisdiction over the Demised Premises, except to the extent
arising from or related to the gross negligence or wilful misconduct of Lessor.
This indemnity shall survive the termination of this Lease.
10. QUIET ENJOYMENT
--------------------
Lessor covenants that so long as Lessee is not in default hereunder in
the payment of any Rent or compliance with or the performance of any of the
terms, covenants or conditions of this Lease on Lessee's part to be complied
with or performed, Lessee shall not be hindered or molested by Lessor in
Lessee's enjoyment of the Demised Premises.
<PAGE>
11. EVENTS OF DEFAULT AND TERMINATION
--------------------------------------
If any one or more of the following events ("Events of Default") shall
occur:
(a) if Lessee shall fail to pay any Fixed Rent when as the same becomes due
and payable; or
(b) if Lessee shall fail to comply with or perform any term, covenant or
condition herein, and such failure shall continue for more than thirty days
after Lessee receives notice of such failure, regardless of the source of
such notice;
then, and in any such Event of Default, regardless of the pendency of any
proceeding which has or might have the effect of preventing Lessee from
complying with the terms, covenants or conditions of this Lease, Lessor, at any
time thereafter may give a written termination notice to Lessee, and on the date
specified in such notice this Lease shall terminate and the Lease Term shall
expire and terminate by limitation, and all rights of Lessee under this Lease
shall cease, unless before such date (i) all arrears of Rent and all costs and
expenses, including reasonable attorneys' fees, incurred by or on behalf of
Lessor hereunder, shall have been paid by Lessee, and (ii) all other defaults at
the time existing under this Lease shall have been fully remedied to the
satisfaction of Lessor. Lessee shall reimburse Lessor for all costs and
expenses, including reasonable attorneys' fees, incurred by or on behalf of
Lessor occasioned by or in connection with any default by Lessee under this
Lease.
12. ASSIGNMENT AND SUBLETTING
------------------------------
Lessee expressly covenants that Lessee shall not voluntarily or
involuntarily assign, encumber, mortgage or otherwise transfer this Lease, or
sublet the Demised Premises or any part thereof, or suffer or permit the Demised
Premises or any part thereof to be used or occupied by others, by operation of
law or otherwise, without the prior written consent of Lessor in each instance
which consent shall not be unreasonably withheld.
13. NOTICES
------------
All notices, demands, elections and other communications desired or
required to be delivered or given under this Lease shall be in writing, and
shall be deemed to have been delivered and given
<PAGE>
when delivered by hand, or on the third business day after the same have been
mailed by first class registered or certified mail, postage prepaid, enclosed in
a securely sealed envelop addressed to the party to which the same is to be
delivered or given at such party's address as set forth in this Lease or at such
other address as said party shall have designated in writing in accordance with
Section 17.3 of the Agreement to which this Lease is attached.
14. REMOVAL OF PROPERTY AND RESTORATION
---------------------------------------
At any and all times during the term of this Lease, Lessee shall have
the right, and within 180 days of termination of this Lease Lessee shall have
the obligation, to remove any or all property placed, constructed or installed
on the Demised Premises by or on behalf of Lessee. Upon such removal of
property, Lessee shall fill and level all excavations and restore the Demised
Premises to the condition they were in on the effective date hereof.
15. MISCELLANEOUS
------------------
All rights, powers and remedies provided herein may be exercised only
to the extent that the exercise thereof does not violate any applicable law, and
are intended to be limited to the extent necessary so that they will not render
this Lease invalid, unenforceable or not entitled to be recorded under any
applicable law. If any term, covenant or condition of this Lease shall be held
to be invalid, illegal or unenforceable, the validity of the other terms,
covenants and conditions of this Lease shall in no way be affected thereby.
Lessor and Lessee agree that a memorandum of this Lease, but not this
Lease, may be recorded by Lessee, at Lessee's expense.
The headings in this Lease are for purposes of reference only and
shall not limit or define the meaning hereof.
This Lease may be changed or modified only by an instrument in writing
signed by the party against which enforcement of such change or modification is
sought.
<PAGE>
IN WITNESS WHEREOF, Lessor and Lessee have executed this Lease as of
the date first above written.
WESTSHORE PROCESSING COMPANY, LLC
By: Michigan Production Company LLC, its member
By:
Title: Manager
By: Michigan Energy Company LLC, its member
By:
Title: Manager
SHELL OFFSHORE, INC.
By:
Title:
<PAGE>
EXHIBIT A
THE DEMISED PREMISES
--------------------
That area of land located within the Manistee Sulfur Plant denoted as
Location 1 or Location 2 on the attached drawing.
<PAGE>
GAS GATHERING, TREATING AND PROCESSING AGREEMENT
THIS AGREEMENT is made and entered into this 2nd day of May, 1996; by and
between OCEANA ACQUISITION COMPANY, L.L.C., hereinafter referred to as
"Producer", and WEST SHORE PROCESSING COMPANY, LLC.
RECITALS:
A. Producer owns and holds or may own or hold certain valid and subsisting
oil and gas lease(s) or interests therein, covering lands situated and being
within the Dedication Area; and
B. Producer desires to have gathered, treated and processed the gas which
may hereafter be produced from wells now or hereafter located within the
Dedication Area; and
C. Processor operates, or has contracted with third parties to operate, gas
gathering, treating and processing related facilities and desires to gather,
treat and process that gas for the purpose of extracting liquid and liquefiable
hydrocarbon products therefrom.
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
Producer and Processor agree as follows:
ARTICLE I
DEFINITIONS
-----------
The following definitions of terms shall apply for all purposes of this
Agreement:
1.1 "Accounting Period" means a period of one month, commencing at
seven (7) o'clock a.m. local time on the first day of a calendar month and
ending at seven (7) o'clock a.m. local time on the first day of the next
succeeding month.
1.2 "Basin" means Basin Pipeline Limited Liability Company, an affiliate
of West Shore Processing Company, LLC.
1.3 "BTU" means British Thermal Unit and is the amount of
Page - 1
<PAGE>
heat required to raise the temperature of one (1) pound of pure water from
fifty-nine degrees Fahrenheit (59 degrees F) to sixty degrees Fahrenheit (60
degrees F); and, "MMBTU" means one million British Thermal Units.
1.4 "Cubic Foot" or "Cubic Feet" means the volume of gas contained in
one cubic foot of space at a standard pressure base of fourteen-and-sixty-five-
hundredths (14.65) pounds per square inch absolute (psia) and a standard
temperature base of sixty degrees Fahrenheit (60 degrees F).
1.5 "Dedication Area" means initially Manistee, Mason and Oceana
Counties, Michigan; and, at such time as Processor has extended its facilities
into Muskegon County, Michigan, then that county shall be included in the
Dedication Area effective as of the date upon which Processor gives Producer
notice that it has facilities in that county capable of receiving gas; provided,
however, with respect to Muskegon County, only as to wells, lands and leases not
then dedicated to other gatherers, treaters and processors.
1.6 "Gross Heating Value" means the number of BTU's produced by the
combustion, at a constant pressure, of the amount of the gas which would occupy
a volume of one (1) Cubic Foot at a temperature of sixty degrees Fahrenheit (60
degrees F), if saturated with water vapor and under a pressure equivalent to
that of thirty (30) inches of mercury at thirty-two degrees Fahrenheit (32
degrees F) and under standard gravitational force (acceleration 980.665
centimeters per second squared) with air of the same temperature and pressure as
the gas, when the products of combustion are cooled to the initial temperature
of the gas and air and when the water formed by combustion is condensed to the
liquid state.
1.7 "Inlet Volume" means the aggregate volume of gas measured at the
Receipt Point.
1.8 "Liquid Hydrocarbons" is used herein to refer to liquefiable
hydrocarbons present in the vapor phase in the gas stream and to refer to
hydrocarbons in a liquid state after the extraction by the Plant from the gas
stream, but shall in either case mean natural gasoline (pentane plus heavier
hydrocarbons), butanes, propane and ethane (including such incidental methane as
may be extracted from the gas under normal operation of processing
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<PAGE>
facilities).
1.9 "MCF" means one-thousand (1,000) Cubic Feet and "BCF" means one
billion cubic feet.
1.10 "Pipeline Drip" means condensate and liquefied hydrocarbons which
separate from Producer's gas in the pipeline facilities of Processor.
1.11 "Plant" means Processor's gas plant (or the processing and treating
facilities of third parties with whom Processor contracts for services
applicable to Producer's gas) and Processor's gathering system behind the plant,
now or hereafter existing, including without limitation, all tanks, equipment,
pipe, valves, and material of any kind, including appropriate gas and liquid
measurement facilities, pipeline gathering and compression facilities, storage,
shipping, dehydration, gas treating and delivery facilities for Plant Products;
all structures located, or to be located, on the site(s) at which the
compression, treating and processing facilities of Processor are now or
hereafter located; all easements pertaining to the site(s) and operation of
those facilities; and any and all facilities located, or to be located, on or
away from the site(s) deemed by Processor to be necessary for its performance
under this Agreement.
1.12 "Plant BTU Reduction" or "PBR" means the sum of the gas used as
Plant Fuel, Unmeasured Gas Uses and Losses, and the BTU equivalent of the Plant
Products as determined in accordance with Article V.
1.13 "Plant Delivery Point" means the point(s) at which Producer's share
of the Residue Gas is delivered by Processor to Producer at the tailgate of the
Plant, as described on Schedule II. Measurement facilities at the Plant Delivery
Point shall be installed, maintained, and operated by Processor, or its
designee, at its sole cost, risk, and expense.
1.14 "Plant Fuel" means all gas, expressed in BTU's, utilized by
Processor as fuel in the Plant.
1.15 "Plant Products" means finished commercial products and other
products, or any mixtures thereof, other than Residue Gas, which Processor from
time to time extracts or separates from gas
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<PAGE>
processed in the Plant, including, but not limited to ethane, propane, iso-
butane, normal butane, and natural gasoline.
1.16 "Processing" means the activities extraction and recovery of Plant
Products.
relating to the
1.17 "Processor" means West Shore Processing Company, LLC, and its
affiliate, Basin Pipeline Limited Liability Company.
1.18 "Receipt Point" means the point(s) where gas is delivered by
Producer to Processor for gathering, treating and processing in the Plant.
Measurement facilities at the Receipt Point shall be installed, maintained, and
operated by Processor, or its designee, under the terms hereof.
1.19 "Residue Gas" means gas, expressed in MMBTU's, remaining after the
extraction of Liquid Hydrocarbons, Plant Fuel, sulfur, hydrogen sulfide and
carbon dioxide, and after other Unmeasured Gas Uses and Losses incident to or
occasioned by the treating, gathering and processing of gas and redelivery to
Producer. The portion of the Residue Gas attributable to Producer's gas is to be
delivered to Producer at the Plant Delivery Point.
1.20 "Subordinated Liens" means liens in favor of that Producer's secured
creditors which liens are subject to and subordinate to the rights of Processor
under this Agreement in a manner acceptable to Processor.
1.21 "Thermal Content" for gas means the product of the measured volume
in dry MCF's and the Gross Heating Value in dry BTU's per MCF, adjusted to the
same pressure base; for Plant Products means the product of the gross heat of
combustion per gallon multiplied by the total gallons of the product stream.
Numerical values for gross heat per gallon shall be those published in the
Standard Table of Physical Constants of Paraffin Hydrocarbons in GPA Publication
2145-93, as revised.
1.22 "Treating" means the activities relating to the removal of hydrogen
sulfide and carbon dioxide from the gas.
1.23 "Unmeasured Gas Uses and Losses" means any gas used, lost or not
otherwise accounted for in the gas plant incident to the operation of the gas
plant and gas lost in Processor's
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<PAGE>
gathering system (to the extent not allocable to specific receipt points,
including Producer's), including volumes of gas released through relief valves,
ruptured pipelines, blow down of vessels, etc., and fuel for gathering system
compressors which for each compressor shall be reasonably allocated on a Thermal
Content basis to the receipt points, including Producer's served by such
compressor.
ARTICLE II
COMMITMENT, RECEIPT AND DELIVERY CONDITIONS
-------------------------------------------
2.1 Subject to the other provisions of this Agreement, Producer commits
to this Agreement:
a. all gas attributable to the interests of Producer in the leases
described in Schedule I; and,
b. all of Producer's interests hereafter acquired by Producer, whether
acquired directly or earned under farming or similar agreements covering
lands within the Dedication Area;
c. Provided, however, this Agreement shall not pertain to any gas
production attributable to interests of Producer which contains less than
fifteen (15) grains of hydrogen sulfide per 100 cubic feet and less than
---
two (2) mol percent carbon dioxide.
Producer agrees that the foregoing dedication shall be a covenant running with
the land and that any assignment, sale or other transfer of all or a portion of
Producer's interests shall include and be subject to the dedication under this
Agreement, and that Producer shall cause any purchaser, assignee or other
transferee of any portion of those interests to ratify this Agreement and to
expressly assume and agree to the terms hereof to the extent of the portion of
those interests acquired from Producer by that party. Producer also agrees that
should Producer subsequently grant any security interest (whether by pledge,
collateral assignment, mortgage, deed of trust, or other instrument) in those
interests, such security interest shall be granted expressly subject to the
foregoing dedication and to Processor's rights and obligations under this
Agreement. At Processor's request, Producer agrees to execute a recording
memorandum of this Agreement, in the form attached hereto as Schedule III, to
give notice of Producer's
Page - 5
<PAGE>
dedication hereunder.
2.2 a. Subject to the other provisions hereof, Producer agrees to deliver
to Processor, and Processor agrees to receive from Producer, at the Receipt
Point(s), as designated by Processor, and gather, treat and process at the Plant
all of the gas now or hereafter produced attributable to Producer's interests in
the lease(s) covered by this Agreement (which specifically excludes any gas
production attributable to interests of Producer which contains less than
fifteen (15) grains of hydrogen sulfide per 100 cubic feet and less than two (2)
---
mol percent carbon dioxide. Notwithstanding that Receipt Points are to be
designated by Processor, Producer shall have the right to notify Processor, at
anytime and from time to time, that Producer intends to drill additional well(s)
in the Dedication Area which will not be served by then existing Receipt
Point(s). Within 14 days after receipt of that notice, Processor will designate
the Receipt Point(s) for those additional well(s). The purpose of that notice
and designation is to enable Producer to complete its economic projections for
the new wells before commencing drilling. Processor agrees to designate those
new Receipt Point(s) along its gathering lines in a manner that will enable
Producer to construct its lateral gathering lines for the new wells across the
shortest practicable and most economically practicable route, taking into
account operational considerations of Processor. Processor agrees to give due
consideration to recommendations of Producer but shall not be bound by those
recommendations.
b. Producer shall be responsible for arranging for all gathering
services and the installation of all facilities necessary to cause the gas
hereunder to be delivered to Processor at the Receipt Point(s); provided,
however, notwithstanding the foregoing, Producer and Processor may enter into a
mutually agreeable arrangement under which Processor will install and pay for
some or all of those facilities subject to subsequent reimbursement by Producer.
Nothing in the foregoing is intended to impose any obligation on Producer in
favor of Processor to produce gas from any of Producer's wells or connect any of
Producer's wells within the Dedication Area to Processor's facilities (provided,
however, Producer may not deliver gas from these wells or connect those wells to
any other party). Without limiting the scope of the foregoing sentence, Producer
may, in its sole discretion, elect not to produce gas from any well and elect
not to connect any well to
Page - 6
<PAGE>
Processor's facilities at any time that Producer, in its sole discretion,
believes that such well is or has become incapable of producing in paying
quantities; provided, upon making that election, Producer may not deliver gas
from those wells or connect those wells to any other party.
2.3 a. Processor will accept gas delivered by Producer at the Receipt
Points, in compliance with this Agreement, produced from all wells on the leases
and lands covered by this Agreement. Producer shall reimburse Processor for all
actual costs (together with overhead at the rate of 15%) incurred by Processor
in installing metering facilities at each Receipt Point. Notwithstanding that
reimbursement, Processor shall at all times own the metering facilities
installed by Processor.
b. Producer shall notify Processor of the estimated spud and
completion dates for wells to be drilled on lands within the Dedication Area and
committed under this Agreement.
2.4 Prior to initial deliveries of gas from a well dedicated hereunder,
Producer shall furnish to Processor reasonable documentation showing the
ownership of the relevant operating rights. Promptly after Producer receives an
assignment of any interests in existing wells which are, or by virtue of that
acquisition become subject to the terms of this Agreement, Producer will provide
notification of that acquisition to Processor together with a copy of the
assignment or other instruments conveying those interests to Producer; and, upon
recording of those instruments, Producer will provide Processor a copy of the
recorded instrument showing the recording information. Upon acquisition of any
such additional interests, Schedule I hereto shall be deemed amended to include
those interests and the parties shall execute appropriate documents to evidence
that amendment, including additional recording memoranda. With respect to oil
and gas leasehold interests acquired by Producer within the Dedication Area,
upon the earlier of (i) Producer's transfer of all of its interests in any oil
and gas leasehold within the Dedication Area, or (ii) upon Producer obtaining a
permit to drill on that leasehold, Producer will provide Processor with
information regarding Producer's ownership in that leasehold.
2.5 Producer agrees to install, at its sole cost and expense, whatever
separators, heaters, dehydration equipment and other usual
Page - 7
<PAGE>
lease facilities as may be deemed prudent by Producer to separate crude oil,
free water and condensate from the gas and necessary to meet the quality
specifications below; provided, however, any separation equipment to be
installed by Producer which shall handle gas to be delivered hereunder shall be
only conventional mechanical type field separators of a type then commonly used
in the industry. Producer shall have the right to install compression facilities
upstream of each Receipt Point. Any wellhead compression installed by Producer
shall be operated in a manner that does not adversely affect Processor's
measurement facilities. Producer shall make reasonable efforts to supply gas
from Producer's wells at a uniform rate of flow.
2.6 a. Gas delivered by Producer to Processor at each Receipt Point
shall:
1) be commercially free from dust, gum, gum-forming constituents,
condensate, diluent, and other liquids and solids which may become
separated from the gas;
2) contain less than ten parts per million (10 ppm) by volume of oxygen,
and Producer shall make every effort to keep gas free from oxygen;
3) have a temperature less than one hundred twenty degrees Fahrenheit
(120 degrees F);
4) not contain measurable quantities of mercury;
5) have a minimum Gross Heating Value of not less than i0-~0 BTU per Cubic
Foot;
6) contain not more than five (5) pounds of water vapor per million Cubic
Feet.
b. Further, the composite of all gas delivered by Producer at all
Receipt Points shall:
1) contain not more than two (2) mol percent of hydrogen sulfide;
2) contain not more than 500 ppm (weight) of total COS, CS2: and
mercaptans;
3) contain less than three percent (3%) by volume of nitrogen;
4) contain less than six percent (6%) by volume carbon dioxide; and less
than seven percent (7%) by volume of total acid gases (carbon dioxide and
hydrogen sulfide;
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<PAGE>
2.7 In the event the gas tendered by Producer to Processor should fail
to meet any one or more of the above specifications from time to time, then
either Processor or Producer may treat the gas to bring it within
specifications. If neither elects to treat, Processor can cease receiving the
non-conforming gas from Producer so long as such conditions exist. Processor, at
its option, may take receipt of such non-conforming gas, and such receipt shall
not be construed as a waiver or change of standards for future gas volumes. In
the event Processor rejects any non-conforming gas on any day, Processor shall
notify Producer in writing immediately upon rejecting such gas, and Producer
shall have ninety (90) days to bring the non-conforming gas into compliance.
Until Producer brings that non-conforming gas into compliance, Producer agrees
that it will cease deliveries of the gas containing the highest concentration of
hydrogen sulfide as necessary to bring the composite of all gas delivered by
Producer into compliance. if Producer is unable to bring that non-conforming gas
into compliance within the ninety (90) day period, and Processor continues to
elect to reject the non-conforming gas, then Processor shall determine the
treating facilities deemed necessary to cause the gas to conform to the
specifications and Producer will pay Processor a mutually agreeable treating fee
for that additional treatment which shall be in addition to the otherwise
applicable fees hereunder.
2.8 Producer shall deliver gas hereunder to Processor at the Receipt
Point(s) at a pressure sufficient to cause that gas to enter Processor's
facilities, as the pressure therein may exist from time to time, but not to
exceed a pressure of 1200 psig. Producer agrees to compress its gas prior to
delivery hereunder, as necessary, in order to affect the delivery of that gas to
Processor.
ARTICLE III MEASUREMENT FACILITIES
----------------------
3.1 All gas measurement equipment installations shall be of standard
make and be furnished, installed, operated, and maintained by Processor in
accordance with the published specifications of the American Gas Association
(AGA). Producer or others having Producer's consent may, at its option and
expense, install and operate meters to check processor's meter(s) provided such
meter
Page - 9
<PAGE>
installation in no way interferes with the operation of Processor's meter. Any
check meters installed by Producer shall be located upstream of Processor's
meters. Processor shall have access to such check measuring equipment at all
reasonable hours, but the reading, calibration and adjusting thereof shall be
done only by the Producer.
3.2 The computation of all gas volumes measured shall be based on the
latest factors published by the AGA corrected to a base pressure of fourteen-
and-sixty-five-hundredths (14.65) psia and a base temperature of sixty degrees
Fahrenheit (60 degrees F). The assumed atmospheric pressure shall be 14.-- psia,
regardless of actual atmospheric pressure at which the gas is measured. The
flowing temperature shall be measured by an industry accepted recording device,
and said temperature measurement shall be used to correct gas volumes as
measured in Article !!I hereof. Corrections for supercompressibility deviation
from Boyle's Law shall be made for all gas metered hereunder. Such corrections
shall be made by use of the AGA Manual for the Determination of Super
Compressibility Factors for Natural Gas (PAR Project NX-19), as amended. The
Reynold's Number Factor and Expansion Correction Factor shall each be assumed to
be one (1). The specific gravity of the gas shall be determined by
chromatographic analysis or any other method adopted as standard by the Gas
Processor's Association (GPA).
3.3 In the event a meter is out of service, or registering inaccurately,
the volume of gas delivered hereunder shall be calculated in the following
order: (i) by correcting the error if the percentage of error is ascertainable
by calibration, test, or mathematical calculations, or in the absence of (i),
(ii) by using the registration of any check meter or meters if installed and
accurately registering, or, in the absence of both (i) and (ii), then, (iii) by
estimating the quantity of delivery by deliveries during periods of similar
conditions when the meter was registering accurately.
3.4 Representative determinations for Liquid Hydrocarbon content shall be
made at the Receipt Point by chromatographic analysis, or by some other mutually
acceptable method adopted by the parties for testing Producer's gas for
fractional analysis and Liquid Hydrocarbon content. The chromatographic analysis
shall be utilized in the determination of the Liquid Hydrocarbons
Page - 10
<PAGE>
composition and shall be used as the basis for allocating Plant Products to the
different Receipt Points. The Gross Heating Value of the Inlet Volume shall be
determined periodically by test samples obtained from the various wells. Gross
Heating Value of Residue Gas shall be that determined by the receiving pipelines
at the tailgate of the Plant.
3.5 Processor shall take or have taken for it, a representative sample of
the Plant Products to be obtained from the truck, tank car, or pipeline
deliveries during each calendar month and shall analyze or cause to be analyzed
such samples. The analysis of the individual samples shall be used to determine
the components of the Plant Products delivered.
3.6 Each party hereto shall have access at all reasonable hours to all
facilities and data which are related to gas measurement, Gross Heating Value
determination, product composition determination, gas sampling and gas gravity
determination, along with all facilities utilized and data to determine Plant
Products quantities in the Plant or sold therefrom.
3.7 Processor shall verify the accuracy of its measuring equipment
monthly, or more often if deemed necessary by Processor. Processor shall give
Producer reasonable prior notice of any check or adjustment of any measuring
equipment.
3.8 Each party shall have the right to be present for any installing,
reading, cleaning, changing, repairing, testing, calibrating and/or adjusting of
either party's measuring equipment used in measuring deliveries hereunder. The
records from each party's measuring equipment shall remain the property of the
party owning such measuring equipment, but, upon request, each party will submit
to the other all records and/or charts, together with calculations therefrom,
for inspection and verification, subject to return within thirty (30) days after
receipt thereof.
3.9 If either party shall notify the other that it desires a special test
on any measuring equipment the parties shall cooperate to secure a prompt
verification of the accuracy of such equipment. If, upon test, any measuring
equipment is found to be in error by not more than two percent (2%), previous
recordings of such equipment shall be considered correct in computing deliveries
hereunder, but if such equipment shall be found to be inaccurate by
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<PAGE>
an amount exceeding two percent (2%), at a recording rate corresponding to the
average rate of flow for the period since the last preceding test, then any
preceding recordings of such equipment shall be corrected to zero error for any
period which is known definitely or agreed upon; if the period is not known or
definitely agreed upon, such correction shall be for a period extending up to
one-half (1/2) of the time elapsed since the date of last test, but not to
exceed a correction period of forty-five (45) days. Any measuring equipment
found to be in error shall be corrected to read accurately. If any such test
indicates that no inaccuracy of more than two percent (2%) exists, then the
party requesting such test shall reimburse the testing party for all its costs
in connection with such test within fifteen (15) days following receipt of a
detailed invoice setting forth such costs.
3.10 Each party shall preserve for a period of two (2) years all test
data, charts, and other similar records for auditing. Thereafter, same shall be
conclusively deemed true and correct.
ARTICLE IV
OPERATION OF THE PLANT
----------------------
4.1 Processor has prior contracts and agreements, and in the future may
obtain other contracts and agreements, with other parties to gather, treat and
process at the Plant all of the other parties' gas delivered to Processor at the
various other receipt points. If during the term of this Agreement, the gas
available from all sources for gathering, treating and processing exceeds the
Plant capacity, Processor shall only be obligated to receive gas ratably from
each receipt point delivering gas to the Plant.
ARTICLE V
ALLOCATION OF LIQUID HYDROCARBONS AND RESIDUE GAS; FEES
-------------------------------------------------------
5.1 a. For the services provided herein, Processor shall receive
compensation equal to a fee payable by Producer, of (Confidential Treatment
Requested) of Producer's gas delivered to Processor, measured at the
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<PAGE>
Receipt Point(s), which fee shall be inclusive of all transportation charges
incurred by Processor in transporting Producers' gas on the pipeline of Basin.
b. (Confidential Treatment Requested) of the compensation specified
in 5.1 a., above, as adjusted herein, shall be adjusted on an annual basis in
proportion to the percentage change, from the preceding year, in the Producer
Price Index for oil and gas field services (SIC 138) as published by the
Department of Labor. The compensation adjustment shall be made effective upon
January 1st of each year and shall reflect the percentage change in the
foregoing index as it existed for January of the immediately preceding year
from the index for January for the second immediately preceding year. In no
event will the compensation, as adjusted, be less than (Confidential Treatment
Requested).
c. For each Accounting Period, Processor shall (i) pay to Producer an
amount equal to (Confidential Treatment Requested) of the Net Sales Price per
gallon, times the gallons of individual Plant Product recovered by Processor and
attributable to Producer's gas processed at the Plant and allocated to each
Receipt Point, minus the fee payable to Processor under Section 5.1, a., and
5.1, b., above; and (ii) shall deliver (Confidential Treatment Requested) of the
Residue Gas attributable to Producer's gas processed at the Plant and allocated
to each Receipt Point to the Plant Delivery Point for the account of Producer.
d. Plant Products shall be sold by Processor's marketing department.
The "Net Sales Price" per gallon of each individual Plant Product allocated to
Producer's gas shall be the weighted average of the net price per gallon
received by Processor for the total volume of each individual Plant Product sold
from Processor's Plant, in arms-length transactions, during the Accounting
Period. Such Net Sales Price may include a deduction from the actual gross sales
price of such Plant Produces of the actual third party cost of pipeline, truck
or rail transportation, terminating fees, fractionation outside the Plant, truck
or tank car rentals and taxes (excluding income taxes) and actual third party
marketing costs and similar costs and expenses as incurred by the Processor to
determine a net price for such sale, and further less a marketing fee to be
retained by Processor of (Confidential Treatment Requested) per gallon of Plant
Products attributable to Producer.
5.2 That portion of an individual Plant Product at
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<PAGE>
Processor's Plant which is attributable to Producer shall be determined by
multiplying the total volume, expressed in gallons, of each individual Plant
Product recovered in the Plant during such Accounting Period by a fraction, the
numerator of which shall be the "Theoretical total Gross Heating Value" of that
Plant Product contained in Producer's gas delivered during the Accounting
Period, and the denominator of which shall be the "Theoretical total Gross
Heating Value" of that Plant Product contained in all gas supplying the Plant
during such Accounting Period. The "Theoretical total Gross Heating Value" of a
Plant Product in any stream of gas shall be calculated by multiplying the Gross
Heating Value of that Plant Product determined from the chromatographic analysis
specified in Article III by the quantity of gas in that gas stream.
5.3 The PBR shall be separately calculated as to each receipt point
(including Producer's) and shall be the sum of the following:
a. The Thermal Content of the Plant Products allocated to the gas stream
from such receipt point; plus
b. The Thermal Content of Producer's gas consumed as Plant Fuel in
treating, gathering and processing such gas, which shall be determined by
multiplying the Thermal Content of the Plant Fuel used in such Accounting Period
by a fraction, the numerator of which is the Thermal Content of Producer's Inlet
Volume and the denominator of which is the Thermal Content of all gas inlet
volumes, including Producer's, received by Processor from all parties delivering
gas to the Processor; plus
c. The Thermal Content of Producer's gas consumed as Unmeasured Gas Uses
and Losses in gathering, treating and processing Producer's gas.
5.4 The Residue Gas, as determined by measurement at the Plant Delivery
Point, shall be allocated among the various producers delivering gas to
Processor by multiplying the total actual measured Thermal Content of gas
remaining after gathering, treating and processing from all gas delivered to
Processor by a fraction, the numerator of which is the "Theoretical Volume of
Residue Gas" remaining from Producer's gas and the denominator of which is the
"Theoretical Volume of Residue Gas" remaining from all gas, including Producer's
gas, delivered to Processor during the Accounting Period. The "Theoretical
Volume of Residue Gas" shall
Page - 14
<PAGE>
be determined by subtracting the PBR, as determined above, from the Thermal
content determined at such receipt point attributable to the applicable volumes
of gas delivered to Processor.
5.5 Producer will inform Processor of the amount of gas to be delivered
by Producer at each Receipt Point, in accordance with Processor's Nomination
Procedures, attached hereto as Schedule IV. If Producer nominates gas volumes in
a greater or lesser amount than Producer's actual deliveries at the Receipt
Point(s), then a condition of imbalance shall exist. A Positive Imbalance shall
exist in those cases where the Producer's deliveries are in excess of the
volumes nominated by Producer or Producer's designee. A Negative Imbalance shall
exist in those cases where the Producer's deliveries are less than the volumes
nominated by Producer or Producer's designee. Processor and Producer shall work
to minimize any imbalance and agree to exchange pertinent information in writing
in good faith in an attempt to minimize the imbalance. As soon as possible
Processor shall provide Producer written notice that Producer has a condition of
imbalance during any Accounting Period, and Producer shall take immediate
corrective action to conform Producer's nominations to Producer's physical
flows.
ARTICLE VI
ROYALTY AND TAXES
-----------------
6.1 Producer agrees to account for and pay all the royalties due on the
gas delivered under this Agreement in strict accordance with the provisions of
those leases or agreements creating those royalties.
6.2 Producer shall pay all gross production, severance, and similar taxes
levied against or with respect to gas delivered under this Agreement. The
Processor shall under no circumstances become liable for those taxes, unless
designated to remit those taxes on behalf of Producer by any duly constituted
jurisdictional agency having authority to impose such obligations on Processor,
in which event the amount of those taxes remitted by Processor on Producer's
behalf shall be deducted from the amounts otherwise due Producer hereunder.
ARTICLE VII
Page - 15
<PAGE>
TERM
----
7.1 Subject to Section 7.2, this Agreement shall remain in full force and
effect for a primary term of twenty (20) years following the date of initial
deliveries hereunder, and thereafter for the life of the leases from time to
time covered hereby.
7.2 If, the continued receipt of all or any portion of Producer's gas
renders Processor's operations hereunder unprofitable to Processor, in
Processor's sole judgment, it shall have the right to notify Producer of that
circumstance, which notice shall include sufficient documentation to
substantiate the claim of unprofitability. The parties shall then meet to
discuss the course of such unprofitability and to determine if a good faith
solution can be reached. Absent a viable good faith solution, this Agreement
shall be terminated upon sixty (60) days following the date of Processor's
written notice of unprofitability. As used hereunder, Processor's operations
hereunder are unprofitable if Processor's revenues attributable to that portion
of Producer's gas at issue do not exceed the expenses of operating Processor's
facilities attributable to portion of Producer's gas. Upon a termination under
this Section 7.2, Processor will (i) make settlement for gas already delivered,
and (ii) release all wells and lands from the terms hereof and will execute and
deliver to Producer a recordable memorandum of that termination.
ARTICLE VIII
STATEMENTS AND PAYMENTS
-----------------------
8.1 Payment shall be made by Processor to Producer of the Net Sales Price
for Plant Products, less the fees due Processor under Section 5.1, not later
than the last day of each month for Producer's gas received during the preceding
Accounting Period, and at the time payment is made a statement showing full
details of the account shall be transmitted to Producer. Further, the deduction
of fees owed by Producer to Processor, under Section 5.1, from the Net Sales
Price for Plant Products attributable to Producer's gas shall not relieve
Producer for the liability to Processor for those fees, and should the full
amount of those fees not be recovered from the Net Sales Price for Plant
Products attributable to Producer's gas, then Producer shall pay Processor the
deficiency within ten (10) days following receipt of Processor's statement.
Page - 16
<PAGE>
8.2 Either party, upon thirty (30) days prior written notice, shall have
the right, at reasonable times during business hours but no more frequently than
once each calendar year, at its expense, to examine the books and records of the
other party to the extent necessary to audit and verify the accuracy of any
statement, charge or computation made under or pursuant to this Agreement. The
scope of such audit shall be limited to the twenty-four (24) month period prior
to the month in which such audit commences; provided, no audit may include any
time period subject to a prior audit hereunder and no audit may occur more
frequently than once each six (6) months. All statements, allocations,
measurements and payments made in any period prior to the twenty-four (24)
months preceding such month shall be conclusively deemed true and correct. The
party conducting the audit shall have six (6) months after commencement of the
audit in which to submit a written claim, with supporting detail, for
adjustments. Should any audit conducted by Producer disclose required
adjustments exceeding $75,000, then Processor shall reimburse Producer for its
reasonable and necessary third party costs incurred in performing that audit.
ARTICLE IX
RIGHTS-OF-WAY
-------------
9.1 Producer hereby grants to Processor, insofar as Producer has the
right to do so, all requisite easements, and rights-of-way over, across, and
under the lands or the leases covered hereunder, with full right of ingress and
egress for the purpose of constructing and operating gas pipelines, meter
stations, and other equipment necessary for convenience of carrying out the
terms of this Agreement and Processor's obligations hereunder. All lines and
other equipment placed by Processor in, on or under said land shall remain the
property of Processor and may be removed at any time. In the exercise of its
rights under this Section 9.1, Processor shall comply with all laws and with the
terms and conditions of leases, licenses and easements binding on Producer (to
the extent disclosed to Processor) with respect to those lands.
ARTICLE X NOTIFICATION
------------
10.1 Any notice or other communication provided for in this Agreement
shall be given in writing and shall be considered as duly delivered when either
mailed certified, return receipt requested,
Page - 17
<PAGE>
postage prepaid by United States mail, by delivery service (with confirmation)
or sent via facsimile transmission (with confirmation), addressed to the party
to whom such notice is given as follows:
Producer: Oceana Acquisition Company, L.L.C.
1100 Louisana Suite 3150
Houston, Texas 77002
Ph. (713) 659-6100 Fax(713)659-6130
Processor: West Shore Processing Company LLC
5613 DTC Parkway, Suite 400
Englewood, Colorado 80111
ATTN:
Ph. (303) 290-8700
Fax. (303) 290-8769
Notice shall be effective when received, except notice sent by mail shall be
deemed received three (3) days after mailing. Either party may change its
address for notice purposes by written notice to that effect.
ARTICLE XI
LIABILITY AND WARRANTIES
------------------------
11.1 As between the parties hereto, Producer, or its designee shall be in
control and possession of the gas hereunder until such gas is delivered at the
Receipt Point and as to the Residue Gas, after it is redelivered at the Plant
Delivery Point. Processor shall be in control and possession of the gas
delivered hereunder from the time such gas is delivered at the Receipt Point and
as to the Residue Gas, until it is returned to Producer at the Plant Delivery
Point.
11.2 Processor hereby covenants and agrees with Producer that except to
the extent caused by Producer's gross negligence or willful misconduct,
Processor shall protect, defend, indemnify and hold harmless Producer and its
affiliates, the contractors, sub-contractors, agents or representatives of
Producer and its affiliates, and the directors, managers, officers or employees
of Producer, its affiliates or the contractors, subcontractors, agents or
representatives of same (hereinafter referred to as "Producer Indemnified
Parties") from, against and in respect of any and all
Page - 18
<PAGE>
Losses (as hereinafter defined) incurred by any Producer Indemnified Party to
the extent such Losses arise from or are related to: (a) processor's ownership
and operation of its facilities from and after the Receipt Point; and (b)
Processor's possession and control of Producer's gas.
11.3 Producer hereby covenants and agrees with Processor that except to
the extent caused by Processor's gross negligence or willful misconduct,
Producer shall protect, defend, indemnify and hold harmless Processor and its
affiliates, the contractors, sub-contractors, agents or representatives of
Processor and its affiliates, and the directors, managers, officers or employees
of Processor, its affiliates or the contractors, subcontractors, agents or
representatives of same (hereinafter referred to as the "Processor Indemnified
Parties") from, against and in respect of any and all Losses incurred by any
Processor Indemnified Party to the extent such Losses arise from or are related
to: (a) Producer's possession and control of the gas prior to the Receipt
Point(s) and as to the gas returned to Producer, after the Plant Delivery Point;
and (b) Producer's ownership and operation of its facilities before the Receipt
Point.
11.4 For the purposes of this Article XI, "Loss(es)" shall mean any actual
loss, cost, expense, liability, damage, demand, suit, sanction, claim,
settlement, judgment, lien, fine, penalty, interest of every kind and character
(including reasonable fees and expenses of attorneys, technical experts and
expert witnesses reasonably incident to same) which are suffered by indemnified
Parties (as herein defined), or any third parties, and any expenses incurred in
enforcing this indemnity provision, incurred by, imposed upon or rendered
against one or more of the applicable Indemnified Parties, on account of
injuries (including death) to any person or damage to or destruction of any
property, sustained or alleged to have been sustained in connection with or
arising out of or incidental to the matters for which the Indemnifying Party has
indemnified the applicable Indemnified Parties, and whether based on contract,
tort or pursuant to any then existing laws, rules or regulations of any
governmental body having jurisdiction with respect thereto, and regardless of
whether the Losses are foreseeable or unforeseeable or founded in whole or in
part upon the (i) breach of contract or (ii) the sole, joint, concurrent
contributory or comparative (a) negligence, (b) breach of legal duty other than
those expressly imposed under this agreement or (c)
Page - 19
<PAGE>
strict liability of one or more of the Producer Indemnified Parties or Processor
Indemnified Parties, including, but not limited to, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended, the
Resource Conservation and Recovery Act of 1976, as amended, the Toxic Substances
Control Act, and other federal and state equivalents. Despite the foregoing to
the contrary, Loss(es) shall not include consequential, indirect, prospective,
punitive or exemplary damages as between Producer and Processor.
11.5 Procedure. The indemnifications contained in this Article XI. shall
----------
be implemented as follows:
(A) Notice of Claim. The party seeking indemnification under the terms of
----------------
this Agreement ("indemnified Party") shall submit a written "Claim Notice" to
the other party ("indemnifying Party") which, to be effective, must state: (i)
the amount of each Loss claimed by an Indemnified Party, (ii) the basis for such
claim, with supporting documentation, (iii) a list identifying to the extent
reasonably possible each separate item of Loss for which payment is so claimed.
The amount claimed shall be paid by such Indemnifying Party as and to, and only
to, the extent required herein within thirty (30) days after receipt of the
Claim Notice or after the amount of such payment has been finally established,
whichever last occurs.
(B) Claims Involving Litigation. Within thirty (30) days after notification
----------------------------
to any indemnified Party with respect to any claim or legal action or other
matters that may result in a Loss for which indemnification may be sought under
this Article XI., but in any event in time sufficient for the indemnifying Party
to contest any action, claim, proceeding or other matter that has become the
subject of proceedings before any court or tribunal, such Indemnified Party
shall give written notice of such claim, legal action or other matter to the
Indemnifying Party and, at the request of such Indemnifying Party, shall furnish
the Indemnifying Party or its counsel with copies of all pleadings and other
information with respect to such claim, legal action or other matter. The
failure to provide that notice within the time specified shall not relieve an
Indemnifying Party of its indemnity obligations hereunder except to the extent
of any Losses which are attributable to that delay. Upon the election of the
Indemnifying Party made within sixty (60) days after receipt of such notice, to
Page - 20
<PAGE>
the indemnifying Party, Indemnifying Party shall have the right to assume
control of such claim, legal action or other matter (to the extent only that
such claim, legal action or other matter relates to a Loss for which the
Indemnifying Party is liable), including the determination of all appropriate
actions, the negotiation of settlements on behalf of the Indemnified Party, and
the conduct of litigation through attorneys of the Indemnifying Party's choice,
provided, however, that no such settlement can result in any liability or cost
to the Indemnified Party for which it is entitled to be indemnified hereunder
without its consent. If the Indemnifying Party elects to assume control, (i) any
expense incurred by the Indemnified Party thereafter for investigation or
defense of the matter shall be borne by the Indemnified Party and (ii) the
Indemnified Party shall give all reasonable information and assistance, other
than pecuniary, that the Indemnifying Party shall deem necessary to the proper
defense of such claim, legal action, or other matter. In the absence of such an
election, the Indemnified Party will use good faith efforts to defend, at the
Indemnifying Party's expense any claim, legal action or other matter to which
such other party's indemnification under this Article XI. applies until the
Indemnifying Party assumes such defense, and, if the indemnifying Party fails to
assume such defense within the time period provided above, settle the same in
the Indemnified Party's reasonable discretion at the Indemnifying Party's
expense.
11.6 In no event will either party be liable to the other party hereunder
for consequential, prospective, indirect, punitive or exemplary damages as
between Producer and Processor.
11.7 Producer warrants and represents that it has good title to and/or the
full right to deliver, for the purposes stated herein, all gas (including all
Liquid Hydrocarbons contained therein) delivered hereunder and that all gas
delivered hereunder will be free from all adverse claims, encumbrances and liens
of any nature, and Producer will defend and indemnify Processor against all
claims of any nature arising as a result of Producer's breach of the foregoing
warranty. Title to all Liquid Hydrocarbons recovered by Processor shall be in
Processor, and except for those Liquid Hydrocarbons, title to Producer's gas
shall remain in Producer.
11.8 Processor agrees that it will allow no liens or other
Page - 21
<PAGE>
adverse claims, including liens to secure payment of taxes, to attach to the gas
delivered and redelivered hereunder, and warrants that the Residue Gas delivered
to Producer at the Plant Delivery Point will be as free from all liens and other
adverse claims, including liens to secure payment of taxes (except with respect
to production taxes, ad valorem taxes, conservation taxes, severance taxes
applicable to Producer's Gas, and taxes based upon production of Producer's gas,
Producer remains responsible and for which Processor has no liability) as was
the gas delivered by Producer at the Receipt Point.
ARTICLE XII
LAWS, REGULATIONS AND FORCE MAJEURE
-----------------------------------
12.1 This Agreement shall be subject to all applicable state, federal and
local laws, rules and regulations, and the parties hereto shall be entitled to
regard all such laws, rules and regulations as valid, and may act in accordance
therewith until such time as the same may be invalidated by final judgment in a
court of competent jurisdiction.
12.2 The term "Force Majeure" means any cause, or condition (other than
financial inability) not reasonably within the control of the party claiming
suspension and which by the exercise of due diligence, such party is unable to
prevent or overcome. A party claiming Force Majeure shall give prompt notice to
the other party specifying the cause and anticipated period of Force Majeure and
the plans of the affected party to remedy the condition of Force Majeure.
12.3 In the event either Producer or Processor is rendered unable, wholly
or in part, by Force Majeure, to carry out its obligations under this Agreement,
other than to make any payments due hereunder, it is agreed that upon such
party's giving notice and reasonable full particulars of such Force Majeure in
writing or by telegraph to the other parties affected within a reasonable time
after the occurrence of the cause relied on, then the obligations of the party
giving such notice, so far as they are affected by such Force Majeure shall be
suspended during the continuance of the inability, and the cause of the Force
Majeure, as far as possible, shall be remedied with all reasonable dispatch.
Notwithstanding the foregoing, if a Force Majeure condition results in any well
or wells being shut-in or production therefrom being curtailed for any
Page - 22
<PAGE>
period of 15 consecutive months, Producer shall be entitled to notify Processor,
in writing, that it elects to have such well(s) released from this Agreement,
and if that notice is received before the Force Majeure condition is remedied,
then each of the well(s) designated in that notice shall be released from this
Agreement.
12.4 The settlement of strikes, lockouts, and other labor difficulty shall
be entirely within the discretion of the party having the difficulty. The above
requirement that any Force Majeure shall be remedied with all reasonable
dispatch shall not require the settlement of strikes, lockouts, or other labor
difficulty by acceding to the demands of opponents therein when that is
inadvisable in the discretion of the party having the difficulty.
ARTICLE XIII
INSPECTION
----------
13.1 Each party hereto shall have the right to witness any measuring,
testing, sampling, analysis or other operation required for settlement
hereunder. The parties shall designate in writing the person to be notified in
connection with the operation of this Section 13.1. Such written designation
shall include the name, address and telephone number of the person to be
notified. Adequate notice shall be given to allow such witness to be present.
13.2 Upon written request, each party shall furnish to the other party all
meter charts and/or measurement data obtained from electronic gas measurement
devices and other records relating to settlements to be made hereunder. All such
items shall be returned to the party supplying them within sixty (60) days of
receipt. The books and records of each party, insofar as they pertain to
settlement hereunder, shall be open and available to the other party at all
reasonable hours. All statements rendered to Producer by Processor during any
calendar year shall be conclusively presumed true and correct after twenty-four
(24) months following the end of any such calendar year, unless within the said
twenty-four (24) month period Producer takes written exception thereto and makes
claim on Processor for adjustment. Failure on the part of Producer to make claim
on Processor for adjustment within such period shall establish the correctness
thereof and preclude the filing of exceptions thereto or making of claims for
adjustment
Page - 23
<PAGE>
thereof.
ARTICLE XIV
RESERVATIONS OF PRODUCER
------------------------
14.1 Producer reserves the right to withhold from delivery any gas as the
lessee is required to deliver to its lessors under the terms of the lease(s)
subject to this Agreement or to other parties under other contractual
agreements.
14.2 Producer has the right to use sufficient gas for the development
and/or operation on Producer's premises, together with similar properties of
Producer in the immediate vicinity, including the use of gas for drilling,
workover and production operations, and compressor fuel.
14.3 Producer has the right to pool, communitize and unitize, and to
dissolve units, communitized areas and depool, the lands, leases and properties
covered hereby with other lands, leases, and properties of Producer or others
located in the field in which the premises covered hereby are located; and all
of Producer's interest in such pool, units or areas, and all of Producer's gas
produced therefrom attributable to the interest of Producer committed hereto,
shall be covered by this Agreement, provided that the exercise of such right by
Producer shall not diminish Processor's rights nor increase its obligations with
respect to Producer's new interest in the gas produced from the lands covered
hereby.
14.4 Producer may, at any time, without liability to Processor, clean out,
rework, deepen, abandon or otherwise perform operations on any well(s) on
Producer's leases, or may use any efficient, modern or improved method for the
production of gas; provided however, that before any well(s) are taken out of
service for any reason, Producer agrees to first shut-off the well(s) connection
with Processor's facilities.
14.5 Producer may relinquish or surrender any lease that Producer does not
desire to maintain. Producer may use conventional separation equipment prior to
the Receipt Points.
ARTICLE XV
PRODUCER'S REPRESENTATIVE
-------------------------
Page - 24
<PAGE>
15.1 To the extent Producer's rights hereunder now or hereafter may be
owned by more than one party or to the extent a third party owning an interest
in a well covered hereby ratifies this Agreement, Producer will appoint a
Representative with respect to all matters under this Agreement, including but
not limited to the following:
a. To give and receive all notices;
b. To receive all payments;
c. To make and witness any tests to be made of the gas and measuring
equipment and adjustments to such equipment;
d. To obtain, execute and, deliver to Processor such division order title
opinions and division orders as may be required by Processor hereunder;
and
e. To comply with the requirements, rules and regulations of any duly
constituted authority having jurisdiction.
f. To nominate and schedule deliveries of gas to downstream markets, as
applicable.
15.2 Processor may act, and shall be fully protected in acting, in
reliance upon any and all representations and acts of that Representative on
behalf of Producer as fully and with the same effect as though Producer had made
or performed those. Producer may change any Representative from time to time by
delivery of written notice of change and designation of Representative to
Processor, provided that any such new Representative shall be the same party as
designated by all Producers under this Agreement. The Representative so
designated shall have and may exercise all power and authority therein granted
with like effect as though named as such Representative herein in the first
instance.
ARTICLE XVI
MISCELLANEOUS
-------------
16.1 The failure of any party hereto to exercise any right granted
hereunder shall not impair nor be deemed a waiver of such party's privilege of
exercising such right at any subsequent time or times.
16.2 This Agreement shall extend to and inure to the benefit of and be
binding upon the parties hereto, their respective successors and assigns,
including affiliates and subsidiaries, on
Page - 25
<PAGE>
and after the effective date of this Agreement. No assignment shall be binding
on either of the parties hereto, other than the party selling, transferring,
assigning or conveying its interests in the properties covered by this
Agreement, until the first day of the month following the date a certified copy
of the instrument evidencing such sale, transfer, assignment or conveyance has
been delivered to the other party.
16.3 Nothing herein contained shall be deemed to constitute the parties
hereto to be a partnership, mining partnership, joint venture or an association
and each shall be deemed to act herein and in connection with performance of
this Agreement for itself, and not for the other, and no party hereto shall be
liable, or responsible for any acts of the other by virtue of the relationship
created under this Agreement.
16.4 Insofar as it may have the right to do so, each party shall allow any
other party, its agents and employees, access to and the right of ingress and
egress upon the lands or property of the other party relating to plants and
pipelines herein referred to, for the purpose of carrying out any provisions
hereof, including the taking of samples, making of tests and witnessing thereof.
While any party, its agents or employees, is upon the property of another party
hereto, the entering party shall hold the other party whole and harmless for all
losses, damages and liabilities resulting from or arising out of such entry,
except to the extent occasioned by the negligence of such other party, its
agents or employees.
16.5 This Agreement shall be deemed to be a contract made under the laws
of the State of Michigan and for all purposes shall be construed in accordance
with the laws of said State without regard to choice of law principles.
16.6 Any dispute arising under this Agreement which cannot be resolved by
the parties by good faith negotiations within thirty (30) days following the
assertion of the dispute, shall be resolved by binding arbitration to be
conducted by and in accordance with the Commercial Arbitration Rules of the
American Arbitration Association. All arbitration hearings shall be conducted in
Denver, Colorado. Any award of the arbitrator may be reduced to a judgment in
any court of competent jurisdiction.
Page - 26
<PAGE>
16.7 This Agreement, including all Schedules contains the entire agreement
of the parties hereto with respect to the matters addressed herein and shall be
amended only by an instrument in writing signed by both parties.
IN WITNESS WHEREOF, this Agreement may be executed in any number of
counterparts, each of which shall be considered an original.
PRODUCER:
OCEANA ACQUISITION COMPANY, L.L.C.
By: /s/ Michael V. Ronca
Name: Michael V. Ronca
Title: Manager
PROCESSOR:
WEST SHORE PROCESSING COMPANY, LLC
By: MarkWest Michigan LLC, its Manager
By: MarkWest Hydrocarbon Partners, Ltd., its manager
By: MarkWest Hydrocarbon, Inc., its general partner
By: /s/ Arthur J. Denney
Name: Arthur J. Denney
Title: Vice President
Page - 27
<PAGE>
THE STATE OF TEXAS
COUNTY OF HARRIS
The foregoing instrument was acknowledged before me this the 2nd day of May
1996, by Michael Ronea the Manager of Oceana Acquisition Company, L.L.C
Witness my hand and official seal.
My Commission expires: 2/13/97
/s/ Bronia E. Koch
Notary Public
THE STATE OF TEXAS
COUNTY OF HARRIS
The foregoing instrument was acknowledged before me this the 2nd day of May
1996, by Arthur J. Denney, the Vice President of MarkWest Hydrocarbon, Inc., as
general partner of MarkWest Hydrocarbon Partners, Ltd, as manager of MarkWest
Michigan LLC.
Witness my hand and official seal.
My Commission expires: 2/13/97
Notary Public
/s/ Bronia E. Koch
Page - 28
<PAGE>
SCHEDULE I
Attached to and made a part of Gas Gathering, Treating and Processing Agreement,
dated May 2, 1996, between OCEANA ACQUISITION COMPANY, L.L.C., Producer, and
WEST SHORE PROCESSING COMPANY, LLC.
DEDICATED LEASES AND LANDS
--------------------------
Page - 29
<PAGE>
SCHEDULE II
Attached to and made a part of Gas Gathering, Treating and Processing Agreement,
dated May 2, 1996, between OCEANA ACQUISITION COMPANY, L.L.C., Producer, and
WEST SHORE PROCESSING COMPANY, LLC.
PLANT DELIVERY POINTS
---------------------
1. The interconnection of the MichCon Dry Header at the Brown 19 gas
treating plant.
2. The tailgate of Shell Western E & P, Inc.'s Kalkaska gas processing
facility.
3. The tailgate of Processor's NGL extraction plant to be located in the
vicinity of Shell Western E & P, Inc.'s Shell 23 Treating Plant.
Page - 30
<PAGE>
SCHEDULE III
RECORDING MEMORANDUM OF GAS GATHERING & PROCESSING AGREEMENT
KNOW ALL MEN BY THESE PRESENTS
That OCEANA ACQUISITION COMPANY, L.L.C., (Producer), with offices at____________
_________, and WEST SHORE PROCESSING COMPANY LLC, (Processor), with offices at
5613 DTC Parkway, Suite 400, Englewood, Colorado 80111, have entered into that
certain Gas Gathering, Treating and Processing Agreement dated____________,
1996, under which Producer has committed to its performance. Of its obligations
to Processor certain leases 'and lands, as described on Exhibit A, attached
hereto, and, further, that Producer agrees that the foregoing dedication shall
be a covenant running with those leases and lands, and that any assignment, sale
or other transfer of all or a portion of Producer's interests thereunder shall
include and be subject to the dedication under the Gas Gathering, Treating and
Processing Agreement referred to herein.
In witness whereof, the parties hereto have executed this instrument
effective as of________________, 1996.
PRODUCER:
OCEANA ACQUISITION COMPANY, L.L.C.
By:
Name:
Title:
PROCESSOR:
WEST SHORE PROCESSING COMPANY, LLC
By: MarkWest Michigan LLC, its Manager
By: MarkWest Hydrocarbon Partners, Ltd., its manager
By: MarkWest Hydrocarbon, Inc., its general partner
By:
Name:
Title:
Page - 31
<PAGE>
THE STATE OF
COUNTY OF
the
The foregoing instrument was acknowledged before me this_____day of_______1996,
by_____________the___________________of OCEANA ACQUISITION COMPANY., L.L.C.
Witness my hand and official seal.
My Commission expires:
Notary Public
STATE OF COLORADO
COUNTY OF ARAPAHOE
The foregoing instrument was acknowledged before me this
_____day of_________1996, by_____________________________the_________________ of
MarkWest Hydrocarbon, inc., as general partner of MarkWest Hydrocarbon Partners,
Ltd, as manager of MarkWest Michigan LLC.
Witness my hand and official seal.
My Commission expires:
Notary Public
Page 32
<PAGE>
SCHEDULE IV
NOMINATION PROCEDURES
- ---------------------
Pursuant to the terms of this Agreement, the Nomination Procedures detailed in
this Schedule IV will be utilized to cover all nominations made by Producer on
Processor's system. All nominations must be made by Producer or Producer's
designee. Processor and Producer agree to minimize imbalances and sustain the
flow of gas on the system. Should transporters receiving Producer's Gas revise
their requirements, the parties agree to meet and negotiate upon changes to the
Nomination Procedures herein as are reasonably required.
MONTHLY SCHEDULING OF GAS
- -------------------------
By 1:00 P.M. (MT), at least five (5) business days prior to the start of
each Accounting Period or initial delivery of Gas, Producer will inform
Processor's Gas Control Department ("GCD") of the amount of Gas to be
delivered by Producer at each Receipt Point and of Producer's nomination
for Gas to be delivered at the Plant Delivery Point. Such nomination shall
be submitted to Processor by facsimile in a form acceptable to Processor.
Incomplete nominations will not be accepted.
By 1:00 P.M. (MT), four (4) business days prior to the start of each
Accounting Period or initial delivery of Gas, Processor will notify
Producer if the nomination from Producer specified above is different from
the volume that Processor will confirm at the Plant Delivery Point on
behalf of Producer. Processor will use its best efforts to work closely
with Producer to arrive at a confirmed nomination that best estimates
Producer's current production.
Processor will not be required to confirm any nomination that is greater or
less than Processor's estimate of Producer's Gas availability. If,
following the initial nomination, Processor determines, using the best
information available, including, but not limited to, measurement charts,
electronically transmitted data from EFM's, and pipeline confirmations,
that Producer should adjust its nominations, then Processor will notify
Producer and Producer will be required to adjust nominations in accordance
with Processor's request. Both
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<PAGE>
parties will use their best efforts to keep Producer's Gas position in
balance while maintaining Gas flow, including without limitation, such
periodic reporting of relevant data as may be required to timely adjust
nominations.
DAILY SCHEDULING OF GAS
- -----------------------
Daily nomination changes must be conveyed by facsimile to Processor's GCD
on a completed nomination request form, or such other form acceptable to
Processor, by 9:30 A.M. (MT) on the business day prior to the effective
date of said nomination.
Processor will not be required to confirm any daily nomination that is
greater or less than Processor's estimate of Producer's availability for
that particular day, except as may be necessary to correct any imbalance
which may be determined to exist at that time.
Producer will promptly advise Processor when Producer's gas availability,
gas resale market(s) or other dispositions of Producer's Gas are
interrupted or curtailed and Producer shall change its nominations
accordingly.
AUTHORIZATION FOR WELLHEAD TURN-ONS
- -----------------------------------
Producer must request and receive authorization from Processor's GCD prior to
new wells being turned on by Producer to produce into the system. Producer, or
its designee, shall provide Processor's GCD an entitlement percentage
(working interests and other controlled interests) for each new well at least
two (2) business days prior to the turn-on date. Authorization for each well
will be provided by Processor's GCD, by facsimile or telephone as agreed upon by
Processor's GCD and Producer.
The entitlement percentage provided by Producer, or its designee, shall remain
in effect for the entire Accounting Period. Any changes to the entitlement
percentage must be received by Processor in writing at least ten (10) business
days prior to the start date of the next Accounting Period.
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<PAGE>
COMMUNICATION WITH PROCESSOR'S GAS CONTROL DEPARTMENT
- -----------------------------------------------------
Communication with Processor's GCD should be directed as follows:
West Shore Processing Company, L.L.C.
c/o MarkWest Michigan LLC
5613 DTC Parkway, Suite 400
Englewood, Colorado 80111
Telephone: (303) 290-8700
Facsimile: (303) 290-8769
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<PAGE>
RECORDING MEMORANDUM OF GAS GATHERING & PRO
KNOW ALL MEN BY THESE PRESENTS
That OCEANA ACQUISITION COMPANY, L.L.C., (Producer), with offices at 1100
----
Louisiana, Suite 3150, Houston, Texas 77002 and WEST SHORE PROCESSING COMPANY
- -------------------------------------------
LLC, (Processor), with offices at 5613 DTC Parkway, Suite 400, Englewood,
Colorado 80111, have entered into that certain Gas Gathering, Treating and
Processing Agreement dated May 2, 1996, under which Producer has committed to
-----
its performance of its obligations to Processor certain leases and lands, as
described on Exhibit A, attached hereto, and, further, that Producer agrees that
the foregoing dedication shall be a covenant running with those leases and
lands, and that any assignment, sale or other transfer of all or a portion of
Producer's interests thereunder shall include and be subject to the dedication
under the Gas Gathering, Treating and Processing Agreement referred to herein.
In witness whereof, the parties hereto have executed this
instrument effective as of May 2, 1996.
-----
PRODUCER:
OCEANA ACQUISITION COMPANY, L.L.C.
By:
Name: Michael V. Ronca
Title: Manager
-------
PROCESSOR:
WEST SHORE PROCESSING COMPANY, LLC
By: MarkWest Michigan LLC, its Manager
By: MarkWest Hydrocarbon Partners, Ltd., its manager
By: MarkWest Hydrocarbon, Inc., its general partner
By:
Name: Arthur J. Denney
----------------
Title: Vice President
---------------
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<PAGE>
GAS GATHERING, TREATING AND PROCESSING AGREEMENT
THIS AGREEMENT is made and entered into this 2nd day of May, 1996, by and
between MICHIGAN PRODUCTION COMPANY, L.L.C., May referred to as "Producer", and
WEST SHORE PROCESSING COMPANY, LLC.
RECITALS:
A. Producer owns and holds or may own or hold certain valid and
subsisting oil and gas lease(s) or interests therein, covering lands situated
and being within the Dedication Area; and
B. Producer desires to have gathered, treated and processed the gas
which may hereafter be produced from its wells now or hereafter located within
the Dedication Area; and
C. Processor operates, or has contracted with third parties to operate,
gas gathering, treating and processing related facilities and desires to gather,
treat and process that gas for the purpose of extracting liquid and liquefiable
hydrocarbon products therefrom.
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
Producer and Processor agree as follows:
ARTICLE I
DEFINITIONS
-----------
The following definitions of terms shall apply for all purposes of this
Agreement:
1.1 "Accounting Period" means a period of one month, commencing at
seven (7) o'clock a.m. local time on the first day of a calendar month and
ending at seven (7) o'clock a.m. local time on the first day of the next
succeeding month.
1.2 "Basin" means Basin Pipeline Limited Liability Company, an affiliate
of West Shore Processing Company, LLC.
1.3 "BTU" means British Thermal Unit and is the amount of heat required
to raise the temperature of one (1) pound of pure water from fifty-nine degrees
Fahrenheit (59 degrees F) to sixty degrees Fahrenheit (60 degrees F); and,
"MMBTU" means one million British Thermal Units.
1.4 "Cubic Foot" or "Cubic Feet" means the volume of gas contained in
one cubic foot of space at a standard pressure base of fourteen-and-sixty-five-
hundredths (14.65) pounds per square inch absolute (psia) and a standard
temperature base of sixty degrees Fahrenheit (60 degrees F).
1.5 "Dedication Area" means initially Manistee, Mason and Oceana
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Counties, Michigan; and, at such time as Processor has extended its facilities
into Muskegon County, Michigan, then that county shall be included in the
Dedication Area effective as of the date upon which Processor gives Producer
notice that it has facilities in that county capable of receiving gas; provided,
however, with respect to Muskegon County, only as to wells, lands and leases not
then dedicated to other gatherers, treaters and processors.
1.6 "Gross Heating Value" means the number of BTU's produced by the
combustion, at a constant pressure, of the amount of the gas which would occupy
a volume of one (1) Cubic Foot at a temperature of sixty degrees Fahrenheit
(60 degrees F), if saturated with water vapor and under a pressure equivalent to
that of thirty (30) inches of mercury at thirty-two degrees Fahrenheit (32
degrees F) and under standard gravitational force (acceleration 980.665
centimeters per second squared) with air of the same temperature and pressure as
the gas, when the products of combustion are cooled to the initial temperature
of the gas and air and when the water formed by combustion is condensed to the
liquid state.
1.7 "Inlet Volume" means the aggregate volume of gas measured at the
Receipt Point.
1.8 "Liquid Hydrocarbons" is used herein to refer to liquefiable
hydrocarbons present in the vapor phase in the gas stream and to refer to
hydrocarbons in a liquid state after the extraction by the Plant from the gas
stream, but shall in either case mean natural gasoline (pentane plus heavier
hydrocarbons), butanes, propane and ethane (including such incidental methane as
may be extracted from the gas under normal operation of processing facilities).
1.9 "MCF" means one-thousand (1,000) Cubic Feet and "BCF" means one
billion cubic feet.
1.10 "Pipeline Drip" means condensate and liquified hydrocarbons which
separate from Producer's gas in the pipeline facilities of Processor.
1.11 "Plant" means Processor's gas plant (or the processing and treating
facilities of third parties with whom Processor contracts for services
applicable to Producer's gas) and Processor's gathering system behind the plant,
now or hereafter existing, including without limitation, all tanks, equipment,
pipe, valves, and material of any kind, including appropriate gas and liquid
measurement facilities, pipeline gathering and compression facilities, storage,
shipping, dehydration, gas treating and delivery facilities for Plant Products;
all structures located, or to be located, on the site(s) at which the
compression, treating and processing facilities of Processor are now or
hereafter located; all easements pertaining to the site(s) and operation of
those facilities; and any and all facilities located, or to be located, on or
away from the site(s) deemed by Processor to be necessary for its performance
under this Agreement.
1.12 "Plant BTU Reduction" or "PBR" means the sum of the gas used as
Plant Fuel, Unmeasured Gas Uses and Losses, and the BTU equivalent of the Plant
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Products as determined in accordance with Article V.
1.13 "Plant Delivery Point" means the point(s) at which Producer's share
of the Residue Gas is delivered by Processor to Producer at the tailgate of the
Plant, as described on Schedule II. Measurement facilities at the Plant Delivery
Point shall be installed, maintained, and operated by Processor, or its
designee, at its sole cost, risk, and expense.
1.14 "Plant Fuel" means all gas, expressed in BTU's, utilized by
Processor as fuel in the Plant.
1.15 "Plant Products" means finished commercial products and other
products, or any mixtures thereof, other than Residue Gas, which Processor from
time to time extracts or separates from gas processed in the Plant, including,
but not limited to ethane, propane, iso-butane, normal butane, and natural
gasoline.
1.16 "Processing" means the activities relating to the extraction and
recovery of Plant Products.
1.17 "Processor" means WEST SHORE PROCESSING COMPANY, LLC, AND ITS
AFFILIATE, BASIN PIPELINE LIMITED LIABILITY COMPANY.
1.18 "Receipt Point" means the point(s) where gas is delivered by
Producer to Processor for gathering, treating and processing in the Plant.
Measurement facilities at the Receipt Point shall be installed, maintained, and
operated by Processor, or its designee, under the terms hereof.
1.19 "Residue Gas" means gas, expressed in MMBTU's, remaining after the
extraction of Liquid Hydrocarbons, Plant Fuel, sulfur, hydrogen sulfide and
carbon dioxide, and after other Unmeasured Gas Uses and Losses incident to or
occasioned by the treating, gathering and processing of gas and redelivery to
Producer. The portion of the Residue Gas attributable to Producer's gas is to
be delivered to Producer at the Plant Delivery Point.
1.20 "Subordinated Liens" means liens in favor of that Producer's secured
creditors which liens are subject to and subordinate to the rights of Processor
under this Agreement in a manner acceptable to Processor.
1.21 "Thermal Content" for gas means the product of the measured volume
in dry MCF's and the Gross Heating Value in dry BTU's per MCF, adjusted to the
same pressure base; for Plant Products means the product of the gross heat of
combustion per gallon multiplied by the total gallons of the product stream.
Numerical values for gross heat per gallon shall be those published in the
Standard Table of Physical Constants of Paraffin Hydrocarbons in GPA Publication
2145-93, as revised.
1.22 "Treating" means the activities relating to the removal of hydrogen
sulfide and carbon dioxide from the gas.
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<PAGE>
1.23 "Unmeasured Gas Uses and Losses" means any gas used, lost or not
otherwise accounted for in the gas plant incident to the operation of the gas
plant and gas lost in Processor's gathering system (to the extent not allocable
to specific receipt points, including Producer's), including volumes of gas
released through relief valves, ruptured pipelines, blow down of vessels, etc.,
and fuel for gathering system compressors which for each compressor shall be
reasonably allocated on a Thermal Content basis to the receipt points, including
Producer's served by such compressor.
ARTICLE II
COMMITMENT, RECEIPT AND DELIVERY CONDITIONS
-------------------------------------------
2.1 Subject to the other provisions of this Agreement, Producer commits
to this Agreement:
a. all gas attributable to the interests of Producer in the leases
described in Schedule I; and,
b. all of Producer's interests hereafter acquired by Producer, whether
acquired directly or earned under farmin or similar agreements covering
lands within the Dedication Area;
c. Provided, however, this Agreement shall not pertain to any gas
production attributable to interests of Producer which contains less than
fifteen (15) grains of hydrogen sulfide per 100 cubic feet and less than
two (2) mol percent carbon dioxide.
Producer agrees that the foregoing dedication shall be a covenant running with
the land and that any assignment, sale or other transfer of all or a portion of
Producer's interests shall include and be subject to the dedication under this
Agreement, and that Producer shall cause any purchaser, assignee or other
transferee of any portion of those interests to ratify this Agreement and to
expressly assume and agree to the terms hereof to the extent of the portion of
those interests acquired from Producer by that party. Producer also agrees that
should Producer subsequently grant any security interest (whether by pledge,
collateral assignment, mortgage, deed of trust, or other instrument) in those
interests, such security interest shall be granted expressly subject to the
foregoing dedication and to Processor's rights and obligations under this
Agreement. At Processor's request, Producer agrees to execute a recording
memorandum of this Agreement, in the form attached hereto as Schedule III, to
give notice of Producer's dedication hereunder.
2.2 a. Subject to the other provisions hereof, Producer agrees to
deliver to Processor, and Processor agrees to receive from Producer, at the
Receipt Point(s), as designated by Processor, and gather, treat and process at
the Plant all of the gas now or hereafter produced attributable to Producer's
interests in the lease(s) covered by this Agreement (which specifically excludes
any gas production attributable to interests of Producer which contains less
than fifteen (15) grains of hydrogen sulfide per 100 cubic feet and less than
two (2) mol percent carbon dioxide. Notwithstanding that Receipt
Page - 4
<PAGE>
Points are to be designated by Processor, Producer shall have the right to
notify Processor, at anytime and from time to time, that Producer intends to
drill additional well(s) in the Dedication Area which will not be served by then
existing Receipt Point(s). Within 14 days after receipt of that notice,
Processor will designate the Receipt Point(s) for those additional well(s). The
purpose of that notice and designation is to enable Producer to complete its
economic projections for the new wells before commencing drilling. Processor
agrees to designate those new Receipt Point(s) along its gathering lines in a
manner that will enable Producer to construct its lateral gathering lines for
the new wells across the shortest practicable and most economically practicable
route, taking into account operational considerations of Processor. Processor
agrees to give due consideration to recommendations of Producer but shall not be
bound by those recommendations.
b. Producer shall be responsible for arranging for all gathering
services and the installation of all facilities necessary to cause the gas
hereunder to be delivered to Processor at the Receipt Point(s); provided,
however, notwithstanding the foregoing, Producer and Processor may enter into a
mutually agreeable arrangement under which Processor will install and pay for
some or all of those facilities subject to subsequent reimbursement by Producer.
Nothing in the foregoing is intended to impose any obligation on Producer in
favor of Processor to produce gas from any of Producer's wells or connect any of
Producer's wells within the Dedication Area to Processor's facilities (provided,
however, Producer may not deliver gas from those wells or connect those wells to
any other party). Without limiting the scope of the foregoing sentence, Producer
may, in its sole discretion, elect not to produce gas from any well and elect
not to connect any well to Processor's facilities at any time that Producer, in
its sole discretion, believes that such well is or has become incapable of
producing in paying quantities; provided, upon making that election, Producer
may not deliver gas from those wells or connect those wells to any other party.
c. Beginning at the execution of this Agreement and continuing for
four (4) years following the completion of the Claybanks Area Gathering System
(defined below), Processor agrees to reimburse Producer for a portion of the
costs incurred by Producer in connection with installing Gathering Facilities
hereunder based upon the lesser amount determined by the following formulae
("Reimbursement"):
(Confidential Treatment Requested)
or
(Confidential Treatment Requested)
PROVIDED, HOWEVER, in no event will Processor, regardless of the foregoing
calculation, ever be required to make a total Reimbursement to Producer in an
amount greater than (Confidential Treatment Requested) of the total Miles
multiplied by (Confidential Treatment Requested) multiplied by Inches for any
Gathering Facilities paid for by Producer. Additionally, Processor shall have no
further obligations to
Page - 5
<PAGE>
make any Reimbursements after four (4) years from the date of completion of the
Claybanks Area Gathering System.
Where,
Gathering Facilities: Means the facilities required to be installed by
Producer at Producer's expense under 2.2, b.,
above, and shall include the Claybanks Area
Gathering System.
Claybanks Area
Gathering System: Means the sour gas gathering system which will connect
the following wells to the Plant: Slocum #1-21,
Bailey #1-24, Isley #1-32, Schultz #1-22,
Claybanks 2A, Jonseck, Claybanks 2 Unit,
Claybanks 11 Miller-Fox and the Dykstra #1-8.
Miles: Means the number of miles (based on survey) comprising
the Gathering Facilities, and extensions thereof,
to the extent that Producer has paid for those
Gathering Facilities and extensions.
Production Per Well: Means the average daily production rate (Mmcf)
from each well connected to the Gathering
Facilities for which the Reimbursement is being
calculated (including new wells connected after
the completion of the Gathering System, without
duplication), calculated one (1) year following
initial deliveries from that well, divided by 1
Mmcf.
Inches: Means the weighted average of the nominal inside
diameter (inches) of the Gathering Facilities for
which the Reimbursement is being calculated.
Recoverable
Gas Reserves: The estimated recoverable gas reserves (Bcf), as
determined by Gary S. Way or another mutually
acceptable petroleum engineering firm, from each
well connected to the Gathering Facilities for
which the Reimbursement is be being calculated,
determined one (1) year following initial
deliveries from each well, divided by 1 Bcf
d. Upon the expiration of one (1) year following the first day of
the first month after each well hereunder is connected to the Plant through
Gathering Facilities paid for by Producer, Processor and Producer will
determine, the Reimbursement due, if any, in accordance with paragraph c, above.
The payment of the Reimbursement shall be made within 60 days following
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<PAGE>
the date upon which the calculation of the Reimbursement is determined. Upon the
payment of a Reimbursement, Producer will convey, to Basin, the gathering
pipelines installed by it (and all related rights of way) during the calendar
year for which the Reimbursement is made, and will be made free and clear of all
liens, encumbrances and adverse claims, other than the Subordinated Liens. In no
event will any Reimbursement calculation include Production Per Well
attributable to any well from which the Production Per Well was included in a
prior Reimbursement Calculation.
2.3 a. Processor will accept gas delivered by Producer at the Receipt
Points, in compliance with this Agreement, produced from all wells on the leases
and lands covered by this Agreement. Producer shall reimburse Processor for all
actual costs (together with overhead at the rate of 15%) incurred by Processor
in installing metering facilities at each Receipt Point. Notwithstanding that
reimbursement, Processor shall at all times own the metering facilities
installed by Processor.
b. Producer shall notify Processor of the estimated spud and
completion dates for wells to be drilled on lands within the Dedication Area and
committed under this Agreement.
2.4 Prior to initial deliveries of gas from a well dedicated hereunder,
Producer shall furnish to Processor reasonable documentation showing the
ownership of the relevant operating rights. Promptly after Producer receives an
assignment of any interests in existing wells which are, or by virtue of that
acquisition become subject to the terms of this Agreement, Producer will provide
notification of that acquisition to Processor together with a copy of the
assignment or other instruments conveying those interests to Producer; and, upon
recording of those instruments, Producer will provide Processor a copy of the
recorded instrument showing the recording information. Upon acquisition of any
such additional interests, Schedule I hereto shall be deemed amended to include
those interests and the parties shall execute appropriate documents to evidence
that amendment, including additional recording memoranda. With respect to oil
and gas leasehold interests acquired by Producer within the Dedication Area,
upon the earlier of (i) Producer's transfer of all of its interests in any oil
and gas leasehold within the Dedication Area, or (ii) upon Producer obtaining a
permit to drill on that leasehold, Producer will provide Processor with
information regarding Producer's ownership in that leasehold.
2.5 Producer agrees to install, at its sole cost and expense, whatever
separators, heaters, dehydration equipment and other usual lease facilities as
may be deemed prudent by Producer to separate crude oil, free water and
condensate from the gas and necessary to meet the quality specifications below;
provided, however, any separation equipment to be installed by Producer which
shall handle gas to be delivered hereunder shall be only conventional mechanical
type field separators of a type then commonly used in the industry. Producer
shall have the right to install compression facilities upstream of each Receipt
Point. Any wellhead compression installed by Producer shall be operated in a
manner that does not adversely affect Processor's measurement facilities.
Producer shall make reasonable efforts to supply gas from
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<PAGE>
Producer's wells at a uniform rate of flow.
2.6 a. Gas delivered by Producer to Processor at each Receipt Point
shall:
1) be commercially free from dust, gum, gum-forming constituents,
condensate, diluent, and other liquids and solids which may become
separated from the gas;
2) contain less than ten parts per million (10 ppm) by volume of
oxygen, and Producer shall make every effort to keep gas free from oxygen;
3) have a temperature less than one hundred twenty degrees Fahrenheit
(120 degrees F);
4) not contain measurable quantities of mercury;
5) have a minimum Gross Heating Value of not less than 1050 BTU per
Cubic Foot;
6) contain not more than five (5) pounds of water vapor per million
Cubic Feet.
b. Further, the composite of all gas delivered by Producer at all
Receipt Points shall:
1) contain not more than two (2) mol percent of hydrogen sulfide;
2) contain not more than 500 ppm (weight) of total COS, CS2 and
mercaptans;
3) contain less than three percent (3%) by volume of nitrogen;
4) contain not more than five percent (5%) by volume carbon dioxide.
2.7 In the event the gas tendered by Producer to Processor should fail
to meet any one or more of the above specifications from time to time, then
either Processor or Producer may treat the gas to bring it within
specifications. If neither elects to treat, Processor can cease receiving the
non-conforming gas from Producer so long as such conditions exist. Processor, at
its option, may take receipt of such non-conforming gas, and such receipt shall
not be construed as a waiver or change of standards for future gas volumes. In
the event Processor rejects any non-conforming gas on any day, Processor shall
notify Producer in writing immediately upon rejecting such gas, and Producer
shall have ninety (90) days to bring the non-conforming gas into compliance.
Until Producer brings that non-conforming gas into compliance, Producer agrees
that it will cease deliveries of the gas containing the highest concentration of
hydrogen sulfide and/or carbon dioxide as necessary to bring the composite of
all gas delivered by Producer into compliance. If Producer is unable to bring
that non-conforming gas into compliance within the ninety (90) day period, and
Processor continues to elect to reject the non-conforming gas, then Processor
shall determine the treating facilities deemed necessary to cause the gas to
conform to the specifications and Producer will pay Processor a mutually
agreeable treating fee for that additional treatment which shall be in addition
to the otherwise applicable fees hereunder.
2.8 Producer shall deliver gas hereunder to Processor at the Receipt
Point(s) at a pressure sufficient to cause that gas to enter Processor's
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<PAGE>
facilities, as the pressure therein may exist from time to time, but not to
exceed a pressure of 1200 psig. Producer agrees to compress its gas prior to
delivery hereunder, as necessary, in order to affect the delivery of that gas to
Processor.
ARTICLE III
MEASUREMENT FACILITIES
----------------------
3.1 All gas measurement equipment installations shall be of standard
make and be furnished, installed, operated, and maintained by Processor in
accordance with the published specifications of the American Gas Association
(AGA). Producer or others having Producer's consent may, at its option and
expense, install and operate meters to check Processor's meter(s) provided such
meter installation in no way interferes with the operation of Processor's meter.
Any check meters installed by Producer shall be located upstream of Processor's
meters. Processor shall have access to such check measuring equipment at all
reasonable hours, but the reading, calibration and adjusting thereof shall be
done only by the Producer.
3.2 The computation of all gas volumes measured shall be based on the
latest factors published by the AGA corrected to a base pressure of
fourteen-and-sixty-five-hundredths (14.65) psia and a base temperature of sixty
degrees Fahrenheit (60oF). The assumed atmospheric pressure shall be 14.___
psia, regardless of actual atmospheric pressure at which the gas is measured.
The flowing temperature shall be measured by an industry accepted recording
device, and said temperature measurement shall be used to correct gas volumes as
measured in Article III hereof. Corrections for supercompressibility deviation
from Boyle's Law shall be made for all gas metered hereunder. Such corrections
shall be made by use of the AGA Manual for the Determination of Super
Compressibility Factors for Natural Gas (PAR Project NX-19), as amended. The
Reynold's Number Factor and Expansion Correction Factor shall each be assumed to
be one (1). The specific gravity of the gas shall be determined by
chromatographic analysis or any other method adopted as standard by the Gas
Processor's Association (GPA).
3.3 In the event a meter is out of service, or registering inaccurately,
the volume of gas delivered hereunder shall be calculated in the following
order: (i) by correcting the error if the percentage of error is ascertainable
by calibration, test, or mathematical calculations, or in the absence of (i),
(ii) by using the registration of any check meter or meters if installed and
accurately registering, or, in the absence of both (i) and (ii), then, (iii) by
estimating the quantity of delivery by deliveries during periods of similar
conditions when the meter was registering accurately.
3.4 Representative determinations for Liquid Hydrocarbon content shall
be made at the Receipt Point by chromatographic analysis, or by some other
mutually acceptable method adopted by the parties for testing Producer's gas for
fractional analysis and Liquid Hydrocarbon content. The chromatographic
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<PAGE>
analysis shall be utilized in the determination of the Liquid Hydrocarbons
composition and shall be used as the basis for allocating Plant Products to the
different Receipt Points. The Gross Heating Value of the Inlet Volume shall be
determined periodically by test samples obtained from the various wells. Gross
Heating Value of Residue Gas shall be that determined by the receiving pipelines
at the tailgate of the Plant.
3.5 Processor shall take or have taken for it, a representative sample
of the Plant Products to be obtained from the truck, tank car, or pipeline
deliveries during each calendar month and shall analyze or cause to be analyzed
such samples. The analysis of the individual samples shall be used to determine
the components of the Plant Products delivered.
3.6 Each party hereto shall have access at all reasonable hours to all
facilities and data which are related to gas measurement, Gross Heating Value
determination, product composition determination, gas sampling and gas gravity
determination, along with all facilities utilized and data to determine Plant
Products quantities in the Plant or sold therefrom.
3.7 Processor shall verify the accuracy of its measuring equipment
monthly, or more often if deemed necessary by Processor. Processor shall give
Producer reasonable prior notice of any check or adjustment of any measuring
equipment.
3.8 Each party shall have the right to be present for any installing,
reading, cleaning, changing, repairing, testing, calibrating and/or adjusting of
either party's measuring equipment used in measuring deliveries hereunder. The
records from each party's measuring equipment shall remain the property of the
party owning such measuring equipment, but, upon request, each party will submit
to the other all records and/or charts, together with calculations therefrom,
for inspection and verification, subject to return within thirty (30) days after
receipt thereof.
3.9 If either party shall notify the other that it desires a special
test on any measuring equipment, the parties shall cooperate to secure a prompt
verification of the accuracy of such equipment. If, upon test, any measuring
equipment is found to be in error by not more than two percent (2%), previous
recordings of such equipment shall be considered correct in computing deliveries
hereunder, but if such equipment shall be found to be inaccurate by an amount
exceeding two percent (2%), at a recording rate corresponding to the average
rate of flow for the period since the last preceding test, then any preceding
recordings of such equipment shall be corrected to zero error for any period
which is known definitely or agreed upon; if the period is not known or
definitely agreed upon, such correction shall be for a period extending up to
one-half ( 1/2) of the time elapsed since the date of last test, but not to
exceed a correction period of forty-five (45) days. Any measuring equipment
found to be in error shall be corrected to read accurately. If any such test
indicates that no inaccuracy of more than two percent (2%) exists, then the
party requesting such test shall reimburse the testing party for all its costs
in connection with such test within fifteen (15) days following receipt of a
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detailed invoice setting forth such costs.
3.10 Each party shall preserve for a period of two (2) years all test
data, charts, and other similar records for auditing. Thereafter, same shall be
conclusively deemed true and correct.
ARTICLE IV
OPERATION OF THE PLANT
----------------------
4.1 Processor has prior contracts and agreements, and in the future may
obtain other contracts and agreements, with other parties to gather, treat and
process at the Plant all of the other parties' gas delivered to Processor at the
various other receipt points. If during the term of this Agreement, the gas
available from all sources for gathering, treating and processing exceeds the
Plant capacity, Processor shall only be obligated to receive gas ratably based
upon the volumes of gas deliverable from the wells connected to each receipt
point delivering gas to the Plant.
4.2 If the production of any well hereunder is curtailed as a result of
Processor's ratable takes under Section 4.1, and if that curtailment is to a
level below 80% of either (i) that well's allowable rate of production as set by
the regulatory authority having jurisdiction, or (ii) that well's physical
deliverability, for more than six (6) months during any 12 consecutive month
period, then Producer may give Processor written notice of Producer's election
to have that well released from the terms of this Agreement. If Processor has
not commenced activities (as evidenced by, without limitation, right of way
acquisition, engineering studies, permit applications and similar activities),
within 30 days following receipt of Producer's notice, to expand its system or
to otherwise avoid those curtailments, then at the expiration of that 30-day
period Processor will release such wells of Producer from the terms of this
Agreement as necessary to eliminate the requirement for curtailments under the
provisions of this Article IV; provided, however, no well shall be released
hereunder if that well is connected to gathering facilities for which Processor
made Reimbursements to Producer within the preceding twelve (12) months; and,
further, provided, upon releasing any wells hereunder, Processor shall have no
further obligation to make Reimbursements to Producer with respect to the
gathering facilities to which the released well was connected.
ARTICLE V
----------
ALLOCATION OF LIQUID HYDROCARBONS AND RESIDUE GAS;
--------------------------------------------------
FEES
----
5.1 a. For the services provided herein, Processor shall receive
compensation equal to a fee payable by Producer, of (Confidential Treatment
Requested) of Producer's gas delivered to Processor, measured at the Receipt
Point(s), which fee shall be inclusive of all transportation charges incurred by
Processor in transporting Producers' gas on the pipeline of Basin.
Page - 11
<PAGE>
b. (Confidential Treatment Requested) of the compensation specified
in 5.1 a., above, as adjusted herein, shall be adjusted on an annual basis in
proportion to the percentage change, from the preceding year, in the Producer
Price Index for oil and gas field services (SIC 138) as published by the
Department of Labor. The compensation adjustment shall be made effective upon
January 1st of each year and shall reflect the percentage change in the
foregoing index as it existed for January of the immediately preceding year from
the index for January for the second immediately preceding year. In no event
will the compensation, as adjusted, be less than (Confidential Treatment
Requested).
c. For each Accounting Period, Processor shall (i) pay to Producer
an amount equal to (Confidential Treatment Requested) of the Net Sales Price per
gallon, times the gallons of individual Plant Product recovered by Processor and
attributable to Producer's gas processed at the Plant and allocated to each
Receipt Point, minus the fee payable to Processor under Section 5.1, a., and
5.1, b., above; plus (ii) an amount equal to (Confidential Treatment Requested)
of the Net Sales Price per gallon, times the gallons of Pipeline Drip
attributable to Producer's gas, after the first (Confidential Treatment
Requested) of value derived from the Pipeline Drip attributable to Producer's
gas each year (it being understood that the first (Confidential Treatment
Requested) of value derived each year from that Pipeline Drip shall belong to
Processor); and (iii) shall deliver One Hundred percent of the Residue Gas
attributable to Producer's gas processed at the Plant and allocated to each
Receipt Point to the Plant Delivery Point for the account of Producer.
d. Plant Products shall be sold by Processor's marketing
department. The "Net Sales Price" per gallon of each individual Plant Product
allocated to Producer's gas shall be the weighted average of the net price per
gallon received by Processor for the total volume of each individual Plant
Product sold from Processor's Plant, in arms-length transactions, during the
Accounting Period. Such Net Sales Price may include a deduction from the actual
gross sales price of such Plant Products of the actual third party cost of
pipeline, truck or rail transportation, terminaling fees, fractionation outside
the Plant, truck or tank car rentals and taxes (excluding income taxes) and
actual third party marketing costs and similar costs and expenses as incurred by
the Processor to determine a net price for such sale, and further less a
marketing fee to be retained by Processor of (Confidential Treatment
Requested) per gallon of Plant Products attributable to Producer.
e. Notwithstanding the foregoing, the fees to be charged, the
payment for Net Sales Price per gallon, and the amount of Residue Gas delivered
with respect to Producer's gas produced from the presently existing wells
described on Schedule V will be as specified on that Schedule V.
f. Upon completion of the Claybanks Area Gathering System, if the
Claybanks Area Gathering System was paid for by MarkWest Michigan LLC (pursuant
to Section 2.3 of the Participation, Ownership and Operating Agreement for West
Shore Processing Company, L.L.C.), then in addition to the foregoing fees,
Producer shall pay a surcharge as determined herein. Processor shall notify
Producer of the total costs incurred in constructing and installing the
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<PAGE>
Claybanks Area Gathering System. Processor shall recover those total costs,
together with interest accruing thereon at the rate of (Confidential Treatment
Requested), through a processing and treating fee surcharge on all gas delivered
hereunder, and measured at the Receipt Point(s), calculated to permit Processor
to recover those total costs, and all accrued interest, within two years
following the completion of the Claybanks Area Gathering System.
g. In addition to the foregoing fees, Producer will also pay
Processor any surcharges required to be paid under the Gas Facilities
Construction Agreement between Processor and Producer of even date herewith.
5.2 That portion of an individual Plant Product at Processor's Plant
which is attributable to Producer shall be determined by multiplying the total
volume, expressed in gallons, of each individual Plant Product recovered in the
Plant during such Accounting Period by a fraction, the numerator of which shall
be the "Theoretical total Gross Heating Value" of that Plant Product contained
in Producer's gas delivered during the Accounting Period, and the denominator of
which shall be the "Theoretical total Gross Heating Value" of that Plant Product
contained in all gas supplying the Plant during such Accounting Period. The
"Theoretical total Gross Heating Value" of a Plant Product in any stream of gas
shall be calculated by multiplying the Gross Heating Value of that Plant Product
determined from the chromatographic analysis specified in Article III by the
quantity of gas in that gas stream.
5.3 The PBR shall be separately calculated as to each receipt point
(including Producer's) and shall be the sum of the following:
a. The Thermal Content of the Plant Products allocated to the gas stream
from such receipt point; plus
b. The Thermal Content of Producer's gas consumed as Plant Fuel in
treating, gathering and processing such gas, which shall be determined by
multiplying the Thermal Content of the Plant Fuel used in such Accounting Period
by a fraction, the numerator of which is the Thermal Content of Producer's Inlet
Volume and the denominator of which is the Thermal Content of all gas inlet
volumes, including Producer's, received by Processor from all parties delivering
gas to the Processor; plus
c. The Thermal Content of Producer's gas consumed as Unmeasured Gas Uses
and Losses in gathering, treating and processing Producer's gas.
5.4 The Residue Gas, as determined by measurement at the Plant Delivery
Point, shall be allocated among the various producers delivering gas to
Processor by multiplying the total actual measured Thermal Content of gas
remaining after gathering, treating and processing from all gas delivered to
Processor by a fraction, the numerator of which is the "Theoretical Volume of
Residue Gas" remaining from Producer's gas and the denominator of which is the
"Theoretical Volume of Residue Gas" remaining from all gas, including Producer's
gas, delivered to Processor during the Accounting Period. The "Theoretical
Volume of Residue Gas" shall be determined by subtracting the PBR,
Page - 13
<PAGE>
as determined above, from the Thermal content determined at such receipt point
attributable to the applicable volumes of gas delivered to Processor.
5.5 Producer will inform Processor of the amount of gas to be delivered
by Producer at each Receipt Point, in accordance with Processor's Nomination
Procedures, attached hereto as Schedule IV. If Producer nominates gas volumes in
a greater or lesser amount than Producer's actual deliveries at the Receipt
Point(s), then a condition of imbalance shall exist. A Positive Imbalance shall
exist in those cases where the Producer's deliveries are in excess of the
volumes nominated by Producer or Producer's designee. A Negative Imbalance shall
exist in those cases where the Producer's deliveries are less than the volumes
nominated by Producer or Producer's designee. Processor and Producer shall work
to minimize any imbalance and agree to exchange pertinent information in writing
in good faith in an attempt to minimize the imbalance. As soon as possible
Processor shall provide Producer written notice that Producer has a condition of
imbalance during any Accounting Period, and Producer shall take immediate
corrective action to conform Producer's nominations to Producer's physical
flows.
ARTICLE VI
----------
ROYALTY AND TAXES
-----------------
6.1 Producer agrees to account for and pay all the royalties due on the
gas delivered under this Agreement in strict accordance with the provisions of
those leases or agreements creating those royalties.
6.2 Producer shall pay all gross production, severance, and similar
taxes levied against or with respect to gas delivered under this Agreement. The
Processor shall under no circumstances become liable for those taxes, unless
designated to remit those taxes on behalf of Producer by any duly constituted
jurisdictional agency having authority to impose such obligations on Processor,
in which event the amount of those taxes remitted by Processor on Producer's
behalf shall be deducted from the amounts otherwise due Producer hereunder.
ARTICLE VII
TERM
----
7.1 Subject to Section 7.2, this Agreement shall remain in full force
and effect for a primary term of twenty (20) years following the date of initial
deliveries hereunder, and thereafter for the life of the leases from time to
time covered hereby.
7.2 If, the continued receipt of all or any portion of Producer's gas
renders Processor's operations hereunder unprofitable to Processor, in
Processor's sole judgement, it shall have the right to notify Producer of that
circumstance, which notice shall include sufficient documentation to
substantiate the claim of unprofitability. The parties shall then meet to
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<PAGE>
discuss the course of such unprofitability and to determine if a good faith
solution can be reached. Absent a viable good faith solution, this Agreement
shall be terminated upon sixty (60) days following the date of Processor's
written notice of unprofitability. As used hereunder, Processor's operations
hereunder are unprofitable if Processor's revenues attributable to that portion
of Producer's gas at issue do not exceed the expenses of operating Processor's
facilities attributable to portion of Producer's gas. Upon a termination under
this Section 7.2, Processor will (i) make settlement for gas already delivered,
and (ii) release all wells and lands from the terms hereof and will execute and
deliver to Producer a recordable memorandum of that termination.
ARTICLE VIII
STATEMENTS AND PAYMENTS
-----------------------
8.1 Payment shall be made by Processor to Producer of the Net Sales
Price for Plant Products, and Pipeline Drip, less the fees due Processor under
Section 5.1, not later than the last day of each month for Producer's gas
received during the preceding Accounting Period, and at the time payment is made
a statement showing full details of the account shall be transmitted to
Producer. Further, the deduction of fees owed by Producer to Processor, under
Section 5.1, from the Net Sales Price for Plant Products attributable to
Producer's gas shall not relieve Producer for the liability to Processor for
those fees, and should the full amount of those fees not be recovered from the
Net Sales Price for Plant Products attributable to Producer's gas, then Producer
shall pay Processor the deficiency within ten (10) days following receipt of
Processor's statement.
8.2 Either party, upon thirty (30) days prior written notice, shall have
the right, at reasonable times during business hours but no more frequently than
once each calendar year, at its expense, to examine the books and records of the
other party to the extent necessary to audit and verify the accuracy of any
statement, charge or computation made under or pursuant to this Agreement. The
scope of such audit shall be limited to the twenty-four (24) month period prior
to the month in which such audit commences; provided, no audit may include any
time period subject to a prior audit hereunder and no audit may occur more
frequently than once each six (6) months. All statements, allocations,
measurements and payments made in any period prior to the twenty-four (24)
months preceding such month shall be conclusively deemed true and correct. The
party conducting the audit shall have six (6) months after commencement of the
audit in which to submit a written claim, with supporting detail, for
adjustments. Should any audit conducted by Producer disclose required
adjustments exceeding $75,000, then Processor shall reimburse Producer for its
reasonable and necessary third party costs incurred in performing that audit.
ARTICLE IX
RIGHTS-OF-WAY
-------------
9.1 Producer hereby grants to Processor, insofar as Producer has the
right to do so, all requisite easements, and rights-of-way over, across, and
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<PAGE>
under the lands or the leases covered hereunder, with full right of ingress and
egress for the purpose of constructing and operating gas pipelines, meter
stations, and other equipment necessary for convenience of carrying out the
terms of this Agreement and Processor's obligations hereunder. All lines and
other equipment placed by Processor in, on or under said land shall remain the
property of Processor and may be removed at any time. In the exercise of its
rights under this Section 9.1, Processor shall comply with all laws and with the
terms and conditions of leases, licenses and easements binding on Producer (to
the extent disclosed to Processor) with respect to those lands.
ARTICLE X
NOTIFICATION
------------
10.1 Any notice or other communication provided for in this Agreement
shall be given in writing and shall be considered as duly delivered when either
mailed certified, return receipt requested, postage prepaid by United States
mail, by delivery service (with confirmation) or sent via facsimile transmission
(with confirmation), addressed to the party to whom such notice is given as
follows:
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<PAGE>
Producer: Michigan Production Company, L.L.C.
1100 Louisiana, Suite 3150
Houston, Texas 77002
Ph. (713) 659-6100
Fax. (713) 659-6130
Processor: West Shore Processing Company LLC
5613 DTC Parkway, Suite 400
Englewood, Colorado 80111
ATTN:
Ph. (303) 290-8700
Fax. (303) 290-8769
Notice shall be effective when received, except notice sent by mail shall be
deemed received three (3) days after mailing. Either party may change its
address for notice purposes by written notice to that effect.
ARTICLE XI
LIABILITY AND WARRANTIES
------------------------
11.1 As between the parties hereto, Producer, or its designee shall be in
control and possession of the gas hereunder until such gas is delivered at the
Receipt Point and as to the Residue Gas, after it is redelivered at the Plant
Delivery Point. Processor shall be in control and possession of the gas
delivered hereunder from the time such gas is delivered at the Receipt Point and
as to the Residue Gas, until it is returned to Producer at the Plant Delivery
Point.
11.2 Processor hereby covenants and agrees with Producer that except to
the extent caused by Producer's gross negligence or willful misconduct,
Processor shall protect, defend, indemnify and hold harmless Producer and its
affiliates, the contractors, sub-contractors, agents or representatives of
Producer and its affiliates, and the directors, managers, officers or employees
of Producer, its affiliates or the contractors, subcontractors, agents or
representatives of same (hereinafter referred to as "Producer Indemnified
Parties") from, against and in respect of any and all Losses (as hereinafter
defined) incurred by any Producer Indemnified Party to the extent such Losses
arise from or are related to: (a) Processor's ownership and operation of its
facilities from and after the Receipt Point; and (b) Processor's possession and
control of Producer's gas.
11.3 Producer hereby covenants and agrees with Processor that except to
the extent caused by Processor's gross negligence or willful misconduct,
Producer shall protect, defend, indemnify and hold harmless Processor and its
affiliates, the contractors, sub-contractors, agents or representatives of
Processor and its affiliates, and the directors, managers, officers or employees
of Processor, its affiliates or the contractors, subcontractors, agents or
representatives of same (hereinafter referred to as the "Processor
Page - 17
<PAGE>
Indemnified Parties") from, against and in respect of any and all Losses
incurred by any Processor Indemnified Party to the extent such Losses arise from
or are related to: (a) Producer's possession and control of the gas prior to the
Receipt Point(s) and as to the gas returned to Producer, after the Plant
Delivery Point; and (b) Producer's ownership and operation of its facilities
before the Receipt Point.
11.4 For the purposes of this Article XI, "Loss(es)" shall mean any
actual loss, cost, expense, liability, damage, demand, suit, sanction, claim,
settlement, judgement, lien, fine, penalty, interest of every kind and character
(including reasonable fees and expenses of attorneys, technical experts and
expert witnesses reasonably incident to same) which are suffered by Indemnified
Parties (as herein defined), or any third parties, and any expenses incurred in
enforcing this indemnity provision, incurred by, imposed upon or rendered
against one or more of the applicable Indemnified Parties, on account of
injuries (including death) to any person or damage to or destruction of any
property, sustained or alleged to have been sustained in connection with or
arising out of or incidental to the matters for which the Indemnifying Party has
indemnified the applicable Indemnified Parties, and whether based on contract,
tort or pursuant to any then existing laws, rules or regulations of any
governmental body having jurisdiction with respect thereto, and regardless of
whether the Losses are foreseeable or unforeseeable or founded in whole or in
part upon the (i) breach of contract or (ii) the sole, joint, concurrent
contributory or comparative (a) negligence, (b) breach of legal duty other than
those expressly imposed under this agreement or (c) strict liability of one or
more of the Producer Indemnified Parties or Processor Indemnified Parties,
including, but not limited to, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, the Resource Conservation
and Recovery Act of 1976, as amended, the Toxic Substances Control Act, and
other federal and state equivalents. Despite the foregoing to the contrary,
Loss(es) shall not include consequential, indirect, prospective, punitive or
exemplary damages as between Producer and Processor.
11.5 Procedure. The indemnifications contained in this Article XI. shall
---------
be implemented as follows:
(A) Notice of Claim. The party seeking indemnification under the terms
---------------
of this Agreement ("Indemnified Party") shall submit a written "Claim Notice" to
the other party ("Indemnifying Party") which, to be effective, must state: (i)
the amount of each Loss claimed by an Indemnified Party, (ii) the basis for such
claim, with supporting documentation, (iii) a list identifying to the extent
reasonably possible each separate item of Loss for which payment is so claimed.
The amount claimed shall be paid by such Indemnifying Party as and to, and only
to, the extent required herein within thirty (30) days after receipt of the
Claim Notice or after the amount of such payment has been finally established,
whichever last occurs.
(B) Claims Involving Litigation. Within thirty (30) days after
---------------------------
notification to any Indemnified Party with respect to any claim or legal action
Page - 18
<PAGE>
or other matters that may result in a Loss for which indemnification may be
sought under this Article XI., but in any event in time sufficient for the
Indemnifying Party to contest any action, claim, proceeding or other matter that
has become the subject of proceedings before any court or tribunal, such
Indemnified Party shall give written notice of such claim, legal action or other
matter to the Indemnifying Party and, at the request of such Indemnifying Party,
shall furnish the Indemnifying Party or its counsel with copies of all pleadings
and other information with respect to such claim, legal action or other matter.
The failure to provide that notice within the time specified shall not relieve
an Indemnifying Party of its indemnity obligations hereunder except to the
extent of any Losses which are attributable to that delay. Upon the election of
the Indemnifying Party made within sixty (60) days after receipt of such notice,
to the Indemnifying Party, Indemnifying Party shall have the right to assume
control of such claim, legal action or other matter (to the extent only that
such claim, legal action or other matter relates to a Loss for which the
Indemnifying Party is liable), including the determination of all appropriate
actions, the negotiation of settlements on behalf of the Indemnified Party, and
the conduct of litigation through attorneys of the Indemnifying Party's choice,
provided, however, that no such settlement can result in any liability or cost
to the Indemnified Party for which it is entitled to be indemnified hereunder
without its consent. If the Indemnifying Party elects to assume control, (i) any
expense incurred by the Indemnified Party thereafter for investigation or
defense of the matter shall be borne by the Indemnified Party and (ii) the
Indemnified Party shall give all reasonable information and assistance, other
than pecuniary, that the Indemnifying Party shall deem necessary to the proper
defense of such claim, legal action, or other matter. In the absence of such an
election, the Indemnified Party will use good faith efforts to defend, at the
Indemnifying Party's expense any claim, legal action or other matter to which
such other party's indemnification under this Article XI. applies until the
Indemnifying Party assumes such defense, and, if the Indemnifying Party fails to
assume such defense within the time period provided above, settle the same in
the Indemnified Party's reasonable discretion at the Indemnifying Party's
expense.
11.6 In no event will either party be liable to the other party hereunder
for consequential, prospective, indirect, punitive or exemplary damages as
between Producer and Processor.
11.7 Producer warrants and represents that it has good title to and/or
the full right to deliver, for the purposes stated herein, all gas (including
all Liquid Hydrocarbons contained therein) delivered hereunder and that all gas
delivered hereunder will be free from all adverse claims, encumbrances and liens
of any nature, and Producer will defend and indemnify Processor against all
claims of any nature arising as a result of Producer's breach of the foregoing
warranty. Title to all Liquid Hydrocarbons recovered by Processor shall be in
Processor, and except for those Liquid Hydrocarbons, title to Producer's gas
shall remain in Producer.
11.8 Processor agrees that it will allow no liens or other adverse
claims, including liens to secure payment of taxes, to attach to the gas
Page - 19
<PAGE>
delivered and redelivered hereunder, and warrants that the Residue Gas delivered
to Producer at the Plant Delivery Point will be as free from all liens and other
adverse claims, including liens to secure payment of taxes (except with respect
to production taxes, ad valorem taxes, conservation taxes, severance taxes
applicable to Producer's Gas, and taxes based upon production of Producer's gas,
Producer remains responsible and for which Processor has no liability) as was
the gas delivered by Producer at the Receipt Point.
ARTICLE XII
LAWS, REGULATIONS AND FORCE MAJEURE
-----------------------------------
12.1 This Agreement shall be subject to all applicable state, federal
and local laws, rules and regulations, and the parties hereto shall be entitled
to regard all such laws, rules and regulations as valid, and may act in
accordance therewith until such time as the same may be invalidated by final
judgement in a court of competent jurisdiction.
12.2 The term "Force Majeure" means any cause, or condition (other than
financial inability) not reasonably within the control of the party claiming
suspension and which by the exercise of due diligence, such party is unable to
prevent or overcome. A party claiming Force Majeure shall give prompt notice to
the other party specifying the cause and anticipated period of Force Majeure and
the plans of the affected party to remedy the Force Majeure condition.
12.3 In the event either Producer or Processor is rendered unable, wholly
or in part, by Force Majeure, to carry out its obligations under this Agreement,
other than to make any payments due hereunder, it is agreed that upon such
party's giving notice and reasonable full particulars of such Force Majeure in
writing or by telegraph to the other parties affected within a reasonable time
after the occurrence of the cause relied on, then the obligations of the party
giving such notice, so far as they are affected by such Force Majeure shall be
suspended during the continuance of the inability, and the cause of the Force
Majeure, as far as possible, shall be remedied with all reasonable dispatch.
Notwithstanding the foregoing, if a Force Majeure condition results in any well
or wells being shut-in or production therefrom being curtailed for any period of
15 consecutive months, Producer shall be entitled to notify Processor, in
writing, that it elects to have such well(s) released from this Agreement, and
if that notice is received before the Force Majeure condition is remedied, then
each of the well(s) designated in that notice shall be released from this
Agreement.
12.4 The settlement of strikes, lockouts, and other labor difficulty
shall be entirely within the discretion of the party having the difficulty. The
above requirement that any Force Majeure shall be remedied with all reasonable
dispatch shall not require the settlement of strikes, lockouts, or other labor
difficulty by acceding to the demands of opponents therein when that is
inadvisable in the discretion of the party having the difficulty.
ARTICLE XIII
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<PAGE>
INSPECTION
----------
13.1 Each party hereto shall have the right to witness any measuring,
testing, sampling, analysis or other operation required for settlement
hereunder. The parties shall designate in writing the person to be notified in
connection with the operation of this Section 13.1. Such written designation
shall include the name, address and telephone number of the person to be
notified. Adequate notice shall be given to allow such witness to be present.
13.2 Upon written request, each party shall furnish to the other party
all meter charts and/or measurement data obtained from electronic gas
measurement devices and other records relating to settlements to be made
hereunder. All such items shall be returned to the party supplying them within
sixty (60) days of receipt. The books and records of each party, insofar as they
pertain to settlement hereunder, shall be open and available to the other party
at all reasonable hours. All statements rendered to Producer by Processor during
any calendar year shall be conclusively presumed true and correct after twenty-
four (24) months following the end of any such calendar year, unless within the
said twenty-four (24) month period Producer takes written exception thereto and
makes claim on Processor for adjustment. Failure on the part of Producer to make
claim on Processor for adjustment within such period shall establish the
correctness thereof and preclude the filing of exceptions thereto or making of
claims for adjustment thereof.
ARTICLE XIV
RESERVATIONS OF PRODUCER
------------------------
14.1 Producer reserves the right to withhold from delivery any gas as the
lessee is required to deliver to its lessors under the terms of the lease(s)
subject to this Agreement.
14.2 Producer has the right to use sufficient gas for the development
and/or operation on Producer's premises, together with similar properties of
Producer in the immediate vicinity, including the use of gas for drilling,
workover, gas lift, reinjection, pressure maintenance and other production
operations of Producer within the Dedication Area, and compressor fuel.
14.3 Producer has the right to pool, communitize and unitize, and to
dissolve units, communitized areas and depool, the lands, leases and properties
covered hereby with other lands, leases, and properties of Producer or others
located in the field in which the premises covered hereby are located; and all
of Producer's interest in such pool, units or areas, and all of Producer's gas
produced therefrom attributable to the interest of Producer committed hereto,
shall be covered by this Agreement, provided that the exercise of such right by
Producer shall not diminish Processor's rights nor increase its obligations with
respect to Producer's new interest in the gas produced from the lands covered
hereby.
14.4 Producer may, at any time, without liability to Processor, clean
out, rework, deepen, abandon or otherwise perform operations on any well(s) on
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<PAGE>
Producer's leases, or may use any efficient, modern or improved method for the
production of gas; provided however, that before any well(s) are taken out of
service for any reason, Producer agrees to first shut-off the well(s) connection
with Processor's facilities.
14.5 Producer may relinquish or surrender any lease that Producer does
not desire to maintain. Producer may use conventional separation equipment prior
to the Receipt Points.
ARTICLE XV
PRODUCER'S REPRESENTATIVE
-------------------------
15.1 To the extent Producer's rights hereunder now or hereafter may be
owned by more than one party or to the extent a third party owning an interest
in a well covered hereby ratifies this Agreement, Producer will appoint a
Representative with respect to all matters under this Agreement, including but
not limited to the following:
a. To give and receive all notices;
b. To receive all payments;
c. To make and witness any tests to be made of the gas and measuring
equipment and adjustments to such equipment;
d. To obtain, execute and, deliver to Processor such division order title
opinions and division orders as may be required by Processor hereunder; and
e. To comply with the requirements, rules and regulations of any duly
constituted authority having jurisdiction.
f. To nominate and schedule deliveries of gas to downstream markets, as
applicable.
15.2 Processor may act, and shall be fully protected in acting, in
reliance upon any and all representations and acts of that Representative on
behalf of Producer as fully and with the same effect as though Producer had made
or performed those. Producer may change any Representative from time to time by
delivery of written notice of change and designation of Representative to
Processor, provided that any such new Representative shall be the same party as
designated by all Producers under this Agreement. The Representative so
designated shall have and may exercise all power and authority therein granted
with like effect as though named as such Representative herein in the first
instance.
ARTICLE XVI
MISCELLANEOUS
-------------
16.1 The failure of any party hereto to exercise any right granted
hereunder shall not impair nor be deemed a waiver of such party's privilege of
exercising such right at any subsequent time or times.
16.2 This Agreement shall extend to and inure to the benefit of and be
binding upon the parties hereto, their respective successors and assigns,
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<PAGE>
including affiliates and subsidiaries, on and after the effective date of this
Agreement. No assignment shall be binding on either of the parties hereto, other
than the party selling, transferring, assigning or conveying its interests in
the properties covered by this Agreement, until the first day of the month
following the date a certified copy of the instrument evidencing such sale,
transfer, assignment or conveyance has been delivered to the other party.
16.3 Nothing herein contained shall be deemed to constitute the parties
hereto to be a partnership, mining partnership, joint venture or an association
and each shall be deemed to act herein and in connection with performance of
this Agreement for itself, and not for the other, and no party hereto shall be
liable, or responsible for any acts of the other by virtue of the relationship
created under this Agreement.
16.4 Insofar as it may have the right to do so, each party shall allow
any other party, its agents and employees, access to and the right of ingress
and egress upon the lands or property of the other party relating to plants and
pipelines herein referred to, for the purpose of carrying out any provisions
hereof, including the taking of samples, making of tests and witnessing thereof.
While any party, its agents or employees, is upon the property of another party
hereto, the entering party shall hold the other party whole and harmless for all
losses, damages and liabilities resulting from or arising out of such entry,
except to the extent occasioned by the negligence of such other party, its
agents or employees.
16.5 This Agreement shall be deemed to be a contract made under the laws
of the State of Michigan and for all purposes shall be construed in accordance
with the laws of said State without regard to choice of law principles.
16.6 Any dispute arising under this Agreement which cannot be resolved by
the parties by good faith negotiations within thirty (30) days following the
assertion of the dispute, shall be resolved by binding arbitration to be
conducted by and in accordance with the Commercial Arbitration Rules of the
American Arbitration Association. All arbitration hearings shall be conducted in
Denver, Colorado. Any award of the arbitrator may be reduced to a judgment in
any court of competent jurisdiction.
16.7 This Agreement, including all Schedules contains the entire
agreement of the parties hereto with respect to the matters addressed herein and
shall be amended only by an instrument in writing signed by both parties.
IN WITNESS WHEREOF, this Agreement may be executed in any number of
counterparts, each of which shall be considered an original.
PRODUCER:
MICHIGAN PRODUCTION COMPANY, L.L.C.
By: /s/ Robert L. Zorich
-------------------------
Name: Robert L. Zorich
-----------------------
Title: Manager
----------------------
Page - 23
<PAGE>
PROCESSOR:
WEST SHORE PROCESSING COMPANY, LLC
By: MarkWest Michigan LLC, its Manager
By: MarkWest Hydrocarbon Partners, Ltd., its manager
By: MarkWest Hydrocarbon, Inc., its general partner
By: /s/ Arthur J. Denney
------------------------
Name: Arthur J. Denney
----------------------
Title: Vice President
---------------------
Page - 24
<PAGE>
THE STATE OF TEXAS
COUNTY OF HARRIS
The foregoing instrument was acknowledged before me this 2nd day of May,
1996, by Robert Zorich the Manager of Michigan Production Company, L.L.C.
Witness my hand and official seal.
My Commission expires: 2/13/97
/s/ Bronia E. Koch
Notary Public
STATE OF TEXAS
COUNTY OF HARRIS
The foregoing instrument was acknowledged before me this 2nd day of
May, 1996, by Arthur Denny, the Vice President of
MarkWest Hydrocarbon, Inc., as general partner of MarkWest Hydrocarbon Partners,
Ltd, as manager of MarkWest Michigan LLC.
Witness my hand and official seal.
My Commission expires: 2/13/97
/s/ Bronia E. Koch
Notary Public
Page - 25
<PAGE>
SCHEDULE I
Attached to and made a part of Gas Gathering, Treating and Processing Agreement,
dated May 2, 1996, between MICHIGAN PRODUCTION COMPANY, L.L.C.,
Producer, and WEST SHORE PROCESSING COMPANY, LLC.
DEDICATED LEASES AND LANDS
--------------------------
Page - 26
<PAGE>
SCHEDULE II
Attached to and made a part of Gas Gathering & Processing Agreement, dated
May 2, 1996, between MICHIGAN PRODUCTION COMPANY, L.L.C.,
Producer, and WEST SHORE PROCESSING COMPANY LLC.
PLANT DELIVERY POINTS
---------------------
1. The interconnection of the MichCon Dry Header at the Brown 19 gas
treating plant.
2. The tailgate of Shell Western E & P, Inc.'s Kalkaska gas processing
facility.
3. The tailgate of Processor's NGL extraction plant to be located in the
vicinity of Shell Western E & P, Inc.'s Shell 23 Treating Plant.
Page - 27
<PAGE>
SCHEDULE III
RECORDING MEMORANDUM OF GAS GATHERING & PROCESSING AGREEMENT
KNOW ALL MEN BY THESE PRESENTS
That MICHIGAN PRODUCTION COMPANY, L.L.C., (Producer), with offices at
_________________________________________, and WEST SHORE PROCESSING COMPANY
LLC, (Processor), with offices at 5613 DTC Parkway, Suite 400, Englewood,
Colorado 80111, have entered into that certain Gas Gathering, Treating and
Processing Agreement dated ___________________________, 1996, under which
Producer has committed to its performance of its obligations to Processor
certain leases and lands, as described on Exhibit A, attached hereto, and,
further, that Producer agrees that the foregoing dedication shall be a covenant
running with those leases and lands, and that any assignment, sale or other
transfer of all or a portion of Producer's interests thereunder shall include
and be subject to the dedication under the Gas Gathering, Treating and
Processing Agreement referred to herein.
In witness whereof, the parties hereto have executed this instrument
effective as of ____________________, 1996.
PRODUCER:
MICHIGAN PRODUCTION COMPANY, L.L.C.
By:_________________________
Name:_______________________
Title:______________________
PROCESSOR:
WEST SHORE PROCESSING COMPANY, LLC
By: MarkWest Michigan LLC, its Manager
By: MarkWest Hydrocarbon Partners, Ltd., its manager
By: MarkWest Hydrocarbon, Inc., its general partner
By:_________________________
Name:_______________________
Title:______________________
Page - 28
<PAGE>
THE STATE OF
COUNTY OF
The foregoing instrument was acknowledged before me this ______ day of
_______________, 1996, by ________________________ the _____________________ of
Michigan Production Company, L.L.C.
Witness my hand and official seal.
My Commission expires: _____________________________________
___________________________________
Notary Public
STATE OF COLORADO
COUNTY OF ARAPAHOE
The foregoing instrument was acknowledged before me this ______ day of
_______________, 1996, by _____________________, the ___________________ of
MarkWest Hydrocarbon, Inc., as general partner of MarkWest Hydrocarbon Partners,
Ltd, as manager of MarkWest Michigan LLC.
Witness my hand and official seal.
My Commission expires: _____________________________________
___________________________________
Notary Public
Page - 29
<PAGE>
SCHEDULE IV
NOMINATION PROCEDURES
- ---------------------
Pursuant to the terms of this Agreement, the Nomination Procedures detailed in
this Schedule IV will be utilized to cover all nominations made by Producer on
Processor's system. All nominations must be made by Producer or Producer's
designee. Processor and Producer agree to minimize imbalances and sustain the
flow of gas on the system. Should transporters receiving Producer's Gas revise
their requirements, the parties agree to meet and negotiate upon changes to the
Nomination Procedures herein as are reasonably required.
MONTHLY SCHEDULING OF GAS
- -------------------------
By 1:00 P.M. (MT), at least five (5) business days prior to the start of
each Accounting Period or initial delivery of Gas, Producer will inform
Processor's Gas Control Department ("GCD") of the amount of Gas to be
delivered by Producer at each Receipt Point and of Producer's nomination
for Gas to be delivered at the Plant Delivery Point. Such nomination shall
be submitted to Processor by facsimile in a form acceptable to Processor.
Incomplete nominations will not be accepted.
By 1:00 P.M. (MT), four (4) business days prior to the start of each
Accounting Period or initial delivery of Gas, Processor will notify
Producer if the nomination from Producer specified above is different from
the volume that Processor will confirm at the Plant Delivery Point on
behalf of Producer. Processor will use its best efforts to work closely
with Producer to arrive at a confirmed nomination that best estimates
Producer's current production.
Processor will not be required to confirm any nomination that is greater or
less than Processor's estimate of Producer's Gas availability. If,
following the initial nomination, Processor determines, using the best
information available, including, but not limited to, measurement charts,
electronically transmitted data from EFM's, and pipeline confirmations,
that Producer should adjust its nominations, then Processor will notify
Producer and Producer will be required to adjust nominations in accordance
with Processor's request. Both parties will use their best efforts to keep
Producer's Gas position in balance while maintaining Gas flow, including
without limitation, such periodic reporting of relevant data as may be
required to timely adjust nominations.
DAILY SCHEDULING OF GAS
- -----------------------
Daily nomination changes must be conveyed by facsimile to Processor's GCD
on a completed nomination request form, or such other form acceptable to
Processor, by 9:30 A.M. (MT) on the business day prior to the effective
date of said nomination.
Processor will not be required to confirm any daily nomination that is
Page - 30
<PAGE>
greater or less than Processor's estimate of Producer's availability for
that particular day, except as may be necessary to correct any imbalance
which may be determined to exist at that time.
Producer will promptly advise Processor when Producer's gas availability,
gas resale market(s) or other dispositions of Producer's Gas are
interrupted or curtailed and Producer shall change its nominations
accordingly.
AUTHORIZATION FOR WELLHEAD TURN-ONS
- -----------------------------------
Producer must request and receive authorization from Processor's GCD prior to
new wells being turned on by Producer to produce into the system. Producer, or
its designee, shall provide Processor's GCD an entitlement percentage (working
interests and other controlled interests) for each new well at least two (2)
business days prior to the turn-on date. Authorization for each well will be
provided by Processor's GCD, by facsimile or telephone as agreed upon by
Processor's GCD and Producer.
The entitlement percentage provided by Producer, or its designee, shall remain
in effect for the entire Accounting Period. Any changes to the entitlement
percentage must be received by Processor in writing at least ten (10) business
days prior to the start date of the next Accounting Period.
COMMUNICATION WITH PROCESSOR'S GAS CONTROL DEPARTMENT
- -----------------------------------------------------
Communication with Processor's GCD should be directed as follows:
West Shore Processing Company, L.L.C.
c/o MarkWest Michigan LLC
5613 DTC Parkway, Suite 400
Englewood, Colorado 80111
Telephone: (303) 290-8700
Facsimile: (303) 290-8769
Page - 31
<PAGE>
SCHEDULE V
<TABLE>
<CAPTION>
Well Percent of Residue Gas
Name Net Sales Price Retained by Processor Fee
- ---- --------------- --------------------- ---
<S> <C> <C> <C>
Adamczak
Murray State
Lakeland Wells
Filer
Lipps
Dow
Isley (Confidential Treatment Requested)
Schultz
Claybanks
Johnseck
Fox
Slocum
Dykstra
</TABLE>
Page - 32
<PAGE>
--------
MARKWEST
--------
PRODUCTS EXCHANGE AGREEMENT
WE HEREBY ACKNOWLEDGE PRODUCTS EXCHANGE MADE WITH
Ferrellgas, L.P. Date: May 1, 1996
P.O. Box 4644 No: 15547
Houston, Texas 77210
(hereafter "Exchanger")
PER CONVERSATIONS BETWEEN Dave Wunch AND OUR Mitchel Genslinger
MarkWest Hydrocarbon Partners, Ltd. will deliver to Exchanger:
- -------------------------------------------------------------------------------
DURING THE PERIOD: May 1, 1996 through April 30, 1997
- -------------------------------------------------------------------------------
FOB POINT: Siloam, KY VIA
- -------------------------------------------------------------------------------
PRODUCT: Propane ODORIZATION: Yes
- -------------------------------------------------------------------------------
QUANTITY: [CONFIDENTIAL TREATMENT REQUESTED] MarkWest Hydrocarbon Partners,
Ltd. COLLECTS
Gallon(s) DIFFERENTIAL: [CONFIDENTIAL TREATMENT REQUESTED]
- -------------------------------------------------------------------------------
Exchanger will deliver to MarkWest Hydrocarbon Partners, Ltd.:
- -------------------------------------------------------------------------------
DURING THE PERIOD: May 1, 1996 through April 30, 1997
- -------------------------------------------------------------------------------
FOB POINT: Mt. Belvieu-TET, TX VIA
- -------------------------------------------------------------------------------
PRODUCT: Propane ODORIZATION: No
- -------------------------------------------------------------------------------
QUANTITY: [CONFIDENTIAL TREATMENT REQUESTED] MarkWest Hydrocarbon Partners, Ltd
COLLECTS
Gallon(s) DIFFERENTIAL: [CONFIDENTIAL TREATMENT REQUESTED]
- -------------------------------------------------------------------------------
REMARKS: May [CONFIDENTIAL TREATMENT REQUESTED]
Jun [CONFIDENTIAL TREATMENT REQUESTED]
Jul [CONFIDENTIAL TREATMENT REQUESTED]
Aug [CONFIDENTIAL TREATMENT REQUESTED]
Sep [CONFIDENTIAL TREATMENT REQUESTED]
Oct [CONFIDENTIAL TREATMENT REQUESTED]
Nov [CONFIDENTIAL TREATMENT REQUESTED]
Dec [CONFIDENTIAL TREATMENT REQUESTED]
Jan [CONFIDENTIAL TREATMENT REQUESTED]
Feb [CONFIDENTIAL TREATMENT REQUESTED]
Mar [CONFIDENTIAL TREATMENT REQUESTED]
Apr [CONFIDENTIAL TREATMENT REQUESTED]
Winter is from October through March; Summer is from April through September.
Ferrellgas Inc. will provide storage at TET to MarkWest up to a maximum of
****** barrels at no charge to MarkWest. MarkWest agrees to have its storage
account empty by April 30, 1996 and to utilize only volumes due from this
exchange for the storage account.
MarkWest's currently effective "GENERAL TERMS AND CONDITIONS FOR NGL SALES and
EXCHANGE AGREEMENTS" MWH Form "term8-94" are hereby incorporated herewith shall
constitute a binding contract.
THIS AGREEMENT WHEN ACCEPTED BY EXCHANGER SHALL CONSTITUTE A CONTRACT FOR THE
EXCHANGE WITH MARKWEST HYDROCARBON PARTNERS, LTD. OF THE PRODUCTS SPECIFIED UPON
THE TERMS AND CONDITIONS APPEARING ON THE FACE AND REVERSE SIDE HEREOF.
<PAGE>
--------
MARKWEST
--------
SALES ACKNOWLEDGMENT
WE HEREBY CONFIRM SALE TO Date: May 1, 1996
Ferrellgas, L.P. No: 15624
P.O. Box 4644
Houston, Texas 77210
PER CONVERSATIONS BETWEEN Dave Wunch AND OUR Mitchel Genslinger
PRODUCT: Propane
QUANTITY: [CONFIDENTIAL TREATMENT REQUESTED] Gallon(s)
PRICE: Plant Posting
TRANSPORTATION: Trucks provided by Purchaser
DESCRIPTION: Via Truck
FOB POINT: Siloam, KY
TERMS OF PAYMENT: Net 10 calendar days
TIME OF DELIVERY: May 1, 1996 through April 30, 1997
REMARKS: May [CONFIDENTIAL TREATMENT REQUESTED]
Jun [CONFIDENTIAL TREATMENT REQUESTED]
Aug [CONFIDENTIAL TREATMENT REQUESTED]
Sep [CONFIDENTIAL TREATMENT REQUESTED]
Oct [CONFIDENTIAL TREATMENT REQUESTED]
Nov [CONFIDENTIAL TREATMENT REQUESTED]
Dec [CONFIDENTIAL TREATMENT REQUESTED]
Jan [CONFIDENTIAL TREATMENT REQUESTED]
Feb [CONFIDENTIAL TREATMENT REQUESTED]
Mar [CONFIDENTIAL TREATMENT REQUESTED]
Apr [CONFIDENTIAL TREATMENT REQUESTED]
Buyer agrees to observe their credit limit, and if that limit is exceeded, to
post an acceptable letter of credit or prepay prior to delivery.
Buyer agrees to pay a [CONFIDENTIAL TREATMENT REQUESTED] per gallon premium when
loading bobtail trucks at the Church Hill Terminal
MarkWest's currently effective "GENERAL TERMS AND CONDITIONS FOR NGL SALES and
EXCHANGE AGREEMENTS" MWH Form "term8-94" are hereby incorporated herewith shall
constitute a binding contract.
<PAGE>
[MARKWEST LOGO APPEARS HERE]
SALES ACKNOWLEDGEMENT
WE HEREBY CONFIRM SALE TO Date: May 1, 1996
Ferrellgas, L.P. No: 15547
P.O. Box 4644
Houston, Texas 77210
PER CONVERSATIONS BETWEEN Dave Wunch AND OUR Mitchel Genslinger
PRODUCT: Propane
QUANTITY: [CONFIDENTIAL TREATMENT REQUESTED] Gallon(s)
PRICE: Plant Posting
TRANSPORTATION: Trucks provided by Purchaser
DESCRIPTION: Via Truck
FOB POINT: Church Hill, TN
TERMS OF PAYMENT: Net 10 calendar days
TIME OF DELIVERY: May 1, 1996 through April 30, 1997
REMARKS: May [CONFIDENTIAL TREATMENT REQUESTED]
Jun [CONFIDENTIAL TREATMENT REQUESTED]
Jul [CONFIDENTIAL TREATMENT REQUESTED]
Aug [CONFIDENTIAL TREATMENT REQUESTED]
Sep [CONFIDENTIAL TREATMENT REQUESTED]
Oct [CONFIDENTIAL TREATMENT REQUESTED]
Nov [CONFIDENTIAL TREATMENT REQUESTED]
Dec [CONFIDENTIAL TREATMENT REQUESTED]
Jan [CONFIDENTIAL TREATMENT REQUESTED]
Feb [CONFIDENTIAL TREATMENT REQUESTED]
Mar [CONFIDENTIAL TREATMENT REQUESTED]
Apr [CONFIDENTIAL TREATMENT REQUESTED]
Buyer agrees to observe their credit limit, and if that limit is exceeded, to
post an acceptable letter of credit or prepay prior to delivery.
Buyer agrees to pay a [CONFIDENTIAL TREATMENT REQUESTED] per gallon premium
when loading bobtail trucks at the Church Hill Terminal
MarkWest's currently effective "GENERAL TERMS AND CONDITIONS FOR NGL SALES and
EXCHANGE AGREEMENTS" MWH Form "term8-94" are hereby incorporated herewith shall
constitute a binding contract.
<PAGE>
EXHIBIT J
GAS PROCESSING AND TREATING AGREEMENT
THIS GAS PROCESSING AND TREATING AGREEMENT (this "Agreement"), is entered
into by and between Manistee Gas Limited Liability Company, a Wyoming limited
liability company, (herein called '"Manistee") and Michigan Production Company,
L.L.C., a Michigan limited liability company, (herein called "Michigan
Production").
WITNESSETH:
WHEREAS, Manistee is the owner of a certain Amine plant and a certain
-----
natural gas liquids processing plant and related assets located on the following
described lands (the '"Land"):
West Half of the Southeast Quarter (W/2 SE,/4) of Section 19, Township 22
North, Range 15 West, Manistee County, Michigan
and a related injection well (and easement fights and pipelines connecting same
to such piano located on the following described lands:
NE/4 SW/4 of Section 18, Township 22 North, Range 15 West, Manistee County,
Michigan
(such plant, related assets, injection well and easements and pipelines, as the
same from time to time exist (including, without limitation, and additions and
accessions thereto and substitutions therefor) being herein called the
'"Plant"); and
WHEREAS, Michigan Production owns or controls certain volumes of gas and
will from time to time hereafter own and/or control various volumes of gas (all
such volumes of gas being herein called "Subject Gas") which it desires to have
processed and/or treated in the Plant; and
WHEREAS, the parties hereto have reached an agreement under which Manistee
will operate the Plant and process and treat Subject Gas for Michigan
Production;
NOW THEREFORE, it is agreed as follows:
ARTICLE I.
PROCESSING AND TREATING OPERATIONS
A. Processing and Treating Operations. Manistee shall cause the Plant to
----------------------------------- ------
receive all Subject Gas delivered to the Plant for processing and/or treating,
cause such gas to be processed and/or treated in the Plant, and cause processed
and treated gas, and products extracted therefrom, to be delivereel to Michigan
Production or to other parties as designated by Michigan Production. All such
processing and treating operations shall be conducted in such a fashion such
that all ~ and treated gas, and products, as delivered from the Plant, meet the
standards set from time to time by Michigan Production, in its reasonable
discretion. All such processed and treated gas, and products, shall be delivered
by Manistee at points on or near the Lands which are designated by Michigan
Production.
B. Ownership of Plant, Responsibilities of Manistee. The Plant shall
-------------------------------------------------
belong to Manistee. Manistee shall conduct and direct and have full control of
operation of the Plant and
<PAGE>
all costs and expenses incurred in operations of the Plant shall be paid by
Manistee. its performance of services hereunder, Manistee shall be an
independent contractor. Manistee shall not be cleaned, or hold itself out as,
the agent of Michigan Production with authority to bind it to any obligation or
liability assumed or incurred by Mani-qtee as to any third party. Manistee
-----
shall conduct its activities under this Agreement in a good, workmanlike and
----
prudent manner, in compliance with applicable law and regulation. Without
limitation of the foregoing, Manistee shall pay, or cause to be paid, as and
when they become due and payable, all accounts of contractors and suppliers and
wages and salaries for services rendered or performed, and for materials
supplied on, or in respect of the Plant, and shall keep the Plant and the
Subject Gas free from liens and encumbrances resulting therefrom except for
those resulting from a bona fide dispute as to services rendered or materlal
supplied.
C. Abandonment of Facilities. Neither the Plant, nor any substantial
--------------------------
portion thereof, shall be abandoned without the consent of Michigan Production.
Should Manistee propose and Michigan Production consent to, or should Michigan
Production propose, such an abandonment, Manistee shall prepare, and submit to
Michigan Production for its approval, plans for such abandonment which include
disassembly and disposal of the plant and such restoration and reclamation of
the plant site, and other reclamation or remediation, as may be appropriate
under prudent industry, standards and in order to comply with applicable
agreements, Laws and regulations; such proposal shall include cost (and time)
estimates for completion of the plans. Michigan Production may propose
modification of such proposal which shall be considered and adopted by Manistee
if appropriate under prudent industry standards and applicable agreement. Should
such plan be approved by Michigan Production, Manistee shall implement and
complete such plan. Abandonment operations shall be conducted in accordance
with, and in such a manner so that, when concluded, the Plant site and related
assets and area will be in a condition consistent with prudent industry
standards and in compliance with applicable agreements, Laws and regulations,
including without limitation, those pertaining to the protection of the
environment. To the extent costs of such abandonment which are incurred in
accordance with such plan would constitute costs which Manistee could otherwise
include in its charges under clause (ii) of Section II.A, it may include such
costs in such charges, up to the amount of the cost estimates included in such
plan. If there are proceeds from disposal of equipment, or other credits which
would be appropriate as credits in computing charges under clause (ii) of
Section II.& such amounts shall be credited against such charges or, if the
amount of such credits exceeds current charges, such credit amounts shall be
paid to Michigan Production as reimbursement of prior charges.
ARTICLE II.
PAYMENT FOR SERVICES
A. Payments and Accounting. In consideration for its services hereunder,
------------------------
Manistee, shall be paid an amount equal to (i) (Confidential Treatment
Requested), commencing April 1996, for certain accounting services to be
provided by Howard Farkas, and continuing until such services are terminated
by written notice from Michigan Production to Manistee plus (it) costs and
expenses provided for as charges (net of amounts provided
- ----
for as credits) under the Accounting Procedure (the "Accounting Procedure")
attached hereto as Exhibit A. As provided above, Manistee shall pay all costs of
operation of the Plant, subject to the reimbursement obligations of Michigan
Production under the preceding sentence, and shall absorb all costs, expenses
and liabilities not covered by payments made by Michigan Production under the
preceding sentence. Manistee shall keep an accurate record showing costs and
expenses incurred, charges to Michigan Production,
A-2
<PAGE>
and credits made and received. On or before the last day of the month, Manistee
shall bill Michigan Production for charges owing by it with respect to the
preceding month, plus amounts sufficient to cover any payroll costs and payroll
taxes for the succeeding month, and an imprest petty cash fund in the mount of
$5,000; such billing shall be in sufficient detail so as to allow mounts charged
-------
to be identified. Michigan Production shall pay such invoice within ten (10)
'days after it is receive & Payment of any such bills shall not prejudice the
fight of Michigan Production to protest or question the correctness thereof.
Michigan Production, upon notice in writing to Manistee, shall have the right to
audit Manistee's accounts and records relating to this Agreement and/or the
Plant.
B. Certain Charges. Notwithstanding Section II.A, should Manistee
----------------
undertake any single construction, maintenance, repair or other project (or
interrelated group of projects) reasonably estimated to require an expenditure
in excess of $5,000, Michigan Production shall not be obligated to pay (as a pan
of the charges under Section H.A) any pan of the cost thereof unless it has
approval to same in writing in advance; provided, however, that, in case of
explosion, fire, flood or other sudden emergency, whether of the same or
different nature, Manistee may include in such charges such expenses as are
reasonably required to deal with the emergency to safeguard life and property
but Manistee, as promptly as possible, shall report the emergency to the
Michigan Production. Manistee may include in its charges under Section II.A
expenditures incurred to settle any single uninsured third party damage claim or
suit arising from operations of the Plant if the expenditure does not exceed
$5,000.00 and if the payment is in complete settlement of such claim or suit. If
the amount required for settlement is expected to exceed the above amount
Michigan Production will be notified prior to Manistee entering into any such
settlement. Costs and expenses of handling, sealing or otherwise discharging
such claim or suit may be charged only if Michigan Production approves such
settlement.
ARTICLE III. FORCE MAJEURE
If any party is rendered unable, wholly or in part, by force majeure to
carry out its obligations under this Agreement, other than the obligation to
make money payments, that party shall give to the other party prompt written
notice of the force majeure with reasonably full particulars concerning it;
thereupon the obligations of the party giving the notice, so far as they axe
affected by the force majeure, shall be suspended during, but no longer than,
the continuance of the force majeure. The term "force majeure'' as here
employed, shall mean an act of God, strike, lockout, or other industrial
disturbance act of the public enemy, war, blockade, public riot, lightning,
fire, storm flood or other act of nature, explosion, governmental action,
governmental delay, restraint or inaction, unavailibility of equipment, and any
other cause, whether of the kind specifically enumerated above or otherwise,
which is not reasonably foreseeable and which is not within the control of the
party claiming suspension. The affected party shall use all reasonable diligence
to remove the force majeure situation as quickly as practicable and shall
continue to perform to the fullest extent that it is otherwise able. The
requirement that any force majeure shall be remedied with all reasonable
dispatch shall not require the settlement of strikes, lockouts, or other labor
difficulty by the party involved, contrary to its wishes, how all such
difficulties shall be handled shall be entirely within the discretion of the
party concerned.
A-3
<PAGE>
ARTICLE IV. NOTICES
All notices authorized or required between the parties by any of the
provisions of this Agreement shall be in writing and delivered by United States
mail, by personal delivery, by courier service (for which a receipt is provided)
or by telecopier or other form of facsimile, addressed to such parties AT the
addresses listed on the signature page hereto. "Receipt" for purposes of this
agreement with respect to written notice delivered hereunder shall be actual
delivery of the notice to the address of the party to be notified specified in
accordance with this agreement, or to the telecopy or facsimile machine of
such party. Each party shall have the right to change its address at any time,
and from time to time, by giving written notice thereof to the other party.
ARTICLE V.
TERM OF AGREEMENT
A. Term. This agreement shall, subject to the right of Michigan Production
to terminate this agreement as provided below, remain in effect until December
31, 1997, and shall continue in effect thereafter until terminated as provided
below. Termination of this agreement shall not relieve any party hereto from any
obligation which has accrued or attached prior to the date of such termination.
B. Termination. Michigan Production may terminate this agreement at
any time, with or without cause. Manistee may terminate this Agreement at any
time after December 31, 1997, with or without cause. Any such termination shall
become effective at a date, specified by Michigan Production (whether such
marion is by Manistee or Michigan Production), to be not later than 7 o'clock
a.m. on the first day of the calendar month following the expiration of ninety
(90) days after the giving of notice of termination. Upon termination, either
(i) Michigan Energy shall have exercised its option under the Purchase Option
Agreement of even date herewith, between Manistee and Michigan Energy or (ii)
the Plant shall be abandoned pursuant to Section I.C.
ARTICLE VI. MISCELLANEOUS
A. Liability of Parties. It is not the intention of the parties to
create, nor shall this agreement be construed as creating, a mining or other
partnership, joint venture, agency relationship or association, or to render the
parties liable as partners or co-venturers.
B. ACCESS TO PLANT AND INFORMATION. MICHIGAN PRODUCTION, AND ITS
REPRESENTATIVES, shall have access to the Plant AT all reasonable times to
inspect or observe operations, and shall have access at reasonable times to
information pertaining to the operation thereof, including Manistee's books and
records relating thereto.
C. Insurance. At all times while operations are conducted hereunder,
Manistee shall comply with the workmen's compensation law of the state where the
operations are being conducted. Manistee shall also carry insurance, as from
time to time required by Michigan Production in its reasonable discretion
consistent with coverage carried in the industry for similar operations, and
Michigan Production shall be named an additional insured thereon. Manistee shall
require all contractors engaged in work on or for the Plant to comply with the
workmen compensation
A-4
<PAGE>
law of the state of Michigan and to maintain such other insurance as Manistee
may require in accordance with prudent practices.
D. Compliance With Law. This agreement shall be subject to the
applicable laws of the state of Michigan, to the valid rules, regulations, and
orders of any duly constituted regulatory body of said state, and to all other
applicable federal, state, and local laws, ordinances, rules, regulations, and
orders.
E. Governing Law. Without regard to principles of conflicts of law, this
Agreement shall be construed and enforced in accordance with and governed by the
laws of the State of Michigan applicable to contracts made and to be performed
entirely within such state and the laws of the United States of America.
F. Time 0f Essence. Time is of the essence in the performance of the
terms and conditions of this Agreement.
G. Successor and Assigns. This agreement shall be binding upon and shall
insure to the benefit of the parties hereto and to their respective heirs,
devisees, legal representatives, successors and assigns. Manistee may not assign
its rights or obligations hereunder without the prior written consent of Newco,
which consent may be granted or withheld by Newco with or without cause.
This instrument may be executed in any number of counterparts, each of
which shall be considered an original for all purposes.
IN WITNESS WHEREOF, this agreement is executed this 291h day of March, 1996.
MANISTEE,
Address:
BOX 4118
Traverse City, Michigan 49685
MANISTEE/GAS LIMITED LIABILITY ' COMPANY
/s/ Howard L. Farkas
'//Name: Howard L.' Farkas
Title: Chairman
Address:
1100 Louisiana, 16th Floor Houston, Texas 77002
NEWCO
MICHIGAN PRODUCTION COMPANY, L.L.C.
By: /s/ Michael V. Ronea
Name: Michael V. Ronea
Title: Manager
By: /s/ Robert L. Zorich
Name: Robert L. Zorich
Title: Manager
A-5
<PAGE>
EXHIBIT "A"
Attached to and made a part of
ACCOUNTING PROCEDURE
JOINT OPERATIONS
I. GENERAL PROVISIONS
1. Definitions
"Joint Property" shall mean the real and personal property subject to the
agreement to which this Accounting Procedure is attached.
"Joint Operation" shall mean all operations necessary or proper for the
operation, protection and maintenance of the Joint Property.
"Joint Account" shall mean the account showing the charges paid and credits
received in the conduct of the Joint Operations.
"Operator" shall mean Manistee.
"Parties" shall mean Operator and Non-Operators.
"First Level Supervisors" shall mean those employees whose primary function
in Joint Operations is the direct supervision of other employees and/or
contract labor directly employed on the Joint Property.
"Technical Employees" shall mean those employees having special and
specific engineering, geological or other professional skills, and whose
primary function in Joint Operations is the handling of specific operation
conditions and problems for the benefit of the Joint Property.
"Personal Expense" shall mean travel and other reasonable reimbursable
expenses of Operator's employees.
"Material" shall mean personal property, equipment or supplies acquired or
held for use on the Joint Property.
"Controllable Material" shall mean Material which at the time is so
classified in the Material Classification Manual as most recently
recommended by the Council of Petroleum Accountants Societies.
2. Deleted by Amendment.
3. Deleted by Amendment.
4. Deleted by Amendment.
5. Audits
A. Deleted by Amendment.
<PAGE>
B. The Operator shall reply in writing to an audit report within 60 days
after receipt of such report.
6. Deleted by Amendment.
II. DIRECT CHARGES
Operator shall charge the Joint Account with the following items:
1. Ecological and Environmental
Costs incurred for the benefit of the Joint Property as a result of
governmental or regulatory requirements to satisfy environmental
considerations applicable to the Joint Operations. Such costs may include
surveys of an ecological or archaeological nature and pollution control
procedures as required by applicable laws and regulations.
2. Rentals
Lease rentals and royalties paid by Operator for the Joint Operations.
3. Labor
A. (1) Salaries and wages of Operator's field employees directly
employed on the Joint Property in the conduct of Joint Operations.
(2) Deleted by Amendment.
(3) Deleted by Amendment.
(4) Deleted by Amendment.
B. Operator's cost of holiday, vacation, sickness and disability benefits
and other customary allowances paid to employees whose salaries and wages
are chargeable to the Joint Account under Paragraph 3A of the Section II.
Such costs under this Paragraph 3B may be charged on a "when and as paid
basis".
C. Expenditures or contributions made pursuant to assessments imposed by
governmental authority which are applicable to Operator's costs chargeable
to the Joint Account under Paragraphs 3A and 3B of the Section II.
D. Personal Expenses of those employees whose salaries and wages are
chargeable to the Joint Account under Paragraph 3A of this Section II.
4. Deleted by Amendment.
<PAGE>
5. Material
Material purchased or furnished by Operator for use on the Joint Property
as provided under Section IV. Only such Material shall be purchased for or
transferred to the Joint Property as may be required for immediate use and
is reasonably practical and consistent with efficient and economical
operations. The accumulation of surplus stocks shall be avoided.
6. Deleted by Amendment.
7. Services
The cost of contract services, equipment and utilities provided by outside
sources, except services excluded by Paragraph 10 of Section II and
Paragraph i, ii, and iii of Section III. The cost of professional
consultant services or contract services of technical personnel shall not
be charged to the Joint Account unless previously agreed to by the Parties.
8. Equipment and Facilities Furnished By Operator
A. Operator shall charge the Joint Account for use of Operator owned
equipment and facilities at rates commensurate with costs of ownership and
operation. Such rates shall not exceed average commercial rates currently
prevailing in the immediate area of the Joint Property.
B. Deleted by Amendment.
9. Damages and Losses to Joint Property
All costs or expenses necessary for the repair or replacement of Joint
Property made necessary because of damages or losses incurred by fire,
flood, storm, theft, accident, or other cause, except those resulting from
Operator's gross negligence or willful misconduct. Operator shall furnish
Non-Operator written notice of damages or losses incurred as soon as
practicable after a report thereof has been received by Operator.
10. Legal Expenses
With consent of Non-Operator expense of handling, investigating and
settling litigation or claims, discharging of liens, payment of judgments
and amounts paid for settlement of claims incurred in or resulting from
operations under the agreement or necessary to protect or recover the Joint
Property, except that no charge for services of Operator's legal staff or
fees or expenses of outside attorneys shall be made unless previously
agreed to by the Parties. All other legal expense is considered to be
covered by the overhead provisions of Section III unless otherwise agreed
to by the Parties, except as provided in Section I, Paragraph 3.
<PAGE>
11. Taxes
All taxes of every kind and nature assessed or levied upon or in connection
with the Joint Property or the operation thereof.
12. Insurance
Net premiums paid for insurance required to be carried for the Joint
Operations for the protection of the Parties.
13. Abandonment and Reclamation
Costs incurred for abandonment of the Joint Property, including costs
required by governmental or other regulatory authority.
14. Communications
Cost of leasing, operation, repairing and maintaining communication
systems, including radio and microwave facilities directly serving the
Joint Property.
15. Deleted by Amendment.
III. OVERHEAD
1. Overhead - Drilling and Producing Operations
i. Costs not included in Section II above (including, without limitation,
administrative, supervision, office services and warehousing costs) shall
not be charged to the account.
Unless otherwise agreed to by the Parties, there shall be no charges
for costs and expenses of all offices and salaries or wages plus applicable
burdens and expenses of all personnel, except those directly chargeable
under Paragraph 3A, Section II. The cost and expense of services from
outside sources in connection with matters of taxation, traffic, accounting
or matters before or involving governmental agencies shall not be charged.
ii. The salaries, wages and Personnel Expenses of Technical Employees
and/or the cost of professional consultant services and contract services
of technical personnel directly employed on the Joint Property shall not be
charged.
iii. The salaries, wages and Personal Expenses of Technical Employees
and/or costs of professional consultant services and contract services of
technical personnel either temporarily or permanently assigned to and
directly employed in the operation of the Joint Property shall not be
charged.
A. Deleted by Amendment.
<PAGE>
B. Deleted by Amendment.
2. Deleted by Amendment.
3. Deleted by Amendment.
4. Deleted by Amendment.
IV. PRICING OF JOINT ACCOUNT MATERIAL PURCHASES, TRANSFERS AND DISPOSITIONS
Operator is responsible for Joint Account Material and shall make proper and
timely charges and credits for all Material movements affecting the Joint
Property. Operator shall provide all Material for use on the Joint Property by
purchasing the same from unrelated third parties however, at Non-Operator's
option, such Material may be supplied by the Non-Operator. Operator shall make
timely disposition of idle and/or surplus Material, such disposal being made
through sale to outsiders.
1. Purchases
Material purchased shall be charged at the price paid by Operator after
deduction of all discounts received, In case of Material found to be
defective or returned to vendor for any other reasons, credit shall be
passed to the Joint Account when adjustment has been received by the
Operator.
2. Deleted by Amendment.
A. Deleted by Amendment.
B. Deleted by Amendment.
C. Deleted by Amendment.
D. Deleted by Amendment.
E. Deleted by Amendment.
3. Deleted by Amendment.
4. Warranty of Material Furnished By Operator
Operator does not warrant the Material furnished. In case of defective
Material, credit shall not be passed to the Joint Account until adjustment
has been received by Operator from the manufacturers or their agents.
<PAGE>
V. INVENTORIES
The Operator shall maintain detailed records of Controllable Material.
1. Periodic Inventories, Notice and Representation
At reasonable intervals, inventories shall be taken by Operator of the
Joint Account Controllable Material. Written notice of intention to take
inventory shall be given by Operator at least thirty (30) days before any
inventory is to begin so that Non-Operators may be represented when any
inventory is taken.
2. Reconciliation and Adjustment of Inventories
Adjustments to the Joint Account resulting from the reconciliation of a
physical inventory shall be made within six months following the taking of the
inventory. Inventory adjustments shall be made by Operator to the Joint Account
for overages and shortages but, Operator shall be held accountable only for
shortages due to lack of reasonable diligence.
3. Special Inventories
Special inventories shall be taken where requested by Non-Operator
4. Expense of Conducting Inventories
A. The expense of conducting periodic inventories shall not be charged to
the Joint Account unless agreed to by the Parties.
B. The expense of conducting special inventories shall be charged to the
Joint Account.
<PAGE>
PROCESSING AGREEMENT
KENOVA PROCESSING PLANT
This PROCESSING AGREEMENT ("Agreement") made this 15th day of March 1995
between COLUMBIA GAS TRANSMISSION CORPORATION ("Columbia"), and MARKWEST
HYDROCARBON PARTNERS, LTD., ("Processor").
WHEREAS, Columbia desires to deliver natural gas to Processor at
Processor's Facilities for the purpose of extracting liquid hydrocarbons
therefrom, under the terms and conditions hereof; and
WHEREAS, Processor desires to receive natural gas at Processor's Facilities
from Columbia for the purpose of extracting liquid hydrocarbons therefrom, under
the terms and conditions hereof.
Columbia and Processor agree as set forth below:
ARTICLE I. EXTENT OF CONTRACT
1.1 Processor agrees to process at its sole risk and expense all natural
gas volumes made available by Columbia at Processor's Facilities described on
Exhibit 1, to be attached hereto and made a part hereof promptly following its
preparation, (herein referred to as Processor's Facilities) in order to deliver
to Columbia residue gas as specified in Article IV hereof. Columbia shall accept
delivery of all residue gas volumes meeting the specifications as set forth
herein in Article IV and to reimburse Processor for processing each million
<PAGE>
British thermal units (MMBtu) of natural gas delivered to and processed by
Processor, as set forth herein in Article VI.
1.2 Columbia agrees to use reasonable, diligent efforts to avoid taking
any action not compelled by law or regulation which will reduce the volume of
natural gas being supplied to the Processor's Facilities, or reduce the recovery
of natural gas liquids at Processor's Facilities or divert elsewhere the streams
of natural gas that would otherwise flow through and be processed by Processor's
Facilities. Processor and Columbia agree that the streams of natural gas are
being shipped by Columbia for third party shippers for delivery to regulated and
unregulated distribution companies, producers and industries for service to the
public and Columbia's control of said natural gas streams to meet its public
service obligations at the lowest reasonable cost shall be paramount. Columbia
shall have the right to manage the streams of natural gas in the manner in which
Columbia, in its sole discretion, deems most appropriate to meet its public
service obligation at the lowest reasonable cost, without any liability to
Processor on account thereof. That right shall specifically include, but not be
limited to, the right to curtail, interrupt, or divert the natural gas streams
for such periods as Columbia, in its sole judgment, deems necessary. It is
provided, however, that should Columbia divert the natural gas streams,
otherwise deliverable to the Processor's Plant, to other extraction plants not
operated by Processor, the liquids extracted from those streams shall be made
available to Processor at those extraction plants, under the terms of this
Agreement.
2
<PAGE>
1.3 In addition to the foregoing and not by way of limitation, Columbia
agrees to use reasonable, diligent efforts to deliver or cause to be delivered
approximately 115 MMCfd of natural gas to Processor's Facilities. Processor
acknowledges and agrees that a portion of the natural gas delivered by Columbia
to Processor's Facilities will have already been processed at the Boldman
Processing Plant or have, at its point of delivery into Columbia's facilities, a
lower Btu than the average Btu of quantities at the outlet of Processor's
Facility, and in accordance with Section 25.3 of the General Terms and
Conditions of Columbia's FERC Gas Tariff, as currently in effect and as may be
amended, will not be charged for processing at Processor's Facilities. All other
natural gas delivered to Processor's Facilities will be charged for processing
and will hereinafter be referred to as "Billable Quantities". The average Btu at
the outlet of Processor's Facility shall be posted on Columbia's Electronic
Bulletin Board System and redetermined on an annual basis. The volume of gas and
the heating value will be calculated at 14.73 psi at 60 degrees Fahrenheit and
the gas will be assumed to be dry. Additionally, Columbia will use reasonable,
diligent efforts to divert previously processed gas (excluding gas processed at
the Boldman Plant) received by Columbia, including without limitation, processed
gas received at the Beaver Creek Compressor Station, away from Line P so that
such previously processed gas will not be delivered to Processor's Facilities.
Processor also acknowledges and agrees there will be events, including but not
limited to, maintenance, repair, replacement and outages on Line KA, which will
require previously processed gas to be delivered to Processor's Facilities;
provided, Columbia will use its reasonable, diligent efforts to minimize the
duration and frequency of those
3
<PAGE>
occurrences. Further, to the extent within Columbia's reasonable control,
Columbia will not reduce, or permit a reduction of the amount of the Billable
Quantities delivered to Processor.
ARTICLE II. TERM
2. This Agreement shall be effective upon the date Processor's Facilities
begin Unrestricted Service as defined in Article II Section 2.5(c) of the Design
and Construction Agreement between the parties hereto dated March 15, 1995 and
shall continue in full force through December 31, 2010 (the "Primary Term").
Thereafter, this Agreement shall continue for successive periods of two (2)
years each, subject to successful renegotiation of a processing fee, until
either party gives written notice of termination to the other party at least one
(1) year prior to the end of the Primary Term, or one year prior to the end of
each succeeding 2-year period.
ARTICLE III. INLET QUALITY
3. The inlet gas delivered to Processor by Columbia shall meet the
following specifications:
Minimum Heating Value: 1200 BTU/SCF (HHV/dry)/1/
Minimum Temperature: 90 degrees F/2/
1 Columbia will use best efforts to meet the specification but will not
incur additional costs or otherwise change its operations to the
detriment of Columbia or its customers.
2 In the event Processor requires a specified temperature, including the
90 degrees F referred to herein, unable to be maintained by Columbia's
existing equipment, Processor agrees to pay for any modification of
4
<PAGE>
Maximum Temperature: 110 degrees F/3/
Maximum Water Content: 25 pounds/MMSCF
Delivery Pressure Range
@ Plant Inlet: 315 psig to 360 psig/4/
Further, Processor will accept gas meeting Columbia's pipeline tariff
gas specifications for H2S and total sulfur. In the event Columbia delivers gas
with H2S and/or total sulfur which is in excess of Columbia's pipeline tariff
quality specification, then upon notice from Processor, Columbia will endeavor
to identify the source of the excess and take appropriate action to bring gas
back into quality specifications. Except for the above, the inlet gas delivered
to Processor by Columbia shall conform to the gas quality specifications of
Columbia's FERC Gas Tariff.
ARTICLE IV. RESIDUE QUALITY
4.1 As long as the inlet gas delivered by Columbia to Processor meets the
quality specifications in Article III herein, the residue gas delivered to
Columbia by Processor shall meet the following specifications:
Minimum heating value: 967 BTU/SCF (LHV/dry basis)
Maximum heating value: 1125 BTU/SCF (LHV/dry basis)
Columbia's existing equipment and normal operating procedures to meet
the requirement.
3 Unless ambient conditions cause a higher temperature.
4 Unless operating failures do not permit.
5
<PAGE>
Minimum temperature: 50 degrees F
Maximum temperature: 110 degrees F1
Maximum water content: 7 lbs/MMSCF of gas
Maximum allowable pressure drop
across the plant: 25 psig
1 Unless ambient conditions cause a higher temperature.
Processor will return residue gas to Columbia containing no more H2S and total
sulfur than Processor receives from Columbia at the inlet of the Processor's
Facilities. The residue gas shall meet, at a minimum, a -30 degrees F
cricondentherm (maximum hydrocarbon dew point). The residue gas returned shall
have Ninety-Nine and One-Half percent (99.5%) of liquid and solid particles
greater than three (3) microns removed at maximum flowing conditions and at all
times be commercially free from particulates or other solid or liquid matter
which might interfere with its merchantability or cause injury to or
interference with proper operation of the lines, regulators, meters and other
equipment of Columbia.
4.2 Failure to meet the quality specifications set forth in Articles III
and IV will be deemed a default under Article XIV of this Agreement.
ARTICLE V. OPERATION
5.1 Processor shall have the exclusive responsibility for the ownership,
operation and maintenance of Processor's Facilities.
6
<PAGE>
5.2 Processor shall process and dehydrate the natural gas stream made
available by Columbia to meet or exceed the residue gas quality specified in
Article IV herein except for a maximum of 30 calendar days per year, to be
mutually agreed upon by the parties hereto, necessary for turnaround time,
maintenance or repair time.
5.3 Except as herein stated, Processor is and shall forever be responsible
for all risk and all costs in connection with Processor's ownership, operation
and maintenance of Processor's Facilities. Such costs may include, but are not
limited to, personal property taxes, real property taxes assessed against
Processor's Facilities and other taxes attributable to Processor's facilities,
insurance, fees, permits and utilities.
5.4 Processor must immediately notify Columbia's Gas Control Department,
telephone (304) 357-2505 and the Area Manager, telephone (304) 691-5205, or such
other telephone number as may be provided by Columbia from time to time, of all
material processing interruptions. Processor and Columbia shall coordinate, on a
best efforts basis, necessary facility outages, including but not limited to,
annual plant turnarounds, pipeline replacements and compressor overhauls, so as
to minimize the disruption of each other's operations.
5.5 In conducting its activities hereunder, Processor shall (i) comply
with any and all applicable local, state and/or federal laws, regulations,
orders and agreements, including, but not limited to, those laws, regulations,
orders, and agreements directed at protecting the environment, (ii) obtain, from
the governmental authorities having jurisdiction over the premises, such permits
and
7
<PAGE>
approvals as may be required to lawfully conduct Processor's activities,
including, without limitation, all permits and approvals required under local,
state and/or federal environmental laws and regulations, and (iii) timely
provide the governmental authorities having jurisdiction over the premises with
all notifications required under applicable local, state and/or federal laws,
regulations, orders and agreements.
5.6 Columbia shall allow Processor to utilize the electrical substation
located on Columbia's property, adjacent to Columbia's Kenova Compressor
Station, to purchase electric power from American Electric Power Company.
ARTICLE VI. PROCESSING FEE
6.1 For purposes of this Agreement the "Transitional Period" is defined
herein as the period commencing upon the start of Unrestricted Service as
defined in Article 2.5(c) of the Agreement to Design and Construct New
Facilities and continue until the effective date of any necessary abandonment
authorization to be granted by the FERC regarding Columbia's facilities and the
service provided thereby at the Kenova Plant. During the Transitional Period,
Processor agrees to initiate the service of processing Columbia's shippers' gas
for either: 1) a processing fee applicable to all Billable Quantities of
10.35c/Dth and fuel retainage at the rate provided for in Columbia's FERC Gas
Tariff, currently 0.67%, which amount would be billed to Columbia and paid to
Processor, or 2) under arrangements to be agreed upon separately by and between
Processor and Columbia's shippers. During the Transitional Period, Columbia will
bill shippers at its FERC approved processing fee plus fuel retainage for all
Billable
8
<PAGE>
Quantities. All amounts due from Columbia shall be payable in accordance with
Article IX. If Processor has negotiated an alternative arrangement with any or
all shippers prior to the end of the Transition Period, then upon notification
to Columbia by Processor of such alternative arrangement, Columbia will
discontinue Processing Fee billings to those affected shippers.
6.2 It is recognized that during the Transitional Period, Processor may
desire adjustments to its processing fee in order to reflect increases in costs.
Processor may request such changes after January l, 1997. Columbia will seek
approval of adjustments to the processing fee requested by Processor only in the
context of any general Section 4(e) Rate Case filings. In the event Columbia
determines that it will file a General Section 4(e) Rate Case, Columbia will
notify Processor of the impending filing and Processor may provide any
information it deems necessary to support any processing fee adjustments
requested by Processor. It is understood and agreed between Columbia and
Processor that in no event will Columbia file any Rate Case solely due to any
adjustment needed by Processor, and that the level of any adjustments and any
method of presentation remains the sole control of Columbia. In the event the
requested fee adjustment is approved by FERC, the fee paid by Columbia to
Processor shall be adjusted to reflect the FERC approved adjustment.
6.3 By the end of the Transitional Period, Processor will have negotiated
arrangements with all shippers transporting gas on Columbia upstream of
Processor's Facilities, or will have offered all shippers a "default contract"
and will no longer be paid by Columbia for processing. At the end of the
9
<PAGE>
Transitional Period, Processor will be paid by and look solely to Columbia's
shippers for payment for that shipper's Billable Quantities.
ARTICLE VII. MEASUREMENT
7.1 The following four natural gas streams shall be measured at Columbia
and Processor's facilities hereinafter collectively referred to as the Gas
Measurement Facilities: 1) the inlet natural gas stream measured at a point
downstream of Columbia's Kenova Plant bypass (Inlet Stream); 2) the residue gas
stream measured at a point upstream of Columbia's Kenova Plant bypass (Outlet
Stream); 3) plant fuel utilized in Processor's Facilities (Plant Fuel); and 4)
plant flare which may be required to be estimated because of safety reasons
(Plant Flare). The natural gas liquid product stream shall be measured at a
facility installed and operated as described in this Agreement and hereinafter
referred to as the Liquid Measurement Facility.
7.2 Columbia shall be responsible for providing the Inlet and Outlet
Streams Measurement. Processor shall be responsible for providing the Plant fuel
and Plant Flare Measurement. The Gas Measurement Facilities shall be designed
and constructed in accordance with industry standards and consistent with
Columbia standards. The Inlet and Outlet streams shall include equipment,
specified by Columbia for the accurate chromatographic analysis of those streams
and shall be tested monthly. The Liquid Measurement Facility shall be designed,
constructed and operated by Processor to standards established in the latest
edition of American Petroleum Institute's Manual of Petroleum Measurement
Standards. The Liquid Measurement Facility shall include equipment, reasonably
10
<PAGE>
specified by Columbia, for the accurate chromatographic analysis of the natural
gas liquids product stream. Columbia shall have the opportunity to review the
type of meters selected for Liquid Measurement, Plant Fuel and Plant Flare as
well as all associated instrumentation. Processor shall operate, maintain and
determine the accounting quantities measured by the Plant Fuel and Plant Flare.
To the extent measurement facilities are existing for these purposes, the
parties will utilize those facilities.
7.3 Columbia shall operate, maintain and determine the accounting
quantities measured by the Inlet an Outlet Streams. For the Gas Measurement
Facilities required herein, all measurement practices, calculations, testing and
rectification of errors shall be in accordance with Columbia's FERC Gas Tariff,
General Terms and Conditions, Section 26, effective November l, 1993 and as it
may be subsequently amended. For the Liquid Measurement Facility required
herein, all measurement practices, calculations, testing and rectification of
errors shall be in accordance with the Liquid Products Industry Standards.
Columbia reserves the right to be present at all regularly scheduled and
unscheduled inspections and tests of the Liquid, Plant Fuel and Plant Flare
measurement facilities. The Processor's regularly scheduled liquid and gas
measurement facility inspections shall be performed at most quarterly and less
frequently when agreeable to both Columbia and Processor. Columbia agrees to
allow the Processor to be present at all inspections and tests of the gas
measurement facilities. Both Columbia and the Processor agree to conduct the
joint tests and inspections concurrently.
11
<PAGE>
7.4 Electronic measurement direct data outputs on the Inlet and Outlet
Streams shall be provided for use by Processor in accordance with Columbia's
Standard Electronic Measurement Agreement, attached hereto and made a part
hereof as Attachment A. Processor will permit Columbia to install, at Columbia's
sole risk, cost and liability, electronic measurement equipment in order to
obtain signals from Liquid Measurement, Plant Fuel and Flare measurement
facilities and for the liquid chromatograph, provided that electronic
measurement equipment does not interfere with Processor's operations.
7.5 Processor and Columbia agree to accept the measurements from
Measurement Facilities, operated by each party respectively, utilized for the
measurement of the Inlet Stream as the basis for determination of the monthly
processing payment, and the Liquid Measurement Facility. Plant Fuel and Plant
Flare as the basis for determining shrinkage reimbursement, subject nonetheless
to estimation procedures and rectification of errors as provided for in
Paragraph 7.3 of this Article.
ARTICLE VIII. BTU REIMBURSEMENT
8.1 Processor shall make Columbia whole by reimbursing Columbia for the
Btu equivalent of all natural gas liquids removed by Processor from the natural
gas stream delivered to the Processor's Facilities by Columbia and the fuel
consumed and gas flared in operating Processor's Facilities. Reimbursement shall
consist of a quantity of Btus in the form of natural gas conforming to
Columbia's FERC Gas Tariff effective at the time of reimbursement delivery.
12
<PAGE>
For purposes of calculating Btu's received by Processor hereunder, each of
the natural gas liquid products shall be deemed to have a gross heating value as
reported in the latest edition of the Gas Processors Suppliers Association's
Engineering Data Book, as revised from time to time, or any other industry
standard which is mutually agreed upon by Columbia and Processor. The most
recent edition of the Gas Processors Suppliers Association's Engineering Data
Book reports the gross heating values of the natural gas liquid products as
follows:
GROSS HEATING VALUE OF NATURAL GAS LIQUIDS
------------------------------------------
<TABLE>
<CAPTION>
Product Btu Per Gallon
------- ---------------
<S> <C>
Ethane 65,727
Propane 90,823
Iso-butane 98,913
Normal butane 102,909
Isopentane 108,754
Normal pentane 110,080
Hexanes + 115,064/5/
</TABLE>
8.2 The Btu Reimbursement in the form of natural gas, as required in this
Article VIII, shall be made by Processor to Columbia at any or all of the
receipt points into Columbia Gas Transmission Corporation's pipeline system
located in the states of Ohio, West Virginia, Virginia, Maryland, Pennsylvania,
New Jersey, Delaware, North Carolina, New York and Kentucky. The receipt of
natural gas at any receipt point shall be subject to physical capability of
Columbia to receive said natural gas and shall not preclude Columbia from
ceasing to receive natural
5 After the plant is fully operational, the BTU per gallon of
hexanes and heavier components may be revised periodically, but
not more than twice in one year, based upon the results of
extended chromatographic analysis of the liquids stream, using
the same components that Columbia uses to determine the heating
content of the gas Columbia transports under its FERC Gas Tariff.
13
<PAGE>
gas from time to time at any receipt points due to temporary changes in facility
operations or relocations, or ceasing to receive natural gas at any receipt
points due to abandonments, either by sale or retirement, or other permanent
changes in physical capability of its pipeline facilities used to receive said
natural gas.
8.3 (a) Measurement of the gas delivered at the receipt points hereunder
shall be computed in accordance with Columbia's or a downstream pipeline
company's tariff, as applicable.
(b) It is recognized that, due to operating conditions, the Btus of liquid
products recovered by Processor and the Btus of natural gas delivered to
Columbia may not be in balance in any one particular calendar month. Given
Columbia's gas transportation obligations to its shippers, Processor is required
to maintain its Btu reimbursements within a ten percent (10%) tolerance each
calendar month. In the event Processor fails to maintain its Btu reimbursements
within the ten percent (10%) tolerance for greater than a thirty (30) day
period, Processor will be in default under this Agreement.
(c) Columbia will provide notice to Processor of the Btu Reimbursement
owed to Columbia 30 days prior to the date delivery is due. Should Processor
fail to deliver Btu Reimbursement consistent with the provisions of this Article
VIII, Processor shall be subject to the monthly imbalance provisions of
Columbia's approved FERC tariff in effect of the time of the imbalance.
(d) Processor shall exercise due diligence in keeping its Btu
reimbursements within the stated tolerance.
14
<PAGE>
8.4 Processor shall be responsible for obtaining all transportation
arrangements required to deliver the natural gas to the receipt points, and
shall be responsible for all transportation costs incurred in delivering the
natural gas to the receipt points.
8.5 Processor shall be deemed to be in control of and have responsibility
for the natural gas to be processed by Processor after the delivery thereof to
Processor by Columbia and prior to the delivery of such gas to Columbia by
Processor. Processor shall be deemed to have no responsibility with respect to
such gas prior to Processor's receipt thereof, or after Processor's delivery
thereof to Columbia.
ARTICLE IX. BILLING AND PAYMENT
9. On or before the lOth day of each month, Columbia will submit the
Inlet and Outlet Streams accounting quantities to Processor. On or before the
20th day of each month, Processor will submit a statement and invoice to
Columbia indicating all amounts and fuel reimbursement due under this Agreement
for the preceding month. Processor's statement shall include a comparison of the
inlet/outlet measurement heating values (DTH) minus the fuel and flare heating
values (DTH) versus the equivalent heating values (DTH) of the liquid removed.
In the event that a discrepancy exists in the comparison, the liquid and gas
measurement facilities of both parties shall be inspected to determine the cause
of the discrepancy. Both parties shall work together diligently to solve the
discrepancy in a manner mutually acceptable to both parties. Columbia shall
remit payment based on that invoice by the last business day of the month in
15
<PAGE>
which the invoice is received or 10 business days following receipt of the
invoice, whichever is later (Due Date). In the event Columbia does not submit
payment within 30 days of the Due Date, Columbia shall pay interest at the FERC
interest rate (18 CFR (S) 154.67) upon the unpaid balance until paid.
ARTICLE X. INSURANCE
l0.1 Processor, at all times while it has any interest in Processor's
Facilities and to the extent required by current operations and as agreed by
Columbia, shall provide, at its own cost and expense, insurance of the kinds and
in the amounts necessary to cover all loss or liability for damages on account
of bodily injury, including death resulting therefrom, and damage to or
destruction of property caused by or arising out of any and all operations
carried on or any and all work performed under this Agreement. At a minimum,
Processor shall provide insurance of the kinds and in the amounts specified in
the following schedule.
(a) Workers' Compensation: Coverage shall include the following:
----------------------
(i) Workers' Compensation - Statutory coverage applicable in
each State where work is to be performed, including coverage
for occupational disease, if and as required.
(ii) Employer's Liability minimum limit of $1,000,000 per
occurrence. If coverage is obtained from a state fund (Ohio
or West Virginia), Employer's Liability coverage may not be
available. In such cases, Processor will purchase "Stop
16
<PAGE>
Gap" coverage, with minimum limits of $1,000,000 per
occurrence, from a commercial insurer.
(iii) All States Endorsement (or equivalent). If coverage is
obtained from a state fund (Ohio or West Virginia) an All
States endorsement may not be available. In such cases,
Processor will obtain Workers' Compensation insurance in
every state in which operations may be conducted or work may
be performed under the terms of this Agreement.
(iv) U. S. Longshore and Harbor Workers' Compensation Act
coverage, U. S. Defense Bases Act Coverage, Outer
Continental Shelf Land Act coverage, when applicable:
statutory limits.
(v) Jones Act coverage when applicable. Minimum limits required:
$1,000,000 per accident.
(b) Commercial General Liability or Comprehensive General Liability
---------------------------------------------------------------
Insurance: Policy to include Blanket Contractual and Broad Form Liability
- ----------
endorsements, or their equivalents, Completed Operations Coverage and, when
applicable, Products Coverage. The Contractual Liability section must
specifically cover Processor's obligations under the indemnity provisions of
this agreement.
Minimum limits required:
BODILY INJURY/PROPERTY DAMAGE: $1,000,000 per occurrence.
Combined Single Limit.
17
<PAGE>
PRODUCTS/COMPLETED OPERATIONS: $1,000,000 per occurrence,
Combined Single Limit.
PERSONAL INJURY: $1,000,000 per occurrence.
When coverage obtained in accordance with this paragraph is written on a
"Claims Made" or "Claims First Made:" form, Completed Operations coverage must
be specifically endorsed to provide that it will respond to claims made for at
least 24 months after completion of the work.
The Fellow Employee and Explosion, Collapse and Under-ground Exclusions
must be deleted.
(c) Automobile Liability: Coverage shall include all owned, non-owned,
--------------------
leased or hired vehicles.
Minimum Limits required:
BODILY INJURY/PROPERTY DAMAGE $1,000,000 per occurrence,
Combined Single Limit.
Processor warrants that it is in full compliance with any "No Fault" provision
of any state in which it operates motor vehicles.
(d) Umbrella Liability Insurance: Coverage shall be excess of, and at least
----------------------------
as broad as, the primary coverages listed in paragraphs a, b and c of this
Section.
Minimum Limits required:
BODILY INJURY/PROPERTY DAMAGE - $10,000,000 per occurrence,
Combined Single Limit.
18
<PAGE>
(e) Aircraft Liability: If any operations require the use of helicopters or
-------------------
fixed wing aircraft, Processor will, in addition to all other insurance coverage
required in this Section, maintain and shall require any Subcontractor utilizing
rotary or fixed wing aircraft to maintain aircraft liability insurance with
minimum limits of $10,000,000 per occurrence for bodily injury and property
damage.
(f) Marine Insurance: If any operations are to be conducted in or on
-----------------
navigable waters or on any pier, wharf, or other structure adjoining such
waters, Processor shall, in addition to all other insurance required in this
Section, maintain and shall require any Subcontractor engaged in such operations
to maintain, the following additional coverage, as appropriate:
(i) HULL/PROTECTION & INDEMNITY - coverage to be provided for each
vessel used in any operations conducted under the terms of this
agreement. Minimum limits required:
HULL - Current value of the vessel.
PROTECTION & INDEMNITY $1,000,000 per vessel per occurrence for
bodily injury and property damage.
(ii) MARINE EMPLOYERS LIABILITY - minimum limits required:
$1,000,000 per accident.
(g) Environmental Impairment Liability (or Equivalent): Policy to include
---------------------------------------------------
coverage for all loss and liability resulting from Processor's activities and
liability assumed by Processor under this Agreement.
19
<PAGE>
Minimum Limits required:
BODILY INJURY/PROPERTY DAMAGE - $10,000,000 per occurrence,
Combined Single Limit.
(h) All Risk Property: Limits shall be sufficient to cover replacement
------------------
cost for Processor's Facilities and provide a Bailee Endorsement to cover any
loss of natural gas in Processor's possession.
(i) Boiler and Machinery: Limits shall be sufficient to cover replacement
---------------------
cost for Processor's Facilities.
(j) Business Interruption: Limits shall be at Processor's discretion.
---------------------
10.2 All insurance policies required by this section will be written by
insurance companies reasonably acceptable to Columbia, will be primary with
respect to any insurance maintained by Columbia, and will be endorsed to provide
at least 30 days advance notification to Columbia of any cancellation, non-
renewal or material change in coverage and cancellation for non-payment of
premium will require 30 days advance notice to Columbia. Insurance policies
required by paragraphs b, c, d, e, f and g will name Columbia as an additional
insured. All insurance policies required by this Section will contain a waiver
of subrogation as against Columbia. Some of the foregoing policies may be
obtained and maintained by Processor's Contractor, which policies shall name
Columbia and MarkWest as additional insureds and provide Waiver of Subrogation
against both parties. Some of the foregoing policies may be obtained and
maintained by Processor's Contractor, which policies shall name Columbia and
2O
<PAGE>
processor as additional insureds and provide Waiver of Subrogation against both
parties.
10.3 Processor warrants that any Contractor and/or Subcontractors of
Processor who conduct any operations or perform any work under the terms of this
Agreement, or in connection with the facilities, shall be specifically covered
by Processor's policies or equivalent policies carried by the Contractor and/or
Subcontractors.
10.4 Processor shall furnish, on behalf of itself and any Contractor or
Subcontractor, prior to Processor conducting any activity on Processor's
Facility site, copies of all insurance policies intended to meet the
requirements of this Section. Properly executed Certificates of Insurance may be
substituted for insurance policies provided that such Certificates contain
positive statements of compliance with all the terms of this Agreement which
apply to the type of insurance represented by the Certificate. Insurance
Policies whose terms expire during the term of this Agreement will be renewed or
replaced with no gaps in coverage, and evidence of such renewal or replacement
will be provided to Columbia under the same conditions as prescribed above.
ARTICLE XI. INDEMNITY
11.1 Processor shall indemnify and hold harmless Columbia from and against
any and all loss, damage, and liability and from any and all claims for damages
on account of or by reason of bodily injury, including death, which may be
sustained or claimed to be sustained by any person, including the employees of
Processor and of any Contractor or Subcontractor of Processor, and from and
21
<PAGE>
against any and all damages to property, including loss of use, and including
property of Columbia, caused by or arising out of or claimed to have been caused
by or to have arisen out of an act or omission of Processor or its agents,
employees, subcontractors or contractors in connection with the performance of
this Agreement, in connection with the performance of this Agreement, whether or
not insured against and Processor shall at its own cost and expense defend any
claims, suits, actions, or proceedings, whether groundless or not, which may be
commenced against Columbia by reason thereof or in connection therewith, and
Processor shall pay any and all judgments which may be recovered in any such
actions, claims, proceedings, or suits, and defray any and all expenses,
including costs and attorney's fees, which may be incurred in or by reason of
such actions, claims, proceedings, or suits, including environmental impairment;
provided, however, that the foregoing indemnification will not cover loss,
damage, or liability arising from the sole negligence or wilful misconduct of
Columbia, its agents and employees. Notwithstanding the foregoing, in the event
of such actions, claims, proceedings or suits, Columbia shall be entitled, if it
so elects, to representation by attorneys of its own selection, including
attorneys employed by Columbia. The obtaining by Processor of a release or
discharge, running to Processor or Columbia or either or both of them, from a
property owner for damages resulting from any phase of the performance of the
obligations of this Agreement shall not diminish nor affect in any way the
rights of Columbia and the obligations of Processor as set forth in this Article
IX; and to the extent permitted by law.
22
<PAGE>
Processor expressly waives the benefit, for itself and all contractors and
subcontractors, insofar as the indemnification of Columbia is concerned, of the
provisions of any applicable workers' compensation law limiting the tort or
other liability of an employer on account of injuries to the employer's
employees.
Except to the extent of Columbia's obligations under the Purchase and
Demolition Agreements, Construction Premises and Remaining Premises between
Columbia and Processor both dated March 15, 1995, Processor shall further
indemnify and hold Columbia harmless from any and all claims for costs,
expenses, fines or fees associated with or arising from claims asserted under
any local, state and/or federal environmental law or regulations, regardless of
whether such claims relate to conditions that existed on the property prior to
Processor's entry thereon.
11.2 Columbia shall indemnify and hold harmless Processor from and against
any and all loss, damage and liability, and from any injury,
including death, which may be sustained or claimed to be sustained by
any person, including the employees of Columbia and of any Contractor
or Subcontractor of Columbia and, from and against, any and all
damages to property, including loss of use, and including property of
Processor, caused by or arising out of or claimed to have been caused
by or to have arisen out of the sole negligence of Columbia or its
agents, employees or subcontractors.
ARTICLE XII. FORCE MAJEURE
12. Neither Processor nor Columbia shall be held responsible for any
losses resulting if the fulfillment of any terms or provisions shall be delayed
23
<PAGE>
or prevented wholly or in part by compliance with any law, order or regulation,
whether valid or invalid, of any governmental authority or of any person
purporting to act therefor or by any act or condition not within the reasonable
control of the party whose performance is interfered with and which by the
exercise of reasonable diligence said party is unable to prevent, including but
not limited to revolutions or other disorders, wars, acts of enemies, embargoes
or other import or export restrictions, strikes, lockouts or other industrial
disturbances, fires, storms, floods, acts of God or explosions. The settlement
of strikes or lockouts shall be entirely within the discretion of the party
having the difficulty and such party shall not be required to make settlement of
strikes or lockouts by acceding to the demands of the opposing party when such
course is inadvisable in the discretion of the party having the difficulty. If
by reason of any cause of the nature set forth above in this Article XII,
supplies of either natural gas or natural gas liquids are curtailed or cut off,
then neither Columbia nor Processor shall be required to replace the
hydrocarbons so curtailed or cut off nor shall either party be required to make
up deliveries omitted by reason of any of the above causes. If either party is
unable to fulfill the terms and conditions of this agreement by reason of any
such cause as provided in this Article, the party rendered unable to perform
hereunder shall give the other party notice in writing as soon as reasonably
possible after the occurrence of the cause relied on, setting forth the full
particulars in connection therewith, and deliveries shall be suspended during
the continuance of any inability so caused but for no longer period, and such
cause, so far as
24
<PAGE>
possible, shall be remedied with all reasonable dispatch. This agreement shall
not be terminated by reason of any such cause set out above but shall remain in
full force and effect and this Agreement shall not be extended regardless of any
such curtailment or cessation.
ARTICLE XIII. REMEDIATION UPON TERMINATION
13. In the event of a permanent cessation of operations of Processor's
Facilities which would result in title to the real property and/or Processor's
Facilities to be passed to Columbia, Processor shall remediate the entire tract
owned by Processor, including that portion thereof affected by the past
operation and the dismantlement, demolition, removal and disposal of the
existing Kenova Extraction Plant, to (i) a level that meets or exceeds a
specific clean-up or compliance level established under applicable State and/or
federal environmental laws and regulations, or (ii) where such laws and
regulations do not state a specific standard, to a level or standard of
remediation and compliance approved by the governmental agency or agencies
having jurisdiction over the premises, such standard being negotiated solely
between Processor and such agency having jurisdiction and reasonably acceptable
to Columbia, for the purpose of administering such environmental laws and
regulations. Further, Processor shall indemnify and hold Columbia harmless from
any and all claims for costs, expenses or fees associated with or arising from
Processor's remediation of or failure to remediate environmental conditions on
the tract owned by Processor, including, but not limited to, claims asserted
under any State and/or federal environmental law or regulation, regardless of
whether such claims relate to conditions that
25
<PAGE>
existed on the property prior to Processor's entry thereon, except to the extent
of Columbia's obligations under the Purchase and Demolition Agreements.
XIV. DEFAULT AND PENALTY
14. In the event Processor, for any reason other than Force Majeure and
Article 5.2 hereof and for reasons related to safety considerations and the
integrity of Processor's Facilities, interrupts the liquid production process as
required under the terms and conditions of this Agreement, Processor shall pay
to Columbia a penalty of Five Thousand Dollars ($5,000) per day unless Columbia
can establish damages in excess of the Five Thousand Dollars ($5,000) per day.
In the event Processor interrupts the liquid production process for any reason,
including without limitation, Force Majeure, which interruption continues for a
period of 30 consecutive days and within such 30-day period fails to provide
Columbia with a reasonable plan and date for resuming liquid production
acceptable to Columbia, or is otherwise in default of any of the terms,
conditions, covenants, warranties or agreements contained herein, and which
default continues for 30 days after written notice from Columbia to Processor,
if curable within 30 days or if not curable within 30 days and processor has not
commenced good faith, diligent efforts to cure within that 30 day period,
Columbia, may at its sole discretion and in addition to any other legal or
equitable remedy available to Columbia:
(a) satisfy any and all obligations of Processor connected directly or
indirectly with this Agreement, including but not limited to any default of
Processor under this Agreement, with reimbursement from Processors of any amount
26
<PAGE>
paid together with (i) attorneys fees and (ii) annual interest at the rate of
15%, if this rate is allowed by law, otherwise at the highest rate allowed by
law and, if not reimbursed, such amount may be deducted (with attorneys fees and
interest as above provided) by Columbia from any amounts then or thereafter due
Processor. These rights of reimbursement and deduction are in addition to
Columbia's rights to indemnity under this Agreement; and/or,
(b) seek interlocutory equitable relief against Processor, as Processor
acknowledges and agrees that a default will cause irreparable harm and loss to
Columbia, in a form which will allow Columbia, or any entity chosen by Columbia,
to complete the obligations of Processor herein at the sole risk, liability,
cost and expense of Processor and, if not reimbursed, such amount may be
deducted (with attorneys fees and interest as above provided) by Columbia from
any amounts then or thereafter due Processor. These rights of reimbursement and
deduction are in addition to Columbia's rights to indemnity under this
Agreement; and/or,
(c) purchase Processor's Facilities for the net depreciated book value of
Processor's Facilities.
ARTICLE XV. ASSIGNMENTS
15. This Agreement may not be assigned by either party without the other
party's prior written consent.
ARTICLE XVI. NOTICES
16. Any notices required or permitted under this Agreement, with the
exception of the notice provision of Article V, Paragraph 5.4, shall be made via
facsimile at the following numbers followed by notice through the U.S. Postal
27
<PAGE>
Service return receipt requested, to the following addresses or such other
facsimile numbers and addresses as may be designated by the parties hereto:
MarkWest Hydrocarbon Partners, Ltd.
5613 DTC Parkway, Suite 400
Englewood, CO 80111
Attention of Vice President, Finance
Facsimile: (303) 290-8769
Columbia Gas Transmission Corporation
P.O. Box 1273
Charleston, WV 25325-1273
Attention: Vice President,
Volume Management
Facsimile: (304) 357-2424
ARTICLE XVII. RIGHT TO AUDIT
17. Each party agrees that the other or the other's Agents, at all
reasonable times, shall have the right to examine or audit the books, accounts
and records of that party to verify compliance with the terms and conditions of
this Agreement.
ARTICLE XVIII. DISPUTE RESOLUTION
18. Any and all disputes, claims or controversies arising from the
interpretation of this Agreement, or a party's obligations hereunder, shall be
resolved by binding arbitration conducted in accordance with the Commercial
Arbitration rules of the American Arbitration Association.
ARTICLE XIX. LAWS, RULES AND REGULATIONS AND CHOICE OF LAW
19. This Agreement and all operations hereunder shall be in accordance
with and subject to all applicable Federal, State and Local laws, rules and
28
<PAGE>
regulations. This Agreement shall be construed in accordance with the laws of
the State of West Virginia, without reference to any conflicts of law
provisions.
ARTICLE XX. SEVERABILITY
20. If any sections or provisions of this Agreement shall be held by any
court of competent jurisdiction to be illegal, void or unenforceable, such
sections or provisions shall survive to the extent enforceable and allowed by
law, but the illegality or unenforceability of any such sections or provisions
shall have no effect upon and shall not impair the enforceability of any other
Articles or provisions of this Agreement.
ARTICLE XXI. AUTHORITY TO PROCESS
21. Except for gas processed by Processor under separate agreement with
Shippers, Columbia represents it has all right and authority to permit and cause
Processor to recover those liquefiable hydrocarbons from the natural gas stream
and upon recovery thereof, title to those liquefiable hydrocarbons will be held
by Processor.
ARTICLE XXII. INDEPENDENT CONTRACTOR
22. It is mutually agreed that in the performance of any and all actions
necessary to perform the duties under the terms and conditions of this
Agreement, Processor is an independent contractor, and nothing in this Contract
shall be construed as creating the relationship of principal and agent, or
employer or employee, between Columbia and/or Processor or Processor's agents or
employees. Processor shall have no authority to hire any persons on behalf of
Columbia, and any and all persons whom it may employ shall be deemed to be
solely the employees
29
<PAGE>
of Processor. Processor shall have control and management of the work, the
selection of employees and the fixing of their hours of labor, and no right is
reserved to Columbia to direct or control the manner in which the work is
performed, as distinguished from the result to be accomplished. Nothing herein
contained shall be construed to authorize Processor to incur any debt, liability
or obligation of any nature for or on behalf of Columbia, or for Processor to
cause any lien or other encumbrance to be placed on Columbia's property, and
Processor shall immediately remove, and indemnify Columbia against, all costs
incurred in connection with, any such debt, liability, obligation, lien or other
encumbrance, if any arises in contravention hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day
and year last above written.
COLUMBIA GAS TRANSMISSION CORPORATION
By: /s/ Peter J. Kinsella
Peter J. Kinsella
Title: Vice President, Volume Management
MARKWEST HYDROCARBON PARTNERS, LTD.
By: /s/ Patrick W. Murray
Title: Vice President - Finance
3O
<PAGE>
NATURAL GAS LIQUIDS PURCHASE AGREEMENT
(COBB PLANT)
THIS AGREEMENT made and entered into this______ day of ____________
1995, by and between COLUMBIA GAS TRANSMISSION CORPORATION, herein called
"Columbia", and MARKWEST HYDROCARBON PARTNERS, LTD. herein called "MarkWest".
RECITALS:
A. Columbia desires to deliver all liquid hydrocarbons extracted from
natural gas at Columbia's Cobb Gas Processing Plant.
B. MarkWest desires to receive all of those liquid hydrocarbons in
accordance with the terms of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, the parties agree as follows:
1. Commitment. (a) MarkWest agrees to receive One Hundred Percent
-----------
(100%) of the natural gas liquids produced from Columbia's Cobb Plant (the
"Plant"). In conjunction therewith, MarkWest agrees that it shall receive and
remove the liquids recovered by Columbia at that Plant on a daily basis, to the
extent that the recovery of those natural gas liquids requires daily removal.
(b) Subject to the limitations hereinafter set forth, Columbia
agrees to use its best efforts to avoid taking any action not compelled by law
or regulation which will reduce the volume of natural gas being supplied to the
Plant or reduce the recovery of natural gas liquids at the Plant, or divert
elsewhere the stream of natural gas that would otherwise flow through and be
processed by the Plant. MarkWest and Columbia agree that the streams of natural
gas are primarily part of Columbia's current natural gas supply for service to
the public and Columbia's use of said natural gas streams to meet its public
service obligation at the lowest reasonable cost shall be paramount. Columbia
shall have the right to manage its gas supply, including the subject natural gas
streams, in the manner in which Columbia, in its sole discretion, deems most
appropriate to meet its said public service obligation at the lowest reasonable
cost without any liability to MarkWest on account thereof. That right shall
specifically include, but not be limited to, the right to curtail, interrupt, or
divert the natural gas streams for such periods as Columbia, in its sole
judgment, deems necessary.
(c) Columbia further commits to MarkWest a right of first refusal to
purchase natural gas liquids produced from other extraction plants, owned or
operated by Columbia, which produced natural gas liquids which were delivered to
MarkWest's Siloam Fractionation Plant at any time during the one (1) year period
preceding that date of this Agreement. In the event that Columbia
<PAGE>
has any of those natural gas liquids available for sale, during the term of this
Agreement, it shall so notify MarkWest. That notification shall include all of
the relevant terms and conditions of any bona fide offer made by a third party
to purchase those natural gas liquids. MarkWest shall have ten (10) days
following receipt of that notice in which to notify Columbia whether it will
elect to purchase those natural gas liquids on the same terms and conditions as
those contained in the offer. Should MarkWest fail to respond within that ten
(10) day period, it shall be deemed to have elected not to purchase the natural
gas liquids; and, in the event that MarkWest elects, or is deemed to elect, not
to purchase those natural gas liquids, Columbia shall be free to sell such
liquids to any other party on terms and conditions as specified in the bona fide
offer contained in Columbia's notice. Should MarkWest elect to purchase the
natural gas liquids, the parties shall execute an agreement containing the terms
and conditions, as specified in Columbia's notice, within a reasonable period of
time. Should Columbia have natural gas liquids available for sale from those
extraction plants for which no bona fide offer has been made by any other party,
then it shall notify MarkWest and the parties shall attempt to negotiate the
terms upon which MarkWest shall purchase the natural gas liquids. In the event
the parties are unable to agree upon such terms and conditions, within ten (10)
days following Columbia's notice, Columbia may offer to sell those natural gas
liquids to other parties; provided, however, that if another party offers to
purchase the natural gas liquids on terms less favorable to Columbia than
MarkWest's most recent offer and Columbia is willing to agree to such terms,
then Columbia shall notify MarkWest of such offer and MarkWest shall have ten
(10) days following receipt of that notice in which to notify Columbia whether
or not it will elect to purchases those natural gas liquids on the same terms
and conditions as those contained in the bona fide offer described in Columbia's
notice.
2. Delivery Point of Natural Gas Liquids. (a) MarkWest shall receive
--------------------------------------
delivery of natural gas liquids under this Agreement at the tailgate of the
Plant. Delivery of those natural gas liquids shall be into facilities
furnished by MarkWest. Columbia agrees to provide MarkWest the use of adequate
space at the Plant site for MarkWest to install and operate, at its expense,
truck loading facilities for the natural gas liquids produced at the Plant.
MarkWest shall be solely responsible for any expenses incurred in removing and
transporting the natural gas liquids from the Delivery Points. Upon termination
of this Agreement, Columbia shall have the option to purchase the storage and
truck loading facilities installed by MarkWest at the Plant at their installed
cost, less accumulated depreciation of no less than 10% per annum.
(b) Title to the natural gas liquids and all components thereof shall
pass from Columbia to MarkWest at the Delivery Points. As between the parties,
Columbia shall be solely responsible for the natural gas liquids and all damages
arising out
2
<PAGE>
of their extraction and handling up to the Delivery Point, and MarkWest shall be
solely responsible for those liquids, and the handling thereof, from and after
the Delivery Point.
(c) The Delivery Points for any liquids purchased under Paragraph 1
(c), above, shall be specified in the respective agreement entered into between
Columbia and MarkWest.
3. Term. This Agreement shall be effective upon the date hereof and shall
-----
continue in force through December 31, 2010 ("Primary Term"). Thereafter,
this Agreement shall continue for successive periods of two (2) years each,
until either party gives notice of termination to the other party at least one
(1) year prior to the end of the Primary Term period, or one (1) year prior to
the end of each succeeding 2-year period.
4. Reimbursement by MarkWest. (a) MarkWest shall make Columbia whole by
--------------------------
reimbursing Columbia for the BTU equivalent of all natural gas liquids
delivered to MarkWest from the natural gas stream delivered to the Plant and the
fuel consumed by Columbia in operating the Plant. Reimbursement shall consist of
a quantity of BTU's in the form of natural gas conforming to Columbia's FERC Gas
Tariff effective at the time of reimbursement delivery.
(b) For purposes of calculating BTU's received by MarkWest
hereunder, attributable to natural gas liquids, each of the natural gas liquid
products shall be deemed to have a gross heating value as reported in the latest
edition of the Gas Processors Suppliers Association's Engineering Data book, as
revised from time to time, or any other industry standard which is mutually
agreed upon by Columbia and MarkWest. The most recent edition of the Gas
Processors Suppliers Association Engineering Data Book reports the gross heating
values of the natural gas liquid products as follows:
GROSS HEATING VALUE OF NATURAL GAS LIQUIDS
------------------------------------------
<TABLE>
<CAPTION>
Product BTU per Gallon
<S> <C>
Ethane 65,727
Propane 90,823
Iso-butane 98,913
Normal butane 102,909
Isopentane 108,754
Normal pentane 110,080
Hexanes + 115,064
</TABLE>
(c) With respect to ethane, unless otherwise mutually agreed,
MarkWest shall only be obligated to compensate Columbia for liquids received
from Columbia hereunder, representing ethane, up to a maximum of Two Percent
(2%) of the natural gas liquids delivered by Columbia. Should the natural gas
liquids delivered hereunder
contain in excess of 2% ethane, then MarkWest, at its opinion, shall
have
<PAGE>
the right to receive those excess ethane liquids without any additional
reimbursement, or MarkWest may, at is option, refuse to receive deliveries of
those natural gas liquids.
(d) MarkWest shall reimburse Columbia for actual fuel incurred in
operating the Plant up to a maximum of eleven percent (11%) of the BTU's
received by MarkWest in the form of natural gas liquids. Columbia shall, each
month, provide MarkWest with documentation substantiating the fuel use at the
Plant during the immediately preceding month. In the event such documentation
establishes fuel usage, up to the 11% maximum, different than the amount for
which MarkWest reimbursed Columbia, during the preceding month, then current
month's fuel reimbursement shall be readjusted accordingly. MarkWest shall
reimburse Columbia for all fuel incurred in operating the Plant during those
periods when, at MarkWest's request, the Plant is extracting reduced levels of
gas liquids.
5. Delivery of Natural Gas. (a) The BTU reimbursement in the form of
------------------------
natural gas, as required in this Agreement, shall be delivered by MarkWest to
Columbia at any or all of the receipt points into Columbia Gas Transmission
Corporation's Pipeline System located in the States of Ohio, West Virginia,
Virginia, Maryland, Pennsylvania, New Jersey, Delaware, North Carolina, New York
and Kentucky. The receipt of natural gas at any receipt point shall be subject
to physical capability of Columbia to receive the natural gas and shall not
preclude Columbia from ceasing to receive natural gas from time to time at any
receipt points due to temporary changes in facility operations or relocations,
or ceasing to receive natural gas at any receipt point due to abandonments,
either by sale or retirement, or other permanent changes in physical capability
of its pipeline facilities used to receive the natural gas.
(b) Measurement of the gas delivered at the receipt points hereunder
shall be computed based upon existing meters and calorimeters located at those
points and owned and operated by either Columbia or the pipeline company
interconnecting with Columbia at those locations. For determining the amounts of
natural gas delivered at those receipt points, all volumes shall be converted to
BTU's based upon the heating value contained in the natural gas at the receipt
points measured at standard conditions (60 degrees Fahrenheit, 14.696 psia,
gross heating value dry basis).
(c) MarkWest shall be responsible for obtaining all transportation
arrangements required to deliver the natural gas to the receipt points, and
shall be responsible for all transportation costs incurred in delivering the gas
to the receipt points.
4
<PAGE>
(d) It is recognized that due to operating conditions, the BTU's of
liquids received by MarkWest and the BTU's of natural gas to be delivered to
Columbia may not be in balance in any one particular month. The parties shall
use their best efforts to keep such variances to a minimum, and following
receipt of monthly statements, MarkWest shall adjust deliveries of gas as
promptly as is consistent with its operating conditions in order to balance any
excess or deficiency.
(e) Should MarkWest fail to deliver gas consistent with the
provisions of 5(d), above, then Columbia shall have the right to either (i)
reduce deliveries of natural gas liquids to MarkWest to the extent necessary to
balance the natural gas due Columbia with the natural gas delivered by MarkWest,
or (ii) Columbia shall have the right to demand payment of an amount equal to
the product of the volume of gas which was required and the then current price
for Louisiana Gulf Coast Interstate gas deliveries (as published in Natural Gas
Week, or other mutually agreeable sources), plus cost of transportation which
would otherwise be incurred by MarkWest in delivering that gas to a receipt
point specified in this Agreement.
6. MarkWest Fuel. MarkWest will require natural gas for fuel at its
--------------
Siloam Plant. MarkWest shall, during the term hereof, have the option to acquire
its own required fuel supplies and deliver natural gas representing those fuel
requirements to Columbia, in addition to other natural gas which it is required
to deliver to Columbia hereunder. Columbia shall redeliver any such quantities
(less Columbia's "use and loss" at the percentages specified from time to time
in Columbia's ITS Tariff) at the maximum rate specified in its ITS Tariff, as
such rate may be revised from time to time, to the pipeline which services the
Siloam Fractionation Plant. Provided, if Columbia is generally discounting its
tariff, the rates charged MarkWest will be accordingly discounted during the
period in which the generally available discounts are in effect. MarkWest shall
be responsible for all transportation costs incurred in having that natural gas
delivered from the outlet of Columbia's facilities to the Siloam Plant. Columbia
will transport such gas in accordance with Part 284 of the regulations of the
Federal Energy Regulatory Commission.
7. Unprofitability. (a) As used herein, the term "unprofitable" shall
----------------
mean that the revenues derived from the operation of a plant are less than the
direct and overhead expenses incurred in operating that plant.
(b) During the term hereof, should MarkWest determine that the
continued operation of the Siloam Plant is unprofitable, then MarkWest shall
notify Columbia, in writing. Thereafter, the parties shall meet and attempt to
renegotiate the terms of this Agreement, as may be required to return the plant
to a profitable status. In the event that the parties are unable to agree upon
renegotiated terms, within forth-five (45) days following receipt
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of the notice, then MarkWest, or its successor or assignee, shall continue to
honor all terms of this Agreement from the date for a period not to exceed 12
calendar months during which time Columbia, in order to fulfill its Public
Service Obligation, shall expeditiously replace the Cobb extraction plant with
facilities expressly designed for the maintenance of its gas pipeline
operations.
8. Governmental Authorizations. (a) Columbia and MarkWest believe that
----------------------------
no prior governmental authorizations are required to effectuate this Agreement.
If however, it is later determined that any such authorizations are necessary,
Columbia and MarkWest shall promptly file, or cause to be filed, with Federal
Energy Regulatory Commission, or successor governmental authority, and other
appropriate regulatory bodies, all requisite applications to effectuate this
Agreement. Each party will pursue such applications with due diligence and good
faith; provided, that in attempting to secure governmental authorizations, each
party shall have the right to file and prosecute any such application that is
not contrary to the provisions of this Agreement in such manner as such party
deems to be in its own best interest.
(b) Each party hereto shall submit copies to the other of all
filings and amendments thereto made with the Federal Energy Regulatory
Commission or other regulatory agency that affect the obligations of either
party hereunder and promptly notify the other party of any action taken by such
Commission or agency with respect thereto.
(c) Each party hereto shall accept the governmental authorizations
applied for unless, in either Columbia's or MarkWest's sole opinion, its
respective authorization or the combination of all such authorizations contain,
or are issued subject to, terms and conditions unacceptable to the party.
(d) If all requisite authorizations and/or approvals acceptable to
each party have not been received and accepted and become final and not subject
to appeal on or before one hundred eighty (180) days from the date of its
filing, then at any time thereafter, prior to the acceptance of any such
authorization. Thereafter, either party may terminate and cancel this Agreement
by thirty (30) days prior written notice thereof to the other party. Upon
acceptance or rejection by either party of any authorization or certificate
hereinabove referred to, that party shall promptly notify the other party of
such acceptance or rejection.
9. Billing. On or before the 15th day of each month, Columbia will
--------
submit a statement to MarkWest indicating the amount of BTU reimbursement due
Columbia hereunder for the preceding month.
6
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10. Miscellaneous. (a) This Agreement may be assigned by either party hereto
--------------
with the consent of the other party not to be unreasonably withheld, and shall
be binding upon and shall inure to the benefit of each party's successors and
assigns. Any assignment by Columbia of its Plant, shall be made expressly
subject to the terms of this Agreement. Any assignment by MarkWest of the Siloam
Fractionation Plant shall likewise be made expressly subject to the terms of
this Agreement. Further, no mortgage, pledge, encumbrance or assignment for
security of this Agreement by MarkWest shall be considered an assignment, and
may, therefore, be made without consent.
(b) Any notices required or permitted under this Agreement shall be
made through the U.S. Postal Service, to the following addresses:
MarkWest Hydrocarbon Partners, Ltd.
5613 DTC Parkway, Suite 400
Englewood, CO 80111
Columbia Gas Transmission Corporation
Box 1273
Charleston, WV 25325
(c) This Agreement shall be construed in accordance with the laws of
the State of West Virginia.
IN WITNESS WHEREOF, the parties have executed this Agreement the day and
year last above written.
ATTEST: COLUMBIA GAS TRANSMISSION CORPORATION
By:
Title:
ATTEST: MARKWEST HYDROCARBON PARTNERS, LTD.
By: MARKWEST HYDROCARBON, INC., its
general partner
By:
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<PAGE>
PURCHASE AND DEMOLITION AGREEMENT CONSTRUCTION PREMISES
This Agreement. made this 15th day of March 1995, between COLUMBIA GAS
TRANSMISSION CORPORATION (Columbia) and MARKWEST HYDROCARBON PARTNERS, LTD.,
(Processor).
Columbia and Processor agree as set forth below:
WHEREAS, Processor is the owner of that certain 1.361 acre parcel of land
situated in Ceredo District, Wayne County, West Virginia, more particularly
described on Map H-1555 and designated as Tract No. 1 which, in all events,
includes all fixtures, improvements, equipment, supplies and materials located
thereon (Construction Premises); and,
WHEREAS, Processor and Columbia have entered into a contract for the design
and construction of a new processing plant (Processor's Plant) on the
Construction Premises; and
WHEREAS, Columbia owns and operates the Kenova Extraction Plant which
consists of processing, dehydration and extraction equipment, including but not
limited to, piping, tanks, machinery, valves, concrete foundations, buildings,
structural steel, spare parts, etc., (Kenova Plant); and,
WHEREAS, Columbia has sold and Processor has purchased, the Construction
Premises in accordance with the terms and provisions of this Agreement; and,
1
<PAGE>
WHEREAS, Processor will dismantle, demolish, remove and dispose of such
portion of the Kenova Plant located on the Construction Premises which will not
be retained by Processor for use as an operational portion of Processor's Plant
nor by Columbia in its continued operation of the Kenova Plant; and
WHEREAS, Columbia will perform an environmental assessment and remediation
of the Construction Premises.
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein expressed, the parties hereby agree as follows:
1. Upon and subject to the terms and conditions set forth in this
Agreement, Columbia agrees to sell on an "AS IS, WHERE IS" basis to
Processor and Processor agrees to purchase and accept on an "AS IS,
WHERE IS" basis the Construction Premises as more fully described on
Exhibit A, attached hereto and made a part hereof, which, in all events,
includes all fixtures, improvements, equipment, supplies and materials
located thereon, as described above, and Columbia agrees to sell the
Construction Premises and Processor agrees to accept the Construction
Premises without (i) any express or implied warranty, merchant-ability
or fitness for a particular purpose and (ii) any and all other
warranties, express or implied, except as to a general warranty deed of
title as to the Construction Premises. Processor warrants that it has
expert knowledge of natural gas liquids, separation, extraction and
dehydration processes and facilities and that Processor is familiar with
the local, state and federal laws and regulations, including
environmental laws and regulations, which apply to
2
<PAGE>
and/or affect the Construction Premises and the future operations of Processor's
Plant. Columbia hereby provides to Processor, notice, the sufficiency of which
Processor accepts and acknowledges, that the Construction Premises being
transferred are subject to regulation under certain environmental laws of the
State of West Virginia and of the United States of America.
2. Processor agrees to pay to Columbia, as the full purchase price for
the Construction Premises, the sum of One Hundred Thousand Dollars ($100,000).
Processor has paid $5,571.95 to Columbia as consideration for the transfer of
Construction Premises. Upon execution of this Agreement, Processor agrees to pay
Columbia Four Thousand Four Hundred Twenty Eight Dollars and Five Cents
($4,428.05) in immediately available funds. Within 20 business days after
Columbia has notified Processor of receipt of final approval by all regulatory
agencies having jurisdiction, including but not limited to the Federal Energy
Regulatory Commission (FERC), such approval of the United States Bankruptcy
Court for the District of Delaware as may be necessary in Columbia's sole
judgment, such approval of any state or federal regulatory agency as may be
necessary and the completion of any and all remediation required under this
Agreement, Processor shall pay the remainder of the full purchase price, being
Ninety Thousand Dollars ($90,000).
3.1 Processor shall be responsible for all dismantlement, demolition,
removal and disposal of such portions of the Kenova Plant located on the
Construction Premises as are not a functioning portion of the Processor's Plant
or the Kenova Plant. Processor, or Processor's contractor, agrees to assume the
responsibility and cost for any and all necessary testing required to determine
whether any portion of the Kenova Plant for which Processor is responsible for
dismantlement, demolition, removal and disposal, can be legally disposed of in a
solid waste landfill permitted for industrial waste or sold for salvage. In the
event Processor or Processor's Contractor determines any portion of the Kenova
Plant cannot be legally disposed of in a solid waste landfill permitted for
industrial waste or sold for salvage, Columbia shall have the right to obtain
the opinion of a third party consultant, at
Columbia's sole cost and expense, to determine whether the material to be
removed
3
<PAGE>
can be legally disposed of in a solid waste landfill permitted for
industrial waste or sold for salvage. If the third party consultant determines
the material to be removed and/or disposed of can legally be disposed of in a
solid waste landfill permitted for industrial waste or sold for salvage,
Processor, and/or Processor's contractor, must remove and/or dispose of the
material at its sole cost and expense in accordance with all applicable laws or
regulations. In the event the third party consultant determines the material to
be removed and/or disposed of cannot be legally disposed of in a solid waste
landfill permitted for industrial waste or sold for salvage, Columbia and
Processor shall equally divide the cost of any additional expenses which may be
incurred for the removal and/or disposal of the material in accordance with all
applicable laws or regulations.
4
<PAGE>
3.2 Columbia agrees that it shall, prior to the commencement of
construction by Processor, remove all items from the Construction Premises which
are not then necessary to the operation of the Kenova Plant, and which removal
is not otherwise Processor's responsibility under the terms hereof,
specifically, Columbia shall remove all contents of the utility building and all
drums located on the Construction Premises.
4. Processor represents and warrants that any substance, equipment, or
other material, scrap and/or junk (including, without limitation, pipe,
chemicals, drums or other containers, soil, sand or other ground substances,
water or other liquids and any batteries or related equipment) that Processor
removes from Columbia's premises at any time (collectively, "Removed Materials")
will not be used, recycled, transported, salvaged or disposed of in a manner
that will result in (i) a violation of the Federal Resource Conservation and
Recovery Act or (ii) an actual or threatened release of a hazardous substance as
defined under the Federal Comprehensive Environmental Response, Compensation and
Liability Act, or (iii) a violation of any other environmental laws, rules or
regulations passed or promulgated by any federal, state or local jurisdiction or
governmental agency from time to time, except to the extent of changes in
applicable laws or regulations becoming effective after the removal unless said
laws or regulations are retroactive to the date of removal and Processor hereby
agrees to indemnify and hold harmless Columbia and Columbia's shareholders,
directors and employees from and against any liability arising out of or related
to the Processor's breach of this warranty. In addition, Processor agrees to
permit representatives of Columbia to inspect Processor's facilities and to
review Processor's procedures for storing, handling, reselling, recycling and/or
disposing of any Removed Materials and to provide Columbia with any
documentation reasonably requested in connection therewith. Processor
understands and covenants that upon Columbia's notice, Processor will
immediately cease and discontinue any procedure or other action and remediate
any condition related to the Removed Materials that Columbia reasonably
determines, in Columbia's sole discretion, create a material risk of present or
future liability to Columbia. Said notice shall specify the conditions, risks
and/or applicable laws which Columbia claims create the liability. Processor
acknowledges and
5
<PAGE>
agrees that any breach of its warranties and covenants hereunder will cause
irreparable harm and loss to Columbia and that, in addition to any other legal
or equitable remedy available to Columbia, such breach shall be the basis for
interlocutory equitable relief against Processor.
5. Processor shall obtain all requisite permits from governmental
authorities having jurisdiction over the Construction Premises as may be
necessary to perform its obligations under this Agreement. Processor agrees to
promptly apply for and diligently prosecute applications for such permits.
6. In conducting its activities hereunder, Processor shall (I) comply
with any and all applicable local, state and/or federal laws, regulations,
orders, and agreements, including, but not limited to, those laws, regulations,
orders, and
6
<PAGE>
agreements directed at protecting the environment, (ii) obtain, from the
governmental authorities having jurisdiction over the premises, such permits and
approvals as may be required to lawfully conduct Processor's activities,
including, without limitation, all permits and approvals required under local,
state and/or federal environmental laws and regulations, and (iii) timely
provide the governmental authorities having jurisdiction over the premises with
all notifications required under applicable local, state and/or federal laws,
regulations, orders and agreements.
7.a. Definitions: The following definitions shall apply for purposes of
-------------
this Agreement:
i. "Environmental Law" shall mean each of the following
statutes and all regulations promulgated thereunder as well as any and all
comparable statutes and regulations of the State of West Virginia in the form in
which all statutes and regulations exist: the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. (S)(S)9601, et seq.; the
-- ---
Federal Water Pollution Control Act, 33 U.S.C. (S)1251, et seq.; the Clean
-- ---
Air Act, 42 U.S.C. (S)(S)7401 et seq.; the Resource Conservation and
-- ---
Recovery Act, 42 U.S.C.(S)(S)6901 et seq.; the Safe Drinking Water Act,
-- ---
42 U.S.C. (S)(S)30Of, et seq.;and the Toxic Substances Control
-- ---
Act, 15 U.S.C. (S)(S)2601, et seq.
-- ---
ii. "Governmental Agency" shall mean any federal, state or local
agency charged with or responsible for the administration of any Environmental
Law.
7
<PAGE>
b. Retention of Liability under Assessment and Remediation Plan:
-------------------------------------------------------------
Columbia shall conduct and complete an environmental assessment of the
Construction Premises, the results of which will be set forth in assessment
reports ("Assessment"), in a manner reasonably satisfactory to Processor and, in
any event shall include ground water testing and analysis. Columbia shall
furnish Processor with copies of the Assessment promptly upon its completion and
shall furnish Processor with copies of remediation plans, prepared in connection
with the cleanup and remediation of environmental conditions disclosed by the
Assessment, ("Remediation Plan") promptly following its preparation. Columbia
shall obtain approval of the Remediation Plan from the applicable governmental
authorities and shall furnish evidence of that approval to Processor.
As between Columbia and Processor, Columbia shall retain liability for
any claim against Processor under any Environmental Law, which arises from or
relates to those environmental conditions of the Construction Premises
identified in the Assessment and Remediation Plan which, when complete, will be
attached as Exhibit B of this Agreement and which are not remediated in
accordance with 7.c. below, except for claims based upon a change in applicable
law or regulations becoming effective after the Closing. With respect to all
areas remediated by Columbia in accordance with 7.c., Columbia shall retain no
liability for any environmental conditions discovered after the completion of
the remediation as set forth in 7.c. below.
8
<PAGE>
As between Columbia and Processor and as to the Construction Premises,
Processor assumes liability for any claim against Columbia under any applicable
Environmental Law including, without limitation, any claim by third parties
which arises from or relates to: (1) conditions or activities occurring after
the Closing; (2) conditions or activities which occurred prior to the Closing
which require remediation only under statutes or regulations which became
effective after Closing; and, (3) except for conditions identified in the
Assessment and Remediation Plan which will appear as Exhibit B, Processor's
activities on, and/or ownership of, Processor's Plant including, but not limited
to, any claim arising from or relating to conditions not identified in the
Assessment and Remediation Plan which will appear as Exhibit B of this
Agreement. Processor accepts and acknowledges that the facilities and operations
being transferred are subject to regulation under certain environmental laws of
the State of West Virginia and of the United States of America.
c. Remediation: For any condition of the Construction Premises for
-----------
which Columbia has agreed to assume liability under paragraph 7.b. above, being
those conditions identified in the Assessment and Remediation Plan, Columbia
shall remediate such condition, if necessary and required under any applicable
Environmental Law, to a standard of remediation and compliance under such
applicable Environmental Law, if any have been established, or to a standard of
remediation and compliance approved by any Governmental Agency having
jurisdiction under such Environmental Law, such standard being negotiated solely
between
9
<PAGE>
Columbia and such agency having jurisdiction and reasonably acceptable to
Processor. Such Construction Premises shall be considered remediated upon
receipt by Columbia of acceptance by the agencies having jurisdiction of the
remediation and of any closure reports filed by Columbia with such agencies,
copies of which will be provided to MarkWest.
d. Access: After the Closing, for the period required by Columbia to
------
identify or address Columbia's obligations under Paragraph 7.c. above, Processor
shall provide Columbia, its agents, representatives and contractors the
unrestrained right, at Columbia's discretion and upon prior notice to Processor,
to enter onto and have access to the Construction Premises in order to identify
or address any obligations imposed pursuant to Paragraph 7.c. of this Agreement.
In providing such access, Processor shall not interfere with, delay and/or
prohibit Columbia, its agents, representatives and contractors from fulfilling
Columbia's obligations under Paragraph 7.c. above.
e. Indemnity During Access: Should Columbia, its agents,
------------------------
representatives or contractors enter upon the Construction Premises in order to
identify or address any obligations imposed upon Columbia by Paragraph 7.c. of
this Agreement, Columbia shall indemnify Processor and hold Processor harmless
from any and all claims arising from the actions of Columbia or Columbia's
employees or agents on the subject property or failure to accomplish the
obligations imposed on Columbia by Paragraph 7.c. of this Agreement.
10
<PAGE>
f. Mitigation: Where necessary to prevent damage to human health, the
-----------
environment and personal property, Processor shall undertake action to mitigate,
to the best of Processor's ability and in accordance with the best engineering
practices, any condition of the Construction Premises for which Columbia may be
liable pursuant to Paragraph 7.b. above: Provided, that Columbia shall reimburse
Processor for Processor's reasonable expenses incurred in mitigating conditions
for which Columbia has retained remedial obligations under Paragraph 7.c. above.
8.1 From and after the date of this Agreement until Closing, Columbia has
and shall continue to afford to Processor and its representatives, during its
normal business hours, reasonable access to the facilities and any non-
privileged business records, files, maps, existing surveys, if any, describing
physical characteristics, subsurface characteristics, environmental surveys of
the Construction Premises and all adjacent properties occupied by Columbia,
zoning requirements and utility locations, the legal description of the
Construction Premises, equipment data sheets and all other non-privileged
records of Columbia connected with the Construction Premises which are necessary
for Processor to conduct a due diligence review in accordance with the practices
of prudent purchasers in similar transactions. Processor shall have the right to
enter upon the Construction Premises for purposes of examining and inspecting
the Construction premises and upon Closing shall acknowledge that Processor has
inspected and is familiar with the condition of the property. Further, upon
11
<PAGE>
Closing, Processor shall assume all liability for any damages caused by the
condition of the property except as herein stated. Any documents provided to
Processor hereunder shall be confidential and Processor shall use its best
efforts, to the extent permitted by law, to preserve the confidentiality of such
documents in any dispute with third parties. Notwithstanding that any
information shall be provided in good faith, Columbia expressly disclaims any
warranty as to the accuracy or reliability of the information provided.
Processor acknowledges and agrees that Columbia in no way controls the
Processor's interpretation of any information provided.
8.2 Processor covenants and agrees that it will rely solely on its own
due-diligence investigation concerning the environmental condition and fitness
of the property and its improvements for the construction and operation of a
natural gas liquids extraction facility and not upon any representation,
warranty or statement of or on behalf of TCO by its officers, employees, agents,
advisors or representatives, except for Processor's reliance upon the
obligations undertaken by Columbia in Paragraph 7 hereof and except that
Columbia represents that it has no knowledge of environmental conditions in
violation of applicable laws or regulations, currently in effect, other than
those described in the Assessment, that would effect the Construction Premises.
9. All activities on the Construction Premises which Processor does not
perform with its own employees and resources shall be performed by its
Contractors or by its Subcontractors.
12
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10. A Subcontractor means a person or entity who has a direct contract with
Processor's Contractor to perform work in connection with this Agreement.
11. No direct contractual relationship shall exist between Columbia and
Processor's Contractors or Subcontractors during the performance of any
activities on the Construction Premises. Processor shall be responsible for the
management of its Contractors and Subcontractors in the performance of its
activities.
12. During the term of this Agreement, Processor agrees that it shall carry
and maintain, at its own expense, the kinds of insurance and the minimum amounts
of coverage set forth below:
12.1 Basic Insurance. During the terms of this Agreement, Processor, shall
----------------
provide, at its own cost and expense, insurance of the kinds and in the amounts
necessary to cover all loss or liability for damages on account of bodily
injury, including death resulting therefrom, and damage to or destruction of
property caused by or arising out of any and all operations carried on or any
and all obligations performed under this Agreement. At a minimum, Processor
shall provide insurance of the kinds and in the amounts specified in the
following schedule.
(a) Workers' Compensation: Coverage shall include the following:
----------------------
(i) Workers' Compensation - Statutory coverage applicable in each
State where work is to be performed, including coverage for
occupational disease, if and as required.
13
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(ii) Employer's Liability - minimum limit of $1,000,000 per
occurrence. If coverage is obtained from a state fund (Ohio or
West Virginia), Employer's Liability coverage may not be
available. In such cases, Processor will purchase "Stop Gap"
coverage, with minimum limits of $1,000,000 per occurrence, from
a commercial insurer.
(iii) All States Endorsement (or equivalent). If coverage is obtained
from a state fund (Ohio or West Virginia) an All States
endorsement may not be available. In such cases, Processor will
obtain Workers' Compensation insurance in every state in which
operations may be conducted or work may be performed under the
terms of this Agreement.
(iv) U. S. Longshore and Harbor Workers' Compensation Act coverage,
U. S. Defense Bases Act Coverage, Outer Continental Shelf Land
Act coverage, when applicable: statutory limits.
(v) Jones Act coverage when applicable. Minimum limits required:
$1,000,000 per accident.
(b) Commercial General Liability or Comprehensive General Liability
---------------------------------------------------------------
Insurance: Policy to include Blanket Contractual and Broad Form Liability
- ----------
endorsements, or their equivalents, Completed Operations Coverage and, when
applicable, Products Coverage. The Contractual Liability section must
14
<PAGE>
specifically cover Processor's obligations under the indemnity provisions of
this agreement.
Minimum limits required:
Bodily Injury/Property Damage: $1,000,000 per occurrence,
Combined Single Limit. Products/Completed Operations: $1,000,000
per occurrence, Combined Single Limit. Personal Injury:
$1,000,000 per occurrence.
When coverage obtained in accordance with this paragraph is written on a "Claims
Made" or "Claims First Made:" form, Completed Operations coverage must be
specifically endorsed to provide that it will respond to claims made for at
least 24 months after completion of the work.
The Fellow Employee and Explosion, Collapse and Underground Exclusions must
be deleted.
(c) Automobile Liability: Coverage shall include all owned, non-owned,
---------------------
leased or hired vehicles.
Minimum Limits required:
Bodily Injury/Property Damage - $1,000,000 per occurrence,
Combined Single Limit. Processor warrants that it is in full
compliance with any "No Fault" provision of any state in which it
operates motor vehicles.
15
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(d) Umbrella Liability Insurance: Coverage shall be excess of, and at least
-----------------------------
as broad as, the primary coverages listed in paragraphs a, b and c of this
Section.
Minimum Limits required:
Bodily Injury/Property Damage - $10,000,000 per occurrence,
Combined Single Limit.
(e) Aircraft Liability: If any operations require the use of helicopters or
-------------------
fixed wing aircraft, Processor will, in addition to all other insurance
coverage required in this Section, maintain and shall require any Subcontractor
utilizing rotary or fixed wing aircraft to maintain aircraft liability insurance
with minimum limits of $10,000,000 per occurrence for bodily injury and property
damage.
(f) Marine Insurance: If any operations are to be conducted on navigable
-----------------
waters or on any pier, wharf, or other structure adjoining such waters,
Processor shall, in addition to all other insurance required in this Section,
maintain and shall require any Subcontractor engaged in such operations to
maintain, the following additional coverage, as appropriate:
(i) HULL/PROTECTION & INDEMNITY - coverage to be provided for each
vessel used in any operations conducted under the terms of this
agreement. Minimum limits required: Hull - Current value of the
vessel.
16
<PAGE>
Protection & Indemnity - $1,000,000 per vessel per occurrence for
bodily injury and property damage.
(ii) Marine Employers Liability - minimum limits required: $1,000,000
per accident.
(g) Environmental Impairment Liability (or Equivalent): Policy to include
---------------------------------------------------
coverage for all loss and liability resulting from Processor's activities.
Minimum Limits required:
BODILY INJURY/PROPERTY DAMAGE - $10,000,000 per occurrence,
Combined Single Limit.
12.2 All insurance policies required in this Agreement will be written by
insurance companies reasonably acceptable to Columbia, will be primary with
respect to any insurance maintained by Columbia and will be endorsed to provide
at least 30 days advance notification to Columbia of any cancellation, non-
renewal or material change in coverage and cancellation for non-payment of
premium will require 30 days advance notice to Columbia. Insurance policies
required by paragraphs b, c, d, e, f and g will name Columbia as an additional
insured. All insurance policies required by this Section will contain a waiver
of subrogation as against Columbia. Some of the foregoing policies may be
obtained and maintained by Processor's Contractor, which policies shall name
Columbia and MarkWest as additional insureds and provide Waiver of Subrogation
against both parties.
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<PAGE>
12.3 Processor shall furnish, on behalf of itself and its Contractor, prior
to Processor conducting any activity on the Construction Premises, copies of all
insurance policies intended to meet the requirements of this Section. Properly
executed Certificates of Insurance may be substituted for insurance policies
provided that such Certificates contain positive statements of compliance with
all the terms of this Agreement which apply to the type of insurance represented
by the Certificate. Insurance Policies whose terms expire during the term of
this Agreement will be renewed or replaced with no gaps in coverage, and
evidence of such renewal or replacement will be provided to Columbia under the
same conditions as prescribed above.
13.1 In addition to any other indemnification provided for by Processor
herein, including Processor's environmental indemnification contained in
Paragraph 7 hereof, Processor shall indemnify and hold harmless Columbia from
and against any and all loss, damage, and liability and from any and all claims
for damages on account of or by reason of bodily injury, including death, which
may be sustained or claimed to be sustained by any person, including the
employees of Processor and of any Contractor or Subcontractor of Processor, and
from and against any and all damages to property, including loss of use, and
including property of Columbia, caused by or arising out of or claimed to have
been caused by or to have arisen out of an act or omission of Processor or its
agents, employees, Contractors or Subcontractors in connection with the
performance of this Agreement whether or not insured against and Processor shall
at its own cost
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<PAGE>
and expense defend any claims, suits, actions, or proceedings, whether
groundless or not, which may be commenced against Columbia by reason thereof or
in connection therewith, and Processor shall pay any and all judgments which may
be recovered in any such actions, claims, proceedings or suits, and defray any
and all expenses, including costs and attorney's fees, which may be incurred in
or by reason of such actions, claims, proceedings, or suits. including
environmental impairment; provided, however, that the foregoing indemnification
will not cover loss, damage or liability arising from the sole negligence or
wilful misconduct of Columbia, its agents and employees. Notwithstanding the
foregoing, in the event of such actions, claims, proceedings or suits, Columbia
shall be entitled, if it so elects, to representation by attorneys of its own
selection at Columbia's sole cost, including attorneys employed by Columbia. The
obtaining by Processor of a release or discharge, running to Processor or
Columbia or either or both of them, from a property owner for damages resulting
from the performance of this Agreement, including without limitation, any phase
of dismantlement, demolition, removal or disposal, shall not diminish nor affect
in any way the rights of Columbia and the obligations of Processor as set forth
in this Section 14. To the extent permitted by law, Processor expressly waives
the benefit, for itself and all contractors and subcontractors, insofar as the
indemnification of Columbia is concerned, of the provisions of any applicable
workers' compensation law limiting the tort or other liability of an employer on
account of injuries to the employer's employees.
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13.2 Columbia shall indemnify and hold harmless Processor from and against
any and all loss, damage and liability, and from any injury, including death,
which may be sustained or claimed to be sustained by any person, including the
employees of Columbia and of any Contractor or Subcontractor of Columbia and,
from and against, any and all damages to property, including loss of use, and
including property of Processor, caused by or arising out of or claimed to have
been caused by or to have arisen out of the sole negligence of Columbia or its
agents, employees or subcontractors.
14.1 An Event of Default shall be deemed to have occurred under this
contract if:
(a) Processor fails to make due and punctual payments of amounts
required to lenders for all loans associated with construction or ownership of
Processor's Plant;
(b) Processor fails to make due and punctual payments of all premiums
necessary to assure the coverages required under the terms and conditions of
this Agreement to the insurance companies responsible for the respective
policies;
(c) Processor's Plant, or any part thereof, shall be taken upon
execution or by other process of law directed against Processor; or
(d) Either party shall fail to perform any of its other covenants,
agreements or terms hereof, and such nonperformance shall continue for a period
of twenty (20) days following notice from the other party.
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14.2 Processor acknowledges and agrees that an Event of Default by
Processor, as defined above, will cause irreparable harm and loss to Columbia
and that, in addition to any other legal or equitable remedy available to
Columbia, such Event of Default shall be the basis for interlocutory equitable
relief against Processor. Such interlocutory equitable relief shall be in a form
which will allow Columbia, or any entity chosen by Columbia, to complete the
obligations of Processor herein at the sole risk, liability, cost and expense of
Processor.
14.3 In the event of a default by a party (Defaulting Party), the other
party (Non-Defaulting Party), at its sole discretion, may satisfy any and all
obligations of the Defaulting Party connected directly with this Agreement,
including but not limited to any default of Defaulting Party under this
Agreement. Defaulting Party agrees to reimburse Non-Defaulting Party any amount
paid together with attorneys fees and annual interest at the highest rate
allowed by law.
15. Neither Processor nor Columbia shall be held responsible for any losses
resulting if the fulfillment of any terms or provisions shall be delayed or
prevented wholly or in part by compliance with any law, order or regulation,
whether valid or invalid, of any governmental authority or of any person
purporting to act therefor or by any act or condition not within the reasonable
control of the party whose performance is interfered with and which by the
exercise of reasonable diligence said party is unable to prevent, including but
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not limited to revolutions or other disorders, wars, acts of enemies, embargoes
or other import or export restrictions, strikes, lockouts or other industrial
disturbances, fires, storms, floods, acts of God or explosions. The settlement
of strikes or lockouts shall be entirely within the discretion of the party
having the difficulty and such party shall not be required to make settlement of
strikes or lockouts by acceding to the demands of the opposing party when such
course is inadvisable in the discretion of the party having the difficulty. If
either party is unable to fulfill the terms and conditions of this agreement by
reason of any such cause as provided in this Article, the party rendered unable
to perform hereunder shall give the other party notice in writing as soon as
reasonably possible after the occurrence of the cause relied on, setting forth
the full particulars in connection therewith, and that parties' obligations
shall be suspended during the continuance of any inability so caused but for no
longer period, and such cause, so far as possible, shall be remedied with all
reasonable dispatch. This agreement shall not be terminated by reason of any
such cause set out above but shall remain in full force and effect and this
Agreement shall not be extended regardless of any such curtailment or cessation.
16. The waiver by either party of any breach of any term, covenant, or
condition herein contained shall not be deemed to be a waiver of any subsequent
term, covenant, or condition, whether similar or dissimilar to the term,
covenant, or condition which was waived.
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17. Notices required or permitted hereunder shall be made to the parties at
the following addresses:
MarkWest Hydrocarbon Partners, Ltd.
5613 DTC Parkway, Suite 400
Englewood, CO 80111
Attention Of Vice President,
Finance
Columbia Gas Transmission Corporation
P.O. Box 1273
Charleston, WV 25325-1273
Attention of Vice President,
Volume Management
18. Processor agrees that Columbia or its Agents, at all reasonable times,
shall have the right to examine or audit the books, accounts and records of
Processor to verify compliance with the terms and conditions of this Agreement.
19. This Agreement shall be governed in accordance with the laws of the
State of West Virginia.
20. If any sections or provisions of this Agreement shall be held by any
court of competent jurisdiction to be illegal, void or unenforceable, such
sections or provisions shall survive to the extent enforceable and allowed by
law, but the illegality or unenforceability of such sections or provisions shall
have no effect upon and shall not impair the enforceability of any other
sections or provisions of this Agreement.
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21. With the exception of the obligations contained in the indemnification
provisions herein, this Agreement terminates at the completion of each parties
obligations hereunder.
22. Closing is herein defined as the mutually agreeable time and date of
the delivery of a general warranty deed by Columbia to Processor.
23. It is mutually agreed that in the performance of any and all actions
necessary to perform the duties under the terms and conditions of this
Agreement, Processor is an independent contractor, and nothing in this Contract
shall be construed as creating the relationship of principal and agent, or
employer or employee, between Columbia and/or Processor or Processor's agents or
employees. Processor shall have no authority to hire any persons on behalf of
Columbia, and any and all persons whom it may employ shall be deemed to be
solely the employees of Processor. Processor shall have control and management
of the work, the selection of employees and the fixing of their hours of labor,
and no right is reserved to Columbia to direct or control the manner in which
the work is performed, as distinguished from the result to be accomplished.
Nothing herein contained shall be construed to authorize Processor to incur any
debt, liability or obligation of any nature for or on behalf of Columbia, or for
Processor to cause any lien or other encumbrance to be placed on Columbia's
property, and Processor shall immediately remove, and indemnify Columbia
against, all costs incurred in connection with, any such debt, liability,
obligation, lien or other encumbrance, if any arises in contravention hereof.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day and
year last above written.
COLUMBIA GAS TRANSMISSION CORPORATION
By: /s/ Peter J. Kinsella
Peter J. Kinsella
Title: Vice President, Volume Management
MARKWEST HYDROCARBON PARTNERS, LTD.
By: /s/ Patrick W. Murray
Title: Vice President, Finance
-----------------------
25
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PURCHASE AND DEMOLITION AGREEMENT
REMAINING PREMISES
This Agreement, made this 15th day of March 1995, between COLUMBIA GAS
TRANSMISSION CORPORATION (Columbia) and MARKWEST HYDROCARBON PARTNERS, LTD.,
(Processor).
Columbia and Processor agree as set forth below:
WHEREAS, Columbia is the owner of that certain 4.643 acre parcel of land
situated in Ceredo District, Wayne County, West Virginia, more particularly
described on Map #H-1555 designated as Tract No. 2 which, in all events,
includes all fixtures, improvements, equipment, supplies and materials located
thereon (Remaining Premises); and,
WHEREAS, Processor and Columbia have entered into an Agreement to Design
and Construct New Facilities (Processor's Plant) on the premises adjacent to the
Remaining Premises; and
WHEREAS, Columbia owns and operates the Kenova Extraction Plant which
consists of processing, dehydration and extraction equipment, including but not
limited to, piping, tanks, machinery, valves, concrete foundations, buildings,
structural steel, spare parts, etc., (Kenova Plant) which is located on the
Remaining Premises; and,
WHEREAS, Columbia desires to sell and Processor desires to purchase, the
Remaining Premises in accordance with the terms and provisions of this
Agreement; and,
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WHEREAS, Processor will dismantle, demolish. remove and dispose of such
portion of the Kenova Plant located on the Remaining Premises which will not be
retained by Processor for use as an operational portion of Processor's Plant;
and
WHEREAS, Columbia will perform an environmental assessment and remediation
of the Remaining Premises.
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein expressed, the parties hereby agree as follows:
1. Upon and subject to the terms and conditions set forth in this
Agreement, Columbia agrees to sell on an "AS IS, WHERE IS" basis to Processor
and Processor agrees to purchase and accept on an "AS IS, WHERE IS" basis the
Remaining Premises as more fully described on Exhibit A, to be attached hereto
and made a part hereof promptly following its preparation, which, in all events,
includes all fixtures, improvements, handtools unique to the extraction process,
equipment, supplies and materials located thereon, as described above, and
Columbia agrees to sell the Remaining Premises and Processor agrees to accept
the Remaining Premises without(i) any express or implied warranty,
merchantability or fitness for a particular purpose and (ii) any and all other
warranties, express or implied, except as to a general warranty deed as to the
Remaining Premises. Processor warrants that it has expert knowledge of natural
gas liquids, separation, extraction and dehydration processes and facilities and
that Processor is familiar with the local, state and federal laws and
regulations, including environmental laws and regulations, which apply to and/or
affect the
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Remaining Premises and the future operations of Processor's Plant. Columbia
hereby provides to Processor, notice, the sufficiency of which Processor accepts
and acknowledges, that the Remaining Premises being transferred are subject to
regulation under certain environmental laws of the State of West Virginia and of
the United States of America.
2. Processor agrees to pay to Columbia, as the full purchase price for the
Remaining Premises, the sum of Four Hundred Thousand Dollars ($400,000). At
Closing Processor agrees to pay Columbia One Hundred Thousand Dollars ($100,000)
in immediately available funds. Within 20 business days after Columbia has
notified Processor of receipt of final approval by all regulatory agencies
having jurisdiction, including but not limited to the Federal Energy Regulatory
Commission (FERC), such approval of the United States Bankruptcy Court for the
District of Delaware as may be necessary in Columbia's sole judgment, such
approval of any state or federal regulatory agency as may be necessary and the
completion of any and all remediation required under this Agreement, Processor
shall pay the remainder of the full purchase price, being Three Hundred Thousand
Dollars ($300,000).
3. Processor shall be responsible for all the dismantlement, demolition,
removal and disposal of such portions of the Kenova Plant located on the
Remaining Premises which are not a functioning portion of Processor's Plant.
Processor, or Processor's contractor, agrees to assume the responsibility and
cost for any and all necessary testing required to determine whether any portion
3
<PAGE>
of the Kenova Plant for which Processor is responsible for dismantlement,
demolition, removal and disposal, can be legally disposed of in a solid waste
landfill permitted for industrial waste or sold for salvage. In the event
Processor or Processor's Contractor determines any portion of the Kenova Plant
cannot be legally disposed of in a solid waste landfill permitted for industrial
waste or sold for salvage, Columbia shall have the right to obtain the opinion
of a third party consultant, at Columbia's sole cost and expense, to determine
whether the material to be removed can be legally disposed of in a solid waste
landfill permitted for industrial waste or sold for salvage. If the third party
consultant determines the material to be removed and/or disposed of can be
legally disposed of in a solid waste landfill permitted for industrial waste or
sold for salvage, Processor, and/or Processor's contractor, must remove and/or
dispose of the material at its sole cost and expense in accordance with all
applicable laws of regulations. In the event the third party consultant
determines the material to be removed and/or disposed of cannot be legally
disposed of in a solid waste landfill permitted for industrial waste or sold for
salvage, Columbia and Processor shall equally divide the cost of any additional
expenses which may be incurred for the removal and/or disposal of the material
in accordance with all applicable laws or regulations. Prior to the start of
said dismantlement of the Kenova Plant by Processor, Columbia shall shut down
the Kenova Plant by blocking and bypassing the Inlet Gas Stream and opening all
existing vent valves to flare, shutting down all motors, engines and turbines,
4
<PAGE>
shutting off the electric power. Additionally, Columbia shall provide advisors
knowledgeable of the Kenova Plant to provide information to Processor to assist
Processor in completing the shutdown of all the existing vent valves to flare,
shutting down all motors, engines and turbines and shutting off the electric
power. Additionally, Columbia shall provide advisors knowledgeable of the Kenova
Plant to provide information to Processor to assist Processor in completing the
shutdown of the Kenova Plant. Processor also agrees to dismantle, demolish,
remove and dispose of the cooling tower and basin located on that portion of the
Kenova Plant which will be retained by Columbia. Columbia and Processor agree
the river pumps and associated electrical equipment shall remain the property of
Columbia.
4. Processor represents and warrants that any substance, equipment, or
other material, scrap and/or junk (including, without limitation, pipe,
chemicals, drums or other containers, soil, sand or other ground substances,
water or other liquids and any batteries or related equipment) that Processor
removes from Columbia's premises at any time (collectively, "Removed Materials")
will not be used, recycled, transported, salvaged or disposed of in a manner
that will result in (i) a violation of the Federal Resource Conservation and
Recovery Act or (ii) an actual or threatened release of a hazardous substance as
defined under the Federal Comprehensive Environmental Response, Compensation and
Liability Act, or (iii) a violation of any other environmental laws, rules or
regulations passed or promulgated by any federal, state or local jurisdiction or
5
<PAGE>
governmental agency from time to time, except to the extent of changes in
applicable laws or regulations becoming effective after the removal unless said
laws or regulations are retroactive to the date of removal, and Processor hereby
agrees to indemnify and hold harmless Columbia and Columbia's shareholders,
directors and employees from and against any liability arising out of or related
to the Processor's breach of this warranty. In addition, Processor agrees to
permit representatives of Columbia to inspect Processor's facilities and to
review Processor's procedures for storing, handling, reselling, recycling and/or
disposing of any Removed Materials and to provide Columbia with any
documentation reasonably requested in connection therewith. Processor
understands and covenants that upon Columbia's notice, Processor will
immediately cease and discontinue any procedure or other action and remediate
any condition related to the Removed Materials that Columbia reasonably
determines, in Columbia's sole discretion, create a material risk of present or
future liability to Columbia. Said notice shall specify the conditions, risks
and/or applicable laws which Columbia claims create the liability. Processor
acknowledges and agrees that any breach of its warranties and covenants
hereunder will cause irreparable harm and loss to Columbia and that, in addition
to any other legal or equitable remedy available to Columbia, such breach shall
be the basis for interlocutory equitable relief against Processor.
5. Processor shall obtain all requisite permits from governmental
authorities having jurisdiction over the Remaining Premises as may be necessary
6
<PAGE>
to perform its obligations under this Agreement. Processor agrees to promptly
apply for and diligently prosecute applications for such permits.
6. In conducting its activities hereunder, Processor shall (i) comply with
any and all applicable local, state and/or federal laws, regulations orders and
agreements, including, but not limited to those laws, regulations, orders and
agreements directed at protecting the environment, (ii) obtain, from the
governmental authorities having jurisdiction over the premises, such permits and
approvals as may be required to lawfully conduct Processor's activities,
including, without limitation, all permits and approvals required under local,
state and/or federal environmental laws and regulations, and (iii) timely
provide the governmental authorities having jurisdiction over the premises with
all notifications required under applicable local, state and/or federal laws,
regulations, orders and agreements.
7. a. Definitions: The following definitions shall apply for purposes of
------------
this Agreement:
i. "Environmental Law" shall mean each of the following statutes
and all regulations promulgated thereunder as well as any and all comparable
statutes and regulations of the State of West Virginia in the form in which all
statutes and regulations exist: the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. (S)(S)9601, et seq.; the Federal Water
-- ----
Pollution Control Act, 33 U.S.C. (S)1251, et seq.; the Clean Air Act, 42 U.S.C.
-- ----
(S)(S)7401 et seq.; the Resource Conservation and Recovery Act, 42 U.S.C.
-- ----
7
<PAGE>
(S)(S)6901 et seq.; the Safe Drinking Water Act, 42 U.S.C. (S)(S)30Of, et seq.;
-- ---- -- ----
and the Toxic Substances Control Act, 15 U.S.C. (S)(S)2601, et seq.
-- ---
ii. "Governmental Agency" shall mean any federal, state or local
agency charged with or responsible for the administration of any Environmental
Law.
b. Retention of Liability under Assessment and Remediation Plan:
-------------------------------------------------------------
Columbia shall conduct and complete an environmental assessment of the Remaining
Premises, the results of which will be set forth in assessment reports
("Assessment") in a manner reasonably satisfactory to Processor and, in any
event shall include ground water testing and analysis. Columbia shall furnish
Processor with copies of the Assessment promptly upon its completion and shall
furnish Processor with copies of remediation plans, prepared in connection with
the cleanup and remediation of environmental conditions disclosed by the
Assessment, ("Remediation Plan") promptly following its preparation. Columbia
shall obtain approval of the Remediation Plan from the applicable governmental
authorities and shall furnish evidence of that approval to Processor.
As between Columbia and Processor, Columbia shall retain liability for
any claim against Processor under any Environmental Law, which arises from or
relates to those environmental conditions of the Remaining Premises identified
in the Assessment and Remediation Plan which, when complete, will be attached as
Exhibit B of this Agreement and which are not remediated in accordance with 7.c.
below, except for claims based upon a change in applicable law or regulations
8
<PAGE>
becoming effective after the Closing. With respect to all areas remediated by
Columbia in accordance with 7.c., Columbia shall retain no liability for any
environmental conditions discovered after the completion of the remediation as
set forth in 7.c. below.
As between Columbia and Processor and as to the Remaining Premises,
Processor assumes liability for any claim against Columbia under any applicable
Environmental Law including, without limitation, any claim by third parties
which arises from or relates to: (1) conditions or activities occurring after
the Closing; (2) conditions or activities which occurred prior to the Closing
which require remediation only under statutes or regulations which became
effective after Closing: and, (3) except for conditions identified in the
Assessment and Remediation Plan which will appear as Exhibit B, Processor's
activities on, and/or ownership of, the Facilities, including, but not limited
to, any claim arising from or relating to conditions not identified in the
Assessment and Remediation Plan which will appear as Exhibit B of this
Agreement. Columbia represents that it has furnished Processor with a true and
correct copy of the Administrative Order by Consent for Removal Actions. In the
Matter of Columbia Gas Pipeline, EPA Docket No. III-94-35-DC. Processor: (l)
acknowledges receipt of said true and correct copy of the Administrative Order
by Consent for Removal Actions, In the Matter of Columbia Gas Pipeline, EPA
Docket No. III-94-35-DC and agrees that remediation under this Agreement will be
conducted pursuant to that Order, to the extent applicable: and (2) accepts and
acknowledges that the
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facilities and operations being transferred are subject to regulation under
certain environmental laws of the State of West Virginia and of the United
States of America.
c. Remediation: For any condition of the Remaining Premises for which
-----------
Columbia has agreed to assume liability under Paragraph 7.b. above, being those
conditions identified in the Assessment and Remediation Plan, Columbia shall
remediate such condition, if necessary and required under any applicable
Environmental Law, to a standard of remediation and compliance under such
applicable Environmental Law, if any have been established, or to a standard of
remediation and compliance approved by any Governmental Agency having
jurisdiction under such Environmental Law, such standard being negotiated solely
between Columbia and such agency having jurisdiction and reasonably acceptable
to Processor. Such Remaining Premises shall be considered remediated upon
receipt by Columbia of acceptance by the agencies having jurisdiction of the
remediation and of any closure reports filed by Columbia with such agencies,
copies of which will be provided to Processor. Upon completion of the
remediation to be performed by Columbia under this paragraph, Processor will pay
to Columbia, in immediately available funds, Six Hundred Thousand Dollars
($600,000) as a contribution to Columbia for performing the remediation and
making any necessary changes to Columbia's existing facilities, including,
without limitation, changes to Columbia's dehydration facility.
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<PAGE>
d. Access: After the Closing, for the period required by Columbia to
-------
identify or address Columbia's obligations under Paragraph 7.c. above, Processor
shall provide Columbia, its agents, representatives and contractors the
unrestrained right, at Columbia's discretion and upon prior notice to Processor,
to enter onto and have access to the Remaining Premises in order to identify or
address any obligations imposed pursuant to Paragraph 7.c. of this Agreement. In
providing such access, Processor shall not interfere with, delay and/or prohibit
Columbia, its agents, representatives and contractors from fulfilling Columbia's
obligations under Paragraph 7.c. above. Columbia's remediation activities will
not unreasonably interfere with Processor's operations of Processor's Plant.
e. Indemnity During Access: Should Columbia, its agents,
------------------------
representatives or contractors enter upon the Remaining Premises in order to
identify or address' any obligations imposed upon Columbia by Paragraph 7.c. of
this Agreement, Columbia shall indemnify Processor and hold Processor harmless
from any and all claims arising from the actions of Columbia or Columbia's
employees or agents on the subject property or failure to accomplish the
obligations imposed on Columbia by Paragraph 7.c. of this Agreement.
f. Mitigation: Where necessary to prevent damage to human health, the
-----------
environment and personal property, Processor shall undertake action to mitigate,
to the best of Processor's ability and in accordance with the best engineering
practices, any condition of the Remaining Premises for which Columbia
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<PAGE>
may be liable pursuant to Paragraph 7.b. above: Provided, that Columbia shall
reimburse Processor for Processor's reasonable expenses incurred in mitigating
conditions for which Columbia has retained remedial obligations under Paragraph
7.C. above.
8.1 From and after the date of this Agreement until Closing, Columbia has
and shall continue to afford to Processor and its representatives, during
its normal business hours, reasonable access to the facilities and any
non-privileged business records, files, maps, existing surveys, if any,
describing physical characteristics, subsurface characteristics.
environmental surveys of the Remaining Premises and all adjacent
properties occupied by Columbia, zoning requirements and utility
locations, the legal description of the Remaining Premises, equipment
data sheets and all other non-privileged records of Columbia connected
with the Remaining Premises which are necessary for Processor to conduct
a due diligence review in accordance with the practices of prudent
purchasers in similar transactions. Processor shall have the right to
enter upon the Remaining Premises for-purposes of examining and
inspecting the Remaining Premises and upon Closing shall acknowledge that
Processor has inspected and is familiar with the condition of the
property. Further, upon Closing, Processor shall assume all liability for
any damages caused by the condition of the property except as herein
stated. Any documents provided to Processor hereunder shall be
confidential and Processor, shall use its best efforts, to the extent
permitted by law, to preserve the confidentiality of such documents in
any
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dispute with third parties. Notwithstanding that any information shall be
provided in good faith, Columbia expressly disclaims any warranty as to the
accuracy or reliability of the information provided. Processor acknowledges and
agrees that Columbia in no way controls the Processor's interpretation of any
information provided.
8.2 Processor covenants and agrees that it will rely solely on its own due-
diligence investigation concerning the environmental condition and fitness of
the property and its improvements for the construction and operation of a
natural gas liquids extraction facility and not upon any representation,
warranty or statement of or on behalf of TCO by its officers, employees, agents,
advisors or representatives, except for Processor's reliance upon the
obligations undertaken by Columbia in paragraph 7 hereof and except that
Columbia represents that it has no knowledge of environmental conditions in
violation of applicable taws or regulations, currently in effect, other than
those described in the Assessment that would effect the Remaining Premises.
9. All activities on the Remaining Premises which Processor does not
perform with its own employees and resources shall be performed by its
Contractors or by its Subcontractors.
10. A Subcontractor means a person or entity who has a direct contract with
Processor's Contractor to perform work in connection with this Agreement.
11. No direct contractual relationship shall exist between Columbia and
Processor's Contractors or Subcontractors during the performance of any
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activities on the Remaining Premises. Processor shall be responsible for the
management of its Contractors and Subcontractors in the performance of its
activities.
12. During the term of this Agreement, Processor agrees that it shall carry
and maintain, at its own expense, the kinds of insurance and the minimum amounts
of coverage set forth below:
12.1 Basic Insurance. During the terms of this Agreement, Processor, shall
----------------
provide, at its own cost and expense, insurance of the kinds and in the amounts
necessary to cover all loss or liability for damages on account of bodily
injury, including death resulting therefrom, and damage to or destruction of
property caused by or arising out of any and all operations carried on or any
and all obligations performed under this Agreement. At a minimum, Processor
shall provide insurance of the kinds and in the amounts specified in the
following schedule.
(a) Workers' Compensation: Coverage shall include the following:
----------------------
(i) Workers' Compensation - Statutory coverage applicable in
each State where work is to be performed, including
coverage for occupational disease, if and as required.
(ii) Employer's Liability minimum limit of $1,000,000 per
occurrence. If coverage is obtained from a state fund (Ohio
or West Virginia), Employer's Liability coverage may not be
available. In such cases, Processor will purchase "Stop
14
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Gap" coverage, with minimum limits of $1,000,000 per
occurrence, from a commercial insurer.
(iii) All States Endorsement (or equivalent). If coverage is obtained
from a state fund (Ohio or West Virginia) an All States
endorsement may not be available. In such cases, Processor will
obtain Workers' Compensation insurance in every state in which
operations may be conducted or work may be performed under the
terms of this Agreement.
(iv) U. S. Longshore and Harbor Workers' Compensation Act coverage,
U. S. Defense Bases Act Coverage, Outer Continental Shelf Land
Act coverage, when applicable: statutory limits.
(v) Jones Act coverage when applicable. Minimum limits re-
quired: $1,000,000 per accident.
(b) Commercial General Liability or Comprehensive General Liability
---------------------------------------------------------------
Insurance: Policy to include Blanket Contractual and Broad Form Liability
- ----------
endorsements, or their equivalents, Completed Operations Coverage and, when
applicable, Products Coverage. The Contractual Liability section must
specifically cover Processor's obligations under the indemnity provisions of
this agreement.
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Minimum limits required:
BODILY INJURY/PROPERTY DAMAGE: $1,000,000 per occurrence,
Combined Single Limit.
PRODUCTS/COMPLETED OPERATIONS: $1,000,000 per occurrence,
Combined Single Limit.
PERSONAL INJURY: $1,000,000 per occurrence
When coverage obtained in accordance with this paragraph is written on a "Claims
Made" or "Claims First Made:" form, Completed Operations coverage must be
specifically endorsed to provide that it will respond to claims made for at
least 24 months after completion of the work.
The Fellow Employee and Explosion, Collapse and Under-ground Exclusions
must be deleted.
(c) Automobile Liability: Coverage shall include all owned, non-owned,
---------------------
leased or hired vehicles.
Minimum Limits required:
Bodily- Injury/Property Damage - $1,000,000 per occurrence, Combined Single
Limit.
Processor warrants that it is in full compliance with any "No Fault" provision
of any state in which it operates motor vehicles.
(d) Umbrella Liability Insurance: Coverage shall be excess of, and at least
-----------------------------
as broad as, the primary coverages listed in paragraphs a, b and c of this
Section.
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Minimum Limits required:
BODILY INJURY/PROPERTY DAMAGE - $10,000,000 per occurrence,
Combined Single Limit.
(e) Aircraft Liability: If any operations require the use of helicopters or
-------------------
fixed wing aircraft, Processor will in addition to all other insurance coverage
required in this Section, maintain and shall require any Subcontractor utilizing
rotary or fixed wing aircraft to maintain aircraft liability insurance with
minimum limits of $10,000,000 per occurrence for bodily injury and property
damage.
(f) Marine Insurance: If any operations are to be conducted on navigable
-----------------
waters or on any pier, wharf, or other structure adjoining such waters.
Processor shall, in addition to all other insurance required in this Section,
maintain and shall require any Subcontractor engaged in such operations to
maintain, the following additional coverage, as appropriate:
(i) HULL/PROTECTION & INDEMNITY - coverage to be provided for each
vessel used in any operations conducted under the terms of this
agreement. Minimum limits required:
HULL - Current value of the vessel.
PROTECTION & INDEMNITY - $1,000,000 per vessel per occurrence
for bodily injury and property damage.
(ii) MARINE EMPLOYERS LIABILITY - minimum limits required:
$1,000,000 per accident.
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(g) ENVIRONMENTAL IMPAIRMENT LIABILITY (OR EQUIVALENT): Policy to include
coverage for all loss and liability resulting from activities.
Minimum Limits required:
BODILY INJURY/PROPERTY DAMAGE - $10,000,000 per occurrence,
Combined Single Limit.
12.2 All insurance policies required in this Agreement will be written by
insurance companies reasonably acceptable to Columbia, will be primary with
respect to any insurance maintained by Columbia and will be endorsed to provide
at least 30 days advance notification to Columbia of any cancellation, non-
renewal or material change in coverage and cancellation for non-payment of
premium will require 30 days advance notice to Columbia. Insurance policies
required by paragraphs b, c, d, e, f and g will name Columbia as an additional
insured. All insurance policies required by this Section will contain a waiver
of subrogation as against Columbia. Some of the foregoing policies may be
obtained and maintained by Processor's Contractor, which policies shall name
Columbia and Processor as additional insureds and provide Waiver of Subrogation
against both parties.
12.3 Processor shall furnish, on behalf of itself and its Contractor, prior
to Processor conducting any activities on the Remaining Premises, copies of all
insurance policies intended to meet the requirements of this Section. Properly
executed Certificates of Insurance may be substituted for insurance
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policies provided that such Certificates contain positive statements of
compliance with all the terms of this Agreement which apply to the type of
insurance represented by the Certificate. Insurance Policies whose terms expire
during the term of this Agreement will be renewed or replaced with no gaps in
coverage, and evidence of such renewal or replacement will be provided to
Columbia under the same conditions as prescribed above.
13.1 In addition to any other indemnification provided for by Processor
herein, including Processor's environmental indemnification contained in
Paragraph 7 hereof, Processor shall indemnify and hold harmless Columbia
from and against any and all loss, damage, and liability and from any
and all claims for damages on account of or by reason of bodily injury,
including death, which may be sustained or claimed to be sustained by
any person, including the employees of Processor and of any Contractor
or Subcontractor of Processor, and from and against any and all damages
to property, including loss of use, and including property of Columbia,
caused by or arising out of or claimed to have been caused by or to have
arisen out-of an act or omission of Processor or its agents, employees,
Contractors or Subcontractors in connection with the performance of this
Agreement whether or not insured against and Processor shall at its own
cost and expense defend any claims, suits, actions, or proceedings,
whether groundless or not, which may be commenced against Columbia by
reason thereof or in connection therewith, and Processor shall pay any
and all judgments which may be recovered in any such actions, claims,
proceedings or suits, and defray any and
19
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all expenses, including costs and attorney's fees, which may be incurred in or
by reason of such actions, claims, proceedings, or suits, including
environmental impairment; provided, however, that the foregoing indemnification
will not cover loss, damage or liability arising from the sole negligence or
willful misconduct of Columbia, its agents and employees. Notwithstanding the
foregoing, in the event of such actions, claims, proceedings or suits, Columbia
shall be entitled, if it so elects, to representation by attorneys of its own
selection at its sole cost, including attorneys employed by Columbia. The
obtaining by Processor of a release or discharge, running to Processor or
Columbia or either or both of them, from a property owner for damages resulting
from the performance of this Agreement, including without limitation, any phase
of dismantlement, demolition, removal or disposal, shall not diminish nor affect
in any way the rights of Columbia and the obligations of Processor as set forth
in this Section 14. To the extent permitted by law, Processor expressly waives
the benefit, for itself and all contractors and subcontractors, insofar as the
indemnification of Columbia is concerned, of the provisions of any applicable
workers' compensation law limiting the tort or other liability of an employer on
account of injuries to the employer's employees.
13.2 Columbia shall indemnify and hold harmless Processor from and against
any and all loss, damage and liability, and from any injury, including
death, which may be sustained or claimed to be sustained by any
person, including the employees of Columbia and of any Contractor or
Subcontractor of Columbia and,
20
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from and against, any and all damages to property, including loss of use, and
including property of Processor, caused by or arising out of or claimed to have
been caused by or to have arisen out of the sole negligence of Columbia or its
agents, employees or subcontractors.
14.1 An Event of Default shall be deemed to have occurred under this
contract if:
(a) Processor fails to make due and punctual payments of amounts
required to lenders for all loans associated with the dismantlement, demolition,
removal or disposal of the Kenova Plant;
(b) Processor fails to make due and punctual payments of all premiums
necessary to assure the coverages required under the terms and conditions of
this Agreement to the insurance companies responsible for the respective
policies; or,
(c) Either party shall fail to perform any of its other covenants,
agreements or terms hereof, and such nonperformance shall continue for a period
of twenty (20) days following notice from the other party.
14.2 Processor acknowledges and agrees that an Event of Default by
Processor, as defined above, will cause irreparable harm and loss to Columbia
and that, in addition to any other legal or equitable remedy available to
Columbia, such Event of Default shall be the basis for interlocutory equitable
relief against Processor. Such interlocutory equitable relief shall be in a form
which will allow Columbia, or any entity chosen by Columbia, to complete the
21
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obligations of Processor herein at the sole risk, liability, cost and expense of
Processor.
14.3 In the event of a default by a party (Defaulting Party), the other
party (Non-Defaulting Party), at its sole discretion, may satisfy any and all
obligations of the Defaulting Party connected directly with this Agreement,
including but not limited to any default of Defaulting Party under this
Agreement. Defaulting Party agrees to reimburse Non-Defaulting Party any amount
paid together with attorneys fees and annual interest at the highest rate
allowed by law.
15. Neither Processor nor Columbia shall be held responsible for any losses
resulting if the fulfillment of any terms or provisions shall be delayed or
prevented wholly or in part by compliance with any law, order or regulation,
whether valid or invalid, of any governmental authority or of any person
purporting to act therefor or by any act or condition not within the reasonable
control of the party whose performance is interfered with and which by the
exercise of reasonable diligence said party is unable to prevent, including but
not limited to revolutions or other disorders, wars, acts of enemies, embargoes
or other import or export restrictions, strikes, lockouts or other industrial
disturbances, fires, storms, floods, acts of God or explosions. The settlement
of strikes or lockouts shall be entirely within the discretion of the party
having the difficulty and such party shall not be required to make settlement of
strikes or lockouts by acceding to the demands of the opposing party when such
22
<PAGE>
course is inadvisable in the discretion of the party having the difficulty. If
either party is unable to fulfill the terms and conditions of this agreement by
reason of any such cause as provided in this Article, the party rendered unable
to perform hereunder shall give the other party notice in writing as soon as
reasonably possible after the occurrence of the cause relied on, setting forth
the full particulars in connection therewith, and that parties' obligations
shall be suspended during the continuance of any inability so caused but for no
longer period, and such cause, so far as possible, shall be remedied with all
reasonable dispatch. This agreement shall not be terminated by reason of any
such cause set out above but shall remain in full force and effect and this
Agreement shall not be extended regardless of any such curtailment or cessation.
16. The waiver by either party of any breach of any term, covenant, or
condition herein contained shall not be deemed to be a waiver of any subsequent
term, covenant, of condition, whether similar or dissimilar to the term.
covenant, or condition which was waived.
17. Notices required or permitted hereunder shall be made to the parties at
the following addresses:
MarkWest Hydrocarbon Partners, Ltd. 5613 DTC Parkway, Suite 400
Englewood, CO 80111 Attention of Vice President,
Finance
23
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Columbia Gas Transmission Corporation P.0. Box 1273
Charleston, WV 25325-1273 Attention of Vice President,
Volume Management
18. Processor agrees that Columbia or its Agents, at all reasonable times,
shall have the right to examine or audit the books, accounts and records of
Processor to verify compliance with the terms and conditions of this Agreement.
19. This Agreement shall be governed in accordance with the laws of the
State of West Virginia.
20. If any sections or provisions of this Agreement shall be held by any
court of competent jurisdiction to be illegal, void or unenforceable, such
sections or provisions shall survive to the extent enforceable and allowed by
law, but the illegality or unenforceability of such sections or provisions shall
have no effect upon and shall not impair the enforceability of any other
sections or provisions of this Agreement.
21. With the exception of the obligations contained in the indemnification
provisions herein, this Agreement terminates at the completion of each parties
obligations hereunder.
22. Closing is herein defined as the mutually agreeable time and date of
the delivery of a general warranty deed by Columbia to Processor.
23. It is mutually agreed that in the performance of any and all actions
necessary to perform the duties under the terms and conditions of this
Agreement, Processor is an independent contractor, and nothing in this Contract
shall be
24
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construed as creating the relationship of principal and agent, or employer or
employee, between Columbia and/or Processor or Processor's agents or employees.
Processor shall have no authority to hire any persons on behalf of Columbia, and
any and all persons whom it may employ shall be deemed to be solely the
employees of Processor. Processor shall have control and management of the work,
the selection of employees and the fixing of their hours of labor, and no right
is reserved to Columbia to direct or control the manner in which the work is
performed, as distinguished from the result to be accomplished. Nothing herein
contained shall be construed to authorize Processor to incur any debt, liability
or obligation of any nature for or on behalf of Columbia, or for Processor to
cause any lien or other encumbrance to be placed on Columbia's property, and
Processor shall immediately remove, and indemnify Columbia against, all costs
incurred in connection with, any such debt, liability, obligation, lien or other
encumbrance, if any arises in contravention hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day
and year last above written.
COLUMBIA GAS TRANSMISSION CORPORATION
/s/ Peter J. Kinsella
By: Peter J. Kinsella
Title: Vice President, Volume Management
MARKWEST HYDROCARBON PARTNERS, LTD.
By: /s/ Patrick W. Murray
Title: Vice President - Finance
25
<PAGE>
AGREEMENT TO DESIGN AND CONSTRUCT NEW FACILITIES
This AGREEMENT, made this 15th day of March 1995, between COLUMBIA GAS
TRANSMISSION CORPORATION ("Columbia"), and MARKWEST HYDROCARBON PARTNERS, LTD.
("Processor").
WHEREAS, Columbia and Processor will enter into a series of Agreements
whereby Processor will: (1) design and construct processing facilities which
will allow Processor to remove certain hydrocarbons from natural gas being
shipped on Columbia's pipeline system: (2) demolish certain facilities now in
existence on Columbia's real property; and, (3) ultimately purchase a portion of
Columbia's real property.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein and in the Purchase and Demolition Agreement - Construction
Premises, Purchase and Demolition Agreement - Remaining Premises and Processing
Agreement of even date herewith to be executed simultaneously herewith, the
receipt and sufficiency of which is hereby acknowledged. Columbia and Processor
agree as set forth below:
ARTICLE I. EXTENT OF CONTRACT
Processor agrees to furnish the engineering, design, procurement,
fabrication, erection, commissioning, start-up services, equipment, materials,
machinery, labor and any other items or services required for the construction,
installation, start-up and operation of a natural gas liquids extraction
facility ("Plant") on such portion of Columbia's 9.8 acre tract of land situate
adjacent
<PAGE>
to Columbia's Kenova Compressor Station, in Ceredo District, Wayne County, West
Virginia, as is necessary to afford Processor ample area to construct the Plant
("Construction Premises"). Processor agrees to furnish acceptable industry
practices, business administration and superintendence, and to otherwise
complete the Plant in accordance with the terms of this Agreement and to meet
the specifications in the Processing Agreement. Time is of the essence for the
performance of this Agreement. The design, construction and start-up of the
Plant must be completed, subject to the force majeure provisions contained
herein in Article VIII, within 45 weeks following receipt of the later of all
requisite FERC and any necessary Bankruptcy Court approvals and local, state or
federal permits and completion of any environmental remediation agreed to by the
parties, with 14 consecutive calendar day maximum downtime of the Kenova
Extraction Plant allowable for the Commissioning Process of the Plant as set
forth herein.
ARTICLE II. RESPONSIBILITIES OF PROCESSOR
2.1 (a) Processor shall be responsible for furnishing the design of the
Plant.
(b) Processor shall be responsible for providing all utility
services, except natural gas, necessary for the operation of the Plant,
including but not limited to electrical service and any necessary water supply.
(c) Both the Plant inlet gas and residue gas piping shall contain an
electrical insulation flange at the points Columbia delivers to and receives gas
from Processor, capable of withstanding the design pressure of the Plant.
2
<PAGE>
The Plant shall have a corrosion protection system electrically isolated from
Columbia's Kenova Compressor Station and any other facilities owned by Columbia.
including without limitation, the remaining dehydration facilities of the Kenova
Plant.
(d) The Plant shall meet all applicable federal, state, local and
industry rules regulations, codes, standards, laws and ordinances. The Plant
shall meet legally required emissions limits for noise and pollutants (air,
water and any other), and shall meet all applicable federal, state and local
environmental regulations governing the use and disposal of hazardous wastes,
hazardous substances, pollutants and contaminants as they may be defined by the
various federal, state and local environmental laws and regulations.
2.2 Prior to the construction of the Plant, Processor shall dismantle,
demolish, remove and dispose of such portion of the existing Kenova Plant
located on the Construction Premises which is necessary to provide ample area to
construct the Plant and which is not necessary for the continued operation of
the existing Kenova Plant. Prior to Processor beginning dismantlement,
demolition, removal and disposal of the Operations Building which houses the
Laboratory, Workshop, Warehouse, Boiler and Air Compressor Room, Locker/Wash
Room Facility and Assembly Room, Processor shall be responsible for providing
temporary facilities which will perform the function of the Operations Building
to the extent required for the safe operation of the Kenova Plant.
3
<PAGE>
2.3 In conducting its activities hereunder, Processor shall (i) comply
with any and all applicable local, state and/or federal laws, regulations,
orders and agreements, including, but not limited to, those laws, regulations,
orders and agreements directed at protecting the environment, (ii) obtain, from
the governmental authorities having jurisdiction over the premises, such permits
and approvals as may be required to lawfully conduct Processor's activities,
including, without limitation, all permits and approvals required under local,
state and/or federal environmental laws and regulations, and (iii) timely
provide the governmental authorities having jurisdiction over the premises with
all notifications required under applicable local, state and/or federal laws,
regulations, orders and agreements.
2.4 (a) Processor shall provide, or cause to be provided, all
construction supervision, inspection, labor, utilities, materials, tools,
construction equipment and other services and items necessary for the completion
of the Plant, together with the procurement and/or fabrication of all equipment,
components and initial Plant charge materials required for the proper
construction, installation and start-up of the Plant.
(b) Processor shall make all necessary tie-ins to the Kenova Plant
during the time which the Kenova Plant is undergoing its annual maintenance or
such time as is mutually agreed to between the parties hereto; provided,
however, should the occurrence of the annual maintenance or other mutually
agreeable times
4
<PAGE>
be at a time which will delay completion required under Article I, then the
completion date will be correspondingly extended.
(c) Processor agrees to promptly apply for, diligently prosecute and
obtain all requisite permits and approvals from and make all required
notifications to governmental authorities having jurisdiction over the premises
as may be necessary to design, construct, install, start-up and operate the
Plant, including, without limitation, all necessary air permits, water permits
and all other permits required under applicable local, state and federal laws
and regulations.
(d) Processor will give all notices and comply with all applicable
federal, state and local rules, regulations, codes, laws and ordinances, legally
enacted at the date of execution of this Agreement, or thereafter during the
course of the construction, installation, start-up and operation of the Plant.
2.5 (a) Processor shall notify Columbia when the Plant is ready for the
running of a performance test. Processor shall commence that test within seven
(7) consecutive calendar days following the notice and will give Columbia a
further notice five (5) business days prior to the date the test will commence.
The day the test commences shall be the day the Commissioning Process of the
Plant begins
(b) Processor shall have complete responsibility for conducting
performance tests to verify the proper functioning of the Plant, including the
ability of the Plant to accept raw feedstock and perform its specified
functions.
5
<PAGE>
Columbia shall have a right to attend all tests. Records of the performance
tests shall be submitted by Processor to Columbia regardless of whether Columbia
attends or does not attend the test.
(c) The Plant shall be deemed to have satisfactorily completed the
performance tests when the Plant successfully comes on line from a "cold start",
provides residue gas to the specifications agreed to in the Processing
Agreement, adjusted as mutually agreeable for the available inlet gas
conditions, for a continuous 48 hour period and completes an orderly, automatic
shutdown. After the Plant successfully completes the performance test process,
the Plant shall be deemed to have completed the Commissioning Process and be
ready for Unrestricted Service. Processor and Columbia shall thereafter be
required to comply with the terms of the Processing Agreement.
2.6 Processor covenants and agrees that it will rely solely on (1)
Columbia's obligations under Section 7 of the Purchase and Demolition Agreement
- -Construction Premises and (2) its own due-diligence investigation concerning
the environmental condition and fitness of the property and its improvements for
the construction and operation of a natural gas liquids extraction facility and
not upon any representation, warranty or statement of or on behalf of Columbia
by its officers, employees, agents, advisors or representatives.
ARTICLE III. RESPONSIBILITIES OF COLUMBIA
3.1 From and after the date of this Agreement until such time as Columbia
transfers legal title to the Construction Premises to Processor, Columbia has
and
6
<PAGE>
shall continue to afford to Processor and its representatives, during its normal
business hours, reasonable access to the facilities and any non-privileged
business records, files, maps, existing surveys, if any, describing physical
characteristics, subsurface characteristics, environmental assessments zoning
requirements and utility locations, the legal description of the Kenova Plant
site, equipment data sheets and all other non-privileged records of Columbia
connected with the Kenova Plant. Processor shall have the right to enter upon
the Kenova Plant Premises for purposes of examining and inspecting the Kenova
Plant and Plant site. Any documents provided to Processor hereunder shall be
confidential and Processor shall use its best efforts, to the extent permitted
by law, to preserve the confidentiality of such documents in any dispute with
third parties. Notwithstanding that any information shall be provided in good
faith, Columbia expressly disclaims any warranty as to the accuracy or
reliability of the information provided. Processor acknowledges and agrees that
Columbia in no way controls Processor's interpretation of any information
provided.
3.2 Columbia shall allow Processor to utilize the electrical substation
located on Columbia's property, adjacent to Columbia's Kenova Compressor
Station, to purchase electric power from American Electric Power Company.
7
<PAGE>
ARTICLE IV. CONTRACTORS AND SUBCONTRACTORS
4.1 All activities and operations performed under the terms and provisions
of this Agreement that Processor does not perform with its own employees and
resources shall be performed by its Contractors or by their Subcontractors.
4.2 A Subcontractor is defined herein as a person or entity who has a
direct contract with Processor's Contractor to engage in the activities and
operations necessary to perform the obligations contained in this Agreement.
4.3 No direct contractual relationship shall exist between Columbia and
Processor's Contractors or Subcontractors for the activities and operations
performed under this Agreement at the Plant. Processor shall be responsible for
the management of Contractors and Subcontractors in the performance of all
activities and operations necessary to perform the obligations contained in this
Agreement.
4.4 Processor accepts no obligations or responsibilities during any phase
of this Agreement to comply with or be bound by any collective bargaining
agreement to which Columbia is a party.
ARTICLE V. INSURANCE
5.1 During the time of construction, installation and start-up, Processor
shall obtain and maintain Builder's Risk Insurance; and further agrees that any
of Processor's Contractors shall indemnify Columbia in accordance with the
indemnity set forth in Article VI.
8
<PAGE>
5.2 Processor, at all times during the term of this Agreement, shall
provide, at its own cost and expense, insurance of the kinds and in the amounts
necessary, to cover all loss or liability for damages on account of bodily
injury, including death resulting therefrom, and damage to or destruction of
property caused by or arising out of any and all operations carried on or any
and all work performed under this Agreement. At a minimum, Processor shall
provide insurance of the kinds and in the amounts specified in the following
schedule.
(a) Workers' Compensation: Coverage shall include the following:
----------------------
(i) Workers' Compensation - Statutory coverage applicable in each
State where work is to be performed, including coverage for
occupational disease, if and as required.
(ii) Employer's Liability - minimum limit of $1,000,000 per
occurrence. If coverage is obtained from a state fund (Ohio or
West Virginia), Employer's Liability coverage may not be
available. In such cases, Processor will purchase "Stop Gap"
coverage, with minimum limits of $1,000,000 per occurrence,
from a commercial insurer.
(iii) All States Endorsement (or equivalent). If coverage is
obtained from a state fund (Ohio or West Virginia) an All
States endorsement may not be available. In such cases,
Processor will obtain Workers' Compensation insurance in every
state in which operations may be conducted or work may be
performed under the terms of this Agreement.
9
<PAGE>
(iv) U.S. Longshore and Harbor Workers' Compensation Act coverage,
U.S. Defense Bases Act Coverage, Outer Continental Shelf Land
Act coverage, when applicable: statutory limits.
(v) Jones Act coverage when applicable. Minimum limits required:
$1,000,000 per accident.
(b) Commercial General Liability Or Comprehensive General Liability
---------------------------------------------------------------
Insurance: Policy to include Blanket Contractual and Broad Form Liability
- ----------
endorsements, or their equivalents, Completed Operations Coverage and, when
applicable, Products Coverage. The Contractual Liability section must
specifically cover Processor's obligations under the indemnity provisions of
this agreement.
Minimum limits required:
BODILY INJURY/PROPERTY DAMAGE: $1,000,000 per occurrence
Combined Single Limit.
PRODUCTS/COMPLETED OPERATIONS: $1,000,000 per occurrence.
Combined Single Limit.
PERSONAL INJURY: $1,000,000 per occurrence.
When coverage obtained in accordance with this paragraph is written on a
"Claims Made" or "Claims First Made:" form, Completed Operations coverage must
10
<PAGE>
be specifically endorsed to provide that it will respond to claims made for at
least 24 months after completion of the work.
The Fellow Employee and Explosion, Collapse and Under-ground Exclusions
must be deleted.
(c) Automobile Liability: Coverage shall include all owned, non-owned,
---------------------
leased or hired vehicles.
Minimum Limits required:
BODILY INJURY/PROPERTY DAMAGE - $1,000,000 per occurrence,
Combined Single Limit. Processor warrants that it is in full
compliance with any "No Fault" provision of any state in which it
operates motor vehicles.
(d) Umbrella Liability Insurance: Coverage shall be excess of, and at least
-----------------------------
as broad as, the primary coverages listed in paragraphs a, b and c of this
Section.
Minimum Limits required:
BODILY INJURY/PROPERTY DAMAGE - $10,000,000 per occurrence,
Combined Single Limit.
(e) Aircraft Liability: If any operations require the use of helicopters or
-------------------
fixed wing aircraft, Processor will, in addition to all other insurance coverage
required in this Section, maintain and shall require any Subcontractor utilizing
rotary or fixed wing aircraft to maintain aircraft liability insurance
11
<PAGE>
with minimum limits of $10,000,000 per occurrence for bodily injury and property
damage.
(f) Marine Insurance: If any operations are to be conducted on or in
-----------------
navigable waters or on any pier, wharf, or other structure adjoining such
waters, Processor shall, in addition to all other insurance required in this
Section, maintain and shall require any Subcontractor engaged in such operations
to maintain, the following additional coverage, as appropriate:
(i) HULL/PROTECTION & INDEMNITY - coverage to be provided for each
vessel used in any operations conducted under the terms of this
agreement. Minimum limits required:
HULL - Current value of the vessel.
PROTECTION & INDEMNITY - $1,000,000 per vessel per occurrence for
bodily injury and property damage.
(ii) MARINE EMPLOYERS LIABILITY - minimum limits required:
$1,000,000 per accident.
(g) Environmental Impairment Liability (or Equivalent): Policy to
---------------------------------------------------
include coverage for all loss and liability resulting from Processor's
activities.
Minimum Limits required:
BODILY INJURY/PROPERTY DAMAGE - $10,000,000 per occurrence.
Combined Single Limit.
12
<PAGE>
Builders Risk Insurance: Policy is to cover the obligations set is Agreement
------------------------
with a $10,000 deductible during construction and $50,000 during testing. All
insurance policies required by this Article will be written by companies
reasonably acceptable to Columbia, will be primary with any insurance maintained
by Columbia, and will be endorsed to provide 0 days advance notification to
Columbia of any cancellation, non-material change in coverage and cancellation
for non-payment of 1 require 30 days advance notice to Columbia. Insurance
policies paragraphs b, c, d, e, f, g and h will name Columbia as an additional
11 insurance policies required by this Article will contain a waiver ion as
against Columbia. Some of the foregoing policies may be d maintained by
Processor's Contractor, which policies shall name d Processor as additional
insureds and provide Waiver of Subrogation h parties.
Processor shall furnish, on behalf of itself and its Contractor, prior
conducting any activity on the Construction Premises, copies of all policies
intended to meet the requirements of this Article. Properly Certificates of
Insurance may be substituted for insurance policies at such Certificates contain
positive statements of compliance with ms of this Agreement which apply to the
type of insurance represented certificate. Insurance Policies whose terms expire
during the term of
13
<PAGE>
this Agreement will be renewed or replaced with no gaps in coverage, and
evidence of such renewal or replacement will be provided to Columbia under the
same conditions as prescribed above.
ARTICLE VI. INDEMNITY
6.1 Processor shall indemnify and hold harmless Columbia from and against
any and all loss, damage, and liability and from any and all claims for damages
on account of or by reason of bodily injury, including death, which may be
sustained or claimed to be sustained by any person, including the employees of
Processor and of any Contractor or Subcontractor of Processor, and from and
against any and all damages to property, including loss of use and including
property of Columbia, caused by or arising out of or claimed to have been caused
by or to have arisen out of an act or omission of Processor or its agents,
employees or Contractors or Subcontractors in connection with the performance of
this Agreement, whether or not insured against and Processor shall at its own
cost and expense defend any claims, suits, actions, or proceedings, whether
groundless or not, which may be commenced against Columbia by reason thereof or
in connection therewith, and Processor shall pay any and all judgments which may
be recovered in any such actions, claims, proceedings, or suits, and defray any
and all expenses, including costs and attorney's fees, which may be incurred in
or by reason of such actions, claims, proceedings, or suits, including
environmental impairment; provided, however, that the foregoing indemnification
will not cover loss, damage, or liability arising from the sole negligence or
14
<PAGE>
wilful misconduct of Columbia, its agents and employees. Notwithstanding the
foregoing, in the event of such actions, claims, proceedings or suits, Columbia
shall be entitled, if it so elects, to representation by attorneys of its own
selection, at Columbia's sole cost, including attorneys employed by Columbia.
The obtaining by Processor of a release or discharge, running to Processor or
Columbia or either or both of them, from a property owner for damages resulting
from any phase of construction shall not diminish nor affect in any way the
rights of Columbia and the obligations of Processor as set forth in this Article
VI. To the extent permitted by law, Processor expressly waives the benefit, for
itself and all Contractors and Subcontractors, insofar as the indemnification of
Columbia is concerned, of the provisions of any applicable workers' compensation
law limiting the tort or other liability of an employer on account of injuries
to the employer's employees.
6.2 Columbia shall indemnify and hold harmless Processor from and against
any and all loss, damage and liability, and from any injury, including death,
which may be sustained or claimed to be sustained by any person, including the
employees of Columbia and of any Contractor or Subcontractor of Columbia and,
from and against, any and all damages to property, including loss of use, and
including property of Processor, caused by or arising out of or claimed to have
been caused by or to have arisen out of the sole negligence of Columbia or its
agents, employees or subcontractors.
15
<PAGE>
ARTICLE VII. DEFAULT
7.1 An Event of Default shall be deemed to have occurred under this
contract if:
(a) Processor fails to make due and punctual payments of amounts
required to lenders for all loans associated with construction or ownership of
the Plant;
(b) Processor fails to make due and punctual payments of all
premiums necessary to assure the coverages required under the terms and
conditions of this Agreement to the insurance companies responsible for the
respective policies;
(c) the Plant, or any part thereof, shall be taken upon
execution or by other process of law directed against Processor; or
(d) Processor shall fail to perform any of its other covenants,
agreements or terms hereof, and such nonperformance shall continue for a period
of twenty (20) days following notice from Columbia.
7.2 Processor acknowledges and agrees that an Event of Default by
Processor, as defined above, will cause irreparable harm and loss to Columbia
and that, in addition to any other legal or equitable remedy available to
Columbia, such Event of Default shall be the basis for interlocutory equitable
relief against Processor. Such interlocutory equitable relief shall be in a form
which will allow Columbia, or any entity chosen by Columbia, to complete the
16
<PAGE>
obligations of Processor herein at the sole risk, liability, cost and expense of
Processor.
7.3 Columbia, in the Event of Default by Processor, at its sole
discretion, may satisfy any and all obligations of Processor connected directly
or indirectly with this Agreement, including but not limited to any Event of
Default of Processor under this Agreement. Processor agrees to reimburse
Columbia the amount paid together with (a) attorneys fees and (b) annual
interest at the rate of 15% if this rate is allowed by law, otherwise at the
highest rate allowed by law.
ARTICLE VIII. FORCE MAJEURE
8.1 Neither Processor nor Columbia shall be held responsible for any
losses resulting if the fulfillment of any terms or provisions shall be delayed
or prevented wholly or in part by compliance with any law, order or regulation,
whether valid or invalid, of any governmental authority or of any person
purporting to act therefor or by any act or condition not within the reasonable
control of the party whose performance is interfered with and which by the
exercise of reasonable diligence said party is unable to prevent, including but
not limited to revolutions or other disorders, wars, acts of enemies, embargoes
or other import or export restrictions, strikes, lockouts or other industrial
disturbances, fires, storms, floods, acts of God or explosions. The settlement
of strikes or lockouts shall be entirely within the discretion of the party
having the difficulty and such party shall not be required to make settlement of
17
<PAGE>
strikes or lockouts by acceding to the demands of the opposing party when such
course is inadvisable in the discretion of the party having the difficulty. If
either party is unable to fulfill the terms and conditions of this Agreement by
reason of any such cause as provided in this Article, the party rendered unable
to perform hereunder shall give the other party notice in writing as soon as
reasonably possible after the occurrence of the cause relied on, setting forth
the full particulars in connection therewith, and that parties' obligations
shall be suspended during the continuance of any inability so caused but for no
longer period, and such cause, so far as possible, shall be remedied with all
reasonable dispatch. This Agreement shall not be terminated by reason of any
such cause set out above but shall remain in full force and effect.
ARTICLE IX. MISCELLANEOUS
9.1 The waiver by either party of any breach of any term, covenant or
condition herein contained shall not be deemed to be a waiver of any subsequent
term, covenant or condition, whether similar or dissimilar to the term,
covenant, or condition which was waived.
9.2 Notices required or permitted hereunder shall be made to the parties
at the following addresses:
Columbia Gas Transmission Corporation P.O. Box 1273
Charleston, WV 25325-1273 Attention of Vice President,
Volume Management
18
<PAGE>
MarkWest Hydrocarbon Partners, Ltd. 5613 DTC Parkway, Suite 400
Englewood, CO 80111 Attention of Vice President,
Finance
9.3 Processor agrees that Columbia or its Agents, at all reasonable times,
shall have the right to examine or audit the books, accounts and records of
Processor to verify compliance with the terms and conditions of this Agreement.
9.4 This Agreement shall be governed in accordance with the laws of the
State of West Virginia.
9.5 If any sections or provisions of this Agreement shall be held by any
court of competent jurisdiction to be illegal, void or unenforceable, such
sections or provisions shall survive to the extent enforceable and allowed by
law, but the illegality or unenforceability of such sections or provisions shall
have no effect upon and shall not impair the enforceability of any other
Articles or provisions of this Agreement.
9.6 With the exception of the obligations contained in the indemnity
provisions herein, this Agreement terminates 180 days after the obligations of
Processor as defined in Paragraph 2.4(c) are completed.
ARTICLE X. INDEPENDENT CONTRACTOR
It is mutually agreed that in the performance of any and all actions
necessary to perform the duties under the terms and conditions of this
Agreement, Processor is an independent contractor, and nothing in this Contract
shall be
19
<PAGE>
construed as creating the relationship of principal and agent, or employer or
employee, between Columbia and/or Processor or Processor's agents or employees.
Processor shall have no authority to hire any persons on behalf of Columbia, and
any and all persons whom it may employ shall be deemed to be solely the
employees of Processor. Processor shall have control and management of the work,
the selection of employees and the fixing of their hours of labor, and no right
is reserved to Columbia to direct or control the manner in which the work is
performed, as distinguished from the result to be accomplished. Nothing herein
contained shall be construed to authorize Processor to incur any debt, liability
or obligation of any nature for or on behalf of Columbia, or for Processor to
cause any lien or other encumbrance to be placed on Columbia's property, and
Processor shall immediately remove, and indemnify Columbia against, all costs
incurred in connection with, any such debt, liability, obligation, lien or other
encumbrance, if any arises in contravention hereof.
20
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day
and year last above written.
COLUMBIA GAS TRANSMISSION CORPORATION
By: /s/ Peter J. Kinsella
Peter J. Kinsella
Title: Vice President, Volume Management
MARKWEST HYDROCARBON PARTNERS, LTD. By
MarkWest Hydrocarbon, Inc., its
general partner
By: Patrick W. Murray
Vice President - Finance
21
<PAGE>
[LOGO OF MARKWEST APPEARS HERE]
MarkWest Hydrocarbon Partners, Ltd. PH:(303)290-8700
5613 DTC Parkway, Suite 400 FAX:(303)290-8769
Englewood, CO 80111
SALES ACKNOWLEDGEMENT
DATE August 8, 1994
---------- --
WE HEREBY CONFIRM SALE TO: No. 12577
Ashland Petroleum Company, ------
Div. of Ashland Oil, Inc.
P.O. Box 391
Ashland, KY 41105
PER CONVERSATIONS BETWEEN MR. Dean Kazee AND OUR MR. Fred Shato
----------------- --------------------
PRODUCT Normal Butane
QUANTITY Approximately [CONFIDENTIAL TREATMENT REQUESTED] gallons
PRICE See attached terms
CONSIGNEE
ORIGIN
FOB POINT Siloam, KY
ROUTING
TERMS OF PAYMENT Net 10 calendar days via check
TIME OF DELIVERY September 1, 1994 through August 31, 1996
HOW DELIVERED Into railcars or barges provided by Buyer
via Rail/Barge
REMARKS: See Attachment "A"
SUBJECT TO TERMS & CONDITIONS ATTACHED
Void if not returned fully executed to this office within ten (10) days from the
date of the order.
ACCEPTED 19 MarkWest Hydrocarbon Partners, Ltd.
----------------- ---- By MarkWest Hydrocarbon, Inc., General Partner
BY
- ------------------------------- ---------------------------------------------
Brian T. O'Neill, Sr. V.P.
BY BY
----------------------------- ---------------------------------------------
<PAGE>
ATTACHMENT "A"
ADDITIONAL TERMS AND CONDITIONS
ASHLAND PETROLEUM NC4 PURCHASE AGREEMENT
1.) Ashland Petroleum Company, Division of Ashland Oil, Inc. (buyer) agrees to
purchase from MarkWest Hydrocarbon Partners, Ltd. (Seller) the total productions
of normal butane from Seller's Siloam, KY fractionation plant, estimated to be
approximately [CONFIDENTIAL TREATMENT REQUESTED] gallons (approximately
[CONFIDENTIAL TREATMENT REQUESTED] gallons per month),
with a projected yearly volume increase of approximately [CONFIDENTIAL TREATMENT
REQUESTED].
2.) Term of sale shall be September 1, 1994 through August 31, 1996 with an
option to extend year to year thereafter upon written approval of both parties.
3.) Product to be delivered FOB Seller's Siloam, KY plant loaded into Buyer
provided railcars and/or barges at Buyer's option.
4.) It is anticipated that deliveries made during March through September will
be predominately for shipment to Ashland Chemical Company, while deliveries made
during October through February will be predominately for shipment to Ashland
Petroleum Company; however, direction of shipment of all deliveries shall be at
Buyer's option.
5.) Minimum purity for deliveries into railcars for shipment to Ashland Chemical
shall be [CONFIDENTIAL TREATMENT REQUESTED] during March through September.
Minimum purity for deliveries into railcars or barges for shipment to Ashland
Petroleum shall be [CONFIDENTIAL TREATMENT REQUESTED] at all times.
6.) Seller will designate on each invoice to which of Buyer's entities shipment
was made.
7.) The base price for deliveries made during the first through the fifteenth
day of each month shall be the simple average of the daily high-low postings for
TET spot normal butane at Mt. Belview, Texas as reported in Oil Price
Information Service (OPIS) during the sixteenth throughout the last day of the
month immediately preceding delivery. The base price for deliveries made during
the sixteenth through the last day of each month shall be the simple average of
the daily high-low postings for TET spot normal butane at Mt. Belview, Texas as
reported in OPIS for the first through the fifteenth day of the month of
delivery. Deliveries for shipment to Ashland Chemical Company will be billed at
the foregoing described base price plus [CONFIDENTIAL TREATMENT REQUESTED] per
gallon. Deliveries for shipment to Ashland Petroleum Company will be billed at
the foregoing described base price plus [CONFIDENTIAL TREATMENT REQUESTED] per
gallon.
8. Payment terms are net 10 days from date of shipment via check.
<PAGE>
9.) If at anytime during the term of this Agreement the OPIS TET Mt. Belview
average spot posting for isobutane exceeds the OPIS TET Mt. Belview average spot
posting for normal butane by [CONFIDENTIAL TREATMENT REQUESTED] or more
continuously for any thirty day period (Trigger Event). Seller has the option to
take its normal butane stream to isobutane production for so long as said price
relationship shall continue. In that event, Buyer has the option to pay Seller
one half of the difference between average thirty day isobutane and normal
butane postings in order to retain Seller's normal butane production. Example:
OPIS thirty day average price for normal butane=[CONFIDENTIAL TREATMENT
REQUESTED], for isobutane=[CONFIDENTIAL TREATMENT REQUESTED]; then, Buyer has
option to pay [CONFIDENTIAL TREATMENT REQUESTED], plus the applicable
differential of [CONFIDENTIAL TREATMENT REQUESTED] for shipments to Ashland
Petroleum or [CONFIDENTIAL TREATMENT REQUESTED] for shipments to Ashland
Chemical Company. In the event that Buyer exercises said option, the price for
normal butane shall be subject to adjustment of the first and sixteenth of each
month using the method described in this paragraph. Upon a lapse of the
circumstances that comprise a Trigger Event, effective on the next immediate
first or sixteenth day of each month, whichever is soonest, the price of normal
butane shall revert to the method described in Item #7, above, unless Buyer and
Seller shall agree otherwise in writing within five working days of said lapse.
10.) If Buyer chooses not to proceed with the above option to retain normal
butane supply, the Buyer has the right of first refusal on any or all of
Seller's total isomerization unit production of isobutane of approximately
[CONFIDENTIAL TREATMENT REQUESTED] at a base price calculated in the same manner
as described in Item #7, above, for normal butane, except substituting OPIS
postings for isobutane, plus [CONFIDENTIAL TREATMENT REQUESTED].
11.) Buyer has the right to utilize Seller's normal butane cavern storage of
approximately [CONFIDENTIAL TREATMENT REQUESTED]. Buyer agrees to lift product
so as to empty said cavern for at least one twenty-four hour period sometime
between January first and March first each year during the term of this
Agreement.
<PAGE>
LOAN AGREEMENT Among
MARKWEST HYDROCARBON PARTNERS, LTD.
and
NORWEST BANK DENVER, NATIONAL ASSOCIATION,
individually and as Agent,
and
FIRST AMERICAN NATIONAL BANK
November 20, 1992
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
- ----
<S> <C> <C>
SECTION 1. DEFINITIONS 1
SECTION2. THE LOANS 9
(a) The Term Loan 9
(b) The Revolver Loan 10
(c) The Loan Date 12
(d) Computation and Payment of Interest; Late Payment Rate 12
(e) Payments by Borrower 12
(f) Payments to Lenders 12
(g) Mandatory Payments 13
(h) Fees 13
(i) Adjustments 14
(j) Increased Capital 14
SECTION 3. CONDITIONS OF LENDING 15
(a) Initial Advance 15
(b) Second Advance on the Term Loan 18
(c) Subsequent Advances 19
SECTION 4. BORROWING BASE 20
(a) Initial Borrowing Base 20
(b) Information 20
(c) Subsequent Determinations of Borrowing Base 20
(d) Notification of Borrowing Base 21
SECTION 5. BORROWING BASE DEFICIENCY 21
(a) Repay Excess Debt 21
(b) Installment Payments 21
SECTION 6. SECURITY 21
SECTION 7. REPRESENTATIONS AND WARRANTIES 22
(a) Existence 22
(b) Non-Contravention 23
(c) Third Party Authorization 23
(d) Authorization; Binding Effect 23
(e) Litigation 23
(f) Taxes 23
(g) Liens 24
(h) Names and Places of Business 24
(i) Use of Proceeds 24
(j) Other Obligations 24
(k) Full Disclosure 24
(l) Margin Stock 25
(m) ERISA 25
(n) Security Documents 25
(o) Compliance with Laws 25
(p) Financial Condition 26
(q) Environmental Matters 26
</TABLE>
-2-
<PAGE>
<TABLE>
<S> <C> <C>
(r) Investment Company Act 26
(s) Public Utility Holding Company Act 26
(t) Title to Properties; First Priority Security Interest 26
(u) Partners, Shareholders and Subsidiaries of Borrower
and of Related Persons 27
(v) Location of Inventory 27
SECTION 8. AFFIRMATIVE COVENANTS 27
(a) Payment and Performance of Loans 27
(b) Financial Statements 27
(c) Preservation of Existence, Etc. 29
(d) Maintenance of Property 29
(e) Payment of Other Obligations 29
(f) Insurance 30
(g) Inspection of Property, Books and Records;
Confidentiality Agreement 31
(h) Notices 32
(i) Compliance with Laws 33
(j) Further Assurances 33
(k) Current Ratio 34
(l) Funded Debt to Total Capitalization 34
(m) Tangible Net Worth 34
(n) Fixed Charge Coverage Ratio 34
(o) Environmental Matters 34
(p) Additional Title Insurance 34
SECTION 9. NEGATIVE COVENANTS 35
(a) Debt 35
(b) Liens 36
(c) Guaranty Obligations 36
(d) Loans and Advances 37
(e) Limitation on Investments and New Businesses 37
(f) Mergers and Consolidations 37
(g) Location of Inventory 38
(h) Burdensome Undertakings 38
(i) Change in Location of Business 38
(j) Restricted Distributions 38
(k) Disposition of Assets 39
(l) ERISA 39
(m) Use of Proceeds 39
(n) Transactions with Affiliates 40
(o) Contracts; Take-or-Pay Agreements 40
</TABLE>
-3-
<PAGE>
<TABLE>
<S> <C> <C>
(p) Amendments to Organizational Documents 41
(q) Amendments to RIMCO Loan Documents 41
SECTION 10. EVENTS OF DEFAULT 41
(a) Non-Payment 41
(b) Certain Defaults 41
(c) Other Defaults 41
(d) Representation or Warranty 41
(e) Security Documents and Covenant Agreements 42
(f) Judgments 42
(g) Insolvency 42
(h) Bankruptcy, Etc. 42
(i) Cross-Default 43
(j) ERISA 43
(k) Loan Documents 43
(1) Material Adverse Change 44
(m) Partners of Borrower 44
(n) Ownership of the General Partner 44
(o) Failure to be a Partnership 44
(p) Columbia Contracts 44
(q) Regulatory Change 44
SECTION 11. REMEDIES 44
(a) Automatic Acceleration of Loan 44
(b) Optional Acceleration of Loan 45
(c) Setoff 45
SECTION 12. THE AGENT 46
(a) Appointment 46
(b) Delegation of Duties 46
(c) Exculpatory Provisions 46
(d) Reliance by Agent 47
(e) Notice of Default 47
(f) Non-Reliance on Agent and Other Lenders 47
(g) Indemnification 48
(h) Agent and Lenders in Their Individual Capacity 49
(i) Successor Agent 49
(j) Agent's Fee 49
(k) Borrower Entitled to Rely on Agent 49
SECTION 13. MISCELLANEOUS 49
(a) No Waiver; Cumulative Remedies 49
(b) Notices 50
(c) Counterpart Execution 51
(d) Governing Law; Entire Agreement 51
(e) Amendments and Waivers 51
(f) Costs, Expenses and Indemnity 52
</TABLE>
-4-
<PAGE>
<TABLE>
<S> <C> <C>
(g) Inconsistent Provisions; Severability 53
(h) Incorporation of Exhibits and Schedules 53
(i) Amendment of Defined Instruments 53
(j) References and Titles 54
(k) Calculations and Determinations 54
(1) Usury 54
(m) Waiver of Right to Trial by Jury 54
(n) Successors and Assigns 55
(o) Term of Agreement 55
(p) Jurisdiction 55
</TABLE>
LIST OF EXHIBITS
----------------
Exhibit Title
------- -----
A Term Note
B Revolver Note
C Request for Advance
D Covenant Agreement
E Borrower's Counsel Opinion
F Local Counsel Opinion
G [Intentionally Omitted]
H Litigation
I Limited Partners of Borrower & Shareholders
of the General Partner
J Location of Borrower's Inventory
K Compliance Certificate
L Loans and Advances to Officers and Employees
M Form of Subordination Agreement
-5-
<PAGE>
LOAN AGREEMENT
--------------
THIS LOAN AGREEMENT (this "Agreement"), dated as of November 20, 1992, is
---------
among MARKWEST HYDROCARBON PARTNERS, LTD., a Colorado limited partnership,
("Borrower") with an address of 5613 DTC Parkway, Suite 400, Englewood, Colorado
--------
80111, NORWEST BANK DENVER, NATIONAL ASSOCIATION, a national banking association
("Norwest"), with an address of 1740 Broadway, Denver, Colorado 80274-8699,
-------
FIRST AMERICAN NATIONAL BANK, a national banking association ("First American"),
----- --------
with an address of 4894 Poplar Ave., Memphis, Tennessee 38117, (Norwest and
First American are referred to individually as a "Lender" and collectively as
------
the "Lenders"), and NORWEST, AS AGENT FOR THE BANKS (in such capacity, the
-------
"Aqent").
-----
Borrower desires to borrow from the Lenders to provide funds for the
purposes set forth below, and the Lenders are willing to lend such funds to
Borrower to accomplish those purposes, subject to the terms and conditions
contained or referred to heroin. Accordingly, in consideration of the mutual
agreements, provisions and covenants contained heroin, the parties agree as
follows:
SECTION 1. DEFINITIONS. As used herein, each of the following
-----------
capitalized terms shall have the meaning given it in this Section 1:
"Adjusted Prime Rate" shall mean an annual rate which equals
-------------------
the sum of the floating commercial loan rate of the Agent announced from time to
time as its prime rate but which may not be the lowest or best rate charged by
the Agent to any customer (the "Prime Rate") plus one percentage point per year,
adjusted in each case as of the banking day in which a change in the Prime Rate
occurs.
"Advance" shall mean the advances under the Term Loan or a
-------
Revolver Advance.
"Affiliate" shall mean as to any Person, each other Person
---------
which, directly or indirectly (through one or more intermediaries or otherwise),
is in control of, is controlled by, or is under common control with, such
Person.
"Borrowing Base," shall mean, at the particular time in
--------------
question, either the amount provided for in Section 4(a) or the amount
determined by the Lenders in accordance with the provisions of Section 4(c);
provided however, that in no event shall the Borrowing Base exceed $20,000,000.
- -------- -------
"Borrowing Base Deficiency" shall have the meaning set forth
-------------------------
in Section 5.
"Business Day" shall mean a day other than Saturdays or
------------
Sundays on which commercial banks are open for business with the public in
Denver, Colorado and Memphis, Tennessee.
"Code" means the Internal Revenue Code of 1986, as amended,
----
together with the regulations promulgated thereunder.
"Collateral" shall mean all tangible or intangible, real or
----------
personal property subject to any of the Security Documents.
"Columbia Contracts" shall mean (a) the Natural Gas Liquids
------------------
Purchase Agreement dated as of April 26, 1988 between Columbia Gas Transmission
Corporation and Borrower as amended November 4, 1988, July 31, 1989, December
24, 1990 and January 28, 1991 (Siloam); (b) the Natural Gas Liquids Purchase
Agreement dated as of December 24, 1990, between Columbia Gas Transmission
Corporation and Borrower as amended January 28, 1991 (Boldman); and (c) the
Contract for Construction and Lease of Boldman Plant dated December 24, 1990
between Columbia Gas Transmission Corporation and Borrower, together with any
and all amendments now existing or hereafter created to any of the foregoing to
the extent such amendments are otherwise permitted hereunder.
"Consolidated" refers to the consolidation of any Person, in
------------
accordance with GAAP, with its properly consolidated subsidiaries. Reference
heroin to Borrower's financial statements, financial position, financial
condition, liabilities, etc. refer to the consolidated financial statements,
position, condition, liabilities, etc. of Borrower and its properly consolidated
subsidiaries.
"Controlled Group" means the Borrower and all Persons under
----------------
common control or treated as a single
-6-
<PAGE>
employer with the Borrower pursuant to Section 414(b), (c), (n) or (o) of the
Internal Revenue Code of 1986, as amended, and regulations promulgated
thereunder.
"Covenant Agreements" shall mean a letter agreement in the
-------------------
form of Exhibit D attached hereto, one from each of the General Partner and John
Fox.
"Current Ratio" shall mean the ratio of Borrower's current
-------------
assets to current liabilities, both determined in accordance with GAAP.
"Debt" shall mean as to any Person, at a particular date,
----
the sum (without duplication) of (a) all indebtedness of such Person for
borrowed money or for the deferred purchase price of property or services, (b)
all obligations of such Person in respect of surety bonds, letters of credit,
bankers' acceptances, or similar obligations issued or created for the account
of such Person, (c) all capitalized lease obligations of such Person, (d) all
indebtedness created or arising under any conditional sale or other title
retention agreement, (e) open lines of credit to finance futures contracts,
commodities and/or options contracts, (f) all indebtedness referred to in
clauses (a) through (e) above secured by a lien, encumbrance or security
interest on or in property owned by such Person, even though such Person has not
assumed or become liable for the payment of such indebtedness, and (g) all
guaranties in respect of indebtedness or obligations of other Persons of the
kinds referred to in clauses (a) through (f) above.
"Determination Date" has the meaning given it in Section
------------------
4(c)(ii).
"Employee Option Agreement" shall mean the Option Plan of
-------------------------
MarkWest Hydrocarbon Partners, Ltd. dated April 6, 1992 (without regard to any
future amendments, modifications or changes thereto without the required
Lenders' prior consent).
"ERISA" shall mean the Employee Retirement Income Security
-----
Act of 1974, as amended from time to time, together with all rules and
regulations promulgated with respect thereto.
"ERISA Plan" shall mean any pension benefit plan subject to
----------
Section 302 of ERISA or Title IV of ERISA maintained by Borrower or any member
of a controlled group (as defined in Section 4001 (a)(14) of ERISA).
"Evaluation Date" shall mean the date of this Agreement and
---------------
April 1 and October 1 of each year, commencing April 1, 1993.
"Event of Default" shall have the meaning set forth in
----------------
Section 10.
"First American Loan" shall mean the loan to Borrower
-------------------
pursuant to a Loan Agreement dated June 19, 1992 in the principal amount not to
exceed $3,500,000 and secured by an Arkansas Leasehold Deed of Trust with
Security Agreement and Assignment of Rents and Leases dated June 19, 1992.
"Fiscal Quarter" shall mean a three-month period ending on
--------------
the last day of each March, June, September and December of any year.
"Fiscal Year" shall mean a twelve-month period ending on
-----------
December 31 of any year.
"Fixed Charge Coverage Ratio" shall mean for any period, the
---------------------------
ratio for such period of (a) the sum of net income (or net loss) plus interest
expense and non-cash charges included in determining net income (or net loss),
all as determined in accordance with GAAP, to (b) the sum of interest expense
included in calculating (a) and the principal portion of Debt required to be
repaid during such period.
"Florida Mesa Project" shall mean the project in which the
--------------------
Borrower has invested, the purpose of which is the drilling, production, and
gathering of coal bed methane gas located in La Plata County, Colorado.
"Funded Debt" shall mean the aggregate amount of Debt for
-----------
borrowed money with a maturity in excess of one year (including guarantees of
such Debt) and capitalized leases, minus the outstanding principal balance, if
any, under the Working Capital Facility.
-7-
<PAGE>
"GAAP" shall mean generally accepted accounting principles
----
and practices as consistently applied (except as otherwise required due to
changes in GAAP) by Borrower and certified to by the firm of independent
certified public accountants regularly employed as Borrower's auditors, such
principles and practices at all times being consistent with requirements of the
Financial Accounting Standards Board of the American Institute of Certified
Public Accountants in effect from time to time, as applicable to the nature of
the business conducted by Borrower; provided however, if any change in any
-------- -------
accounting principle or practice is required by the Financial Accounting
Standards Board (or any such successor), all financial covenants provided for
herein may be prepared in accordance with such change only after notice of such
change is given to the Agent, and the Lenders agree to such change insofar as it
affects the financial covenants.
"General Partner" means MarkWest Hydrocarbon, Inc., a
---------------
Colorado corporation.
"Initial Financial Statements" shall mean the audited
----------------------------
financial statements of Borrower for the Fiscal Year ending December 31, 1991,
and the unaudited quarterly financial statements (consisting of a current
balance sheet and profit and loss statement) for Borrower as of September 30,
1992.
"Late Payment Rate" shall have the meaning set forth in
-----------------
Section 2(d)(ii).
"Loans" shall mean the Term Loans and the Revolver Loans.
-----
"Loan Date" shall have the meaning set forth in Section
---------
2(c).
"Loan Documents" means this Agreement, the Notes, the
--------------
Security Documents, the Covenant Agreements and all other documents executed and
delivered by or on behalf of Borrower to the Agent or the Lenders in connection
herewith or therewith.
"Loan Share" means with respect to each of Norwest and First
----------
American, fifty percent.
"Mortgages" shall mean one or more mortgages, deeds of
---------
trust, collateral mortgages, acts of collateral mortgage, security agreements
and assignments of proceeds of even date herewith, in favor of the Agent on
behalf of the Lenders, covering certain properties of Borrower and related
interests as described therein, including, without limitation, (a) Borrower's
leasehold interest in the West Memphis Terminal facility it operates in West
Memphis, Arkansas, (b) Borrower's Siloam fractionating facility in Greenup
County, Kentucky, (c) a 38 mile long natural gas liquids pipeline which
commences at the point called the Kenova Extraction Plant in Wayne County, West
Virginia, runs through Boyd and Greenup Counties, Kentucky and connects to
Borrower's Siloam facility described in (b) above, (d) Borrower's interest in
the truck loading facility at the Cobb Extraction Plant in Kanawha County, West
Virginia, and (e) Borrower's interest in the natural gas liquids extraction
plant known as the Boldman Extraction Plant and the related truck loading
facility, both of which are located in Pike County, Kentucky.
"NationsBank Loan" shall mean the loan to Borrower pursuant
to a Credit Agreement with NationsBank of Texas, N.A., formerly known as NCNB
Texas National Bank, dated April 16, 1990, as it may have been amended prior to
the date hereof, in the principal amount of $7,000,000 and secured by a Security
Agreement dated as of April 16, 1990 by 'Borrower in favor of NationsBank Texas,
N.A.
"Note" shall mean a Term Note or a Revolver Note; all of
----
which together shall be collectively referred as the "Notes."
-----
"Obligations" means all Debt from time to time owing by
-----------
Borrower to the Lenders under or pursuant to any of the Loan Documents,
including without limitation the Revolver Loan and the Term Loan.
"Ordinary Course of Business" shall mean, in respect of any
---------------------------
transaction, the ordinary course of such Person's business, substantially as
conducted by such Person prior to or as of the date hereof, and undertaken by
such Person in good faith and not for purposes of evading any covenant or
restriction in any Loan Document, and, as applied to Borrower, shall include the
acquisition of natural gas reserves and investments or participation in the
Florida Mesa Project or other coal bed methane gas projects.
"Person" shall mean an individual, partnership, corporation,
------
association, business trust, joint stock
-8-
<PAGE>
company, trust or trustee thereof, unincorporated association, joint venture,
governmental unit or any agency or subdivision thereof, or any other legally
recognizable entity.
"Related Person" shall mean any of Borrower and each
--------------
Subsidiary of Borrower.
"Request for Advance" shall mean a request for Advance
-------------------
meeting the requirements of Sections 2(a)(i) or 2(b)(i) hereof.
"Required Lenders" shall mean at any time Lenders, the Loan
----------------
Shares of which aggregate 100 percent.
"Responsible Person" shall mean any officer of the General
------------------
Partner or any other Person employed by either a Related Person or the General
Partner and who should be aware of the terms of this Agreement.
"Revolver Advances" has the meaning given it in Section
-----------------
2(b).
"Revolver Commitment" means the amount of the Borrowing Base
-------------------
then in effect minus the Term Balance; provided that in no event shall the
Revolver Commitment exceed $20,000,000 at any time from the date hereof through
and including the last day of the Revolver Commitment Period, and thereafter,
the amount of the Revolver Commitment shall be reduced in accordance with the
scheduled amortization set forth in Section 2(b)(ii).
"Revolver Commitment Period" shall mean the period from the
--------------------------
date of this Agreement to and including December 31, 1994, or such earlier date
on which the Revolver Notes become due and payable.
"Revolver Loan" shall mean the loan to Borrower by the
-------------
Lenders provided for in Section 2(b) hereof, the maximum principal amount of
which shall never exceed the Revolver Commitment.
"Revolver Note" shall mean a note substantially in the form
-------------
of Exhibit B attached hereto, made by Borrower and payable to the order of
---------
Norwest or to First American, as appropriate, with appropriate insertions,
together with any and all renewals, extensions, amendments and changes of, or
substitutions for said note; collectively, the "Revolver Notes."
--------------
"RIMCO Loan" shall mean the loan to Borrower pursuant to the
----------
Note Agreement dated December 15, 1989 in principal amount up to $11,500,000,
and secured by a Mortgage and Security Agreement dated as of April 29, 1988, to
Rimco Partners, L.P., as modified by a First Modification and Amendment of
Mortgage and Security Agreement dated as of January 15, 1990 between Borrower
and Rimco Partners, L.P., as agent for itself and others, and by Second
Modification and Amendment of Mortgage and Security Agreement dated as of
October 1, 1990, between Borrower and RIMCO Partners, L.P., the Resigning Agent,
and Resource Investors Management Company Limited Partnership, the Successor
Agent.
"Security Aqreement" shall mean that certain Security
------------------
Agreement of even date herewith by Borrower in favor of the Agent covering and
relating to Borrower's inventory, receivables, contract rights, Cash Collateral
Instruments, proceeds and certain other personal property.
"Security Documents" means the Mortgages and all other
------------------
security agreements, deeds of trust, mortgages, chattel mortgages, assignments,
pledges, guaranties, financing statements, continuation statements, extension
agreements and other agreements or instruments now or hereafter delivered by
Borrower to the Agent on behalf of the Lenders or to the Lenders in connection
with this Agreement or any transaction contemplated hereby to secure or
guarantee the payment of any part of the Obligations or the performance of any
other duties and obligations of Borrower under the Loan Documents, whenever made
or delivered, and shall also include all of the 'Security Documents' as defined
in the Working Capital Facility.
"Subsidiary" means, with respect to any Person, any
----------
corporation, association, partnership, joint venture, or other business or
corporate entity, enterprise or organization which is directly or indirectly
(through one or more intermediaries) controlled by or owned fifty-one percent or
more by such Person.
"Tangible Net Worth" shall mean the partners' equity of
------------------
Borrower less intangible assets.
-9-
<PAGE>
"Term Balance" means the aggregate unpaid principal balance
------------
of the Term Notes determined as of the most recent Determination Date prior to
the time in question.
"Term Loan" has the meaning given it in Section 2(a).
---------
"Term Note" shall mean a note substantially in the form of
---------
Exhibit A attached hereto, made by Borrower and payable to the order of Norwest
or to First American, as appropriate, with appropriate insertions, together with
any and all renewals, extensions, amendments and changes of, or substitutions
for said note; collectively, the "Term Notes."
"Total Capitalization" means the sum of Funded Debt plus
--------------------
partners' equity.
"Unmatured Event of Default" shall mean any event that with
--------------------------
the passage of time or giving of notice, or both, would constitute an Event of
Default under Section 11.
"Working Capital Facility" shall mean the loan provided for
------------------------
pursuant to that certain Working Capital Loan Agreement of even date herewith
between Borrower, the Lenders and the Agent in the maximum principal amount of
$5,000,000 and which loan is secured by various 'Security Documents' (as such
term is defined therein).
SECTION 2. THE LOANS.
(a) The Term Loan. Subject to the terms and conditions of
-------------
this Agreement, each Lender agrees to make two Advances to Borrower in an
aggregate principal amount of both such Advances not to exceed its Loan Share of
$13,500,000 (the "Term Loan"). The Advances of the Term Loan shall be evidenced
---------
by the Term Notes. Amounts repaid under the Term Notes may not be reborrowed.
(i) Request for Advance under the Term Loan. Each
---------------------------------------
Request for Advance relating to the two Advances to
be made under the Term Loan shall be in the form of
Exhibit C attached hereto and shall be submitted to
---------
the Agent on or before 11:00 a.m. Denver, Colorado
time on the Business Day immediately preceding the
day such Advance is to be made. Upon receipt of a
Request for Advance, the Agent shall promptly
notify each Lender thereof. Not later than 11:00
a.m. Denver time on the next Business Day, each
Lender shall make available to the Agent the amount
of such Lender's Loan Share of the amount specified
in the Request for Advance in immediately available
funds; provided, however, that the Lenders shall
-------- -------
not be obligated to make an Advance to Borrower
that would result in the outstanding principal
amount under the Term Notes exceeding $13,500,000.
If all conditions precedent to each Advance have
been met, Agent will on the date requested make
such Advance available to Borrower in immediately
available funds at Agent's office in Denver,
Colorado.
(ii) Dates of Advances under the Term Loan. The
-------------------------------------
first Advance under the Term Loan shall' not exceed $3,500,000
and shall be made on the Loan Date and the Second Advance shall
be made on December 1, 1992 in an amount not to exceed
$10,000,000.
(iii) Scheduled Payments on the Term Loan. The
-----------------------------------
principal amount of the Term Notes shall be due and payable in
twenty-four equal quarterly payments of $562,500.00, payable on
the last day of each Fiscal Quarter, commencing March 31, 1993,
with the final payment due on or before December 31, 1998,
together with interest on the Term Loan, calculated and payable
as set forth in Section 2(d).
(iv) Optional Prepayments of the Term Loan.
-------------------------------------
Borrower may prepay all or any portion of the Term Loan without
penalty or premium, at any time and from time to time, in
integral multiples of $100,000 or such lesser amount equal to the
then outstanding principal balance, together with accrued and
unpaid interest on the principal amount so prepaid. Borrower
shall give the Agent one Business Day's notice prior to any
prepayment of the Term Loan. All prepayments of principal under
this Subsection shall be applied to the payment of principal
indebtedness due on the Term Loan in the inverse order of
approaching maturities.
-10-
<PAGE>
(b) The Revolver Loan. Subject to the terms and conditions
-----------------
of this Agreement, each Lender agrees to make advances to Borrower (such
advances are called the "Revolver Advances") from time to time during the
-----------------
Revolver Commitment Period, in an aggregate principal amount not to exceed its
Loan Share of the Revolver Commitment. Revolver Advances shall be evidenced by
the Revolver Notes. So long as an Event of Default or an Unmatured Event of
Default has not occurred, during the Revolver Commitment Period, Borrower may
borrow, repay and reborrow under the Revolver Notes in accordance with this
Section 2.
(i) Request for Advance under the Revolver Loan.
-------------------------------------------
(A) Each Request for Advance under the
Revolver Loan shall be in the form of Exhibit C
---------
attached hereto and shall be submitted to the Agent
on or before 11:00 a.m. Denver, Colorado time on
the Business Day immediately preceding the day such
Revolver Advance is requested to be made. Upon
receipt of a Request for Advance, the Agent shall
promptly notify each Lender thereof. Not later than
11:00 a.m. Denver time on the next Business Day,
each Lender shall make available to the Agent the
amount of such Lender's Loan Share of the amount
specified in the Request for Advance in immediately
available funds; provided, however, that the
-----------------
Lenders shall not be obligated to make any Revolver
Advance to Borrower that would result in the
aggregate unpaid principal balance outstanding
under the Revolver Notes exceeding the Revolver
Commitment. If all conditions precedent to such
Revolver Advance have been met, Agent will on the
date requested make such Revolver Advance available
to Borrower in immediately available funds at
Agent's office in Denver, Colorado .
(B) Each Revolver Advance shall be in an
amount of at least $100,000 or such lesser amount equal to the
unadvanced portion of the Revolver Loan. Each Revolver Advance shall
be evidenced by the Revolver Notes.
(C) All Revolver Advances requested by
Borrower shall be made pro rata by each Lender in proportion to such
Lender's Loan Share.
(ii) Scheduled Amortization of the Revolver Loan.
-------------------------------------------
On the last day of the Revolver Commitment Period,
the commitment of the Lenders to make" Revolver
Advances shall terminate and the aggregate
principal balance outstanding on such date under
the Revolver Loan shall be due and payable in
sixteen equal quarterly payments (the amount of
such principal payments to be determined by
dividing the amount of the outstanding principal
balance of the Revolver Loan on.the last day of the
Revolver Commitment Period by sixteen), payable on
the last day of each Fiscal Quarter, commencing
March 31, 1995, with the final payment due on or
before December 31, 1998, together with interest on
the Revolver Loan, calculated and payable as set
forth in Section 2(d).
(iii) Optional Payments. Borrower may make optional
-----------------
payments on the outstanding principal balance of the Revolver Loan
without penalty or premium, at any time, and from time to time, in
integral multiples of $100,000 or such lesser amount equal to the then
outstanding principal balance, together with accrued and unpaid
interest on the principal amount so paid.. Borrower shall give the
Agent one Business Day's notice in advance of any optional payment on
the Revolver Loan. Upon the termination of the Revolver Commitment
Period, all prepayments of principal thereafter received under this
Subsection shall be applied to the payment of principal indebtedness
due on the Revolver Loan in the inverse order of approaching
maturities.
(c) The Loan Date. The initial Advance under the Term Loan
-------------
shall be made on a date and at a time (the "Loan Date") selected by Borrower,
---------
but in no event earlier than the time all conditions of lending described in
Section 3(a) below have been satisfied or waived by the Lenders. The initial
Revolver Advance shall not be made prior to the date of the second and final
Advance to be made under the Term Loan.
(d) Computation and Payment of Interest; Late Payment Rate.
------------------------------------------------------
-11-
<PAGE>
(i) Interest on the Loans shall accrue daily and
shall be computed on the basis of a year of 365 or
366 days, as appropriate. Interest on the Loans
shall be payable in arrears on the last day of each
Fiscal Quarter, beginning December 31, 1992.
(ii) Notwithstanding anything to the contrary
contained in this Agreement, overdue principal, and (to the
extent permitted under applicable law) overdue interest, whether
caused by acceleration of maturity or otherwise, shall bear
interest at a fluctuating rate, adjustable the day of any change
in such rate, equal to three percentage points above the Adjusted
Prime Rate (the "Late Payment Rate)", until paid, and shall be
-----------------
due and payable immediately.
(e) Payments by Borrower. All payments of principal and
--------------------
interest hereunder shall be made at the Agent's. offices at 1740 Broadway,
Denver, Colorado 80274-8699 (or at such other place as the Agent shall have
designated to Borrower in writing at least one Business Day prior to the due
date or prepayment date, as the case may be) by 12:00 noon Denver time on the
date due or the date of prepayment (as the case may be) in immediately available
funds free and clear of any and all taxes and without set-off or counterclaim or
deduction of any kind. If any payment to be made by Borrower hereunder or under
the Notes shall become due on a day other than a Business Day, .such payment
shall be made on the next succeeding Business Day and such extension of time
shall be included in computing any interest and fees in respect of such payment.
(f) Payments to Lenders. Each payment by Borrower to the
-------------------
Agent on account of principal of and interest on the Loans or otherwise
hereunder shall be distributed the same day in like funds as received from
Borrower by Agent pro rata according to the Loan Share of each Lender in like
funds; provided that in the event Agent receives less than the aggregate amount
-------- ----
due to all Lenders on any day, Agent shall distribute ratably to each Lender in
the case of any payment, the portion of the aggregate amount received by Agent
on such day multiplied by the Loan Share of such Lender.
(g) Mandatory Payments. If at any time, or from time to
------------------
time, a Borrowing Base Deficiency exists, Borrower shall, within thirty Business
Days after the Agent, on behalf of Lenders, gives written notice of such fact to
Borrower pursuant to Section 5 hereof, make one or more mandatory prepayments to
Agent for distribution to the Lenders in the principal amount determined in
accordance with Section 5(a) or (b). If the Borrower elects, pursuant to Section
5(b), to repay the Borrowing Base Deficiency in six equal monthly installments,
then the payments shall be due and payable exactly one calendar month apart,
with the first one due and payable as set forth above in this Section 2(g). Each
prepayments of principal shall be accompanied by the amount of accrued and
unpaid interest on, and fees related to, the principal amount so prepaid. Any
such prepayment of principal under this Section 2 shall be applied pro rata in
accordance with each Lender's Loan Share, (i) first to the unpaid principal
balance of the Revolver Loan until the Revolver Loan is paid in full (once the
Revolver Commitment Period has expired, such prpepayment shall be applied in the
inverse order of approaching maturities) and (ii) then to the unpaid principal
balance of the Term Loan until the Term Loan is paid in full, in the inverse
order of approaching maturities.
(h) Fees.
----
(i) During the Revolver Commitment Period,
Borrower shall pay to the Lenders an unused
commitment fee on the average daily difference
between the Revolver Commitment and the aggregate
outstanding principal amount under the Revolver
Notes, at an annual rate of one-half of one percent
(0.5%), payable quarterly in arrears, with the
first such payment due December 31, 1992 (for the
period from the date hereof through December 31,
1992) and ending on the last day of the Revolver
Commitment Period .
(ii) Borrower shall pay to the Lenders on the Loan
Date a one-time commitment fee of $100,000 in the aggregate, of which
$10,000 has already been paid.
(i) Adjustments. If any Lender (a "benefitted Lender")
----------- -----------------
shall at any time receive any payment of all or part of its Loans, or interest
thereon, or receive any collateral in respect thereof (whether voluntarily or
involuntarily, by set-off, pursuant to events or proceedings of the nature
referred to in Section ll(c), or otherwise), in a greater proportion than its
Loan Share, such benefitted Lender shall purchase for cash from the other Lender
such portion of such other Lender's Loans, or shall provide such other Lender
with the benefits of any such collateral, or the proceeds thereof, as shall be
necessary to cause such benefitted Lender to share the excess payment or
benefits of such collateral or proceeds ratably with the other Lender; provided
--------
however, that if all or any portion of such excess payment or benefits is
- -------
thereafter recovered from such benefitted Lender, such purchase shall be
rescinded, and the
-12-
<PAGE>
purchase price and benefits returned, to the extent of such recover~, but
without interest. Borrower agrees that any Lender so purchasing a portion of
another Lender's Loans may exercise all rights of payment (including, without
limitation, rights of set-off) with respect to such portion as fully as if such
Lender were the direct holder of such portion.
(j) Increased Capital. If either (A) the introduction of or
-----------------
any change in or in the interpretation of any law or regulation after the date
hereof (and excluding any new laws or changes presently known to Agent even if
they have not yet become effective) or (B) compliance by any Lender with any
guideline or request from any central bank or other governmental authority
(whether or not having the force of law) affects or would affect the amount of
capital required or expected to be maintained by any Lender or any corporation
controlling any Lender and such Lender determines that the amount of such
capital is increased by or based upon the existence of the Revolver Commitment
and other commitments of this type then, upon demand by such Lender, Borrower
shall immediately pay to such Lender, from time to time as specified by such
Lender, additional amounts sufficient to compensate such Lender in light of such
circumstances, to the extent that such Lender reasonably determines such
increase in capital to be allocable to the issuance or maintenance of the
Revolver Commitment. Such Lender claiming compensation under this Section 2(j)
shall provide Borrower with a certificate setting forth in reasonable detail the
amount payable to such Lender, the reason for the additional compensation and
the calculation of the additional compensation.
SECTION 3. CONDITIONS OF LENDING.
----------------------
(a) Initial Advance. (i) The Lenders shall have no
----------------
obligation to make the initial Advance under the Loans unless the Agent shall
have received all of the following, at the Agent's office in Denver, Colorado,
duly executed and delivered and in form and substance satisfactory to the Agent
and its counsel:
(A) This Agreement, executed by Borrower, the
Agent and the Lenders;
(B) The Notes;
(C) Counterparts of the Mortgages, duly executed
and acknowledged by Borrower, together with the appropriate financing
statements, as may be necessary or advisable under applicable law in
order to perfect and maintain, to the full extent permitted by
applicable law, the first priority liens and security interests
created thereby;
(D) With respect to the Collateral consisting of
real property, an ALTA form B (or other form acceptable to the Agent)
mortgagee title insurance or a binder issued by a title insurance
company satisfactory to the Agent, insuring or undertaking to insure,
in the case of a binder, that the Mortgages create and constitute a
valid first lien against such Collateral in favor of the Agent,
subject only to permitted exceptions, with such endorsements and
affirmative insurance as the Agent may reasonably request;
(E) With respect to the Siloam fractionating
facility covered by the Mortgages, one or more environmental site
assessments with respect to that portion of the Collateral as the
Agent may request, dated as of a recent date' and prepared by a
qualified environmental engineering firm acceptable to the Agent which
environmental site assessments shall be acceptable to the Lenders in
their sole discretion;
(F) Evidence satisfactory to the Agent that all
amounts outstanding under each of the First American Loan and the
NationsBank Loan are being simultaneously paid in full from the
proceeds of the Term Loan, or, as to the NationsBank Loan, from
proceeds of the Working Capital Facility, by Borrower and all
commitments of the lenders thereunder have been terminated and
released and the liens and security interests securing such loans have
been or simultaneously herewith are being fully released or
reconveyed;
(G) Results of UCC lien searches as to Borrower
for the States of Arizona, Arkansas, Colorado, Kansas, Michigan, Texas
and West Virginia and for the following counties: Crittenden County,
Arkansas; Boyd, Greenup and Pike Counties, Kentucky; and Wayne County,
West Virginia, and for all other relevant filing jurisdictions as to
the Collateral;
(H) Evidence that the Agent has been named as
mortgagee/loss payee under all policies of casualty insurance, and as
an additional insured under all policies of liability insurance, as
required by
-13-
<PAGE>
Section 8(f);
(I) The Covenant Agreements, executed by the
parties thereto;
(J) A duly executed and acknowledged
subordination agreement between Resource Investors Management Company
Limited Partnership and the Agent, in form and substance acceptable to
the Agent;
(K) A certificate, dated the Loan Date and
executed on behalf of Borrower by the president or a vice president of
the General Partner, stating the substance of Subsections 3(a)(ii)(A),
(C) and (D);
(L) A certificate, dated the Loan Date and
executed on behalf of Borrower by an appropriate party, which shall
certify to the correctness and completeness of the following exhibits
attached thereto: copies of any partnership authorization of Borrower
authorizing the execution of the Loan Documents and the consummation
of the transactions contemplated heroin and therein; copies of the
limited partnership agreement of Borrower and all amendments thereto,
and the certificate of limited partnership of Borrower;
(M) A certificate, dated the Loan Date and
executed by the Secretary or assistant Secretary of the General
Partner, which shall contain the names and signature of the officers
of the General Partner authorized to execute the Loan Documents on
behalf of the Borrower, and which shall certify to the correctness and
completeness of the articles of incorporation and bylaws of the
General Partner, and the resolutions duly adopted by the Board of
Directors of the General Partner authorizing the execution of the Loan
Documents and the consummation of the transactions contemplated herein
and therein;
(N) Certificates from the Colorado Secretary of
State as to the good standing of Borrower and of the General Partner;
and
(O) All other documents and assurances which the
Agent reasonably requires or which it may reasonably request in
connection with the transactions contemplated by this Agreement, and
such documents shall be certified, when appropriate, by proper
authorities.
(ii) The Lenders shall have no obligation to make any
Advances hereunder unless the following shall be true and correct on
and as of the date of such Advance:
(A) All representations and warranties contained
in Section 7 and in the Security Documents shall be true on the Loan
Date as if then given, and Borrower shall have performed or observed
all terms, agreements, conditions and obligations hereunder and under
the Security Documents to be performed or observed on or prior to the
Loan Date;
(B) All legal matters incident to the Loans shall
be satisfactory to counsel to the Agent, and the Agent shall have
received on the Loan Date a favorable opinion addressed to the Agent
and the Lenders of (x) Barry Spector, Esq., counsel for Borrower,
substantially in the form set forth in Exhibit E, together with the
---------
certificate provided for in such Exhibit, which opinion shall cover
the matters set forth in Sections 7(a)(i), (ii) and (iii), (b), (c),
(d), (e), (r) and (s), and such other matters as the Agent or its
counsel may reasonably request, and (y) Rex M. Terry, Esq. of Hardin,
Jesson, Dawson & Terry, local counsel for Arkansas, and P. Bruce
Leslie, Esq. of McBrayer, McGinnis, Leslie & Kirkland, local counsel
for Kentucky, substantially in the form of Exhibit F attached hereto;
---------
(C) No Event of Default or Unmatured Event of
Default shall have occurred and be continuing or would result from the
making of the requested Advance; and
(D) Since December 31, 1991, there has been no
material adverse change in the business, financial position or results
of operations of Borrower.
-14-
<PAGE>
(b) Second Advance on the Term Loan. The
-------------------------------
obligation of the Lenders to make the second and final Advance under the Term
Loan as set forth in Section 2 is subject to satisfaction of the conditions set
forth in such Section, the satisfaction of all of the conditions set forth in
Section 3(c) and the following conditions precedent:
(i) The date of such Advance shall be
December 1, 1992;
(ii) Agent shall have received
concurrently with the making of such Advance a duly executed and
acknowledged subordination agreement between Resource Investors
Management Company Limited Partnership and the Agent and Statements of
Amendment to uniform commercial code filings, in substantially the
form of Exhibit M hereto;
---------
(iii) Counterparts of the Mortgage
relating to the West Virginia property, duly executed and acknowledged
by Borrower, together with the appropriate financing statements, as
may be necessary or advisable under applicable law in order to perfect
and maintain, to the full extent permitted by applicable law, the
first priority liens and security interests created thereby, which
Mortgage shall be in form and substance acceptable to Lenders ;
(iv) The Agent shall have received a
favorable opinion addressed to the Agent and the Lenders of George A.
Patterson, Esq. of Bowles Rice McDavid Graff & Love, local counsel for
West Virginia, in form and substance acceptable to the Lenders; and
(v) Results of the UCC lien search as
to Borrower for Kanawha County, West Virginia, satisfactory to
Lenders.
(c) Subsequent Advances. The obligation of the
-------------------
Lenders to make subsequent Advances under the Revolver Commitment and to make
the second and final Advance under the Term Loan, all as set forth in Section 2
is subject to satisfaction of the conditions set forth in such Section, the
satisfaction of the conditions set forth in Setion 3(c) and the following
conditions precedent:
(i) A certificate, dated the date of
the requested Advance and executed on behalf of Borrower by the
president or a vice president of the General Partner, stating the
substance of Subsections 3(a)(ii)(A), (C) and (D);
(ii) All representations and warranties
contained in Section 7 hereof and in the Security Documents shall be
true on the date of such requested Advance as if then given, and
Borrower shall have performed or observed all terms, agreements,
conditions and obligations hereunder and under the Security Documents
to be performed or observed on or prior to the date of such requested
Advance;
(iii) No Event of Default or Unmatured
Event of Default shall have occurred and be continuing or would result
from the making of the requested Advance;
(iv) Since December 31, 1991, there has
been no material adverse change in the business, financial position or
results of operations of Borrower;
(v) All legal matters relating to the
Loan Documents, such Advance and the consummation of the transactions
contemplated thereby shall be reasonably satisfactory to the Agent's
counsel; and
(vi) Such Advance shall not be
prohibited by any laws or any regulation or order of any court or
governmental authority or agency and shall not subject the Lender to
any penalty or other onerous condition under or pursuant to any such
law, regulation or order.
SECTION 4. BORROWING BASE.
---------------
(a) Initial Borrowinq Base. During the period from the date
-----------------------
hereof to the first Determination Date (as defined in Subsection 4(c)(ii)
below), the Borrowing Base shall be $20,000,000.
-15-
<PAGE>
(b) Information. At least 45 days prior to each Evaluation
-----------
Date, Borrower shall furnish to Agent all information, reports and data which
the Agent or any Lender has then requested concerning the business and
properties of Borrower (which properties are included, at the time, in the
calculation of the Borrowing Base), and its Subsidiaries, dated as of such
Evaluation Date and including information concerning the oil and gas reserves
owned by Borrower or its Subsidiaries and the production from acreage dedicated
to gas processing plants and pipelines owned or operated by Borrower or its
Subsidiaries.
(c) Subsequent Determinations of Borrowinq Base. (i) The
-------------------------------------------
Lenders shall determine the Borrowing Base (which shall never exceed
$20,000,000) semi-annually, as of April 1 and October 1 of each year that this
Agreement is in effect, commencing April 1, 1993, based upon the Obligations
then outstanding, the value and associated cash flow available for debt service
which the lender assign, in their sole discretion, to Borrower's oil and gas
reserves, its natural gas liquids processing plants, fractionater, and propane
terminal, but only to the extent each of the same are subject to a perfected
first priority lien in favor of the Agent for the benefit of the Lenders, and
based upon such other factors, assumptions, criteria and general credit
considerations as the Lenders in their sole discretion deem appropriate.
(ii) The Borrowing Base as so designated shall be
effective on and including the date on which the Agent sends the
notice provided in Section 4(d) (herein called a "Determination Date")
------------------
and, until the next date on which the Borrowing Base is redesignated
by the Lenders. A Determination Date may occur during the period
between the date on which a Request for Revolver Advance is submitted
and the day on which such Revolver Advance is to be made.
(iii) If Borrower does not furnish to the Agent the
information required by Section 4(b) by the date specified therein,
the Agent may designate the Borrowing Base at any amount which the
Lenders determine based on the relevant information then available to
the Lenders and the Agent. The Agent may redesignate the Borrowing
Base from time to time thereafter until the Lenders receive the
required information, whereupon a new Borrowing Base shall be
determined as described above.
(iv) No increase in the Borrowing Base shall be made
at any time unless the amount of such increase is agreed to by all
Lenders.
(d) Notification of Borrowinq Base. The Agent shall give
------------------------------
written notice to Borrower of the amount determined pursuant to Section 4(c) as
the Borrowing Base for such period as soon as possible after the Lenders have
made such determination. Until the Agent has notified Borrower of the Borrowing
Base for such period pursuant to this Section 4(d), the Borrowing Base shall be
the amount determined pursuant to this Section 4 for the immediately preceding
period.
SECTION 5. BORROWING BASE DEFICIENCY. If the aggregate unpaid
-------------------------
principal amount outstanding under the Notes exceeds the Borrowing Base then in
effect (the "Borrowing Base Deficiency"), Borrower shall take one of the
-------------------------
following actions following receipt of notice from the Agent of the existence of
such Borrowing Base Deficiency:
(a) Repay Excess Debt. Within 30 calendar days following
-----------------
receipt of such notice from the Agent, make a mandatory prepayment on the Loans
in accordance with Section 2(g) in an amount equal to the Borrowing Base
Deficiency; or
(b) Installment Payments. Make mandatory prepayments of the
--------------------
Loans in an aggregate amount equal to the Borrowing Base Deficiency, payable in
six equal monthly installments, with the first installment due within 30
calendar days following receipt of such notice from the Agent; such mandatory
prepayments to be made in accordance with Section 2(g) hereof.
Failure of Borrower to comply with this Section 5 shall be an
immediate Event of Default.
SECTION 6. SECURITY. The repayment of the Loans and the Notes and all
--------
extensions and renewals thereof, and the performance of all obligations of
Borrower hereunder, shall be secured by the Security Documents.
SECTION 7. REPRESENTATIONS AND WARRANTIES. Borrower represents and
------------------------------
warrants to the Agent and each Lender that:
(a) Existence.
---------
-16-
<PAGE>
(i) Borrower is a limited partnership duly
organized, validly existing and in good standing
under the laws of the State of Colorado, and is
qualified to do business in Arkansas, Kentucky,
Texas and West Virginia and in every other
jurisdiction in which the nature of its business
or the ownership of its assets requires such
qualification and failure to so qualify could have
a material adverse effect on Borrower, its
business, operations, assets, property, prospects
or condition (financial or otherwise);
(ii) Each of the Related Persons other than
Borrower is duly organized, validly existing and in good standing
under the laws of the state of its incorporation or formation and is
qualified to do business in every jurisdiction in which the nature of
its business or the ownership of its assets requires such
qualification and failure to so qualify could have a material adverse
effect on Borrower or such Related Person, its business, operations,
assets, property, prospects or condition (financial or otherwise);
(iii) Each Related Person has the power and
authority to own the property which it owns and to carry on its
business as such business is now conducted; and
(iv) Each Related Person has all franchises,
permits, licenses and similar agreements necessary to carry on its
business as now conducted, and has not received any notices of default
or termination under any of such agreements.
(b) Non-Contravention. The execution, delivery and
-----------------
performance by the Borrower of this Agreement, and the other Loan Documents and
the borrowings hereunder, and the consummation of the transactions contemplated
herein and therein will not conflict with the limited partnership agreement or
other organizational or governing documents of any Related Person, or conflict
with or result in any breach of any mortgage, lien, lease, agreement,
instrument, order, judgment, decree, law, rule, regulation or any other
restriction of any kind or character to which any Related Person is a party or
is subject or by which any Related Person or its properties are bound or
affected or result in the creation or imposition of any lien, charge or
encumbrance upon. any property of any Related Person.
(c) Third Party Authorization. No consent, approval,
-------------------------
exemption, authorization or order of or other action by, and no notice to or
filing with, any court or governmental authority or third party is required by
any Related Person in connection with the execution, delivery or performance by
Borrower of this Agreement, or any other Loan Document or to consummate any
transactions contemplated hereby or thereby.
(d) Authorization; Binding Effect. Borrower has full power
-----------------------------
and authority to enter into this Agreement and the other Loan Documents. The
execution and delivery of this Agreement, and the other Loan Documents, and the
performance and observance of their terms, conditions and obligations, have been
duly authorized by all necessary action by Borrower and the General Partner.
This Agreement and the Notes are, and the other Loan Documents when duly
executed and delivered will be,' legal, valid and binding obligations of
Borrower, enforceable in accordance with their respective terms, except as such
enforcement may be limited by bankruptcy, insolvency or similar laws of general
application relating to the enforcement of creditors' rights.
(e) Litigation. Except as disclosed in Exhibit H attached
---------- ---------
hereto, there are no actions, suits, proceedings or claims against any Related
Person or the General Partner or any of their respective properties pending or,
to the knowledge of Borrower, threatened before any court or by or before any
governmental instrumentality, which could have a material adverse effect on the
business, operations, property, prospects or condition (financial or otherwise)
of any Related Person or the ability of Borrower to perform its obligations
under this Agreement, or any of the other Loan Documents. There exists no
default or breach by any Related Person with respect to any order, writ,
injunction, decree or demand of any court or governmental instrumentality, nor
does the execution, delivery or performance by Borrower of this Agreement or any
of the other Loan Documents result in any such default or breach.
(f) Taxes. Each Related Person has filed all required tax
-----
returns and paid all taxes and other governmental charges or levies imposed upon
or against it or its properties, including the Mortgages and the Collateral, or
profits before the same became in default, except those being contested in good
faith and by appropriate proceedings, for which adequate reserves have been set
up by such Person, and for which there is no risk of loss 'of any of the
Collateral.
-17-
<PAGE>
(g) Liens. All property and assets of Borrower are free and
-----
clear of all liens and encumbrances except (i) the liens permitted by Section
9(b) hereof, and (ii) the liens pursuant to the First American Loan and the
NationsBank Loan, both of which will be released simultaneously with the
execution of this Agreement.
(h) Names and Places of Business. No Related Person has
----------------------------
been known by, or used any other partnership, trade, or fictitious name. The
chief executive office and principal place of business of Borrower and the
General Partner have been located at the address of Borrower set out in Section
13(b) for at least the four months immediately preceding the date hereof. The
place where Borrower keeps its books and records concerning the Collateral is at
Borrower's address for notices set forth in Section 13(b), and has been there
for at least the four months immediately preceding the date hereof.
(i) Use of Proceeds. (i) The proceeds of the Term Loan
---------------
shall be used solely to finance existing assets of Borrower and to repay the
principal of and accrued interest on outstanding Debt of Borrower, including
repayment in full of the First American Loan, , and (ii) the proceeds of the
Revolver Loan shall be used solely for general business or commercial purposes,
including capital expenditures and acquisition of natural gas processing and
natural gas liquids related facilities. In no event shall funds from any Advance
be used directly or indirectly by any Person for personal, family, household or
agricultural purposes.
(j) Other Obligations. No Related Person has any
-----------------
outstanding Debt of any kind (including contingent obligations, tax assessments,
and unusual forward or long-term commitments) which is, in the aggregate,
material to such Related Person or material with respect to Borrower's
Consolidated financial condition and not shown in the Initial Financial
Statements.
(k) Full Disclosure. No certificate, statement, report or
---------------
other information delivered herewith or heretofore by any Related Person or the
General Partner to Agent or the Lenders in connection with the negotiation of
this Agreement or in connection with any transaction contemplated hereby
contains any untrue statement of a material fact or omits to state any material
fact known to such Person necessary to make the statements contained herein or
therein not materially misleading as of the date made or deemed made. There is
no fact known to any Related Person or the General Partner that has not been
disclosed to the Agent or the Lenders in writing that could materially and
adversely affect Borrower's properties, business, prospects or condition
(financial or otherwise).
(l) Margin Stock. No Related Person is engaged principally,
------------
or as one of its important activities, in the business of extending credit to
others for the purpose of purchasing or carrying any "margin stock" or any
"margin securities" (as such terms are defined respectively in Regulation U and
Regulation G promulgated by the Board of Governors of the Federal Reserve
System).
(m) ERISA. Neither Borrower nor any member of its
-----
Controlled Group maintains, or has ever maintained any ERISA Plan. Borrower and
the members of its Controlled Group are in compliance with ERISA and the Code in
all material respects as to all employee benefit plans maintained by Borrower
and the members of its Controlled Group. Neither Borrower nor any member of its
Controlled Group is, or has ever been, required to contribute to, or has, or has
ever had, any other absolute or contingent liability in respect of, any
"multiemployer plan" as defined in Section 4001 of ERISA. Neither the Borrower
nor any member of its Controlled Group has ever represented, promised, or
contracted (whether in oral or written form) to any current or former employee
(either individually or as a group) that such current or former employee(s)
would be provided, at any cost to any member of the Controlled Group, with any
employee welfare benefits (within the meaning of Section 3(1) of ERISA)
following retirement or termination of employment. All members of the Controlled
Group have complied in all material respects with the notice and continuation
coverage requirements of Section 4980B of the Code.
(n) Security Documents. The warranties and representations
------------------
contained in the Security Documents are true and correct in all material
respects.
(o) Compliance with Laws. Each Related Person is in
--------------------
material compliance with all laws, rules and regulations, and determination of
any arbitrator or governmental authority applicable to or binding upon it or any
of its property or to which it or any of its property is subject.
(p) Financial Condition. The Initial Financial Statements
-------------------
fairly present Borrower's financial position at the date thereof and the results
of Borrower's operations and cash flows for the period thereof. Since December
31, 1991, there has been no material adverse change in the business, financial
position or results of operations of Borrower.
-18-
<PAGE>
(q) Environmental Matters. (i) The operations of each
---------------------
Related Perso comply in all material respects with all federal, state or local
laws, statutes, rules, regulations, and all administrative orders, licenses,
authorizations and permits of any governmental authority, relating to
environmental or public health and safety; (ii) none of the operations of any
Related Person is the subject of federal, state or local investigation
evaluating whether any material remedial action is needed to respond to a
release of any hazardous or toxic waste, substance or constituent into the
environment; (iii) no Related Person has (and to the best knowledge of Borrower,
nor has any other person) filed any notice under any federal, state or local law
indicating that such Person is responsible for the release into the environment,
or the improper storage, of any material amount of any hazardous or toxic waste,
substance or constituent or that any such waste, substance or constituent has
been released, or is improperly stored, upon any property of such Person; and
(iv) no Related Person otherwise has any known material contingent liability in
connection with the release into the environment, or the improper storage, of
any such waste, substance or constituent.
(r) Investment Company Act. No Related Person is an
----------------------
"investment company" or a company "controlled" by an "investment company",
within the meaning of the Investment Company Act of 1940, as amended.
(s) Public Utility Holding Company Act. No Related Person
----------------------------------
is a "holding company", or a "subsidiary company" of a "holding company", or an
"affiliate" of a "holding company" or of a "subsidiary company" of a "holding
company", within the meaning of the Public Utility Holding Company Act of 1935,
as amended.
(t) Title to Properties; First Priority Security Interest.
-----------------------------------------------------
Each Related Person and the General Partner have good and indefeasible title to
all of their respective material properties and assets, free and clear of all
liens except those permitted by Section 9(b) hereof. Upon filing and recording
of the Mortgages and the related financing statements in the locations
specified in the opinions provided to the Lenders pursuant to Section
3(a)(ii)(B) hereof, the Agent, on behalf of the Lenders will have a perfected
first priority lien or security interest in all of the Collateral.
(u) Partners, Shareholders and Subsidiaries of Borrower and
-------------------------------------------------------
of Related Persons. The General Partner is the sole general partner of Borrower.
- ------------------
The identity of the limited partners of Borrower and their respective limited
partnership interests are set forth in Exhibit I hereto and the identity and
---------
percentage ownership interest of the shareholders of General Partner are set
forth in Exhibit I. Borrower does not presently have any Subsidiaries or own any
---------
stock or equity interest in any corporation, partnership, joint venture or
association, except for Borrower's interests in the Florida Mesa Project and
except, after the date hereof, interests acquired as permitted by Section 9(e)
hereof.
(v) Location of Inventory. The location of all of
---------------------
Borrower's inventory is set forth in Exhibit J hereto.
---------
SECTION 8. AFFIRMATIVE COVENANTS. Until payment in full of tile Loans
---------------------
and termination of all commitments by the Lenders to make Advances hereunder,
without the prior written consent of the Required Lenders:
(a) Payment and Performance of Loans. Borrower shall duly
--------------------------------
and punctually pay or cause to be paid in lawful money of the United States, the
principal and interest on the Loans upon the dates, at the place and in the
manner set forth in Section 2 hereof, and perform and observe all other
obligations of Borrower under this Agreement and the other Loan Documents.
(b) Financial Statements. Each of the Related Persons shall
--------------------
keep proper books of record and account in which full, true and correct entries
will be made of all business, dealings and affairs in accordance with GAAP, and
Borrower shall deliver to the Agent sufficient copies for each Lender, at
Borrower's expense and in an acceptable format:
(i) Within 120 calendar days after the end of
each Fiscal Year, complete audited annual
financial statements of Borrower, together with
all notes thereto, prepared in reasonable detail
in accordance with GAAP, together with an
unqualified opinion, based on an audit conducted
by Price Waterhouse or other independent certified
publi c accountants selected by Borrower and
acceptable to the Lenders, stating that such
financial statements present fairly the financial
position for the periods indicated in conformity
with GAAP applied on a basis consistent with prior
years (except as otherwise required due to changes
in GAAP);
(ii) Within 45 calendar days after the end of
each calendar month, an unaudited
-19-
<PAGE>
monthly income statement, balance-sheet and statement of cash flows
for the subject month, prepared in reasonable detail and in accordance
with GAAP, together with a report describing for each natural gas
liquids processing or distribution facility the revenue and expenses
(including capital expenditures) relating thereto, the "throughput"
figures for such facilities for such calendar month, and a list of the
prices, capital expenditures, new material contracts and amendments to
existing material contracts relating thereto. For purposes of this
Subsection 8(b)(ii), "material contract" shall mean any contract with
a term exceeding one year or a value exceeding $1,000,000.
(iii) Together with delivery of each of the
financial statements described in Subsection (i) and (ii) above, a
certificate signed by the president or chief financial officer of the
General Partner of Borrower in the form of Exhibit K attached hereto,
---------
stating that he or she has read this Agreement and made all other
necessary investigations, attesting to the authenticity of such
financial statements, showing the calculation of and compliance with
the financial covenants contained in this Agreement, and stating that
in making the examination and reporting on such financial statements,
he or she concluded that there did not exist any condition or event at
the end of such Fiscal Year or at the time of such certificate which
constituted an Event of Default or an Unmatured Event of Default, or,
if such condition or event existed, specifying the nature and period
of existence of any such condition or event;
(iv) Within 120 calendar days after the end of
each Fiscal Year, annual unaudited Consolidated financial statements
of the General Partner, together with all notes thereto, prepared in
reasonable detail in accordance with GAAP applied on a basis
consistent with prior years; provided, however, that if the General
-------- -------
Partner has an audited financial statement prepared for any reason, at
any time, then such audited financial statement shall be promptly
furnished to the Agent together with any opinion obtained from its
independent certified public accountants relating thereto;
(v) Within 30 days after the same are filed,
copies of all financial statements, registration statements and
regular, periodical or special reports that any Related Person or the
General Partner may make to, or file with, the Securities and Exchange
Commission or any stock exchange; and
(vi) Within 30 days, such additional financial
and other information as any of the Agent or either of the Lenders may
from time to time reasonably request, including without limitation
reasonable detail with respect to the information provided on an
aggregate basis pursuant to Subsection (ii) above.
(c) Preservation of Existence, Etc. (i) Borrower shall
------------------------------
maintain in full force and effect Borrower's existence as a limited partnership
and its good standing under the laws of the State of Colorado and its right to
transact business in the States of Arkansas, Kentucky, Texas and West Virginia;
and (ii) each Related Person shall maintain its good standing under the laws of
the state of its formation and its right to transact business in all states
where its activities and ownership of assets are such that qualification to
transact business is necessary under the laws of such states and failure to so
qualify could have a material adverse effect on such Person or on Borrower, or
on Borrower's business, property, prospects, assets, operations or condition
(financial or otherwise).
(d) Maintenance of Property. Borrower shall maintain,
-----------------------
preserve, protect and keep in good repair and in good working order and
condition the Collateral; and each Related Person shall maintain all other
properties, real or personal, used or useful in its business in good repair and
in good working order and condition.
(e) Payment of Other Obliqations.
----------------------------
(i) Each Related Person shall duly and punctually
pay and discharge (A) all taxes, assessments and
other governmental charges assessed against or
imposed upon or with respect to such Person or its
properties or assets prior to the date when they
shall become delinquent unless the same are being
contested in good faith and by appropriate
proceedings and appropriate reserves have been
established in accordance with GAAP and there is
no risk of loss of any of the Collateral; (B) all
charges for labor, materials and supplies which if
unpaid might become a lien against any part of the
property of such Person unless the same are being
contested in good faith and by appropriate
proceedings and appropriate reserves have been
established in accordance with GAAP and there is
no risk of loss of any of the Collateral; and (C)
all federal and state social security, worker's
-20-
<PAGE>
compensation and similar taxes, payments and
contributions for which such Person may be liable,
before the same become delinquent unless the same
are being contested in good faith and by
appropriate proceedings and appropriate reserves
have been established in accordance with GAAP and
there is no risk of loss of any of the Collateral;
and
(ii) duly and punctually pay all Debt obligations
(principal and interest), including without limitation, accounts
payable and lease obligations, unless the same are being contested in
good faith and by appropriate proceedings and appropriate reserves
have been established in accordance with GAAP.
(f) Insurance. Each Related Person shall keep all of its
---------
insurable property, real and personal, adequately insured at all times against
fire and against such other risks as are customarily insured against by similar
businesses of a comparable size, and fully insure against its employer's and
public liability risks in financially sound and reputable insurance companies,
all in such amounts and upon such terms and conditions, including deductibles,
consistent with industry standards. Each insurance policy covering Collateral
shall be endorsed (i) to provide for payment of losses to the Agent, for the
benefit of the Lenders, as its interests may appear, (ii) to provide that such
policies may not be cancelled, reduced or affected in any manner for any reason
without fifteen days prior notice to the Agent, (iii) to provide for any other
matters specified in any applicable Security Document or which the Lenders or
the Agent may reasonably require; (iv) to provide for insurance against fire,
casualty and any other hazards normally insured against, in the amount of the
full value (less a reasonable deductible not to exceed amounts customary in the
industry for similarly situated businesses and properties) of the property
insured, and (v) business interruption insurance in an amount equal to the cost
of operating Borrower's business as reasonably determined by Borrower for a six-
month period, which may change from time to time depending upon Borrower's costs
of operation at the time in question. Each Related Person shall at all times
maintain adequate insurance against its liability for injury to persons or
property, which insurance shall be by financially sound and reputable insurers.
A true and complete list of all currently existing insurance of Borrower has
been furnished to the Agent prior to the date hereof. It is understood, and
Agent and Lenders agree, that based on existing circumstances Borrower has no
obligation to insure inventory.
(g) Inspection of Property, Books and Records;
-----------------------------------------
Confidentiality Agreement. Borrower shall permit the Agent's and any Lender's
- -------------------------
duly authorized officers, employees and agents to inspect (and make copies of or
abstracts therefrom) the Collateral and the other property, books and records of
Borrower and to discuss Borrower's affairs, finances and accounts with
Borrower's officers and its independent accountants, and furnish any other data
which the Agent or any Lender may reasonably request, all at the expense of
Borrower and at any reasonable time and as often as the Agent or any Lender may
reasonably request; provided that Borrower shall not be liable for expenses
-------- ----
arising out of the gross negligence or willful misconduct of the inspecting
party; provided, further, that Borrower shall not be required to give access to
-------- -------
any party inspecting the property subject to any of the Mortgages, if such
inspecting party refuses or is unwilling or unable to comply with the reasonable
safety requirements of Borrower relating to the property to be inspected. Each
Lender agrees that, until the occurrence of an Event of Default, it will take
all reasonable steps to keep confidential any proprietary information given to
it by any Related Person including without limitation any environmental
information or reports pertaining to the property subject to the Mortgages,
provided, however, that this restriction shall not apply to information which
- -------- -------
(i) has at the time in question entered the public domain, (ii) is required to
be disclosed by law or by any order, rule or regulation (whether valid or
invalid) of any court or governmental agency, or authority, (iii) is disclosed
to such Lender's external auditors, (iv) is disclosed to such Lender's
affiliates', agents or attorneys, or (v) is furnished to purchasers or
prospective purchasers of participations or other interests in the Loans or the
Notes; provided that before making the disclosures described in the
immediately preceding clauses (iv) and (v), such Lender shall direct in writing
the Persons to whom such proprietary information is to be disclosed to comply
with the confidentiality provisions set forth in this Section 8(g). Borrower
agrees that if either Lender breaches its confidentiality agreement contained in
this Section 8(g), Borrower's exclusive remedy shall be an action for actual
damages and such breach shall not be asserted in any action for payment
hereunder or under the Notes or in a foreclosure of any of the Security
Documents.
(h) Notices. Borrower shall give written notice to the
-------
Agent within three days after a Responsible Person becomes aware of any of the
following:
(i) Any material adverse change in the business,
property, prospects, assets, operations or condition
(financial or otherwise), of Borrower or any other
Related Person;
(ii) Any Event of Default or Unmatured Event of
Default;
(iii) The institution of any litigation or other
proceeding before any governmental body or official against any
Related Person or any of their respective assets and any developments
in any pending
-21-
<PAGE>
litigation or other proceeding before any governmental body or
official that could materially affect Borrower or such Related Person,
its business, property, prospects, assets, operations or condition
(financial or otherwise);
(iv) Any existing or pending investigation or
inquiry by any governmental authority in connection with any
applicable Environmental Laws (as such term is defined in the
Mortgages);
(v) The institution of, or material development
in, any litigation affecting any of the Collateral, or any other
dispute or claim that could have a material adverse effect on any of
the Collateral or the calculation of the Borrowing Base;
(vi) Any fact that causes or may cause the Agent,
on behalf of the Lenders, or the Lenders to fail to have a valid,
enforceable and perfected first priority lien on or security interest
in any of the Collateral, except as expressly permitted by this
Agreement or the Security Documents and except as a result of the acts
or omissions of the Agent or either Lender; or
(vii) The shut-down of any natural gas liquids
processing facility owned or leased by Borrower for a period of 48
consecutive hours or more or of any planned shut-down of any such
facility that is expected to be in effect for a period of 48
consecutive hours or more (notice of any actual shut-down shall be
given to Agent within 24 hours after the occurrence thereof and notice
of any such planned shut-down shall be given to Agent in advance).
(i) Compliance with Laws. Each Related Person shall comply
--------------------
in all material respects with all applicable laws, statutes, rules and
regulations of the United States and of any state or municipality, and of any
official, arbitrator or governmental authority, in respect of the conduct of
business and ownership of property by such Person.
(j) Further Assurances. Borrower shall promptly and,
------------------
insofar as not contrary to applicable law, at Borrower's own expense, (i) file
and refile in such offices, at such times and as often as may be reasonably
necessary, every instrument and every amendment thereto, and take such other
action, as may be reasonably necessary or desirable to create, perfect, maintain
and preserve all liens and security interests intended to be created by Borrower
under the Security Documents in favor of the Agent for the benefit of the
Lenders or in favor of the Lenders and to protect and preserve the rights and
remedies of the Agent and the Lenders thereunder, (ii) furnish to the Agent
evidence reasonably satisfactory to the Agent of all such filings and refilings,
(iii) otherwise do all things necessary or expedient to be done to effectively
create, perfect, maintain and preserve the liens and security interests intended
to be created by the Security Documents as a lien on real property and fixtures
and a security interest in personal property and fixtures, and (iv) pay all
fees and expenses (including counsel fees) incident to this Agreement and in
compliance with this Section. In addition, Borrower covenants and agrees that if
all or any part of the Loans become subject to the provisions of the Financial
Institutions Reform, Recovery and Enforcement Act of 1989, as it may be amended
from time to time, or other governmental regulation requiring appraisals,
surveys or similar requirements as to all or any part of the Collateral,
Borrower shall promptly provide the Agent and the Lenders with any appraisals,
surveys or other items required to have the Loans be in compliance with all
applicable state and federal laws, at its sole cost and expense.
(k) Current Ratio. Borrower shall maintain a Current Ratio
-------------
of not less than 1.1 to 1.0.
(1) Funded Debt to Total Capitalization. Borrower's Funded
-----------------------------------
Debt shall not exceed 65% of its Total Capitalization.
(m) Tangible Net Worth. Borrower shall maintain a Tangible
------------------
Net Worth equal to or greater than the sum of $15,000,000 plus 25 percent of
consolidated net income determined in accordance with GAAP and earned by
Borrower after December 31, 1991 (but excluding any net losses).
(n) Fixed Charge Coverage Ratio. Borrower shall maintain a
---------------------------
Fixed Charge Coverage Ratio, determined as of the end of any Fiscal Quarter,
commencing with the Fiscal, Quarter ending December 31, 1992, calculated on a
rolling four quarter basis, Of not less than 1.5.
(o) Environmental Matters. No Related Person shall cause or
---------------------
permit the use or storage of Hazardous Substances or Solid Waste (as such terms
are defined in the Mortgages) on, in or in connection with such Persons's
properties or disposal of Hazardous Substances or Solid Waste from such Person's
properties, except in full compliance with all Environmental
-22-
<PAGE>
Laws (as such term is defined in the Mortgages), or make any use of such
Person's properties that results in any requirement that such Person apply for
or obtain a permit under RCRA (as such term is defined in the Mortgages) or
other Environmental Law.for the treatment, storage or disposal of Hazardous
Substances or Solid Waste. Borrower covenants and agrees to keep or cause each
Related Person's properties to be kept free of any Hazardous Substances or Solid
Waste except in full compliance with all Environmental Laws, and, promptly upon
the discovery that the presence of any such substance on any of their respective
properties is not in full compliance, to remove the same (or if removal is
prohibited by law, to take whatever action is required by law) at Borrower's
sole expense.
(p) Additional Title Insurance. If Borrower's operations,
--------------------------
plant or equipment on its Siloam facility are to be expanded beyond the 190-acre
area it presently occupies and which is described in the Mortgagee's title
insurance policy delivered to the Agent pursuant to Subsection 3(a)(i)(D),
Borrower will furnish the Agent with an updated ALTA Form B mortgage title
policy (or such other form as is acceptable to the Agent) showing a first lien
in favor of the Agent, for the benefit of the Lenders, on such expanded area.
SECTION 9. NEGATIVE COVENANTS. Until payment in full of the Loans and
------------------
termination of all commitments by the Lenders to make Advances hereunder,
neither Borrower nor any of the other Related Persons shall, without the prior
written consent of the Required Lenders:
(a) Debt. Create, incur, assume or permit to exist any
----
Debt, except:
(i) The Loans and the Working Capital Facility;
(ii) Debt incurred to finance the acquisition or
construction by Borrower of one or more projects consistent with
Borrower's covenant contained in Section 9(e) hereof and for which
recourse is limited to the property included in the project and is no-
recourse to Borrower and the Collateral;
(iii) Obligations under leases, whether capital or
operating leases, provided that the obligations payable in any one
year do not, in the aggregate, exceed $2,000,000;
(iv) Debt incurred pursuant to Borrower's or any
Related Person's hedging activities related to such Person's line of business in
the futures or commodities market such that (A) the liability under open lines
of credit to finance futures contracts, commodities and/or option contracts does
not exceed $1,000,000 in the aggregate at any one time outstanding, and (B)
recourse is limited to Borrower's or such Related Person's position in futures
contracts;
(v) Current accounts and charges, payable or
accrued, incurred in the ordinary course of Borrower's or any Related Person's
business; and
(vi) Debt under the RIMCO Loan in a maximum
principal amount not to exceed at any one time outstanding (A) $11,500,000 from
the date hereof through and including December 1, 1992, and (B) $500,000
thereafter.
(b) Liens. Create, assume or permit to exist any mortgage,
-----
pledge, security interest, lien or other encumbrance upon any Related Person's
properties or assets, whether now owned or hereafter acquired, real or personal,
except:
(i) The Security Documents;
(ii) Liens for taxes not delinquent or being
contested in good faith and by appropriate proceedings and for which
adequate reserves have been set aside on such Person's books;
(iii) Operator's, mechanic's, workmen's,
materialmen's and other like liens arising in the Ordinary Course of
Business in respect of obligations not overdue or which are being
contested in good faith and by appropriate proceedings and for which
adequate reserves have been set aside on such Person's books and for
which there is no risk of loss of any of the Collateral;
(iv) Liens or encumbrances, if any, permitted by
the Security Documents; and
-23-
<PAGE>
(v) Liens securing Debt permitted by Section 9
(a) above.
(c) Guaranty Obligations. Assume, guarantee, endorse or
--------------------
otherwise become or be contingently liable upon (by direct or indirect
agreement, contingent or otherwise, or by operation of law, to provide funds for
payment, to supply funds to, or otherwise invest in, a debtor, or otherwise
assure a creditor against loss) for the Debt, obligation, undertaking or other
liability of any other Person, or otherwise become or be responsible in any
manner (whether by agreement to purchase any obligations, stock, assets, goods
or services, or to supply or advance any funds, assets, goods or services, or
otherwise) with respect to any undertaking of any other Person, except (i)
guarantees by Borrower of Debt incurred by MarkWest Energy Partners, Ltd. in
connection with the Florida Mesa Project so long as such guarantees do not
exceed $1,000,000 in the aggregate at any one time, and (ii) endorsements of
negotiable instruments for deposit or collection and similar transactions in the
ordinary course of its business.
(d) Loans and Advances. Make any loans or advances to any
------------------
Person, except for (i) accounts receivable or notes receivable arising from the
sale or lease of goods or services in the Ordinary Course of Business; (ii) as
part payment in the Ordinary Course of Business on its ordinary equipment
rental, repair, replacement and operating needs, or (iii) loans and advances to
officers and employees of Borrower to the extent and in the amount reflected on
in Exhibit L.
---------
(e) Limitation on Investments and New Businesses. (i) Make
--------------------------------------------
any expenditure or commitment or incur any obligation or enter into or engage in
any transaction except in the Ordinary Course. of Business, (ii) engage directly
or indirectly in any business or conduct any operations except in connection
with gas processing and gathering, gas liquids fractionation, gas and gas
liquids marketing, MTBE manufacturing, refining and marketing and gasoline
blending and oil and gas production, (iii) make any acquisitions of or capital
contributions to or other investments in any Person unless the following
conditions are satisfied: (A) the investment is in a Person engaged in any of
the businesses described in (e)(ii) above, and (B) Agent has received 10 days'
advance notice of such investment. Notwithstanding the foregoing, the Related
Persons may make (1) investments in open market commercial paper, maturing
within 365 days after acquisition thereof, which has a credit rating of at least
A-2 or P-2 by either Standard & Poor's Corporation or Moody's Investors Service,
Inc., (2) marketable obligations issued or unconditionally guaranteed by the
United States of America or an instrumentality or agency thereof and entitled to
the full faith and credit of the United States of America, and (3) demand
deposits, time deposits (including certificates of deposit), repurchase
agreements, Eurodollar time deposits or bankers' acceptances, maturing in each
case within 12 months from the date of deposit thereof, with a domestic office
of either Lender.
(f) Mergers and Consolidations. Merge or consolidate into
--------------------------
or with any Person, or sell, lease, convey, transfer or otherwise dispose of all
or a substantial part of its assets to or with any Person,'except: (i) a merger
or consolidation in connection with the acquisition by Borrower of property or
facilities as a result of a stock or equity transaction in the ordinary course
of its business and after the consummation of which Borrower is the surviving
entity; (ii) a merger or consolidation of any Consolidated Subsidiary of the
Borrower with or into the Borrower, provided that the Borrower shall be the
--------
continuing or surviving corporation; in both cases, so long as no Event of
Default or Unmatured Event of Default has occurred or is continuing or would be
caused by the consummation of such merger or consolidation and Agent shall have
received within 10 days after such merger or consolidation a certificate from
the chief financial officer or any Vice President of the General Partner that
Borrower is in compliance with the provisions of this Agreement.
(g) Location of Inventory. Borrower shall not store any of its
---------------------
products or inventory except at the locations described in Exhibit J hereto
---------
without giving the Agent notice of a change within 30 days thereof and the
execution of any and all Security Documents the Agent and its counsel deem
necessary or desirable to grant a perfected first priority lien in favor of
Agent for the benefit of the Lenders in such products or inventory;
notwithstanding the foregoing, Borrower shall not, under any circumstances,
store any of its products or inventory in a location outside of the United
States.
(h) Burdensome Undertakings. Undertake, or become
-----------------------
contractually bound to undertake, any action net in the Ordinary Course of
Business that could materially adversely affect Borrower or its business,
properties, prospects, assets, operations or condition (financial or otherwise).
(i) Chance in Location of Business. Move its place of
------------------------------
business or chief executive office or the place where Borrower keeps its books
and records concerning the Collateral (including, without limitation, the
records with respect to its accounts and contract rights), from one state to
another without giving the Agent 45 days' prior written notice of the proposed
new location thereof.
-24-
<PAGE>
(j) Restricted Distributions. Make any dividends or
------------------------
distributions of assets or declare or pay any cash or liquidating distribution
or dividends or make any other distribution to any of its partners or
shareholders, other than the following:
(i) Whether or not an Event of Default. or
Unmatured Event of Default has occurred or is
continuing, Borrower may make distributions to
each of its partners in an amount equal to such
partner's estimated federal and state income tax
liabilities (assuming each partner is taxable at
the maximum marginal income tax rates) resulting
from such partner's interest in Borrower. Such
distribution shall not occur earlier than 30 days
prior to the date such payments are due;
(ii) So long as a Borrowing Base Deficiency does
not exist and no Event of Default or Unmatured Event of Default has
occurred, Borrower may make distributions in an aggregate cumulative
amount not to exceed 75 percent of Borrower's net income, determined in
accordance with GAAP and computed on a cumulative basis for all periods
since December 31, 1991, taking into account allowable distributions
previously declared or made since December 31, 1991; provided, however,
-------- -------
that such distributions are allowable so long as they would not cause
Borrower to be in contravention of the financial covenants contained in
Sections S(k), (1), (m) and (n); and
(iii) As to any Subsidiary of Borrower, the
foregoing restrictions of this Section 9(j) shall not apply.
(k) Disposition of Assets. Sell, transfer, lease, exchange
---------------------
or otherwise dispose of any of its assets, real or personal, except as follows:
(i) sales, transfers, leases, exchanges or other
dispositions of assets by Borrower or any other
Related Person in the Ordinary Course of Business;
and
(ii) sales, transfers, leases, exchanges or other
dispositions of assets by Borrower and the other Related Persons not
in the Ordinary Course of Business, so long as such transaction is on
fair and reasonable terms and the proceeds from all such transactions
do not exceed $250,000 in the aggregate in any calendar year.
(1) ERISA. Establish, maintain or contribute to any ERISA
-----
Plans or incur any obligation to contribute to any "multiemployer plan" as
defined in Section 4001 of ERISA or represent, promise, or contract (in oral or
written form) to any current or former employee (individually or as a group)
that such current or former employee(s) would be provided, at any cost to any
member of the Controlled Group, with any employee welfare benefits (as defined
in Section 3(1) of ERISA) following retirement or termination of employment.
(m) Use of Proceeds. Use any funds from the Loans directly
---------------
or indirectly for the purpose, whether immediate, incidental or ultimate, of
purchasing, acquiring or carrying any "margin stock' or any "margin securities"
(as such terms are defined respectively in Regulation U and Regulation G
promulgated by the Board of Governors of the Federal Reserve System) or to
extend credit to others directly or indirectly for the purpose of purchasing or
carrying any such margin stock or margin securities.
(n) Transactions with Affiliates. Enter into any
----------------------------
transaction with any Affiliate, except any transaction that is in the ordinary
course of such Related Person's business and that is upon fair and reasonable
terms no less favorable to such Related Person than would obtain in a comparable
arm's-length transaction with a Person not an Affiliate of such Related Person.
(o) Contracts; Take-or-Pay Agreements. Amend or modify the
---------------------------------
Columbia Contracts in any manner or permit any of them to be amended or modified
or any term waived by any party thereto or assign any of its rights thereunder.
Enter into any "take-or-pay" contract or other contract which requires it to pay
for oil, gas, other hydrocarbons or other minerals prior to taking delivery
thereof, provided that Borrower may enter into such contracts so long as the
--------
term thereof does not exceed one year, and provided further that Borrower may
-------- -------
enter into such contracts if the products purchased thereunder are needed by the
associated facility at the time of delivery thereof. Examples of permitted
contracts include (i) futures contracts to hedge (but not speculate) against
future changes in prices and (ii) reciprocal exchange agreements or back to back
contracts in which Borrower avoids the cost of all or a portion of the cost of
transportation of natural gas or natural gas liquids (in this subsection called
"gas and liquids") processed by
-25-
<PAGE>
it by exchanging such gas and liquids for gas and liquids processed by others
which are closer in location to Borrower's ultimate purchaser. Examples of
prohibited contracts include: (1) essentially speculative contracts entered into
primarily in hopes of bonefitting from price changes and (i) providing for the
purchase of gas and liquids not covered by a back to back contract permitting an
exchange or sale thereof within 180 days after the date of purchase or (ii)
providing for the purchase of gas and liquids that will not be consumed in
Borrower's operations within 180 days after the purchase thereof; and (2)
contracts for the future sale or purchase of gas or liquids that are not for the
purpose of facilitating the ultimate sale of gas or liquids owned, distributed
or processed by Borrower. Notwithstanding the foregoing provisions of this
section, Borrower may enter into speculative contracts not related to Borrower's
operations primarily in hopes of benefitting from price changes so long as the
aggregate liability (including contingent or potential liability) and costs of
Borrower thereunder do not exceed $1,250,000 at any time.
(p) Amendments to Organizational Documents. Amend the
--------------------------------------
partnership agreement of Borrower or any other organizational document of any
Related Person.
(q) Amendments to RIMCO Loan Documents. Amend, modify or
----------------------------------
waive, or consent or acquiesce in the amendment, modification, or waiver of any
term or provision of any document evidencing or securing the RIMCO Loan, or any
other document executed in connection with the RIMCO loan.
SECTION 10. EVENTS OF DEFAULT. The occurrence of any of the following
-----------------
shall constitute an event of default ("Event of Default") hereunder:
(a) Non-Payment. Failure by Borrower to (i) pay any
-----------
installment of principal of, or interest on, the Notes, any fees or other
amounts payable hereunder or under the Notes or any of the Security Documents
within three Business Days after its due date, or (ii) comply with the
provisions of Section 5 within the 30-day period set forth therein.
(b) Certain Defaults. Failure by Borrower to perform or
----------------
observe any term, covenant, agreement, condition or provision contained in any
of Sections 2(a)(ii), 8(b), (c)(ii), (g), (h), (k), (1), (m) or (n), or
Sections 9 (a) through (q), inclusive.
(c) Other Defaults. Failure by Borrower to perform or
--------------
observe any other covenant, agreement, condition or provision contained in this
Agreement or in the Notes (which covenant, agreement, condition or provision is
not included in Subsection 10(a) or (b)), and such failure continues unremedied
for a period of 30 days.
(d) Representation or Warranty. Any representation or
--------------------------
warranty of the Borrower, whether contained in this Agreement or in any
certificate or other writing required or contemplated by this Agreement or in
the Security Agreement, or any representation or warranty of any party to a
Covenant Agreement shall be false or misleading in any material respect as of
the date made or deemed made.
(e) Security Documents and Covenant Agreements.
(i) Occurrence of any of the events of default
defined in any of the Security Documents or
Covenant Agreements.
(ii) Any of the Security Documents shall for any
reason (other than pursuant to the terms thereof or as a direct result
of any act or omission of Lenders or Agent) cease to create a valid
security interest in the collateral purported to be covered thereby or
such security interest shall for any reason cease to be a perfected
and first priority lien and security interest, subject only to those
matters expressly permitted by Section 9(b) hereof or by the
applicable 'Security Document.
(iii) Any of the Covenant Agreements shall cease
to be in full force and effect.
(iv) Failure of the General Partner or John Fox,
as applicable, to perform or observe any covenant, agreement,
condition or provision contained in its or his respective Covenant
Agreement.
(v) Failure by Borrower to perform or observe
any term, covenant, agreement, condition or provision contained in the
Security Agreement.
-26-
<PAGE>
(f). Judgments. Any money judgment, writ or warrant of
---------
attachment, or similar process in an amount of $250,000 (in the aggregate) or
more shall be entered or filed against any Related Person or any of its assets
and shall remain unvacated, unbonded or unstayed for a period of 30 calendar
days, or in any event later than five calendar days prior to the date of any
proposed sale thereunder.
(g) Insolvency. Any Related Person or the General Partner
----------
shall become insolvent, admit in writing its inability to pay its debts as they
mature, or make an assignment for the benefit of creditors; or apply for or
consent to the appointment of a receiver or trustee for it or for a substantial
part of its property or business; or such a receiver or trustee otherwise shall
be appointed and shall not be discharged within 30 calendar days after such
appointment.
(h) Bankruptcy, Etc. Bankruptcy, insolvency,
----------------
reorganization or liquidation proceedings or other proceedings for relief under
any bankruptcy law or any other law for the relief of debtors shall be
instituted by or against any Related Person or the General Partner (except for
an involuntary petition against any Related Person or the General Partner, which
shall not constitute an Event of Default if such petition is vacated or
dismissed within 15 Business Days after the filing thereof), or any order,
judgment or decree shall be entered against any Related Person or the General
Partner decreeing its dissolution or division.
(i) Cross-Default. Any event of default shall occur as to
-------------
any other agreement now or hereafter existing relating to extensions of credit
to any Related Person or the General Partner by the Lenders or either of them,
including without limitation the Working Capital Facility, or by any third
party, including without limitation, the RIMCO Loan, or any event which with the
passage of time or giving of notice, or both, would permit the holder or holders
of such indebtedness to cause such indebtedness to be declared to be due and
payable prior to its stated maturity.
(j) ERISA. An employee benefit plan that is intended to be
-----
qualified under the Code shall lose its qualification, and the loss can
reasonably be expected to impose on the Controlled Group liability (for
additional taxes to Plan participants, or otherwise) in the aggregate amount of
$250,000 or more; any member of the Controlled Group engages in or becomes
liable for a non-exempt prohibited transaction and the initial tax or additional
tax under Section 4975 of the Code might reasonably be expected to exceed
$100,000; a violation of Section 404 or 405 of ERISA or Section 401(a)(2) of the
Code that can be reasonably expected to expose the Controlled Group to liability
in excess of $250,000; any member of the Controlled Group is assessed a tax
under Section 4980B of the Code or is liable for failure to comply with the
Section 4980B notice and continuation coverage requirements that can be
reasonably expected to result in liability to the Controlled Group in excess of
$250,000; any member of the Controlled Group is assessed a penalty under-Section
502(c)(2) of ERISA or Section 6652(e) of the Code that can be reasonably
expected to expose the Controlled Group to liability in excess of $250,000; or
any combination of the foregoing events that involves potential liability in
excess of $250,000.
(k) Loan Documents. This Agreement, the Notes, any of the
--------------
other Loan Documents or any of the Covenant Agreements shall for any reason be
revoked or invalidated, or otherwise cease to be in full force and effect,
except as a direct result of the acts or omissions of the Agent or the Lenders.
(1) Material Adverse Change. Any material adverse change
-----------------------
occurs in Borrower's financial condition or business or operations (including,
without limitation, any material adverse change caused by Borrower becoming
subject to any statute, regulation or order of any governmental authority after
the date hereof).
(m) Partners of Borrower. The General Partner ceases to be
--------------------
the sole general partner of Borrower. Any change occurs in the identity or
ownership interests of any limited partner of Borrower owning at least a 10%
interest at such time, other than pursuant to the Employee Option Agreement or
pursuant to the RIMCO Loan documents.
(n) Ownership of the General Partner. John Fox and the
members of his immediate family cease to own collectively at least seventy-five
percent (75%) of the issued and outstanding voting stock of General Partner.
(o) Failure to be a Partnership. Borrower is not treated as
---------------------------
a partnership for federal income tax purposes.
(p) Columbia Contracts. Any of the Columbia Contracts shall
------------------
cease to be in full force and effect for any reason, including, without
limitation, as the result of being rejected or disaffirmed by Columbia Gas
Transmission Corporation, a debtor in possession under federal bankruptcy laws.
-27-
<PAGE>
(q) Regulatory Change. There shall be any legislative
-----------------
action by any local, state or federal agency or other governmental entity
resulting in any regulatory control of Borrower's operations, the result of
which has or could have, in Lenders' reasonable opinion, a significant financial
impact on, or control of, its financial condition.
SECTION 11. REMEDIES. (a) Automatic Acceleration of Loan. Upon the
--------
occurrence of any Event of Default specified in Section 10(g) or (h), the
obligation of the Lenders to make Advances under the Loans shall automatically
terminate and the unpaid principal amount of the Loans and all interest and
other amounts payable hereunder, under the Notes or any of the Security
Documents, shall automatically become due and payable without further act of the
Agent or the Lenders.
(b) Optional Acceleration of Loan. Upon the occurrence of
-----------------------------
any Event of Default (other than those specified in Section ll(a) above, the
Agent may, from time to time, do any or all of the following:
(i) Declare all or any part of the Loans to be
forthwith due and payable, together with all
accrued and unpaid interest thereon and all other
amounts payable hereunder or under any of the
other Loan Documents, without presentment, demand,
protest or other notice of any kind, all of which
are expressly waived by Borrower;
(ii) Declare the Commitments terminated;
(iii) With respect to any and all contingent,
unmatured or unliquidated obligations of Borrower hereunder, declare
and require that cash in an amount equal to the aggregate outstanding
amount of all such obligations be immediately paid over, pledged and
delivered to the Agent on behalf of the Lenders to be held as cash
collateral for such obligations; and
(iv) Proceed with every remedy provided for
herein or in the Notes, the Security Documents or any contract,
agreement or undertaking supplemental hereto and the Lenders shall
have, without limitation, all of the rights of a secured party under
the Uniform Commercial Codes as then in effect with respect to any
security then held for the Loans.
The enforcement of any rights of the Agent and the Lenders as to the
security for the Loans shall not affect the rights of the Agent or the Lenders
to enforce payment of the Loans against Borrower and to recover judgment against
Borrower for any portion thereof remaining unpaid.
(c) Setoff. Upon the occurrence of any Event of Default,
------
each Lender shall have the right at any time and from time to time, without
prior notice to Borrower (which notice is hereby waived by Borrower to the
fullest extent permitted by law), to setoff and apply any debt owing to Borrower
by such Lender, including without limitation, any deposits (general or special,
time or Lender, against any and all obligations of Borrower now or hereafter
existing under this Agreement or any of the other Loan Documents, although such
obligations may be contingent or unmatured, and for such purpose Borrower hereby
grants a security interest in and assigns to each Lender all such deposit
accounts.
SECTION 12. THE AGENT.
---------
(a) Appointment. Each Lender hereby irrevocably designates
an -----------
d appoints Norwest as the Agent of such Lender under this Agreement and the
other Loan Documents, and each such Lender irrevocably authorizes Norwest as the
Agent for such Lender, to take such action on its behalf under the provisions of
this Agreement and the other Loan Documents and to exercise such powers and
perform such duties as are expressly delegated to the Agent by the terms of this
Agreement and the other Loan Documents, together with such other powers as are
reasonably incidental thereto. Notwithstanding any provision to the contrary
contained elsewhere in this Agreement, the Agent shall not have any duties or
responsibilities, except those expressly set forth herein, or any fiduciary
relationship with any Lender, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Agreement or any other Loan DOcument or otherwise exist against the Agent.
(b) Delegation of Duties. The Agent may execute any of its
--------------------
duties under this Agreement and the other Loan Documents by or through agents
or attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters
-28-
<PAGE>
pertaining to such duties. The Agent shall not be responsible to the Lenders for
the negligence or misconduct of any agents or attorneys-in-fact selected by it
with reasonable care.
(c) Exculpatory Provisions. Neither the Agent nor any of
----------------------
its officers, directors, employees, agents, attorneys-in-fact or affiliates
shall be (i) liable for any action lawfully taken or omitted to be taken by it
or such Person or entity under or in connection with this Agreement or any other
Loan Document (except for its or such Person's or entity's own gross negligence
or willful misconduct), or (ii) responsible in any manner to any of the Lenders
for any recitals, statements, representations or warranties made by the Borrower
or any representative thereof contained in this Agreement or any other Loan
Document or in any certificate, report, statement or other document referred to
or provided for in, or received by the Agent under or in connection with, this
Agreement or any other Loan Document or for the value, validity, effectiveness,
genuineness, enforceability or sufficiency of this Agreement or the Notes or any
other Loan Document or for any failure of the Borrower to perform its
obligations hereunder or thereunder. The Agent shall not be under any obligation
to any Lender to ascertain or to inquire as to the observance or performance of
any of the agreements contained in, or conditions of, this Agreement or any
other Loan Document, or to inspect the properties, books or records of the
Borrower.
(d) Reliance by Agent. The Agent shall be entitled to rely,
-----------------
and shall be fully protected in relying, upon any Note, writing, resolution,
notice, consent, certificate,. affidavit, letter, telecopy or telex message,
statement, order or other document or conversation believed by it to be genuine
and correct and to have been signed, sent or made by the proper person or
persons and upon advice and statements of legal counsel (including, without
limitation, counsel to the Borrower), independent accountants and other experts
selected by the Agent. The Agent may deem and treat the payee of any Note as the
owner thereof for all purposes unless a written notice of assignment,
negotiation or transfer thereof shall have been filed with the Agent. The Agent
shall be fully justified in failing or refusing to take any action under this
Agreement or any other Loan Document unless it shall first receive such advice
or concurrence of the Required Lenders as it deems appropriate or it shall first
be indemnified to its satisfaction by the Lenders against any and all liability
and expense which may be incurred by it by reason of taking or continuing to
take any such action. The Agent shall in all cases be fully protected in acting,
or in refraining from acting, under this Agreement and the Notes and the other
Loan Documents in accordance with a request of the Required Lenders,. and such
request and any action taken or failure to act pursuant thereto shall be binding
upon all the Lenders and all future holders of the Notes.
(e) Notice of Default. The Agent shall not be deemed to
-----------------
have knowledge or notice of the occurrence of any Unmatured Event of Default or
Event of Default hereunder unless the Agent has received notice from a Lender or
the Borrower referring to this Agreement, describing such Unmatured Event of
Default or Event of Default and stating that such notice is a "notice of
default." In the event that the Agent receives such a notice, the Agent shall
give notice thereof to the Lenders.
(f) Non-Reliance on Agent and Other Lenders. Each Lender
---------------------------------------
expressly acknowledges that neither the Agent nor any of its officers,
directors, employees, agents, attorneys-in-fact or affiliates has made any
representations or warranties to it and that no act by the Agent hereinafter
taken, including any review of the affairs of the Borrower, shall be deemed to
constitute any representation or warranty by the Agent to any Lender. Each
Lender represents to the Agent that it has, independently and without reliance
upon the Agent or any other Lender, and based on such documents and information
as it has deemed appropriate, made its own appraisal of and investigation into
the business, operations, property, financial and other condition and
creditworthiness of the Borrower and made its own decision to make its Loans
hereunder and enter into this Agreement. Each Lender also represents that it
will, independently and without reliance upon the Agent or any other Lender, and
based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit analysis, appraisals and decisions in
taking or not taking action under this Agreement and the other Loan Documents,
and to make such investigation as it deems necessary to inform itself as to the
business, operations, property, financial and other condition and
creditworthiness of the Borrower. Except for notices, reports and other
documents expressly required to be furnished to the Lenders by the Agent
hereunder, the Agent shall not have any duty or responsibility to provide any
Lender with any credit or other information concerning the business, operations,
property, condition (financial or otherwise), prospects or creditworthiness of
the Borrower which may come into the possession of the Agent or any of its
officers, directors, employees, agents, attorneys-in-fact or affiliates.
(g) Indemnification. The Lenders agree to indemnify the
---------------
Agent in its capacity as such (to the extent not reimbursed by the Borrower and
without limiting the obligation of the Borrower to do so), ratably according to
the respective amounts of their original Commitments, from and against any and
all liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind whatsoever which may at any
time (including, without limitation, at any time following the payment of the
Notes) be imposed on, incurred by or asserted against the Agent in any way
relating to or arising out of this Agreement, any of the other Loan Documents or
the transactions contemplated hereby or thereby or any action taken or omitted
-29-
<PAGE>
by the Agent under or in connection with any of the foregoing; provided that no
Lender shall be liable for the payment of any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements resulting solely from the Agent's gross negligence or
willful misconduct. The agreements in this subsection shall survive the payment
of the Notes and all other amounts payable hereunder.
(h) Agent and Lenders in Their Individual Capacity. Each of
----------------------------------------------
The Agent, the Lenders and their respective affiliates may make loans to, accept
deposits from and generally engage in any kind of business with the Borrower as
though such Person was not the Agent and/or a Lender, as the case may be,
hereunder and under the other Loan Documents. With respect to Advances made by
it and any Note issued to it, the Agent shall have the same rights and powers
under this Agreement and the other Loan Documents as any Lender and may exercise
the same as though it were not the Agent, and the terms "Lender" and "Lenders"
shall include the Agent in its individual capacity.
(i) Successor Agent. The Agent may resign as Agent upon 10
---------------
days' notice to the Lenders. If the Agent shall resign as Agent under this
Agreement and the other Loan Documents, then the Required Lenders shall appoint
from among the Lenders a successor agent for the Lenders, which successor agent
shall be approved by the Borrower, whereupon such successor agent shall succeed
to the rights, powers and duties of the Agent, and the term "Agent" shall mean
such successor agent effective upon its appointment, and the former Agent's
rights, powers and duties as Agent shall be terminated, without any other or
further act or deed on the part of such former Agent or any of the parties to
this Agreement or any holders of the Notes, other than to give notice of the
appointment of such successor agent to Borrower. Borrower is entitled to rely
upon the existing Agent until Borrower has received notice of the appointment of
a successor agent. After any retiring Agent's resignation as Agent, the
provisions of this subsection shall inure to its benefit as to any actions taken
or omitted to be taken by it while it was Agent under this Agreement and the
other Loan Documents.
(j) Agent's Fee. To compensate Agent for performing its
-----------
duties under the Loan Documents and for expenses incurred by Agent in connection
with such performance, Borrower shall pay to Agent an agent's fee in an amount
mutually agreed upon by Borrower and Agent.
(k) Borrower Entitled to Rely on Agent. Borrower shall be
----------------------------------
entitled to rely upon the Agent's written actions and representations.
SECTION 13. MISCELLANEOUS.
-------------
(a) No Waiver; Cumulative Remedies. No delay on the part of
the Agent or any Lender in exercising any right, power, privilege or remedy
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise or waiver of any right, power, privilege, or remedy hereunder preclude
any other or further exercise of such right, power, privilege, or remedy
hereunder or the exercise of any other right, power or privilege or remedy. The
rights and remedies of the Agent and the Lenders contained herein are cumulative
and not exclusive of any right or remedy which the Agent and the Lenders shall
otherwise have pursuant to the Security Documents, the Notes or applicable law.
The obligations of Borrower contained herein are cumulative, and compliance by
Borrower with any covenant shall not excuse compliance by Borrower with any
other covenant.
(b) Notices. All notices given hereunder shall be in
-------
writing, shall be given by certified mail, return receipt requested, overnight
courier service, telecopy, facsimile or copy delivered by hand, and, (i) if
mailed, shall be deemed received three Business Days after having been deposited
in a receptacle for United States mail, postage prepaid, (ii) if delivered by
overnight air courier service, shall be deemed received one Business Day after
having been deposited with such overnight air courier service, postage prepaid,
and (iii) if delivered by telex, telecopy or hand delivery, shall be deemed
received on the day the notice is sent, in each case addressed as follows:
If to Borrower, to:
MarkWest Hydrocarbon Partners, Ltd.
5613 DTC Parkway, Suite 400
Englewood, Colorado 80111
Attention: Finance Department
Fax. No.: (303) 290-8769
-30-
<PAGE>
If to the Lenders, to:
Norwest Bank Denver, National Association
1700 Broadway
Denver, Colorado 80274-0099
Attention: Energy and Minerals Group
Fax. No.: (303) 863-5196
First American National Bank
4894 Poplar Avenue
Memphis, TN 38117
Attention: National Accounts
Fax. No.: (901) 762-5665
If to the Agent, to:
Norwest Bank Denver, National Association
1700 Broadway
Denver, Colorado 80274-0099
Attention: Energy and Minerals Group
Fax. No.: (303) 863-5196
Any party may, by written notice so delivered to the others, change the address
or facsimile number to which delivery shall thereafter be made.
(c) Counterpart Execution. This Agreement may be executed
----------------------
in any number of counterparts which together will be but one and the same
instrument. This Agreement shall become effective whenever each party shall have
signed at least one counterpart.
(d) Governinq Law; Entire Agreement. THIS AGREEMENT AND THE
--------------------------------
NOTES SHALL BE DEEMED TO BE CONTRACTS UNDER THE LAWS OF COLORADO AND FOR ALL
PURPOSES SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF SUCH STATE. Such
documents and any other Loan Documents, together with the Security Documents,
constitute and incorporate the entire agreement between the Agent, the Lenders
and Borrower concerning the subject matter hereof and thereof, and supersede and
cancel any prior or contemporaneous agreements, verbal or written, between the
Agent, the Lenders and Borrower concerning the subject matter hereof and
thereof.
(e) Amendments and Waivers. No waiver of any provision of
-----------------------
this Agreement, the Notes, the Covenant Agreements or any of the Security
Documents, and no consent with respect to any departure by Borrower therefrom or
by the respective parties to the Covenant Agreements, shall be effective unless
the same shall be in writing and signed by the Agent, at the direction of the
Required Lenders. No amendment of any provision of this Agreement shall be
effective unless the same shall be in writing and signed by the Agent and the
Required Lenders. All consents, waivers and other action to be taken by the
Lenders hereunder shall only be taken upon approval of the Required Lenders. Any
waiver shall be effective only in the specific instance and for the specific
purpose for which given. Any consent or approval contemplated herein by, the
Required Lenders or the Lenders may be granted or withheld in the sole
discretion of such Persons.
(f) Costs, Expenses and Indemnity. Borrower shall reimburse
and pay the Agent, the Issuer and the Lenders for all fees, costs and expenses
(including, without limitation, attorneys' fees, court costs and legal expenses
and consultants' and experts' fees and expenses, the costs of the Agent's
inspection of the Collateral and the costs and expenses of title or lien
searches
-31-
<PAGE>
and filing and recording fees and expenses), reasonably incurred or expended in
connection with (i) the preparation, execution and delivery of this Agreement,
the Notes and the other Loan Documents, subject however, to the terms of the
letter agreement between Borrower and the Agent regarding the maximum legal fees
to be charged by the Agent's counsel for the preparation and execution of the
Loan Documents to be delivered at closing, (ii) the enforcement of this
Agreement, the Notes and the other Loan Documents and any amendments, waivers or
modifications of such documents, (iii) the breach by Borrower of any
representation or warranty contained in this Agreement, the Security Documents
or any other Loan Document, (iv) the failure by Borrower to perform any
agreement, covenant, condition, indemnity or obligation contained in this
Agreement, the Security Documents or any other Loan Document, (v) the Agent's or
the Lenders' exercise of any of their rights and remedies under this Agreement,
the Security Documents and the other Loan Documents, or (vi) the protection of
the Collateral and the liens thereon and security interests therein. Borrower
shall indemnify, defend and hold harmless the Agent, the Issuer and each Lender
and persons or entities owned or controlled by or affiliated with such Persons
and their respective directors, officers, shareholders, partners, employees,
consultants and agents (herein individually called an "Indemnified Party," and
----------- -----
collectively called "Indemnified Parties") from and against, and reimburse and
----------- -------
pay Indemnified Parties with respect to, any and all claims, demands,
----------- -------
liabilities, losses, damages (including, without limitation, actual,
consequential, exemplary and punitive damages), causes of action, judgments,
penalties, fees, costs and expenses (including, without limitation, attorneys'
fees, court costs and legal expenses and consultants' and experts' fees and
expenses), of any and every kind or character, known or unknown, fixed or
contingent, that may be imposed upon, asserted against or connection with, or
arising out of (a) any bodily injury or death or property damage occurring in or
upon or in the vicinity of the Collateral through any cause whatsoever, (b) any
act performed or omitted to be performed hereunder or the breach of or failure
to perform any warranty, representation, indemnity, covenant, agreement or
condition contained in this Agreement, the Security Documents or any other Loan
Documents, (c) any transaction, act, omission, event or circumstance arising out
of or in any way connected with the Collateral or with this Agreement, the
Security Documents or any other Loan Documents, and (d) subject to the
exceptions and limitations contained in the Mortgages, the violation of or
failure to comply with any statute, law, rule, regulation or order now existing
or hereafter occurring, including without limitation, "Environmental Laws" (as
defined in the Mortgages) and statutes, laws, rules, regulations and orders
relating to "Hazardous Substances" (as defined in the Mortgages). The foregoing
indemnities shall not apply to any Indemnified Party to the extent the subject
of the indemnification is caused by or arises out of the gross negligence or
willful misconduct of that or another Indemnified Party or a successful suit by
Borrower against such Indemnified Party. If Borrower and the Indemnified Party
are jointly named in any action covered by this Section 13, the Indemnified
Party shall cooperate in the defense of such action to the extent its own rights
or defenses are not compromised thereby. Subject to the exceptions and
limitations contained in the Mortgages, the foregoing indemnities shall not
terminate upon release, foreclosure or other termination of this Agreement or
the Security Documents, but shall survive such release, foreclosure or
termination and the repayment of the Loans. Any amount to be paid hereunder by
Borrower to the Agent, the Issuer or any Lender or for which Borrower has
indemnified an Indemnified Party shall be a demand obligation owing by Borrower
to the Agent, the Issuer or such Lender and shall bear interest at the Late
Payment Rate until paid, and shall constitute a part of the Loans and be
indebtedness secured by the Security Documents.
(g) Inconsistent Provisions; Severability. In case of any
-------------------------------------
irreconcilable conflict between the provisions of this Agreement and those of
the Security Documents and the Notes, the provisions of this Agreement shall
govern. The invalidity, illegality or unenforceability of any provision of any
of the Loan Documents shall not in any way affect or impair the legality or
enforceability of the remaining provisions of each of the Loan Documents.
(h) Incorporation of Exhibits and Schedules. All Exhibits
---------------------------------------
and Schedules attached to this Agreement are a part hereof and are incorporated
herein for all purposes.
(i) Amendment of Defined Instruments. Unless the context
--------------------------------
otherwise requires or unless otherwise provided herein the terms defined in this
Agreement which refer to a particular agreement, instrument or document also
refer to and include all renewals, extensions and modifications of such
agreement, instrument or document, provided that nothing contained in this
section shall be construed tO authorize any such renewal, extension or
modification.
(j) References and Titles. All references in this Agreement
---------------------
to Exhibits, Schedules, Sections and Subsections and other subdivisions refer to
the Exhibits, Schedules, Sections and Subsections and other subdivisions of this
Agreement unless expressly provided otherwise. Headings are for convenience only
and do not constitute any part of such subdivisions and shall be disregarded in
construing the language contained in such subdivisions. The words "this
Agreement", "this instrument", "herein", "hereof", "hereby", "hereunder" and
words of similar import refer to this Agreement as a whole and not to any
particular subdivision unless expressly so limited. Pronouns in masculine,
feminine and neuter genders shall be construed to include any other gender, and
words in the singular form shall be construed to include the plural and vice
versa, unless the context otherwise requires.
-32-
<PAGE>
(k) Calculations and Determinations. Unless otherwise
-------------------------------
expressly provided herein or unless the Lenders otherwise consent, all financial
statements and reports furnished to the Agent or the Lenders hereunder shall be
prepared and all financial computations and determinations pursuant hereto shall
be made in accordance with GAAP.
(1) Usury. It is not intended hereby to charge interest at
-----
a rate in excess of the maximum rate of interest that the Agent and the Lenders
may charge to Borrower under applicable usury and other laws, but if,
notwithstanding, interest in excess of such rate shall be paid hereunder, the
interest rates provided for herein shall be adjusted to the maximum permitted
under applicable law during the period or periods that any of the interest rates
otherwise provided herein would exceed such rate and any excess amount applied
at the Lenders' option to reduce the outstanding principal balance of the Loans
or to be returned to Borrower.
(m) Waiver of Right to Trial by Jury. EACH PARTY TO THIS
--------------------------------
AGREEMENT HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM,
DEMAND, ACTION OR CAUSE OF ACTION (a) ARISING UNDER THIS AGREEMENT OR ANY OTHER
LOAN DOCUMENT, OR (b) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE
DEALINGS OF THE PARTIES HERETO OR ANY OF THEM WITH RESPECT TO THIS AGREEMENT OR
ANY OTHER LOAN DOCUMENT, OR THE TRANSACTIONS RELATED HERETO OR THERETO, IN EACH
CASE WHETHER NOW EXISTING OR HEREAFTER ARISING; AND EACH PARTY HEREBY AGREES AND
CONSENTS THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A
COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE
PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
(n) Successors and AssiqnS. This Agreement shall be binding
----------------------
upon and shall inure to the benefit of the parties hereto and their respective
successors and assigns, except that Borrower may not transfer or assign any of
its rights or obligations hereunder without the Agent's, the Issuer's and each
of the Lenders' prior written consent. The Notes, this Agreement and any other
Loan Document may be endorsed, assigned, or transferred in whole or in part by
any Lender, and any subsequent holder and assignee of same shall succeed to and
be possessed of the rights of such Lender under such documents to the extent
transferred and assigned; provided however, that such endorsement, assignment or
transfer shall not be binding upon Borrower until Borrower has received written
notice of such endorsement, assignment or transfer.
(o) Term of Agreement. Except as set forth in Section
-----------------
13(f), this Agreement shall continue in full force and effect so long as any
indebtedness or other obligation of Borrower to the Lenders remains unpaid or
outstanding or Borrower has any right to Advances hereunder.
(p) Jurisdiction. At the option of the Agent or the
------------
Lenders, an action may be brought to enforce this Agreement in the District
Court in and for the City and County of Denver, State of Colorado, in the United
States District Court for the District of Colorado or in any other court in
which venue and jurisdiction are proper. Borrower and all guarantors hereof
consent to venue and jurisdiction in the District Court in and for the City and
County of Denver, State of Colorado and in the United States District Court for
the District of Colorado and to jurisdiction and service of process under
Sections 13-1-124(1)(a) and 13-1-125, Colorado Revised Statutes (1973), as
amended, in any action commenced to enforce this Agreement.
EXECUTED to be effective as of the day and year first above written.
MARKWEST HYDROCARBON PARTNERS, LTD.
By: MarkWest Hydrocarbon, Inc.
General Partner By
By /s/ Patrick W. Murray
Patrick W. Murray,
Vice President
-33-
<PAGE>
NORWEST BANK DENVER,
NATIONAL ASSOCIATION,
individually and as Agent
By /s/ Mark Williamson
___________________________
Mark Williamson,
Vice President
FIRST AMERICAN NATIONAL BANK
By /s/ David C. May
____________________________
David C. May,
Vice President
-34-
<PAGE>
EXHIBIT A
- ---------
FORM OF TERM NOTE
---------
$6,750,000.00 Denver, Colorado
November 20, 1992
MARKWEST HYDROCARBON PARTNERS, LTD., a Colorado limited partnership,
("Borrower"), with an address of 5613 DTC Parkway, Suite 400, Englewood, CO
80111, for value received,
hereby promises to pay to the order of ,
a national banking association ("Lender"), on or before
December 31, 1998, the principal sum of Six Million Seven
Hundred Fifty Thousand Dollars ($6,750,000.00), together with
interest on the outstanding unpaid principal balance at the
Adjusted Prime Rate as provided in the Loan Agreement of even
date herewith between Borrower, Norwest Bank Denver, National
Association, individually and as agent, and First American
National Bank (the "Loan Agreement").
------
This Note is one of the notes referred to in the Loan Agreement as the
Term Notes, and is issued pursuant to, and is subject to the terms and
provisions of, the Loan Agreement. All capitalized terms used herein but not
otherwise defined shall have the meanings set forth in the Loan Agreement.
The outstanding principal amount of this Note shall be payable as
provided in the Loan Agreement, in twenty-four equal quarterly installments due
on the last day of each calendar quarter, commencing March 31, 1993, as more
fully described in the Loan Agreement. The entire outstanding principal balance
of this Note shall be due and payable on or before December 31, 1998 (unless
payable sooner pursuant to the terms of the Loan Agreement), together with
accrued and unpaid interest thereon.
Interest shall accrue daily, shall be payable on the last day of each
calendar quarter, commencing December 31,
1992 and at the maturity of this Note, and shall be calculated on the basis of a
365 or 366-day year, as appropriate. All payments of principal and interest
hereof shall be made as provided in the Loan Agreement in immediately available
funds and without set-off or counterclaim or deduction of any kind.
Notwithstanding anything to the contrary contained in this Note,
overdue principal, and (to the extent permitted under applicable law) overdue
interest, whether caused by acceleration of maturity or otherwise, shall bear
interest at the Late Payment Rate and shall be immediately due and payable.
A-1
<PAGE>
It is not intended hereby to charge interest at a rate in excess of
the maximum rate of interest that Lender may charge to Borrower under applicable
usury and other laws, but if, notwithstanding, interest in excess of such rate
shall be paid hereunder, the interest rate on this Note shall be adjusted to the
maximum permitted under applicable law during the period or periods that the
interest rate otherwise provided herein would exceed such rate and any excess
amount applied at Lender's option to reduce the outstanding principal balance of
this Note or to be returned to Borrower.
This Note is secured by, and the holder of this Note is entitled to
the benefits of the Security Documents described in the Loan Agreement.
Reference is made to the Security Documents for a description of the property
covered thereby and the rights, remedies and obligations of the holder hereof in
respect thereto.
Lender shall maintain a record of the advances hereunder and all
payments made on this Note until Lender has been repaid in full, as set forth on
Schedule I hereto; provided however, that the failure, error or omission by
Lender to maintain such a record shall not diminish or otherwise affect the
obligation of Borrower to repay the amount outstanding hereunder and any other
amounts due to Lender.
If Borrower fails to pay any amount due under this Note and Lender has
to take any action to collect the amount due or to exercise its rights under
this Note or the Security Documents, including without limitation retaining
attorneys for collection of this Note, or if any suit or proceeding is brought
for the recovery of all or any part of or for protection of the Obligations or
to foreclose the Security Documents or to enforce Lender's rights under the
Security Documents, then Borrower agrees to pay on demand all costs and expenses
of any such action to collect, suit or proceeding, or any appeal of any such
suit or proceeding, incurred by the holder hereof, including without limitation
the fees and disbursements of attorneys for the holder hereof.
Borrower, and all endorsers, sureties and guarantors of this Note,
hereby severally waive demand, presentment for payment, notice of dishonor,
notice of acceleration or intent to accelerate, protest, notice of protest,
diligence in collecting and assents to any extension of time with respect to any
payment due under this Note, to any substitution or release of collateral and to
the addition or release of any party. No waiver by Lender of any payment or
other right under this Note shall operate as a waiver of any other payment or
right.
A-2
<PAGE>
If any provision in this Note shall be held invalid, illegal or
unenforceable in any jurisdiction, the validity, legality or enforceability of
any defective provisions shall not be in any way affected or impaired in any
other jurisdiction, nor shall the invalid, illegal or unenforceable provision
affect or impair any other provision of this Note.
No delay or failure of the holder of this Note in the exercise of any
right or remedy provided for hereunder shall be deemed a waiver of such right by
the holder hereof, and no exercise of any right or remedy shall be deemed a
waiver of any other right or remedy that the holder may have.
Any notices given hereunder shall be in writing and shall be given as
provided in the Loan Agreement.
At the option of Lender, an action may be brought to enforce this Note in
the District Court in and for the City and County of Denver, State of Colorado,
in the United States District Court for the District of Colorado or in any other
court in which venue and jurisdiction are proper. Borrower and all endorsers,
sureties and guarantors hereof consent to venue and jurisdiction in the District
Court in and for the City and County of Denver, State of Colorado and in the
United States District Court for the District of Colorado and to jurisdiction
and service of process under Sections 13-1-124(!)(a) and 13-1-125, Colorado
Revised Statutes (1973), as amended, in any action commenced to enforce this
Agreement.
THIS NOTE IS TO BE GOVERNED BY AND CONSTRUED ACCORDING TO THE LAWS OF
THE STATE OF COLORADO.
MARKWEST HYDROCARBON PARTNERS, LTD.
By: MarkWest Hydrocarbon, Inc.
General Partner
By
Patrick W. Murray, Vice President
&
A-3
<PAGE>
Schedule I
----------
Date
Principal
Amount
of Term Loan
- ------------
Amount of Payment
Outstanding Principal Balance
.
A-I -1
<PAGE>
EXHIBIT B
---------
FORM OF REVOLVER NOTE
-------------
$10,000,000.00 Denver, Colorado
November 20, 1992
MARKWEST HYDROCARBON PARTNERS, LTD., a Colorado limited partnership,
("Borrower"), with an address of 5613 DTC Parkway, Suite 400, Englewood, CO
80111, for value received,
hereby promises to pay to the order of ,
a national banking association ("Lender"), on or before
December 31, 1998, the principal sum of Ten Million Dollars
($10,000,000.00), or so much thereof as may be advanced by
Lender pursuant to the Loan Agreement of even date herewith
between Borrower, Norwest Bank Denver, National Association,
individually and as agent, and First American National Bank
(the "Loan Agreement"), together with interest on the
------------
outstanding unpaid principal balance at the Adjusted Prime
Rate as provided in the Loan Agreement.
This Note is one of the notes referred to in the Loan Agreement as the
Revolver Notes, and is issued pursuant to, and is subject to the terms and
provisions of, the Loan Agreement. All capitalized terms used herein but not
otherwise defined shall have the meanings set forth in the Loan Agreement.
As of December 31, 1994, the aggregate unpaid principal amount
outstanding under this Note shall be repaid to Lender in sixteen equal quarterly
installments, commencing March 31, 1993, as more fully provided in the Loan
Agreement, together with accrued and unpaid interest thereon. All remaining
outstanding principal of and interest on this Note shall be due and payable no
later than December 31, 1998.
Interest shall accrue daily, shall be payable on the last day of each
calendar quarter, commencing December 31,. 1992 and at the maturity of this
Note, and shall be calculated on the basis of a 365 or 366-day year, as
appropriate. All payments of principal and interest hereof shall be made as
provided in the Loan Agreement in immediately available funds and without set-
off or counterclaim or deduction of any kind.
Notwithstanding anything to the contrary contained in this Note,
overdue principal, and (to the extent permitted under applicable law) overdue
interest, whether caused by acceleration of maturity or otherwise, shall bear
interest at the Late Payment Rate and shall be immediately due and payable.
B-1
<PAGE>
It is not intended hereby to charge interest at a rate in excess of
the maximum rate of interest that Lender may charge to Borrower under applicable
usury and other laws, but if, notwithstanding, interest in excess of such rate
shall be paid hereunder, the interest rate on this Note shall be adjusted to the
maximum permitted under applicable law during the period or periods that the
interest rate otherwise provided herein would exceed such rate and any excess
amount applied at Lender's option to reduce the outstanding principal balance of
this Note or to be returned to Borrower.
This Note is secured by, and the holder of this Note is entitled to the
benefits of the Security Documents described in the Loan Agreement. Reference is
made to the Security Documents for a description of the property covered thereby
and the 'rights, remedies and obligations of the holder hereof in respect
thereto.
Lender shall maintain a record of all advances hereunder and all
payments made on this Note until Lender has been repaid in full, as set forth on
Schedule I hereto; provided, however that the failure, error or omission by
------------------
Lender to maintain such a record shall not diminish or otherwise affect the
obligation of Borrower to repay the amount outstanding hereunder and any other
amounts due to Lender.
If Borrower fails to pay any amount due under this Note and Lender has
to take any action to collect the amount due or to exercise its rights under
this Note or the Security Documents, including without limitation retaining
attorneys for collection of this Note, or if any suit or proceeding is brought
for the recovery of all or any part of or for protection of the Obligations or
to foreclose the Security Documents or to enforce Lender's rights under the
Security. Documents, then Borrower agrees to pay on demand all costs and
expenses of any such action to collect, suit or proceeding, or any appeal of any
such suit or proceeding, incurred by the holder hereof, including without
limitation the fees and disbursements of attorneys for the holder hereof.
Borrower, and all endorsers, sureties and guarantors of this Note,
hereby severally waive demand, presentment for payment, notice of dishonor,
notice of acceleration or intent to accelerate, protest, notice of protest,
diligence in collecting and assents to any extension of time with respect to any
payment due under this Note, to any substitution or release of collateral and to
the addition or release of any party. No waiver by Lender of any payment or
other right under this Note shall operate as a waiver of any other payment or
right.
B-2
<PAGE>
If any provision in this Note shall be held invalid, illegal or
unenforceable in any jurisdiction, the validity, legality or enforceability of
any defective provisions shall not be in any way affected or impaired in any
other jurisdiction, nor shall the invalid, illegal or unenforceable provision
affect or impair any other provision of this Note.
No delay or failure of the holder of this Note in the exercise of any
right or remedy provided for hereunder shall be deemed a waiver of such right or
remedy by the holder hereof, and no exercise of any right or remedy shall be
deemed a waiver of any other right or remedy that the holder may have.
Any notices given hereunder shall be in writing and shall be given as
provided in the Loan Agreement.
At the option of Lender, an action may be brought to enforce this Note in
the District Court in and for the City and County of Denver, State of Colorado,
in the United States District Court for the District of Colorado or in any other
court in which venue and jurisdiction are proper. Borrower and all endorsers,
sureties and guarantors hereof consent to venue and jurisdiction in the District
Court in and for the City and County of Denver, State of Colorado and in the
United States District Court for the District of Colorado and to jurisdiction
and service of process under Sections 13-1-124(1)(a) and 13-1-125, Colorado
Revised Statutes (1973), as amended, in any action commenced to enforce this
Agreement.
THIS NOTE IS TO BE GOVERNED BY AND CONSTRUED ACCORDING TO THE LAWS OF
THE STATE OF COLORADO.
MARKWEST HYDROCARBON PARTNERS, LTD.
By: MarkWest Hydrocarbon, Inc.
General Partner
By
Patrick W. Murray, Vice President
. 4
B-3
<PAGE>
Date
Schedule I
----------
Principal
Amount of Advance
----------
Amount of Payment
Outstanding Principal Balance
. ~
B-!-I
<PAGE>
EXHIBIT C
---------
MARKWEST HYDROCARBON PARTNERS, LTD.
REQUEST FOR ADVANCE UNDER THE
-----------------------------
REVOLVER/TERM LOAN
------------------
Reference is made to that certain Loan Agreement
dated as of.November 20, 1992 (as from time to time amended,
the "Agreement"), among MarkWest Hydrocarbon Partners, Ltd.
("Borrower"), Norwest Bank Denver, National Association,
individually and as agent, and First American National Bank
(collectively, the "Lenders"). Capitalized terms not
otherwise defined heroin shall have the meaning assigned to
them in the Agreement. Pursuant to the terms of the
Agreement, Borrower hereby requests the Lenders to make an
advance to Borrower in the amount of $ ,such
advance being evidenced by the Notes, and specifies
,-199 , as the date Borrower desires for the Lenders to make such
advance.
Borrower and the officer of the General Partner of Borrower signing
this instrument hereby certify that:
(a) Such officer is the duly elected, qualified and acting officer of
the General Partner of Borrower as indicated below such officer's signature
hereto.
(b) The representations and warranties of Borrower set forth in
Section 7 of the Agreement and in the Security Documents are true and correct on
and as of the date hereof, with the same effect as though such representations
and warranties had been made on and as of the date hereof.
(c) Borrower has performed or observed all terms, agreements,
conditions and obligations in the Agreement and under the Security Documents
required to be performed or observed by Borrower on or prior to the date hereof
(except those waived in writing by the Lenders), and each of the conditions
precedent to Advances contained in the Agreement remains satisfied in all
respects.
(d) No Event of Default or Unmatured Event of Default has occurred and
is continuing, or would result from the making of the requested Advance.
Borrower will use the advance hereby requested in compliance with the Agreement.
C-1
<PAGE>
IN WITNESS WHEREOF, this instrument is executed as of , 199-.
MARKWEST HYDROCARBON PARTNERS, LTD.
By: MarkWest Hydrocarbon, Inc.
General Partner
By:
Patrick W. Murray, Vice President
C-2
. &
<PAGE>
EXHIBIT D-1 COVENANT AGREEMENT
------------------------------
(STOCKHOLDER)
-------------
THIS COVENANT AGREEMENT (this "Agreement") dated as of November 20, 1992 is made
------------
by JOHN FOX, a Colorado resident ("Stockholder"), in favor of NORWEST BANK
DENVER, NATIONAL ASSOCIATION, a national banking association, as agent (the
"Agent") for itself, and FIRST AMERICAN NATIONAL BANK, a national banking
association (Agent, in its individual capacity, and First American National Bank
are collectively called "Lenders").
WITNESSETH:
WHEREAS, Stockholder and his wife own directly or indirectly eighty-five
percent (85%) of the outstanding shares of stock of MarkWest Hydrocarbon, Inc.,
a Colorado corporation, the general partner of Markwest Hydrocarbon Partners,
Ltd., a Colorado limited partnership ("Borrower");
WHEREAS, Borrower has executed in favor of Lenders those two certain
promissory notes of even date herewith, each payable to the order of one of the
Lenders, in an aggregate principal amount not to exceed $5,000,000 (such
promissory notes, as from time to time amended, and all promissory notes given
in substitution, renewal or extension therefor or thereof, in whole or in part,
being herein collectively referred to as the "Working Capital Notes");
----------------
WHEREAS, the Working Capital Notes were executed pursuant to a Working
Capital Loan Agreement of even date herewith (herein, as from time to time
amended, supplemented or restated, called the "Working Capital Loan Agreement"),
----------------------
by and between Borrower, Agent and Lenders, pursuant to which Lenders have
agreed to advance funds to Borrower under the Working Capital Notes which are to
be used by Borrower as provided in the Working Capital Loan Agreement;
WHEREAS, Borrower has executed in favor of Lenders those two certain
promissory notes of even date herewith, each payable to the order of one of the
Lenders, in an aggregate principal amount not to exceed $20,000,000, (such
promissory notes, as from time to time amended, and all promissory notes given
in substitution, renewal or extension therefor or thereof, in whole or in part,
being herein collectively referred to as the "Revolver Notes");
----------
D-I-1
<PAGE>
WHEREAS, Borrower has executed in favor of Lenders those two certain
promissory notes of even date herewith, each payable to the order of one of the
Lenders, in an aggregate principal amount not to exceed $13,500,000 (such
promissory notes, as from time to time amended, and all promissory notes given
in substitution, renewal or extensions therefor or thereof, in whole or in part,
being herein collectively referred to herein as the "Term Notes"; the Working
------
Capital Notes, the Revolver Notes and the Term Notes are herein collectively
referred to as the "Notes");
WHEREAS, the Revolver Notes and the Term Notes were all executed pursuant
to a Loan Agreement of even date herewith (herein, as from time to time amended,
supplemented or restated, called the "Revolver/Term Loan Agreement"), by and
-----------------
between Borrower, Agent and Lenders, pursuant to which Lenders have agreed to
advance funds to Borrower under the Revolver Notes and the Term Notes which are
to be used by Borrower as provided in the Revolver/Term Loan Agreement.
(The Working Capital Loan Agreement and the Revolver/Term Loan Agreement shall
be referred to herein collectively as the "Loan Agreements");
------
WHEREAS, it is a condition precedent to the Lenders' obligation to
advance funds pursuant to the Revolver/Term Loan Agreement or advance funds or
issue letters of credit pursuant to the Working Capital Loan Agreement that the
Stockholder shall execute and deliver this Agreement to Agent and Lenders; and
WHEREAS, the Stockholder has determined that his execution, delivery and
performance of this Agreement may reasonably be expected to benefit. him,
directly or indirectly, and are in the best interest of the Stockholder.
NOW THEREFORE, in consideration of the premises and of Ten Dollars
($10.00) and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, and in order to induce the Lenders to advance
funds under the Loan Agreements and issue letters of credit, the Stockholder
hereby agrees with Agent and Lenders as follows:
1. Definitions. Reference is hereby made to each of the Loan
-------------
Agreements for all purposes. All terms used in this Agreement which are defined
in the Revolver/Term Loan Agreement and not otherwise defined herein shall have
the same meanings when used herein. If at any time either of the Loan Agreements
shall be terminated or otherwise cease to be in full force and effect, then all
references herein to "Loan
D-I-2
<PAGE>
Agreements" shall thereafter be deemed to refer to the Loan Agreement still in
force and effect.
2. Representations and Warranties of Stockholder. To induce Agent
---------------------------------------------
and Lenders to enter into the Loan Agreements, the Stockholder represents and
warrants to Agent and Lenders that:
(a) Capacity. Stockholder has the requisite capacity and
--------
contractual power necessary for the execution and delivery by him of this
Agreement and the performance of his obligations hereunder.
(b) Enforceable Obligations. This Agreement is a legal, valid
-----------------------
and binding obligation of Stockholder, enforceable in accordance with its terms
except as such enforcement may be limited by bankruptcy, insolvency or similar
laws of general application relating to the enforcement of creditors' rights.
3. Debt Guaranteed by the Stockholder. Without the prior written
----------------------------------
consent of the Agent, the Stockholder shall not in any manner assume, guarantee,
endorse or otherwise become or be contingently liable (by direct or indirect
agreement, contingent or otherwise, or by operation of law, to provide funds for
payment or otherwise assure a creditor against loss) for the Debt, obligation,
undertaking or other liability of Borrower, or otherwise become or be
responsible in any manner (whether by agreement .~3 purchase any obligations,
stock, assets, goods or services, or to supply or advance any funds, assets,
goods or services, or otherwise) with respect to any undertaking of Borrower,
except endorsements of negotiable instruments for deposit or collection and
similar transactions in the ordinary course of his business.
4. Waivers. No action which Agent or Lenders may take or omit to
-------
take in connection with any of the Loan Documents or any of the indebtedness
evidenced by the Notes shall release or diminish Stockholder's obligations,
duties or agreements hereunder,. including, but not limited to the following
actions from time to time: (a) taking or holding any property of any type from
any Person as security for the indebtedness evidenced by the Notes, and
exchanging, enforcing, waiving and releasing any or all of such property, (b)
applying the Collateral or such other property and directing the order or manner
of sale thereof as Agent or Lenders may, in their discretion, determine which is
not inconsistent with the Loan Documents, (c) releasing any of the obligations
of any other Person in respect of any or all of the Obligations (as such term is
defined in each of the Loan
D-1-3
<PAGE>
Agreements) or other security for the Obligations,
(d) waiving, enforcing or supplementing any of the provisions of any Loan
Document, (e) renewing, consolidating, extending, modifying, compromising,
rearranging or amending from time to time any of the Notes or the terms of any
one or more of the Loan Documents, including, without limitation, extending the
maturity date of any of the Notes; (f) increasing the Collateral or the amount
of the Debt under either of the Loan Agreements; (g) the invalidity,
unenforceability or insufficiency of any one or more of the Loan Documents or
any lien or security interest securing payment or performance thereunder, or (h)
the failure of the Stockholder to receive notice of any one or more of the
foregoing actions or events.
The Stockholder specifically acknowledges and agrees that Agent and
Lenders may, at their option without notice to or further consent of
Stockholder, take any of the foregoing actions and that if Agent or Lenders
elect to take any of the foregoing actions or any of the foregoing events occur,
that such actions or events shall in no way reduce, affect, impair or limit the
covenant and agreement of the Stockholder hereunder.
5. Amendments. No modification or amendment of or supplement to
------------
this Agreement shall be valid or effective unless the same is in writing and
signed by the party against whom it is sought to be enforced.
6. Governinq Law. This Agreement shall be governed by and construed
---------------
in accordance with the laws of the State of Colorado in all respects, including
construction, validity and performance.
7. Counterparts. This Agreement may be separately executed by the
--------------
different parties hereto in separate counterparts, each of which when so
executed shall be deemed to constitute one and the same instrument.
THIS WRITTEN AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE
-----------------------------------------------------------------
FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT
- -----------------------------------------------
BE CONTRADICTED BY EVIDENCE OF PRIOR~ CONTEMPORANEOUS, OR SUBSEQUENT ORAL
- -------------------------------------------------------------------------
AGREEMENT OF THE PARTIES.
- -------------------------
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
--------------------------------------------------
PARTIES.
- --------
D-I-4
<PAGE>
IN WITNESS WHEREOF, this Agreement is executed as of the date first
written above.
STOCKHOLDER:
JOHN FOX
NORWEST BANK DENVER, NATIONAL ASSOCIATION, a
national banking association, individually and
as agent
By:
Mark Williamson, Vice President
FIRST AMERICAN NATIONAL BANK, a national
banking association
By:
David C. May,
Vice President
. E I &
D-l-5
<PAGE>
EXHIBIT D-2
-----------
COVENANT AGREEMENT
------------------
(GENERAL PARTNER)
THIS COVENANT AGREEMENT (this "Agreement") dated as of November 20,
1992 is made by MARKWEST HYDROCARBON, INC., a Colorado corporation ("General
---------
Partner"), in favor of NORWEST BANK DENVER, NATIONAL ASSOCIATION, a national
- ----------
banking association, as agent (the "Agent") for itself, and FIRST AMERICAN
-------
NATIONAL BANK, a national banking association (Agent, in its individual
capacity, and First American National Bank are collectively called "Lenders").
W I T N E S S~ T H:
WHEREAS, the General Partner is the sole general partner of Markwest
Hydrocarbon Partners, Ltd., a Colorado limited partnership ("Borrower");
-------------
WHEREAS, Borrower has executed in favor of Lenders those two certain
promissory notes of even date herewith, each payable to the order of one of the
Lenders, in an aggregate principal amount not to exceed $5,000,000 (such
promissory notes, as from time to time amended, and all promissory notes given
in substitution, renewal or extension therefor or thereof, in whole or in part,
being herein collectively referred to as the "Working Capital Notes");
-------------------------
WHEREAS, the Working Capital Notes were executed pursuant to a Working
Capital Loan Agreement of even date herewith (herein, as from time to time
amended, supplemented or restated, called the "Workinq Capital Loan Agreement"),
----------------------------------
by and between Borrower, Agent and Lenders, pursuant to which Lenders have
agreed to advance funds to Borrower under the Working Capital Notes which are to
be used by Borrower as provided in the Working Capital Loan Agreement;
WHEREAS, Borrower has executed in favor of Lenders those two certain
promissory notes of even date herewith, each payable to the order of one of the
Lenders, in an aggregate principal amount not to exceed $20,000,000, (such
promissory notes, as from time to time amended, and all promissory notes given
in substitution, renewal or extension therefor or thereof, in whole or in part,
being herein collectively referred to as the "Revolver Notes");
------------------
WHEREAS, Borrower has executed in favor of Lenders those two certain
promissory notes of even date herewith, each
D-2-1
<PAGE>
payable to the order of one of the Lenders, in an aggregate principal amount not
to exceed $13,500,000 (such promissory notes, as from time to time amended, and
all promissory notes given in substitution, renewal or extensions therefor or
thereof, in whole or in part, being heroin collectively referred to heroin as
the "Term Notes"; the Working Capital Notes, the Revolver Notes and the Term
-------------
Notes are heroin collectively referred to as the "Notes");
WHEREAS, the Revolver Notes and the Term Notes were all executed
pursuant to a Loan Agreement of even date herewith (heroin, as from time to time
amended, supplemented or restated, called the "Revolver/Term Loan Agreement"),
--------------------------------
by and between Borrower, Agent and Lenders, pursuant to which Lenders have
agreed to advance funds to Borrower under the Revolver Notes and the Term Notes
which are to be used by Borrower as provided in the Revolver/Term Loan
Agreement.
(The Working Capital Loan Agreement and the Revolver/Term Loan Agreement shall
be referred to herein collectively as the "Loan Agreements");
-----------------
WHEREAS, it is a condition precedent to the Lenders' obligation to
advance funds pursuant to the Revolver/Term Loan Agreement or advance funds or
issue letters of credit pursuant to the Working Capital Loan Agreement that the
General Partner shall execute and deliver this Agreement to Agent and Lenders;
and
WHEREAS, the General Partner has determined that its execution,
delivery and performance of this Agreement may reasonably be expected to benefit
the General Partner, directly or indirectly, and are in the best interest of the
General Partner.
NOW THEREFORE, in consideration of the premises and of Ten Dollars
($10.00) and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, and in order to induce the Lenders to advance
funds under the Loan Agreements and issue letters of credit, the General Partner
hereby agrees with Agent and Lenders as follows:
1. Definitions. Reference is hereby made to each of the Loan
------------
Agreements for all purposes. All terms used in this Agreement which are defined
in the Revolver/Term Loan Agreement and not otherwise defined heroin shall have
the same meanings when used heroin. If at any time either of the Loan Agreements
shall be terminated or otherwise cease to be in full force and effect, then all
references heroin to "Loan Agreements" shall thereafter be deemed to refer to
the Loan Agreement still in force and effect.
D-2-2
<PAGE>
2. Representations and Warranties of General Partner. To induce
---------------------------------------------------
Agent and Lenders to enter into the Loan Agreements, the General Partner
represents and warrants to Agent and Lenders that:
(a) Capacity. General Partner has the requisite capacity and
---------
contractual power necessary for the execution and delivery by it of this
Agreement and the performance of its obligations hereunder.
(b) Enforceable Obligations. This Agreement is a legal, valid and
-------------------------
binding obligation of General Partner, enforceable in accordance with its terms
except as such enforcement may be limited by bankruptcy, insolvency or similar
laws of general application relating to the enforcement of creditors' rights.
3. Debt Guaranteed by the General Partner. Without the prior
----------------------------------------
written consent of the Agent, the General Partner shall not in any manner
assume, guarantee, endorse or otherwise become or be contingently liable (by
direct or indirect agreement, contingent or otherwise, or by operation of law,
to provide funds for payment or otherwise assure a creditor against loss) for
the Debt, obligation, undertaking or other liability of Borrower, or otherwise
become or be responsible in any manner (whether by agreement to purchase any
obligations, stock, assets, goods or services, or to supply or advance any
funds, assets, goods or services, or otherwise) with respect to any undertaking
of Borrower, except endorsements of negotiable instruments for deposit or
collection and similar transactions in the ordinary course of its business.
4. Waivers. No action which Agent or Lenders may take or omit to
---------
take in connection with any of the Loan Documents or any of the indebtedness
evidenced by the Notes shall release or diminish General Partner's obligations,
duties or agreements hereunder, including, but not limited to the following
actions from time to time: (a) taking or holding any property of any type from
any Person as security for the indebtedness evidenced by the Notes, and
exchanging, enforcing, waiving and releasing any or all of such property, (b)
applying the Collateral or such other property and directing the order or manner
of sale thereof as Agent or Lenders may, in their discretion, determine which is
not inconsistent with the Loan Documents, (c) releasing any of the obligations
of any other Person in respect of any or all of the Obligations (as such term is
defined in each of the Loan Agreements) or other security for the Obligations,
(d) waiving, enforcing or supplementing any of the provisions
D-2-3
<PAGE>
of any Loan Document, (e) renewing, consolidating, extending, modifying,
compromising, rearranging or amending from time to time any of the Notes or the
terms of any one or more of the Loan Documents, including, without limitation,
extending the maturity date of any of the Notes; (f) increasing the Collateral
or the amount of the Debt under either of the Loan Agreements; (g) the
invalidity, unenforceability or insufficiency of any one or more of the Loan
Documents or any lien or security interest securing payment or performance
thereunder, or (h) the failure of the General Partner to receive notice of any
one or more of the foregoing actions or events.
The General Partner specifically acknowledges and agrees that Agent
and Lenders may, at their option without notice to or further consent of General
Partner, take any of the foregoing actions and that if Agent or Lenders elect to
take any of the foregoing actions or any of the foregoing events occur, that
such actions or events shall in no way reduce, affect, impair or limit the
covenant and agreement of the General Partner hereunder.
5. Amendments. No modification or amendment of or supplement to
------------
this Agreement shall be valid or effective unless the same is in writing and
signed by the party against whom it is sought to be enforced.
6. Governing Law. This Agreement shall be governed by and construed
---------------
in accordance with the laws of the State of Colorado in all respects, including
construction, validity and performance.
7. Counterparts. This Agreement may be separately OSecuted by the
--------------
different parties hereto in separate counterparts, each of which when so
executed shall be deemed to constitute one and the same instrument.
THIS WRITTEN AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE
-----------------------------------------------------------------
FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
- ------------------------------------------------------------------------------
PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENT OF THE PARTIES.
- -------------------------------------------------------------------
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES
----------------------------------------------------------
D-2-4
<PAGE>
IN WITNESS WHEREOF, this Agreement is executed as of the date first
written above.
GENERAL PARTNER:
MARKWEST HYDROCARBON, INC., a Colorado
corporation
By:
'Patrick W. Murray, Vice President
NORWEST BANK DENVER, NATIONAL ASSOCIATION, a
national banking association, individually and
as agent
By:
Mark Williamson, 'Vice President
FIRST AMERICAN NATIONAL BANK, a national
banking association
By:
David C. May, Vice President
D-2-5
<PAGE>
BARRY W. SPECTOR
Attorney
EXHIBIT E
Suite 3301 Prudential Plaza
1050 Seventeenth Street
Denver, Coloradu 80265
Telephone (303) ~23-0717
Fax (303) 6~,3-09.~.0
November 30, 1992
Norwest Bank Denver, National
Association, individually and as Agent 1740 Broadway
Denver, CO 80274-8699
First American National Bank
4894 Poplar Avenue
Memphis, TN 38117
Ladies and Gentlemen:
I have acted as counsel for MarkWest Hydrocarbon Partners, Ltd., a Colorado
limited partnership ("Borrower"), in connection with the transactions
contemplated by the Loan Agreement dated as of November 20, 1992 (the
"Revolver/Term Loan Agreement"), both among Borrower, Norwest Bank Denver,
National Association and First American National Bank (collectively the
"Lenders') and Norwest Bank Denver, National Association, as agent for the
Lenders ("Agent"). The Revolver/Term Loan Agreement and the Working Capital
Agreement are referred to herein collectively as the "Loan Agreements."
I am rendering this opinion pursuant to subsection 3(a)(ii)(B) of the
Revolver/term Loan Agreement and subsection 4(a)(ii)(B) of the Working Capital
Loan Agreement. Capitalized terms used but not defined herein shall have the
meanings set forth in the Revolver/Term Loan Agreement, except that the term
"Collateral" shall have the meaning set forth in the Mortgages (as such term is
defined below).
Materials Examined:
- -------------------
As a basis for the opinion hereinafter expressed, I have examined executed
counterparts (unless otherwise noted) of the following:
1. Revolver/Term Loan Agreement.
2. Working Capital Loan Agreement.
3. The Notes (as such term is defined in the Mortgages described below).
<PAGE>
4. The Arkansas Leasehold Deed of Trust with Security Agreement,
Assignment of Rents and Leases and Financing Statement, dated as of November 20,
1992, by and among Borrower, as Grantor, the Trustees named therein and Agent,
as Beneficiary, including the Exhibits thereto (the "Arkansas Mortgage").
5. (a) The Mortgage, Security Agreement, Assignment of Profits and
Proceeds and Financing Statement, dated as of November 20, 1992, by and among
Borrower, as Mortgagor, and Agent, as Mortgagee, including the Exhibits thereto
(Siloam); and (b) the Mortgage, Security Agreement, Assignment of Profits and
Proceeds and FinanCing Statement, dated as of November 20, 1992, by and among
Borrower, as Mortgagor, and Agent, as Mortgagee, including the Exhibits thereto
(Boldman). ((a) and (b) are collectively called the "Kentucky Mortgages").
6. A Credit Line Deed of Trust with Security Agreement, Assignment of
Rents and Leases and Financing Statement, dated as of November 20, 1992, by and
among Borrower, as Grantor, the Trustee named therein and Agent, as Beneficiary,
including the Exhibits thereto (the "West Virginia Mortgage").
7. A Security Agreement dated as of November 20, 1992, between Borrower
and Agent (the "Security Agreement").
8. The financing statements for use in the States of Arizona, Arkansas,
Colorado, Kansas, Kentucky, Michigan and West Virginia, naming Borrower as
debtor, and Agent as secured party (collectively the "Financing Statements"),
relating to the Mortgages and the Security Agreement.
9. The Covenant Agreement of Stockholder dated as of November 20, 1992,
by John Fox in favor of Agent.
10. The Covenant Agreement of General Partner dated as of November 20,
1992, by the General Partner in favor of Agent.
11. The opinions of Rex M. Terry, Esq. of Hardin, Jesson, Dawson & Terry;
P. Bruce Leslie, Esq. of McBrayer, McGinnis, Leslie & Kirkland; and George A.
Patterson, Esq., of Bowles, Rice, McDavid, Groff & Love (the "Local Counsel
Opinions").
The documents described in paragraphs 1 through 10 collectively referred to
as the "Principal Documents". The Arkansas Mortgage and the Kentucky Mortgages
are herein collectively called the "Mortgages".
Assumptions:
- ------------
In rendering the opinions hereinafter expressed, I have made the following
assumptions:
2-
<PAGE>
A. The Lenders are duly organized, validly existing and in good standing
under the laws of the states or governmental bodies under which they are
organized.
Bm
executed
Borrower).
Each of the Principal Documents has been duly authorized, and delivered by the
parties thereto (other than
C. The Principal Documents constitute legal, valid and binding
obligations of the parties thereto (other than Borrower), enforceable against
such parties (other than Borrower) in accordance with their respective terms,
and all parties (other than Borrower) to the Principal Documents have all
necessary power and authority to enter into and perform the transactions
contemplated thereby.
D. None of the execution, delivery or performance of the Principal
Documents by any party thereto (other than Borrower) will result in any
violation of or be in contravention of or constitute a default under the
charter, bylaws or other governing documents of such party, or any other
contract or agreement binding on such party or its properties.
E. The transactions provided for in the Principal Documents are
supported by sufficient and adequate consideration, and a loan has been made and
is currently outstanding, which loan is intended to be secured by the Mortgages.
F. All signatures are genuine, all documents submitted to me as
originals are authentic, and all documents submitted to me as photocopies,
telecopies or facsimiles conform to the original documents.
Opinion:
- --------
Based upon the foregoing, and subject to the qualifications, limitations
and assumptions stated herein, I am of the opinion that:
1. (a) Borrower is a limited partnership duly organized, validly
existing and in good standing under the laws of the State of Colorado, and is
qualified to do business in Arkansas, Kentucky, Texas and in every other
Jurisdiction in which the nature of its business or the ownership of its assets
requires such qualification and failure to so qualify could have a material
adverse effect on Borrower, its business, operations, assets, property,
prospects or condition (financial or otherwise);
(b) Each of the Related Persons other than Borrower is duly organized,
validly existing and in good standing under the laws of the state of its
incorporation or formation and is qualified to do business in every Jurisdiction
in which the nature
<PAGE>
of its business or the ownership of its assets requires such qualification and
failure to so qualify could have a material adverse effect on Borrower or such
Related Person, its business, operations, assets, property, prospects or
condition (financial or otherwise);
(c) Each Related Person has the power and authority to own the
property which it owns and to carry on its business as such business is now
conducted.
2. The execution, delivery and performance by the Borrower of the
Principal Documents and the borrowings thereunder and the consummation of the
transactions contemplated therein will not conflict with the limited partnership
agreement or other organizational or governing documents of any Related Person;
or conflict with any law, rule or regulation which conflict would result in a
materially adverse affect on Borrower, its business, operations, assets,
property, prospect or condition; or to the best of my knowledge, conflict with
or result in any breach of any mortgage, lien, lease, agreement, instrument,
order, judgment, decree or, any other restriction of any kind or character to
which any Related Person is a party or is subject or by which any Related Person
or its properties are bound or affected.
3. No consent, approval, exemption, authorization or order of or other
action by, and no notice to or filing with, any court or governmental authority
or third party is required by any Related Person in connection with the
execution, delivery or performance by Borrower of the Principal Documents or to
consummate any transactions contemplated thereby, or the incurring of
indebtedness by Borrower or the granting of the liens by Borrower under the
Mortgages.
4. Borrower has full power and authority to enter into the Principal
Documents. The execution and delivery of the Principal Documents, and the
performance and observance of their terms, conditions and obligations, have been
duly authorized by all necessary action by Borrower and the General Partner and
the Principal Documents are duly executed and delivered and are legal, valid and
binding obligations of Borrower, and to the extent a party thereto, the General
Partner, enforceable in accordance with their respective terms, except as such
similar laws of general application relating to the enforcement of creditors'
rights~
5. Except as disclosed in Exhibit H to the Loan Agreements, to my
knowledge, there are no actions, suits, proceedings or claim~ against any
Related Person or the General Partner of any of their respective properties
pending or threatened before any court or by or before any governmental
instrumentality, which could have a material adverse effect on the business,
operations, property, prospects or condition (financial or otherwise) of any
Related Person or the ability of Borrower to perform its obligations under
<PAGE>
any of the Principal Documents. To my knowledge, there exists no default or
breach by any Related Person with respect to any order, writ, injunction, decree
or demand of any court or governmental instrumentality, nor does the execution,
delivery or performance by Borrower of any of the Principal Documents result in
any such default or breach.
6. No Related Person is an "investment company" or a company
"controlled" by an "investment company", within the meaning of the Investment
Company Act of 1940, as amended.
7. No Related person is a "holding company", or a "subsidiary company"
of a "holding company", or an "affiliate" of a "holding company" or of the
"subsidiary company" of a "holding company", within the meaning of the Public
Utility Holding Company Act of 1935, as amended.
8. To the best of my knowledge, the General Partner is the sole general
partner of Borrower.
9. No state or local mortgage tax, stamp tax or other fee, tax or
governmental charge (other than filing and recording fees imposed by law) is
required to be paid in the State of Colorado in connection with the execution,
delivery, filing or recording of the Mortgages or the Financing Statements.
10. With respect to the law of the State of Colorado, the Security
Agreement creates a valid security interest in favor of Agent for the benefit of
the Lenders in the Collateral described therein consisting of fixtures, goods,
including equipment and inventory, and the other personal property collateral
governed by the UCC (as defined below), securing the Obligations. The filing of
the Financing Statements in the offices identified in Schedule I hereto and to
the Local Counsel Opinions will perfect such security interest in such fixtures
and personal property granted in the Security Agreement to the extent that the
security interest can be perfected by filing. It is not necessary to refile the
Financing Statements or to make any other recording or filing in order to
maintain the perfection of the security interest described above, except as
provided below.
Comments, Qualifications and Limitations:
-----------------------------------------
The opinions expressed herein are limited by and subject to the following
qualifications, limitations and assumptions:
A. General Qualifications. The validity, binding effect and
----------------------
enforceability of the Principal Documents may be subject to, or limited or
affected by, (i) bankruptcy, or similar statutes or rules of law affecting
creditors' rights generally, including, without limitation, statutes or rules of
law that limit the effect of waivers of rights by a debtor, guarantor or
grantor; (ii)
5-
<PAGE>
general principles of equity (whether considered in a suit in equity or at law);
and (iii) the qualification that certain remedial provisions of the Principal
Documents may be unenforceable in whole or in part under the UCC or other
applicable state and federal law, but the inclusion of such provisions does not
render the other provisions of the Principal Documents invalid and does not make
the remedies afforded by the Principal Documents inadequate for the practical
realization of the benefits afforded thereby.
B. Title Matters. In rendering this opinion, I have made no
--------------
examination of and express no opinion with respect to (i) title to the
Collateral or the priority of the liens created by the Mortgages; or (ii) the
creation or perfection of the lien of the Mortgages with respect to water
rights. I have assumed that Borrower has rights in the Personal Property
Collateral sufficient to enable Borrower to grant liens on and security
interests in such property.
C. Foreclosure. Notwithstanding the terms and provisions of the
-----------
Mortgages relating to the foreclosure, in order to realize upon the Collateral,
the foreclosure provisions of the statutes of the State where the Mortgaged
Property is located must be complied with.
D. Certain Matters as to Personal Property Collateral. I have made the
---------------------------------------------------
following additional assumptions and qualifications in rendering the opinions
expressed in paragraph 6 above:
(i) The security interests created by the Mortgages are subject to the
rights of purchasers under Section 9-307 of the UCC.
E. After-Acquired Property.' Under applicable law, after-acquired
-----------------------
title provisions in a deed of trust or mortgage may be effective against the
parties thereto but not against third parties, because the deed of trust or
mortgage may be outside the chain of title to the after-acquired property.
F. Proceeds. With respect to proceeds (as such term is defined in
---------
the UCC) of Collateral, the effectiveness and perfection of security interests
that are purported to be created by the Mortgages are subject to and limited or
affected by the following: (i) the operation of Section 9-306 of the UCC and
the other provisions of the UCC referred to therein, and (ii) as to any proceeds
which consist of items of property not subject to perfection under the
provisions of Article 9 of the UCC, to the requirement that Agent's interest be
perfected in the appropriate manner under the laws governing perfection of liens
or security interests for that type of property.
s-
<PAGE>
G. Factual Matters. As to certain factual matters we have relied,
----------------
without independent verification, upon information obtained from officers of the
general partner of Borrower.
H. Under applicable law, a financing statement filed in the State
of Colorado is effective for a period of five years from the date of filing (and
for an additional period in certain limited circumstances). The effectiveness of
a filed financing statement may be continued however, by filing a continuation
statement, in the manner prescribed by law, in the office in which the financing
statement was originally filed, within six months prior to the end of the five-
year period thereafter. Amendments or supplements to the Financing Statements or
additional financing statements may be required to be filed in the event of a
change in the name, identity, principal place of business, chief executive
office or corporate structure of Borrower, or in the event the Financing
Statements or the description of the Collateral otherwise becomes inaccurate,
incomplete or seriously misleading.
I. Limitations. I do not express any opinion as to matters governed
------------
by any law other than the federal law and laws of the State of Colorado. The
opinions expressed herein are rendered as of the date hereof. Any statement
herein which may be construed as an opinion regarding the law of any other state
should be construed only as a referral to the appropriate Local Counsel Opinion
if one exists, and if one does not exists, should not be construed or
interpreted as any statement or opinion concerning the law or the applicability
of the law of any other state. To the extent this opinion refers to Local
Counsel opinions, the reference is for convenience only. No independent .review
or examination of the matters covered by or opined on by Local Counsel was
undertaken by the undersigned, nor did the undersigned participate in the
selection or retention of West Virginia Local Counsel. I do not undertake to
advise you of matters that may come to my attention subsequent to the date
hereof and that may affect the opinions expressed herein, including without
limitation, future changes in applicable law.
W. Spector
7
<PAGE>
SCHEDULE I
- ----------
Colorado Secretary of State
<PAGE>
G. D. HARDIN (1884.-1-degree,64)
P. H. HARDIN
BRAOLEY O. JESSON ROBERT T. DAWSON
REX M. TERRY
RCBERT M, HONEA
J. LESLIE L-"VIII'S III
J. RODNEY MILLS + KIRKMAN T. DOUGHERTY .,.. CAROL WOODS FRAZtER
EXHIBIT F-1
ATTORNEY'S AT LAW
SUITE 500, SUPERIOR FEDERAL TOWER 5000 ROOERS AVENUE
P. O. BOX 10127
FORT SMITH, ARKANSAS 7291 7-0127 TELEFHONE (501) 452-2200
FAX (501) 452-9692
December 3, 1992
*'AI..SCI AJDMII'T"ED IN CXLA~UA
Norwest Bank Denver, National
Association, Individualiv and as Agent 1740 Broadway
Denver, Colorado 80274-8699
First American National Bank
4894 Poplar Avenue
Memphis, Tennessee 38117
Barry Spector, Esq.
1050 Seventeenth Street, Suite 330
Denver, Colorado 80265
Ladies and Gentlemen:
We have been asked to render an opinion concerning certain limited matters
of Arkansas law.
Materials Examined:
- -------------------
As a basis for the opinions hereinafter expressed, we have examined
unexecuted counterparts (unless otherwise noted) of the "Execution Form" of the
following:
1. Arkansas Leasehold Deed of Trust with Security
Agreement, Assignment of Rents and Leases and Financing
Statement draft, dated as of November 18, 1992, by and
among MARKWEST HYDROCARBON PARTNERS, LTD., a limited
<PAGE>
partnership organized and existing under the laws of the State of Colorado
(hereinafter called "Grantor" or "Borrower"), Mark Williamson, as Trustee
--------- ----------
(hereinafter called "Trustee" and NORWEST BANK DENVER, NATIONAL ASSOCIATION, a
---------
national banking association, as agent (hereinafter called "Beneficiary"), for
itself and First American National Bank, a national banking association, ("First
American"), NATIONAL including Exhibits "A", "B", and "C" thereto (the
"Mortgage"). Norwest Bank Denver,
- ----------
<PAGE>
December 3, 1992 Page No. 2
National Association in its individual capacity is hereinafter called "Norwest".
---------
Norwest and First American are collectively referred to herein as "Lenders".
- ---------
2. The financing statement for use in the State of Arkansas, naming
Borrower as debtor, and Agent as secured party (the "Financing Statement").
We have not examined any other documents in connection with this
transaction and offer no opinion as to any such documents.
The documents described in paragraphs 1 and 2 are collectively referred to
as the "Principal Documents."
Assumptions:
- ------------
In rendering the opinions hereinafter expressed, we have made the following
assumptions:
A. The Lenders are duly organized, validly existing and in good standing
under the laws of the states or governmental bodies under which they are
organized. Borrower is duly organized, validly existing and in good standing as
a limited partnership under the laws of the State of Colorado. If any party is
doing business in the State of Arkansas it has properly qualified to transact
such business.
B. Each of the Principal Documents has been duly authorized, executed
and delivered by the parties thereto.
C. The Principal Documents constitute legal, valid and binding
obligations of the parties thereto (other than Borrower), enforceable against
such parties (other than Borrower) in accordance with their respective terms,
and all parties to the Principal Documents have all necessary power and
authority to enter into and perform the transactions contemplated thereby.
D. None of the execution, delivery or performance of the Principal
Documents by any party thereto will result in any violation of or be in
contravention of or constitute a default under the charter, bylaws or other
governing documents of such party, or any other contract or agreement binding on
such party or its properties.
E. The transactions provided for in the Principal Documents are
supported by sufficient and adequate
<PAGE>
December 3, 1992 Page No. 3
consideration, and a loan has been made and is currently outstanding, which loan
is intended to be secured by the Mortgage.
F. All signatures are genuine, all documents submitted ~.c us as
originals are authentic, and all documents submitted to us as photocopies,
telecopies or facsimiles conform to the original documents.
G. MarkWest is not a public utility within the meaning of Arkansas law
and is not a regulated pipeline or other entity which would require approval
from the Arkansas Public Service Commission or other state entity prior to
obtaining mortgage financing.
Opinion:
- --------
Based upon the foregoing, and subject to the qualifications, limitations
and assumptions stated herein, we are of the opinion that:
1. No approval, consent, exemption or other action by, or notice to or
filing with any governmental authority of this State pursuant to any statutory
law, treaty, rule or regulation is required in connection with the (a)
execution, delivery or performance by Borrower of its agreements in any of the
Principal Documents or the incurring of indebtedness by Borrower or the granting
of the liens by Borrower under the Mortgage, or (b) enforcement by Agent or the
Lenders of any of the Principal Documents; except that either or both clauses
(a) and (b) above are or may be subject to or limited or affected by: (i) the
filings and recordings referred to in paragraphs 5 and 6 below; (ii) notices to
or filings with appropriate county recorders under applicable state law relating
to nonjudicial foreclosure; and (iii) any notices, filings or other actions
under applicable state law required in connection with (A) judicial foreclosure,
(B) realization upon any assignment of rents, or (C) the appointment of
receivers.
2. The execution, delivery and performance by Borrower of its agreements
in the Principal Documents and the incurring of indebtedness by Borrower and the
granting of the liens described in and pursuant to the Mortgage do not and will
not violate or result in a breach of any statutory law, treaty, rule or
regulation of this State applicable to Borrower.
<PAGE>
December 3, 1992 Page No. 4
3. No state or local mortgage tax, stamp tax or other fee, tax or
governmental charge (other than filing and recording fees imposed by law) is
required to be paid in the State of Arkansas in conection with the execution,
delivery, filing or recording of the Mortgage or the Financing Statement.
4. The Mortgage constitutes the legal, valid and binding obligation of
Borrower, enforceable against Borrower in accordance with its terms.
5. The Mortgage is in form sufficient to create a lien in favor of
Trustee for the benefit of Agent and Lenders in and to the real property
described in the Mortgage and in Exhibits "A" and "B" to the Mortgage (including
fixtures that are real property under Arkansas law), securing payment of such
obligations as are stated in the Mortgage, and is in proper form for recording
in the respective office or offices identified in Schedule I attached hereto.
Upon recording of the Mortgage in the office or offices identified in Schedule I
hereto, the Mortgage will constitute constructive notice of the contents thereof
to subsequent purchasers and mortgagees of the real property described therein.
No other recordings or re-recordings are or will be necessary in order to
provide any subsequent purchasers and mortgagees of any such real property with
constructive notice of the contents of the Mortgage or to maintain the
perfection of the lien created by the Mortgage, except as stated in paragraph G
below.
6. The Mortgage and Exhibits "A" and "B" thereto is in form sufficient to
create a valid security interest in favor of Agent for the benefit of Lenders in
and to the personal property described in the Mortgage and Exhibits "A" and "B"
thereto (including fixtures that are personal property under Arkansas law)
consisting of fixtures, goods and other personal property which is within the
scope of the Uniform Commercial Code as adopted in Arkansas (the "UCC"),
securing the payment of such obligations as are stated in the Mortgage. The
recording of the Mortgage and the filing of the Financing Statement in the
offices identified in Schedule I hereto will perfect such security interest in
such fixtures and personal property to the extent that such security interest
can be perfected by filing. The Principal Documents are effective as a fixture
filing from the date of their filing and/or recording in the offices identified
in Schedule I hereto. It is not necessary to rerecord the Mortgage or refile the
Financing
<PAGE>
December 3, 1992 Page No. 5
Statement or to make any other recording or filing in order to maintain the
perfection of the security interest described above, except as provided in
paragraphs "D", "E", "F," and "G" below.
Comments, Oualifications and Limitations:
- -----------------------------------------
The opinions expressed herein are limited by and subject to the following
qualifications, limitations and assumptions:
A. General Qualifications. The validity, binding effect and
-----------------------
enforceability of the Principal Documents may be subject to, or limited or
affected by, (i) bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium or similar statutes or rules of law affecting creditors' rights
generally, including, without limitation, statutes or rules of law that limit
the effect of waivers of rights by a debtor, guarantor or grantor; (ii) general
principles of equity (whether considered in a suit in equity or at law); and
(iii) the qualification that certain remedial provisions of the Principal
Documents may be unenforceable in whole or in part under the UCC or other
applicable state and federal law, but the inclusion of such provisions does not
render the other provisions of the Principal Documents invalid; (iv) the
validity and enforcement of the Principal Documents is subject to the terms of
the underlying ground leases; and (v) the rights of the secured parties may be
further subject to the Arkansas Code provisions with regard to landlord's liens,
Arkansas Code Annotated, Sec. 18-16-108. The ramifications of this statute are
more particularly discussed in a letter dated June 18, 1992, from Rex M. Terry
to Barry W. Spector which by this reference is incorporated herein.
B. Title Matters. In rendering this opinion we have made no examination
--------------
of and express no opinion with respect to (i) title to the property conveyed in
the Mortgage or the priority of the liens created by the Mortgage; or (ii) the
creation or perfection of the lien of the Mortgage with respect to water rights.
We have assumed that Borrower has rights in the personal property conveyed in
the Mortgage sufficient to enable Borrower to grant liens on and security
interests in such property.
C. Foreclosure. Notwithstanding the terms and provisions of the
------------
Mortgage relating to foreclosure, in order to realize upon the property conveyed
therein as
<PAGE>
December 3, 1992 Page No. 6
collateral, the foreclosure provisions of the statutes and case law of this
State must be complied with. In our opinion, as a practical matter, in Arkansas,
judicial foreclosure is required as to the interest in real estate in order to
establish marketable title in the event of default despite the terms of the
Mortgage providing for non-judicial sale.
D. Certain Matters as to Personal Property Collateral. We have made the
---------------------------------------------------
following additional assumptions and qualifications in rendering the opinions
expressed in paragraph 6 above.
(i) Our opinion as to perfection of the security interest
with respect to the fixtures (as that term is used in the UCC), is
based upon the following assumptions:
(a) Any portion of the property conveyed in the Mortgage
consisting of goods that are or are to become fixtures is and will be
located on the real estate described in Exhibit "A" to the Mortgage;
and
(b) Borrower has an interest of record in the real property
described in the Mortgage sufficient to support a security interest in
fixtures attached to or placed upon such property.
(ii) Our opinion as to perfection of the security
interests with respect to the personal property included in the
Mortgage is limited to those items that constitute goods under the UCC
and proceeds thereof; but excluding consumer goods, standing timber,
goods covered by a certificate of title or warehouse receipt, goods in
the possession of a bailee, farm products and crops.
(iii) The security interests created by the Mortgage
are subject to the rights of the purchasers under Section 9-307 of
the UCC.
E. After-Acquired Property. Under applicable law, after-acquired
------------------------
title provisions contatined in the Principal Documents may be effective
against the parties thereto but not against third parties, because the
Principal Documents may be outside the chain of title to the after-acquired
property.
<PAGE>
December 3, 1992 Page No. 7
F. Proceeds. With respect to proceeds (as such term is defined 'in the
---------
UCC) of property conveyed in the Mortgage, the effectiveness and perfection of
security interests that are purported to be created by the Mortgage are subject
to and limited or affected by the following: (i) the operation of Section 9-306
of the UCC and the other provisions of the UCC referred to therein, and (ii) as
to any proceeds which consist of items of property not subject to perfection
under the provisions of Article 9 of the UCC, to the requirement that Agent's
interest be perfected in the appropriate manner under the laws governing
perfection of liens or security interests for that type of property.
G. Continuation of Lien and Secured Interest. Under Arkansas law, a
------------------------------------------
mortgage, deed of trust or similar document may not be enforceable with respect
to real property collateral and the record thereof may cease to provide
constructive notice and has no more effect than an unrecorded instrument
immediately upon expiration of a period of five years next following the date
upon which acceleration of the indebtedness and payment of the indebtedness in
full may have first been permitted or demanded pursuant to the Principal
Documents and the indebtedness such documents secure.
Under Arkansas law, a financing statement filed in the State of Arkansas is
effective for a period of five years from the date of filing (and for an
additional period in certain limited circumstances). The effectiveness of a
filed financing statement may be continued, however, by filing a continuation
statement, in the manner prescribed by law, in the offices in which the
financing statement was originally filed, within six months prior to the end of
the five-year period, and by so filing subsequent continuation statements within
six months prior to the end of each five-year period thereafter. Amendments or
supplements to the Mortgage and the Financing Statement or additional financing
statements may be required to be filed in the event of a change in the name,
identity, principal place of business, chief executive office or corporate
structure of Borrower, or in the event the Mortgage or the Financing Statement
or the description of the Collateral otherwise becomes inaccurate, incomplete or
seriously misleading.
I. Filing Offices. For the purposes of determining the proper counties
---------------
or offices to record the Mortgage, we have relied upon the descriptions in
Exhibit
<PAGE>
December 3, 1992 Page No. 8
"A" to the Mortgage for information concerning the counties in which the
property conveyed in the Mortgage is located.
J. Limitations. We do not express any opinion as to matters governed
------------
by any law other than the laws of the State of Arkansas. The opinions expressed
heroin are rendered as of the date hereof. We do not undertake to advise you of
matters that may come to our attention subsequent to the date hereof and that
may affect the opinions expressed herein, including without limitation, future
changes in applicable law.
K. Usury. No opinion is given with regard as to whether this
------
transaction complies with the Arkansas usury limitations.
L. Due on Sale. The Due on Sale provisions of Section 2j'8 of the
------------
Mortgage may be subject to the Arkansas case law provisions which require that
the mortgage holder have a valid reason not to permit a transfer. See,
Tucker vs. Pulaski Savings and Loan Association, ~1 S.W.2d 725 (1972) and Abrego
- ----------------------------------------------- ------
v. United PooDles Federal
- -------------------------
Savings and Loan Association, 664 S.W.2d 858 (1~84).
- ----------------------------
Very truly yours,
HARDIN, JESSON, DAWSON & TERRY
/s/ Robert M. Honea
Robert M. Honea
<PAGE>
SCHEDULE I
----------
A. Real Property.
--------------
To perfect a lien on real property in the State of Arkansas, the instrument
evidencing the lien must be filed in the land records of the Circuit Clerk and
Ex-Officio Recorder for the county in Arkansas in which the real property is
located. For Crittenden County, that address is:
Land Records
Circuit Clerk and Ex-Officio Recorder
Crittenden County Courthouse
100 Court Street
Marion, Arkansas 72364
B. UCC Filings
-----------
In order to perfect a security interest in personal property and fixtures
pursuant to the Uniform Commercial Code, as adopted in the State of Arkansas,
the instrument evidencing the lien must be filed in both the UCC Records of the
Circuit Clerk and Ex-Officio Recorder for the county in Arkansas in which the
personal property and/or fixtures are located, and in addition, must be filed in
the UCC records maintained by the Office of the Secretary of State for the State
of Arkansas. Those addresses are as follows:
UCC Records
Circuit Clerk and Ex-Officio Recorder
Grittendon County Courthouse
100 Court Street
Marion, Arkansas 72364
and
UCC Filings Division
Office of the Secretary of State
State of Arkansas
256 State Capitol Building
Little Rock, Arkansas 72201
<PAGE>
BAR-~Y SPECTOR, ESQ.
LADIES & GENTLEMEN:
WE HAVE ACTED AS SPECIAL KENTUCKY COUNSEL FOR MARKWEST HYDROCARBON
PARTNERS, LTD., A COLORADO LIMITED PARTNERSHIP ("BORROWER"), IN CONNECTION WITH
THE TRANSACTIONS CONTEMPLATED BY THE LOAN AGREEMENT DATED AS OF NOVEMBER 20,
1992 (THE "REVOLVER/TERM LOAN AGREEMENT") AND THE WORKING CAPITAL LOAN AGREEMENT
DATED AS OF NOVEMBER 20, 1992 (THE "WORKING CAPITAL LOAN AGREEMENT"), BOTH AMONG
BORROWER, NORWEST BANK DENVER, NATIONAL ASSOCIATION AND FIRST AMERICAN NATIONAL
BANK (COLLECTIVELY THE "LENDERS") AND NORWEST BANK DENVER, NATIONAL ASSOCIATION,
AS AGENT FOR THE LENDERS ("AGENT"). THE REVOLVER/TEN LOAN AGREEMENT AND THE
WORKING CAPITAL LOAN AGREEMENT ARE REFERRED TO HEREIN COLLECTIVELY AS THE "LOAN
AGREEMENTS".
WE RENDER THIS OPINION PURSUANT TO SUBSECTION 3(A)(II)(B) OF THE
REVOLVER/TEN LOAN AGREEMENT AND SUBSECTION 4(A)(II)(B) 'OF THE WORKING CAPITAL
LOAN AGREEMENT. CAPITALIZED TERMS USED BUT NOT DEFINED HEREIN SHALL HAVE THE
MEANINGS SET FROTH IN THE REVOLVER/TERM LOAN AGREEMENT, EXCEPT THAT THE TEN
"COLLATERAL" SHALL HAVE THE MEANING SET FORTH IN THE MORTGAGE (AS SUCH TEN IS
DEFINED BELOW).
<PAGE>
Nor-west Bank Denver, National McBRAYER, McGINNIS, LESLIE KIRKLAND
Association, Individually an as Agent
November 20, 1992 -Page 2
Materials Examined:
- -------------------
As a basis for the opinions hereinafter expressed, we have examined
unexecuted counterparts (unless otherwise noted) of the "Execution Form" of the
following:
1. (a) The Mortgage, Security Agreement, Assignment of Profits and
Proceeds and Financing Statement, dated as of November 20, 1992 by and among
Borrower, as Mortgagor, and Agent, as Mortgagee, including the Exhibits thereto
(Siloam); (b) The Mortgage, Security Agreement, Assignment of Profits and
Proceeds and Financing Statement, dated as of November 20, 1992 by and among the
Borrower, as Mortgagor, and Agent, as Mortgagee, including the Exhibits thereto
(Boldman). ((a) and (b) are collectively called the "Mortgage").
2. The financing statement for use in the State of Kentucky naming Borrower
as debtor, and Agent as secured party (the "Financing Statement").
The documents described in paragraphs 1 and 2 are collectively referred to
as the "Principal Documents".
Assumptions:
- ------------
In rendering the opinions heroinafter expressed, we have made the following
assumptions:
A. The Lenders are duly organized, validly existing and in good standing
under the laws of the states or governmental bodies under which they are
organized. Borrower is duly organized, validly existing and in good standing as
a limited partnership under the laws of the State of Colorado.
B. Each of the Principal Documents has been duly authorized, executed
and delivered by the parties thereto.
C. The Principal Documents constitute legal, valid and binding obligations
of the parties thereto (other than Borrower), enforceable against such parties
(other than Borrower) in accordance with their respective terms; and all
parties to the Principal Documents have all necessary power and authority to
enter into and perform the transactions contemplated thereby.
D. None of the execution, delivery or performance of the Principal
Documents by any party thereto will result in any violation of or be in
contravention of or constitute a default under the charter, bylaws or other
governing documents of such party, or any other contract or agreement binding on
such party or its properties.
<PAGE>
Norwest Bank Denver, National McBRAYER, McGINNIS, LESLIE & KIRKLAND
Association, Individually an as Agent November 20, 1992 Page 3
E. The transactions provided for in the Principal Documents are supported
by sufficient and adequate consideration, and a loan has been made and is
currently outstanding, which loan is intended to be secured by the Mortgage.
F. All signatures are genuine, all documents submitted to us as originals
are authentic, and all documents submitted to us as photocopies, telecopies or
facsimiles conform to the original documents.
Opinion:
- --------
Based upon the foregoing, and subject to the qualifications, limitations
and assumptions stated heroin, we are of the opinion that:
1. No approval, consent, exemption or other action by, or notice to or
filing with any governmental authority of this State pursuant to any statutory
law, treaty, rule or regulation is required in connection with the execution,
delivery or performance of Borrower of its agreements in any of the Principal
Documents or in the incurring of indebtedness by Borrower or the granting of the
liens by Borrower under the Mortgage.
2. The execution, delivery and performance by Borrower of its agreements in
the Principal Documents and the incurring of indebtedness by Borrower and the
granting of the liens described in and pursuant to the Mortgage do not and will
not violate or result in a breach of any statutory law, treaty, rule or
regulation of this State ("Requirement of Law") applicable to Borrower nor
result in or require the creation or imposition of any lien on any properties or
revenues of Borrower pursuant to any Requirement of Law.
3. No state or local mortgage tax, stamp tax or other fee, tax or
governmental charge (other than filing and recording fees imposed by law) is
required to be paid in the State of Kentucky in connection with the execution,
delivery, filing or recording of the Mortgage or the Financing Statement.
4. The Mortgage constitutes the legal, valid and binding obligation of
Borrower, enforceable against Borrower in according with its terms.
5. The Mortgage, including the form of description contained in Exhibit A
and B thereto, are in form sufficient to create a lien in favor of Agent for the
benefit of Agent and the Lenders on the title and interest of Borrower in the
real property (including improvements located thereon and fixtures thereto)
described in Exhibit A and B thereto, securing payment and performance of the
Obligations (as defined therein), and is in proper form for recording in the
<PAGE>
Norwest Bank Denver, National McBRAYER, McGINNIS, LESLIE & KIRKLAND
Association, Individually an as Agent November 20, 1992 Page 4
respective office' or offices identified for the Mortgage in Schedule I. Upon
such recording, the Mortgage will constitute constructive notice of the contents
thereof to subsequent purchasers and mortgagees of the real property described
therein. No other recordings or re-recordings are or will be necessary in order
to provide any subsequent purchasers and mortgagees of any such real property
with constructive notice of the contents of the Mortgage or to maintain the
perfection of the lien described above.
6. The Mortgage is in form sufficient to create a valid security interest
in favor of Agent for the benefit of the Lenders in the Collateral described
therein consisting of fixtures, goods and the other personal property collateral
governed by the UCC (as defined below), securing the Obligations. The recording
of the Mortgage and the filing of the Financing Statement in the offices
identified in Schedule I hereto will perfect such security interest in such
fixtures and personal property granted in the Mortgage to the extent that the
security interest can be perfected by filing. The Mortgage is, among other
things, a financing statement and is effective as a fixture filing from the date
of its recording in the offices identified in Schedule I hereto. It is not
necessary to re-record the Mortgage or refile the Financing Statement or to make
any other recording or filing in order to maintain the perfection of the
security interest described above, except as provided below.
Comments, Qualifications & Limitations:
- ---------------------------------------
The opinions expressed heroin are limited by and subject to the following
qualifications, limitations and assumptions:
A. General Qualifications. The validity, binding effect and
-----------------------
enforceability of the Principal Documents may be subject to, or limited or
affected by, (i) bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium or similar statutes or rules of law affecting creditors' rights
generally, including, without limitation, statutes or rules of law that limit
the effect of waivers of rights by a debtor, guarantor cr grantor; (ii) general
principles of equity (whether considered in a suit in equity or at law); and
(iii) the qualification that certain remedial provisions of the Principal
Documents may be unenforceable in whole or in part under the UCC or other
applicable state and federal law, but the inclusion of such provisions does not
render the other provisions of the Principal Documents invalid and does not make
the remedies afforded by the Principal Documents inadequate for the practical
realization of the benefits afforded thereby.
B. Tiitle Matters. In rendering this opinion we have made no examination of
---------------
and express no opinion with respect to (i) title to the Collateral or the
priority of the liens created by
<PAGE>
Norwest Bank Denver, National McBRAYER, McGINNIS, LESLIE & KIRKLAND
Association, Individually an as Agent November 20, 1992 Page 5
the Mortgage; or (it) the creation or perfection of the lien of the Mortgage
with respect to water rights. We have assumed that Borrower has rights in the
personal property Collateral sufficient to enable Borrower to grant liens on and
security interests in such property.
C. Foreclosure. Notwithstanding the terms and provisions of the Mortgage
------------
relating to foreclosure, in order to realize upon the Collateral, the
foreclosure provisions of the statutes of this State must be complied with.
D. Certain Matters as to Personal Property Collateral. We have made the
---------------------------------------------------
following additional assumptions and qualifications in rendering
the opinions expressed in paragraph 6 above:
(i) Our opinion as to perfection of the security interest with
respect to the fixtures (as that term is used in the UCC), is based upon the
following assumptions:
(a) Any portion of the Collateral consisting of goods that are
or are to become fixtures is and will be located on the real estate described in
Exhibit A to the Mortgage; and,
(b) Borrower has an interest of record in the real estate
described in the Mortgage, or, as to Boldman, that Columbia Gas Transmission
Corporation is the owner of an interest of record in the real estate concerned.
(ii) Our opinion as to perfection of the security interests with
respect to the personal property included in the Collateral is limited to those
items of Collateral that constitute goods under the UCC and proceeds thereof;
but excluding consumer goods, standing timber( goods covered by a certificate of
title or warehouse receipt, goods in possession of a bailee, fan products and
crops.
(iii) The security interests created by the Mortgage are subject to
the rights of purchasers under Section 9-307 of the UCC.
E. After-Acquired Property. Under applicable law, after-acquired title
------------------------
provisions in a deed of trust or mortgage may be effective against the parties
thereto but not against third parties, because the deed of trust or mortgage may
be outside the chain of title to the after-acquired property.
F. Proceeds. With respect to proceeds (as such term is defined in the UCC)
---------
of Collateral, the effectiveness and perfection of security interests that are
purported to be created by the Mortgage are subject to and limited or affected
by the following: (i) the operation of Section 9-306 of the UCC and other
provisions of the UCC referred to therein, and (it) as to
<PAGE>
Norwest Bank Denver, National MCBRAYER, McGINNIS, LESLIE & KIRKLAND
Association, Individually an as Agent November 20, 1992 Page 6
any proceeds which consist of items of property not subject to perfection under
the provisions of Article 9 of the UCC, to the requirement that Agent's interest
be perfected in the appropriate manner under the laws governing perfection of
liens or security interests for that type of property.
G. Factual Matters. As to certain factual matters we have relied, without
----------------
independent verification, upon information contained in certificates of an offer
of Borrower.
H. Continuation of Lien & Security Interest. Under applicable law, a
-----------------------------------------
financing statement filed in the State of Kentucky is effective for a period of
five years from the date of filing (and for an additional period in certain
limited circumstances). The effectiveness of a filed financing statement may be
continued however, by filing a continuation statement, in the manner prescribed
by law, in the office in which the financing statement was originally filed,
within six months prior to the end of the five-year period, and by so filing
subsequent continuation statements within six months prior to the end of each
five-year period thereafter. Amendments or supplements to the Mortgage and the
Financing Statement or additional financing statements may be required to be
filed in the event of change in the name, identity, principal place of business,
chief executive office or corporate structure of Borrower, or in the event the
Mortgage or the Financing Statement or the description of the Collateral
otherwise becomes inaccurate, incomplete or seriously misleading.
I. Filing Offices. For purposes of determining the proper counties or
---------------
offices to record the Mortgage, we have relied upon the descriptions in Exhibit
A to the Mortgage for information concerning the counties in which the Mortgaged
Property is located.
J. Limitations. We do not express any opinion as to matters governed by any
------------
law other than the laws of the State of Kentucky. The opinions expressed herein
are rendered as of the date hereof. We do not undertake to advise you of matters
that my come to our attention subsequent to the date hereof and that may affect
the opinions expressed herein, including without limitation, future changes in
applicable law.
Sincerely yours,
Phillip Bruce Leslie
<PAGE>
EXHIBIT G
---------
THIS EXHIBIT INTENTIONALLY OMITTED
G-1
.
<PAGE>
EXHIBIT H
LITIGATION
----------
1. In Re the Columbia Gas System, Inc. and Columbia Gas Transmission
-----------------------------------------------------------------
Corporation, Case Nos. 91-803 and 91-804, United States Bankruptcy Court,
- ------------
District of Delaware.
<PAGE>
EXHIBIT I
---------
MARKWEST HYDROCARBON PARTNERS LTD. PARTNERSHIP INTEREST PERCENTAGES
GENERAL PARTNER
MarkWest Hydrocarbon inc.
TOTAL
LIMITED PARTNERS
ERIN Investments
Jon Crabtree
Majorie S. Fox
Lisbeth Fox Vance
James Hamilton
The Murray Company
Tom Reed
Brian O'Neill
Patrick Murray
Arthur Denney
William Adkins
Patricia Cameron
Steve Creamer
Daniel Deneault
Katherine Holland
Henry Nickel
Paul O'Neill
Mark Porth
Mike Price
Fred Shato
Eldon Smith
Kevin Timken
Total Limited Partners
GRAND TOTAL
69.7176% 69.7176%
10.9915% 4.7107% 1.6170% 1.0000% 0.0000% 2.6170% 0.9421% 4.4939% 1.7193%
0.8909% 0.0957% 0.0787% 0.1702% 0.1277% 0.0617% 0.0255% 0.1277% 0.0766% 0.
1702% 0.1277% 0.1277% 0.1106% 30.2824%
100.0000%
. ~ I - 1
<PAGE>
GENERAL PARTNER' S SHAREHOLDERS MARKWEST HYDROCARBON, INC.
Percentage Ownership
---------
John M. and Marcella F. Fox
Anne Fox Mounsey
Kelley Fox
John M. Fox, Jr.
85.00% 5.00% 5.00% 5.00%
Address of above:
3482 E. Davies Place Littleton, Colorado
80122
.z!~ I-2
<PAGE>
FIRST AMENDMENT TO LOAN AGREEMENT
---------------------------------
This First Amendment to Loan Agreement (this "Amendment") dated as of
September 14, 1993 is by and among MARKWEST HYDROCARBON PARTNERS, LTD., a
Colorado limited partnership (the "Borrower"), NORWEST BANK DENVER, NATIONAL
ASSOCIATION, a national banking association, ("Norwest"), FIRST AMERICAN
NATIONAL BANK, a national banking association ("First American") (Norwest and
--------
First American are referred to individually as a "Lender" and collectively as
---------
the "Lenders"), and NORWEST, AS AGENT FOR THE LENDERS (in such capacity, the
------------
"Agent").
- ---------
RECITALS
--------
1. Borrower, the Lenders and the Agent executed a Loan Agreement
dated as of November 20, 1992 (the "Loan Agreement"), whereby the Lenders agreed
to make Revolver Loans and a Term Loan to Borrower in accordance with the terms
and conditions set forth therein. The principal of and interest on the Term Loan
have been paid in full. Unless otherwise defined herein, capitalized terms used
herein shall have the meaning assigned to them in the Loan Agreement.
2. Borrower, the Agent and the Lenders now desire to amend the Loan
Agreement to provide, among other things, for an increase in the principal
amount of the Revolver Loan from $20,000,000 to $25,000,000 and to add
additional collateral to secure the Loans.
AGREEMENT
---------
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Borrower, the Agent and each of the
Lenders hereby agree as follows.:
1. Amendment of Section 1. The definitions of Borrowing Base,
------------------------
Mortgages, Revolver Commitment and Revolver Note set forth in section 1 of the
Loan Agreement shall be amended in the following manner:
"Borrowing Base": shall be amended by deleting the figure
------------------
"$20,000,000" in the last line of that definition and substituting the phrase
"'the Maximum Principal Amount" therefor;
<PAGE>
"Mortgages": shall be amended by changing the period at the end of the
-----------
present definition to a comma and adding to the end thereof the following: "and
(f) Borrower's interest in the Florida Mesa Project and the Herford Project."
"Revolver Commitment": shall be amended by deleting the figure
-----------------------
"$20,000,000" in the fourth line of that definition and substituting the phrase
"the Maximum Principal Amount" therefor; and
"Revolver Note": shall be amended by restating the definition of the
-----------------
term "Revolver Note" in its entirety to read as follows:
"Revolver Note" shall mean a note dated November 20, 1992,
---------------
substantially in the form of Exhibit B attached hereto, made by
Borrower and payable to the order of Norwest or to First American, as
appropriate, with appropriate insertions, as amended by an Allonge
dated September 14, 1993, to increase the principal amount of such
note to $12,500,000.00, together with any and all renewals,
extensions, amendments and changes of, or substitutions for said note;
collectively, the "Revolver Notes."
-----------------
B. The following additional definitions are hereby added to Section
1 of the Loan Agreement in their appropriate alphabetical order:
"Allonge" shall refer individually to each Allonge dated September 14,
----------
1993, between Borrower and either Norwest or First American, as appropriate,
which amends the Revolver Note payable to such Lender to increase the principal
amount of such note from $10,000,000 to $12,500,000, and which are in the form
attached hereto as Exhibits A-1 and A-2, and the term "Allonges" shall refer to
both Allonges.
"Amended Notes" shall refer to each Revolver Note as amended by the
---------------
Allonge for the appropriate Lender.
"Amendment Documents" shall refer to this Amendment, the Allonges, the
-----------
First Mortgage Amendments and the Florida Mesa Mortgage.
"First Mortgage Amendments" shall refer to the amendments dated as of
----------------------------
September 14, 1993, to each of the mortgages and deeds of trust executed by the
Borrower in
-2-
<PAGE>
connection with the Initial Advance and the Second Advance on the Term Loan and
described as follows: (i) First Amendment to Arkansas Leasehold Deed of Trust
with Security Agreement, Assignment of Rents and Leases and Financing Statement
(Revolving Credit); (ii) First Amendment to Mortgage, Security Agreement,
Assignment of Profits and Proceeds and Financing Statement relating to Siloam,
(iii) First Amendment to Mortgage, Security Agreement, Assignment of Profits and
Proceeds and Financing Statement (Boldman); and (iv) First Amendment to A Credit
Line Deed of Trust with Security Agreement, Assignment of Profits and Proceeds
and Financing Statement relating to West Virginia property.
"Florida Mesa Deed of Trust" shall refer to the Deed of Trust to
-----------------------------
Public Trustee, Mortgage, Security Agreement, Assignment of Production and
Proceeds and Financing Statement dated as of September 14, 1993 from Borrower to
the Public Trustee of La Plata County, Colorado, for the benefit of the Agent,
covering Borrower's interest in the Florida Mesa Project and its interest in the
Herford Project.
"Maximum Principal Amount" shall be $25,000,000.
---------------------------
2. Amendment of Section 4(c). Section 4(c) is hereby amended to
---------------------------
delete the figure "$20,000,000" in the third line and substitute the phrase "the
Maximum Principal Amount" therefor.
3. Amendment of Section 9(c). Section 9(c) is hereby amended to
---------------------------
delete the following language:
(i) guarantees by Borrower of Debt incurred by MarkWest Energy
Partners, Ltd. in connection with the Florida Mesa Project so
long as such guarantees do not exceed $1,000,000 in the aggregate
at any one time, and (ii)
4. Amendment of Section 13(b). Section 13(b) shall be amended by
----------------------------
changing the address of Norwest in both the provision for Norwest, as Lender,
and Norwest, as Agent:
Norwest Bank Denver, National Association
1740 Broadway
Denver, CO 80274-8699
Attention: Energy and Minerals Group
Fax No.: (303) 863-5196
-3-
<PAGE>
5. Conditions Precedent. The amendments provided for in this
----------------------
Amendment shall not become effective until the Agent has received each of the
following:
A. This Amendment, executed by Borrower, the Agent and the
Lenders;
B. The Allonges, executed by Borrower and the appropriate
Lender;
C. Counterparts of the First Mortgage Amendments, duly
executed and acknowledged by Borrower and Agent, and to the extent applicable,
the trustee thereunder;
D. Counterparts of the Florida Mesa Deed of Trust duly
executed and acknowledged by Borrower;
E. A letter from each of John Fox and the General Partner
reconfirming their respective Covenant Agreement;
F. A duly executed and acknowledged Subordination Agreement
between RIMCO Partners, L.P., Resource Investors Management Company Limited
Partnership and the Agent, in form and substance acceptable to the Agent;
G. Results of UCC lien searches as to Borrower for the States
of Arkansas, Colorado and West Virginia and for the following counties:
Crittenden County, Arkansas; Boyd, Greenup and Pike Counties, Kentucky; and
Wayne and Kanawha Counties, West Virginia, and for all other relevant filing
jurisdictions as to the Collateral;
H. Evidence that the Agent has been named as mortgagee/loss
payee under all policies of casualty insurance, and as an additional insured
under all policies of liability insurance, as required by Section 8(f) of the
Loan Agreement with respect to the collateral subject to the Florida Mesa Deed
of Trust;
I. All legal matters incident to the Loans and the Amendment
Documents shall be satisfactory to counsel to the Agent, and the Agent shall
have received a favorable opinion addressed to the Agent and the Lenders of
Barry W. Spector, Esq., counsel for Borrowers, in form and substance
satisfactory to the Agent; and
J. All other documents and assurances which the Agent
reasonably requires or which it may reasonably request in connection with the
transactions contemplated by
-4-
<PAGE>
this Agreement, and such documents shall be certified, when appropriate by
proper authorities.
6. Post-Closing Matters. On or before thirty (30) days after the
----------------------
recording of the Florida Mesa Deed of Trust in the real property records of La
Plata County, Colorado, Borrower shall have delivered to the Agent a security
opinion prepared by Barry W. Spector, Esq., showing the Florida Mesa Deed of
Trust as a perfected first priority lien and security interest in all of the
collateral subject to such Deed of Trust, subject only to those matters
acceptable to the Agent and its counsel.
7. Representations and Warranties. To induce the Agent and the
--------------------------------
Lenders to enter into this Amendment, Borrower hereby represents and warrants to
the Agent and each Lender that:
A. Non-Contravention. The execution, delivery and performance
-------------------
by the Borrower of this Amendment, and the other Amendment Documents and the
borrowings thereunder, and the consummation of the transactions contemplated
herein and therein will not conflict with the limited partnership agreement or
other organizational or governing documents of any Related Person, or conflict
with or result in any breach of any mortgage, lien, lease, agreement,
instrument, order, judgment, decree, law, rule, regulation or any other
restriction of any kind or character to which any Related Person is a party or
is subject or by which any Related Person or its properties are bound or
affected or result in the creation or imposition of any lien, charge or
encumbrance upon any property of any Related Person.
B. Third Party Authorization. No consent, approval,
---------------------------
exemption, authorization or order of or other action by, and no notice to or
filing with, any court or governmental authority or third party is required by
any Related Person in connection with the execution, delivery or performance by
Borrower of this Amendment, or any other Amendment Document or to consummate any
transactions contemplated hereby or thereby.
C. Authorization; Binding Effect. Borrower has full power and
-------------------------------
authority to enter into this Amendment and the other Amendment Documents. The
execution and delivery of this Amendment, and the other Amendment Documents, and
the performance and observance of their terms, conditions and obligations, have
been duly authorized by all necessary action by Borrower and the General
Partner. This Amendment and the other Amendment Documents are the legal, valid
and binding obligations of Borrower, enforceable in accordance with their
-5-
<PAGE>
respective terms, except as such enforcement may be limited by bankruptcy,
insolvency or similar laws of general application relating to the enforcement of
creditors' rights.
D. First Priority Security Interest. Upon filing and
----------------------------------
recording of the Florida Mesa Deed of Trust and the related financing statements
in the locations specified in the opinion provided to the Lenders pursuant to
paragraph 5(I) hereof, the Agent, on behalf of the Lenders will have a perfected
first priority lien or security interest in all of the Collateral subject to
such mortgage.
The foregoing representations and warranties shall be deemed to
be representations and warranties made in the Loan Agreement for all purposes.
8. Continuing Effect. Except as expressly amended hereby, the Loan
-------------------
Agreement shall continue to be and shall remain in full force and effect in
accordance with its terms. References in the Loan Agreement to "this Agreement",
"this instrument" and like terms shall be deemed to be references to the Loan
Agreement as amended by this Amendment. When used in this Amendment or in the
Loan Agreement, each reference to a term defined in the Loan Agreement, which is
amended by this Amendment, shall be deemed to be the term as amended by this
Amendment. Any reference to the "Revolver/Term Loan Agreement" in the Collateral
Documents shall be deemed to be a reference to the Loan Agreement as amended by
this Amendment. The Borrower hereby confirms and acknowledges that the term
"Obligations" as used in the Security Agreement, includes all obligations of the
Borrower with respect to the Revolver Loans as increased hereby and the Amended
Notes and all other costs, fees, indemnities and expenses in connection
therewith.
9. This Amendment shall be governed by and construed under the laws
of the State of Colorado and shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns.
10. This Amendment may be executed in one or more counterparts, with
each party signing on different counterparts, each of which shall be deemed an
original, and all of which together shall constitute but one and the same
instrument.
-6-
<PAGE>
BORROWER:
MARKWEST HYDROCARBON PARTNERS, LTD.,
a Colorado limited partnership
By: MARKWEST HYDROCARBON, INC.,
General Partner
By:
Patrick W. Murray
Vice President
LENDERS:
NORWEST BANK DENVER, NATIONAL
ASSOCIATION, a national banking association
By:
Mark Williamson
Vice President
FIRST AMERICAN NATIONAL BANK,
a national banking association
By:
David C. May
Senior Vice President
AGENT:
NORWEST BANK DENVER, NATIONAL
ASSOCIATION, a national banking association
By:
Mark Williamson
Vice President
-7-
<PAGE>
EXHIBIT A-1
-----------
FIRST ALLONGE
TO REVOLVER NOTE
THIS FIRST ALLONGE TO REVOLVER NOTE dated September 14, 1993, is
between MARKWEST HYDROCARBON PARTNERS, LTD., a Colorado limited partnership
("Borrower"), and NORWEST BANK DENVER, NATIONAL ASSOCIATION, a national banking
association (the "Lender").
For good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Borrower and the Lender agree as follows:
1. This Allonge shall be attached to and shall become a part of the
Revolver Note dated November 20, 1992, made by Borrower and payable to the order
of the Lender, in the original principal amount of $10,000,000.00 (the "Note").
2. The Note is hereby amended by increasing the principal amount of
the Note from $10,000,000.00 to $12,500,000.00.
3. Except as amended hereby, the provisions of the Note are not
changed, altered or amended, and such provisions and the liens of the deeds of
trust and mortgages that secure the obligations under the Note are hereby
ratified and confirmed in all respects and remain in full force and effect.
4. This Allonge shall be binding upon and shall inure to the benefit
of the parties hereto and their heirs, administrators, executors, personal
representatives, successors and assigns.
EXECUTED as of the date first set forth above.
NORWEST BANK DENVER, MARKWEST HYDROCARBON PARTNERS
NATIONAL ASSOCIATION, LTD., a Colorado limited
a national banking association partnership
By: MarkWest Hydrocarbon, Inc., General
Partner
By:
Mark Williamson, Patrick W. Murray,
Vice President Vice President
<PAGE>
EXHIBIT A-2
-----------
FIRST ALLONGE
TO REVOLVER NOTE
THIS FIRST ALLONGE TO REVOLVER NOTE dated September 14, 1993, is
between MARKWEST HYDROCARBON PARTNERS, LTD., a Colorado limited partnership
("Borrower"), and FIRST AMERICAN NATIONAL BANK, a national banking association
(the "Lender").
For good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Borrower and the Lender agree as follows:
1. This Allonge shall be attached to and shall become a part
of the Revolver Note dated November 20, 1992, made by Borrower and payable
to the order of the Lender, in the original principal amount of
$10,000,000.00 (the "Note").
2. The Note is hereby amended by increasing the principal
amount of the Note from $10,000,000.00 to $12,500,000.00.
3. Except as amended hereby, the provisions of the Note are
not changed, altered or amended, and such provisions and the liens of the
deeds of trust and mortgages that secure the obligations under the Note are
hereby ratified and confirmed in all respects and remain in full force and
effect.
4. This Allonge shall be binding upon and shall inure to the
benefit of the parties hereto and their heirs, administrators, executors,
personal representatives, successors and assigns.
EXECUTED as of the date first set forth above.
FIRST AMERICAN NATIONAL MARKWEST HYDROCARBON PARTNERS
BANK, LTD., a Colorado limited
a national banking association partnership
By: MarkWest Hydrocarbon, Inc.,
General Partner
By:
Mark Williamson, Patrick W. Murray,
Vice President, Vice President
<PAGE>
FIRST ALLONGE
TO REVOLVER NOTE
THIS FIRST ALLONGE TO REVOLVER NOTE dated September 14, 1993, is
between MARKWEST HYDROCARBON PARTNERS, LTD., a Colorado limited partnership
("Borrower"), and FIRST AMERICAN NATIONAL BANK, a national banking association
(the "Lender").
For good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Borrower and the Lender agree as follows:
1. This Allonge shall be attached to and shall become a part of the
Revolver Note dated November 20, 1992, made by Borrower and payable to the order
of the Lender, in the original principal amount of $10,000,000.00 (the "Note").
2. The Note is hereby amended by increasing the principal amount of
the Note from $10,000,000.00 to $12,500,000.00.
3. Except as amended hereby, the provisions of the Note are not
changed, altered or amended, and such provisions and the liens of the deeds of
trust and mortgages that secure the obligations under the Note are hereby
ratified and confirmed in all respects and remain in full force and effect.
4. This Allonge shall be binding upon and shall inure to the
benefit of the parties hereto and their heirs, administrators, executors,
personal representatives, successors and assigns.
EXECUTED as of the date first set forth above.
FIRST AMERICAN NATIONAL MARKWEST HYDROCARBON PARTNERS
BANK, LTD., a Colorado limited
a national banking association partnership
By: MarkWest Hydrocarbon, Inc.,
General Partner
By:
David C. May Patrick W. Murray,
Vice President Vice President
<PAGE>
FIRST ALLONGE TO REVOLVER NOTE
THIS FIRST ALLONGE TO REVOLVER NOTE dated September 14, 1993, is
between MARKWEST HYDROCARBON PARTNERS, LTD., a Colorado limited partnership
("Borrower"), and NORWEST BANK DENVER, NATIONAL ASSOCIATION, a national banking
association (the "Lender").
For good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Borrower and the Lender agree as follows:
1. This Allonge shall be attached to and shall become a part of the
Revolver Note dated November 20, 1992, made by Borrower and payable to the order
of the Lender, in the original principal amount of $10,000,000.00 (the "Note"').
2. The Note is hereby amended by increasing the principal amount of
the Note from $10,000,000.00 to $12,500,000.00.
3. Except as amended hereby, the provisions of the Note are not
changed, altered or amended, and such provisions and the liens of the deeds of
trust and mortgages that secure the obligations under the Note are hereby
ratified and confirmed in all respects and remain in full force and effect.
4. This Allonge shall be binding upon and shall inure to the
benefit of the parties hereto and their heirs, administrators, executors,
personal representatives, successors and assigns.
EXECUTED as of the date first set forth above.
NORWEST BANK DENVER, MARKWEST HYDROCARBON PARTNERS
NATIONAL ASSOCIATION, LTD., a Colorado limited
a national banking association partnership
By: MarkWest Hydrocarbon, Inc.,
General Partner
By:
Mark Williamson, Patrick W. Murray,
Vice President Vice President
<PAGE>
SECOND AMENDMENT TO LOAN AGREEMENT
----------------------------------
This Second Amendment to Loan Agreement (this "Amendment") dated as of
---------
March 23, 1994 is by and among MARKWEST HYDROCARBON PARTNERS, LTD., a Colorado
limited partnership (the "Borrower"), NORWEST BANK COLORADO, NATIONAL
--------
ASSOCIATION (successor to Norwest Bank Denver, National Association), a national
banking association, ("Norwest"), FIRST AMERICAN NATIONAL BANK, a national
-------
banking association ("First American") (Norwest and First American are referred
--------------
to individually as a "Lender" and collectively as the "Lenders"), and NORWEST,
------ -------
AS AGENT FOR THE LENDERS (in such capacity, the "Agent").
-----
RECITALS
--------
1. Borrower, the Lenders and the Agent executed a Loan Agreement
dated as of November 20, 1992 (the "Original Loan Agreement"), whereby the
-------- --------------
Lenders agreed to make Revolver Loans and a Term Loan to Borrower in accordance
with the terms and conditions set forth therein. The principal of and interest
on the Term Loan have been paid in full. Borrower, the Lenders and the Agent
executed a First Amendment to Loan Agreement dated as of September 14, 1993 (the
"First Amendment") whereby various terms of the Original Loan Agreement were
----- ---------
amended. The Original Loan Agreement, as amended by the First Amendment, is
herein referred to as the "Loan Agreement". Unless otherwise defined herein,
--------------
capitalized terms used herein shall have the meaning assigned to them in the
Loan Agreement.
2. Borrower, the Agent and the Lenders now desire to amend the Loan
Agreement to extend the Revolver Commitment Period from December 31, 1994 to
December 31, 1995, and to extend the maturity date from December 31, 1998 to
December 31, 1999.
AGREEMENT
---------
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Borrower, the Agent and each of the
Lenders hereby agree as follows:
1. Amendment of Section 1. A. The definitions of Loan Documents,
----------------------
Amended Notes, Revolver Commitment Period and Revolver Note set forth in Section
1 of the Loan Agreement shall be amended by restating the definition of each of
the following terms in their entirety to read as follows:
"Amended Notes" shall refer to each Revolver Note as amended by
-------------
the Allonge and Second Allonge for the appropriate Lender.
"Loan Documents" shall mean the Loan Agreement, as amended by
--------------
this Agreement, the Amended Notes, the Security Documents, the Covenant
Agreements and all other documents executed and delivered, from time to time, by
or on behalf of Borrower to the Agent or the Lenders in connection herewith or
therewith.
"Revolver Commitment Period" shall mean the period from November
--------------------------
20, 1992, to and including December 31, 1995, or such earlier date on which the
Revolver Notes become due and payable.
"Revolver Note" shall mean a note dated November 20, 1992,
-------------
substantially in the form of Exhibit B attached to the Original Loan Agreement,
---------
made by Borrower and payable to the order of Norwest or to First American, as
appropriate, with appropriate insertions, as amended by an Allonge dated
September 14, 1993, to increase the principal amount of such note to
$12,500,000.00, and as amended by Second Allonge dated March 23, 1994, to change
the maturity date from December 31, 1998 to December 31, 1999, together with any
and all renewals, extensions, amendments and changes of, or substitutions for
said note; collectively, the "Revolver Notes."
--------------
"Working Capital Facility" shall mean the loan provided for
------------------------
pursuant to that certain Working Capital Loan Agreement dated November 20, 1992,
between Borrower, the Lenders and the Agent, as such agreement may be amended
from time to time, in the maximum principal amount of $5,000,000, and which loan
is secured by various "Security Documents" (as such term is defined therein).
B. The following additional definitions are hereby added to
Section 1 of the Loan Agreement in
-1-
<PAGE>
their appropriate alphabetical order:
"Second Allonge" shall refer individually to each Second Allonge
--------------
to Revolver Note dated March 23, 1994, between Borrower and either Norwest or
First American, as appropriate, which amends the Revolver Note payable to such
Lender to extend the maturity date from December 31, 1998 to December 31, 1999,
and which are in the form attached hereto as Exhibits A-1 and A-2, and the term
"Second Allonges" shall refer to both of the Second Allonges.
C. The term "Amendment Documents" when used in this Agreement shall
-------------------
refer to this Amendment and the Second Allonges.
2. Amendment of Section 2(b)(ii). Section 2(b)(ii) is hereby
-----------------------------
amended to (a) delete the date "March 31, 1995" in the twelfth and thirteenth
lines and substitute the date "March 31, 1996" therefor, and (b) delete the date
"December 31, 1998" in the fourteenth line and substitute the date "December 31,
1999" therefor.
3. Amendment of Section 9(j)(ii). Section 9(j)(ii) of the Loan
-----------------------------
Agreement is hereby deleted and restated in its entirety to read as follows:
(ii) So long as a Borrowing Base Deficiency does not exist and
no Event of Default or Unmatured Event of Default has occurred,
Borrower may make distributions in an aggregate cumulative amount
not to exceed 75 percent of Borrower's net income, determined in
accordance with GAAP and computed on a cumulative basis for all
periods since December 31, 1991, taking into account allowable
distributions previously declared or made since December 31, 1991;
provided however, that the distribution of $1,800,851 made in 1992
-------- -------
relating to 1991 earnings shall not be included in the calculation
of distributions declared or made since December 31, 1991;
notwithstanding any of the foregoing, distributions are allowable
only so long as they would not cause Borrower to be in
contravention of the financial covenants contained in Section
8(k), (l), (m) and (n).
4. Amendment of Section 13(b). Section 13(b) shall be amended by
--------------------------
changing the address of Norwest in both the provision for Norwest, as Lender,
and Norwest, as Agent to the following:
Norwest Bank Colorado, National Association
1740 Broadway
Denver, CO 80274-8699
Attention: Energy and Minerals Group
Fax No.: (303) 863-5196
5. Conditions Precedent. The amendments provided for in this
--------------------
Amendment shall not become effective until the Agent has received each of the
following:
A. This Amendment, executed by Borrower, the Agent and the
Lenders;
B. The Second Allonges, executed by Borrower and the
appropriate Lender;
C. A letter from each of John Fox and the General Partner
reconfirming their respective Covenant Agreement;
D. All legal matters incident to the Loans and the Amendment
Documents shall be satisfactory to counsel to the Agent, and the Agent shall
have received a favorable opinion addressed to the Agent and the Lenders of
Barry W. Spector, Esq., counsel for Borrowers, in form and substance
satisfactory to the Agent; and
E. All other documents and assurances which the Agent
reasonably requires or which it may reasonably request in connection with the
transactions contemplated by this Agreement, and such documents shall be
certified, when appropriate by proper authorities.
6. Representations and Warranties. To induce the Agent and the
------------------------------
Lenders to enter into this Amendment, Borrower hereby represents and warrants to
the Agent and each Lender that:
-2-
<PAGE>
A. Non-Contravention. The execution, delivery and performance
-----------------
by the Borrower of this Amendment, and the other Amendment Documents and the
borrowings thereunder, and the consummation of the transactions contemplated
herein and therein will not conflict with the limited partnership agreement or
other organizational or governing documents of any Related Person, or conflict
with or result in any breach of any mortgage, lien, lease, agreement,
instrument, order, judgment, decree, law, rule, regulation or any other
restriction of any kind or character to which any Related Person is a party or
is subject or by which any Related Person or its properties are bound or
affected or result in the creation or imposition of any lien, charge or
encumbrance upon any property of any Related Person.
B. Third Party Authorization. No consent, approval, exemption,
-------------------------
authorization or order of or other action by, and no notice to or filing with,
any court or governmental authority or third party is required by any Related
Person in connection with the execution, delivery or performance by Borrower of
this Amendment, or any other Amendment Document or to consummate any
transactions contemplated hereby or thereby.
C. Authorization; Binding Effect. Borrower has full power and
-----------------------------
authority to enter into this Amendment and the other Amendment Documents. The
execution and delivery of this Amendment, and the other Amendment Documents, and
the performance and observance of their terms, conditions and obligations, have
been duly authorized by all necessary action by Borrower and the General
Partner. This Amendment and the other Amendment Documents are the legal, valid
and binding obligations of Borrower, enforceable in accordance with their
respective terms, except as such enforcement may be limited by bankruptcy,
insolvency or similar laws of general application relating to the enforcement of
creditors' rights.
D. Representations and Warranties. All representations and
------------------------------
warranties contained in Section 7 of the Original Loan Agreement and in the
Security Documents shall be true on the date hereof as if then given, and
Borrower shall have performed or observed all terms, agreements, conditions and
obligations under the Loan Agreement and under the Security Documents to be
performed or observed on or prior to the date hereof.
E. No Default. No Event of Default or Unmatured Event of
----------
Default under the Loan Agreement shall have occurred and be continuing or would
result from the entering into of this Amendment.
The foregoing representations and warranties shall be deemed to
be representations and warranties made in the Loan Agreement for all purposes.
7. Continuing Effect. Except as expressly amended hereby, the Loan
-----------------
Agreement shall continue to be and shall remain in full force and effect in
accordance with its terms. References in the Loan Agreement to "this
Agreement", "this instrument" and like terms shall be deemed to be references to
the Loan Agreement as amended by this Amendment. When used in this Amendment or
in the Loan Agreement, each reference to a term defined in the Loan Agreement,
which is amended by this Amendment, shall be deemed to be the term as amended by
this Amendment. Any reference to the "Revolver/Term Loan Agreement" in the
Collateral Documents shall be deemed to be a reference to the Loan Agreement as
amended by this Amendment. The Borrower hereby confirms and acknowledges that
the term "Obligations" as used in the Security Agreement, includes all
obligations of the Borrower with respect to the Revolver Loans as extended
hereby and the Amended Notes and all other costs, fees, indemnities and expenses
in connection therewith.
8. This Amendment shall be governed by and construed under the laws
of the State of Colorado and shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns.
9. This Amendment may be executed in one or more counterparts, with
each party signing on different counterparts, each of which shall be deemed an
original, and all of which together shall constitute but one and the same
instrument.
BORROWER:
MARKWEST HYDROCARBON PARTNERS, LTD.,
a Colorado limited partnership
By: MARKWEST HYDROCARBON, INC.,
General Partner
-3-
<PAGE>
By: _____________________________
Patrick W. Murray
Vice President
LENDERS:
NORWEST BANK COLORADO, NATIONAL
ASSOCIATION (successor to Norwest Bank Denver,
National Association), a national banking association
By:_____________________________
Mark Williamson
Vice President
FIRST AMERICAN NATIONAL BANK,
a national banking association
By:______________________________
David C. May
Senior Vice President
AGENT:
NORWEST BANK COLORADO, NATIONAL
ASSOCIATION (successor to Norwest Bank Denver,
National Association), a national banking association
By:_____________________________
Mark Williamson
Vice President
-4-
<PAGE>
EXHIBIT A-1
SECOND ALLONGE
TO REVOLVER NOTE
THIS SECOND ALLONGE TO REVOLVER NOTE dated March 23, 1994 (this
"Allonge"), is between MARKWEST HYDROCARBON PARTNERS, LTD., a Colorado limited
partnership ("Borrower"), and NORWEST BANK COLORADO, NATIONAL ASSOCIATION
(successor to Norwest Bank Denver, National Association), a national banking
association (the "Lender").
For good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Borrower and the Lender agree as follows:
1. This Allonge shall be attached to and shall become a part of the
Revolver Note dated November 20, 1992, made by Borrower and payable to the order
of the Lender, in the original principal amount of $10,000,000.00 (the "Original
Note").
2. The Original Note was amended by increasing the principal amount
of the Original Note from $10,000,000.00 to $12,500,000.00 by First Allonge to
Revolver Note dated September 14, 1993 (the "First Allonge"). The Original
Note, as amended by the First Allonge, is herein referred to as the "Note".
3. All references in the Note to the "Loan Agreement" shall refer to
the Loan Agreement dated November 20, 1992 among Borrower, Lender, First
American National Bank, as a lender, and Norwest Bank Colorado, National
Association (successor to Norwest Bank Denver, National Association), as Agent,
as such agreement has been amended by First Amendment to Loan Agreement dated
September 14, 1993, and by Second Amendment to Loan Agreement dated as of the
date hereof, and as such agreement may be further amended from time to time.
4. The Note is hereby amended to extend the maturity date from
December 31, 1998 to December 31, 1999.
5. The Note is further amended by deleting the third full paragraph
of the Original Note and by substituting the following for it in its entirety:
As of December 31, 1995, the aggregate unpaid principal amount
outstanding under this Note shall be repaid to Lender in
sixteen equal quarterly installments, commencing March 31,
1996, as more fully provided in the Loan Agreement, together
with accrued and unpaid interest thereon. All remaining
outstanding principal of and interest on this Note shall be
due and payable no later than December 31, 1999.
6. Except as amended hereby, the provisions of the Note are not
changed, altered or amended, and such provisions and the liens of the deeds of
trust and mortgages that secure the obligations under the Note are hereby
ratified and confirmed in all respects and remain in full force and effect.
7. This Allonge shall be binding upon and shall inure to the benefit
of the parties hereto and their heirs, administrators, executors, personal
representatives, successors and assigns.
8. This Allonge is to be governed by and construed according to the
laws of the State of Colorado.
EXECUTED as of the date first set forth above.
NORWEST BANK COLORADO, MARKWEST HYDROCARBON PARTNERS
NATIONAL ASSOCIATION, LTD., a Colorado limited
(successor to Norwest partnership
-5-
<PAGE>
Bank Denver, National
Association), By: MarkWest Hydrocarbon, Inc.,
a national banking General Partner
association
By:________________________ By:_________________________
Mark Williamson, Patrick W. Murray,
Vice President Vice President
-6-
<PAGE>
EXHIBIT A-2
SECOND ALLONGE
TO REVOLVER NOTE
THIS SECOND ALLONGE TO REVOLVER NOTE dated March 23, 1994 (this
"Allonge"), is between MARKWEST HYDROCARBON PARTNERS, LTD., a Colorado limited
partnership ("Borrower"), and FIRST AMERICAN NATIONAL BANK, a national banking
association (the "Lender").
For good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Borrower and the Lender agree as follows:
1. This Allonge shall be attached to and shall become a part of the
Revolver Note dated November 20, 1992, made by Borrower and payable to the order
of the Lender, in the original principal amount of $10,000,000.00 (the "Original
Note").
2. The Original Note was amended by increasing the principal amount
of the Original Note from $10,000,000.00 to $12,500,000.00 by First Allonge to
Revolver Note dated September 14, 1993 (the "First Allonge"). The Original
Note, as amended by the First Allonge, is herein referred to as the "Note".
3. All references in the Note to the "Loan Agreement" shall refer to
the Loan Agreement dated November 20, 1992, among Borrower, Lender, and Norwest
Bank Colorado, National Association (successor to Norwest Bank Denver, National
Association), as a lender and as Agent, as such agreement has been amended by
First Amendment to Loan Agreement dated September 14, 1993, and by Second
Amendment to Loan Agreement dated as of the date hereof, and as such agreement
may be further amended from time to time.
4. The Note is hereby amended to extend the maturity date from
December 31, 1998 to December 31, 1999.
5. The Note is further amended by deleting the third full paragraph
of the Original Note and by substituting the following for it in its entirety:
As of December 31, 1995, the aggregate unpaid principal amount
outstanding under this Note shall be repaid to Lender in
sixteen equal quarterly installments, commencing March 31,
1996, as more fully provided in the Loan Agreement, together
with accrued and unpaid interest thereon. All remaining
outstanding principal of and interest on this Note shall be
due and payable no later than December 31, 1999.
6. Except as amended hereby, the provisions of the Note are not
changed, altered or amended, and such provisions and the liens of the deeds of
trust and mortgages that secure the obligations under the Note are hereby
ratified and confirmed in all respects and remain in full force and effect.
7. This Allonge shall be binding upon and shall inure to the benefit
of the parties hereto and their heirs, administrators, executors, personal
representatives, successors and assigns.
8. This Allonge is to be governed by and construed according to the
laws of the State of Colorado.
EXECUTED as of the date first set forth above.
FIRST AMERICAN NATIONAL MARKWEST HYDROCARBON PARTNERS
BANK, a national banking LTD., a Colorado limited
association partnership
By: MarkWest Hydrocarbon, Inc.,
General Partner
-7-
<PAGE>
By:________________________ By:_________________________
David C. May Patrick W. Murray,
Senior Vice President Vice President
-8-
<PAGE>
THIRD AMENDMENT TO LOAN AGREEMENT
---------------------------------
This Third Amendment to Loan Agreement (this "Amendment") dated as of
---------
September 8, 1995 is by and among MARKWEST HYDROCARBON PARTNERS, LTD., a
Colorado limited partnership (the "Borrower"), NORWEST BANK COLORADO, NATIONAL
--------
ASSOCIATION (successor to Norwest Bank Denver, National Association), a national
banking association, ("Norwest"), FIRST AMERICAN NATIONAL BANK, a national
-------
banking association ("First American"), and N M ROTHSCHILD AND SONS LIMITED, a
--------------
company organized and existing under the laws of England ("Rothschild")
----------
(Norwest, First American and Rothschild are referred to individually as a
"Lender" and collectively as the "Lenders"), and NORWEST, AS AGENT FOR THE
- ------- -------
LENDERS (in such capacity, the "Agent").
-----
RECITALS
--------
1. Borrower, Norwest, First American and Agent executed a Loan
Agreement dated as of November 20, 1992 (the "Original Loan Agreement"), whereby
-----------------------
Lenders agreed to make Revolver Loans and a Term Loan to Borrower in accordance
with the terms and conditions set forth therein. The principal of and interest
on the Term Loan have been paid in full. Borrower, Norwest, First American and
Agent executed a First Amendment to Loan Agreement dated as of September 14,
1993 (the "First Amendment") whereby various terms of the Original Loan
---------------
Agreement were amended. Borrower, Norwest, First American and Agent executed a
Second Amendment to Loan Agreement dated as of March 23, 1994 (the "Second
------
Amendment") whereby various terms of the Original Loan Agreement were further
- ---------
amended. The Original Loan Agreement, as amended by the First Amendment and
Second Amendment, is herein referred to as the "Loan Agreement". Unless
--------------
otherwise defined herein, capitalized terms used herein shall have the meaning
assigned to them in the Loan Agreement.
2. Borrower, Agent and Lenders now desire to amend the Loan Agreement,
among other things, to add Rothschild as a Lender, to reflect the execution of
replacement notes to reflect such addition of Rothschild, to extend the Revolver
Commitment Period from December 31, 1995 to June 30, 1997, to extend the
maturity date from December 31, 1999 to June 30, 2001, and to provide a LIBOR
interest option on Revolver Loans.
AGREEMENT
---------
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Borrower, Agent and each of Lenders
hereby agree as follows:
1. Amendment of Section 1. A. The definitions of Loan Documents,
----------------------
Loan Share,
<PAGE>
Fixed Charge Coverage Ratio, Revolver Commitment Period, Revolver Loan and
Revolver Note set forth in Section 1 of the Loan Agreement shall be amended by
restating the definition of each of the following terms in their entirety to
read as follows:
"Fixed Charge Coverage Ratio" shall mean for the four most recent
-----------------------------
fiscal quarters, the ratio for such period of (a) the sum of net income (or net
loss) plus interest expense and non-cash charges included in determining net
income (or net loss), all as determined in accordance with GAAP, to (b) the sum
of interest expense included in calculating (a).
"Loan Documents" shall mean the Loan Agreement, as amended by this
--------------
Agreement, the Replacement Notes, the Security Documents, the Covenant
Agreements and all other documents executed and delivered, from time to time, by
or on behalf of Borrower to Agent or Lenders in connection herewith or
therewith.
"Loan Share" means with respect to each of Norwest and First American,
----------
forty percent and with respect to Rothschild, twenty percent.
"Revolver Commitment Period" shall mean the period from November 20,
--------------------------
1992, to and including June 30, 1997, or such earlier date on which the Revolver
Notes become due and payable.
"Revolver Loan" shall mean the loan provided for in Section 2(b)
-------------
hereof to Borrower by Lenders, in the form of a Base Rate Loan or a LIBOR Rate
Loan, all of which shall collectively be referred to as "Revolver Loans" or "the
-------------- ---
Revolver Loan," the maximum principal amount of which shall never exceed the
- -------------
Revolver Commitment.
"Revolver Note" shall mean a Replacement Revolver Note dated September
-------------
8, 1995, substantially in the form of Exhibit A-1, A-2 or A-3 attached hereto,
-----------------------
made by Borrower and payable to the order of Norwest, First American or
Rothschild, as appropriate, with appropriate insertions, reissued in connection
with the assignment by Norwest and First American to Rothschild of a portion of
their interests in the Loan, in replacement of a note dated November 20, 1992,
substantially in the form of Exhibit B attached to the Original Loan Agreement
---------
made by Borrower and payable to the order of Norwest or First American, as
amended by an Allonge dated September 14, 1993, to increase the principal amount
of such note to $12,500,000.00, as amended by Second Allonge dated March 23,
1994, to change the maturity date from December 31, 1998 to December 31, 1999,
and which has a maturity date of June 30, 2001, together with any and all
renewals, extensions, amendments and changes of, or substitutions for said note;
collectively, the "Revolver Notes."
--------------
"Second Mortgage Amendments" shall refer to the amendments dated as of
--------------------------
<PAGE>
September 8, 1995, to each of the mortgages and deeds of trust executed by the
Borrower in connection with this Amendment and described as follows: (i) Second
Amendment to Arkansas Leasehold Deed of Trust with Security Agreement,
Assignment of Rents and Leases and Financing Statement (Revolving Credit); (ii)
Second Amendment to Mortgage, Security Agreement, Assignment of Profits and
Proceeds and Financing Statement relating to Siloam, (iii) Second Amendment to
Mortgage, Security Agreement, Assignment of Profits and Proceeds and Financing
Statement (Boldman); and (iv) Second Amendment to A Credit Line Deed of Trust
with Security Agreement, Assignment of Profits and Proceeds and Financing
Statement relating to West Virginia property.
"Working Capital Facility" shall mean the loan provided for pursuant
------------------------
to that certain Working Capital Loan Agreement dated November 20, 1992, between
Borrower, Lenders and Agent, as such agreement may be amended from time to time,
in the maximum principal amount of $7,500,000, and which loan is secured by
various "Security Documents" (as such term is defined therein).
B. The following additional definitions are hereby added to Section
1 of the Loan Agreement in their appropriate alphabetical order:
"Applicable Margin" shall mean:
-----------------
(a) for Base Rate Loans: (i) 0.25 percentage points if
Borrower's total Debt is less than or equal to 40 percent of Borrower's
Total Capitalization or (ii) 0.50 percentage points if Borrower's total
Debt is greater than 40 percent of Borrower's Total Capitalization; and
(b) for LIBOR Rate Loans: (i) 2.0 percentage points if
Borrower's total debt is less than or equal to 40 percent or (ii) 2.25
percentage points if Borrower's total debt is greater than 40 percent.
"Base Rate" shall mean an annual rate of interest which equals the
---------
floating commercial loan rate of Agent announced from time to time as its "prime
rate," which rate is used as a reference point for pricing certain loans, which
may not be the lowest interest rate charged by Agent, adjusted in each case as
of the banking day in which a change in the "prime rate" occurs.
"Base Rate Loan" shall mean a Revolver Loan that bears interest based
--------------
on the Base Rate.
"Capital Adequacy Regulation" means any guideline, request or
---------------------------
directive of any
3
<PAGE>
central bank or other governmental authority, or any other law, rule, or
regulation, whether or not having the force of law, in each case regarding
capital adequacy of any bank or of any corporation controlling a bank.
"Conversion Date" means any date on which Borrower converts a Base
---------------
Rate Loan to a LIBOR Rate Loan, or a LIBOR Rate Loan to a Base Rate Loan.
"Eurocurrency Liabilities" has the meaning specified in Regulation D
------------------------
of the Board of Governors of the Federal Reserve System, as in effect from time
to time.
"Eurodollar Reserve Percentage" shall mean, for any Interest Period,
-----------------------------
the reserve percentage applicable two Business Days before the first day of such
Interest Period under regulations issued from time to time by the Board of
Governors of the Federal Reserve System (or any successor) for determining the
maximum reserve requirement (including, without limitation, any emergency,
supplemental or other marginal reserve requirement) for Lenders with respect to
liabilities or assets consisting of or including Eurocurrency Liabilities (or
with respect to any other category of liabilities that includes deposits by
reference to which the interest rate on LIBOR Rate Loans is determined) having a
term equal to such Interest Period.
"Interest Payment Date" means, with respect to any LIBOR Rate Loan,
---------------------
the last day of each Interest Period applicable to such Loan and, with respect
to Base Rate Loans, the last Business Day of each Fiscal Quarter; provided that,
--------
if any Interest Period for a LIBOR Rate Loan exceeds three months, the date
which falls three months after the beginning of such Interest Period shall also
be an Interest Payment Date.
"Interest Period" means, with respect to any LIBOR Rate Loan, the
---------------
period commencing on the Business Day the Loan is disbursed or continued or on
the Conversion Date on which the Loan is converted to the LIBOR Rate Loan and
ending on the date one, two, three or six months thereafter, as selected by
Borrower in its Request for Advance or Notice of Conversion/Continuation;
provided that:
- --------
(a) if any Interest Period would otherwise end on a day which
is not a Business Day, that Interest Period shall be extended to the next
succeeding Business Day unless the result of such extension would be to carry
such Interest Period into another calendar month, in which event such Interest
Period shall end on the immediately preceding Business Day;
(b) any Interest Period that begins on the last Business Day
of a calendar month (or on a day for which there is no numerically corresponding
day in the calendar month at the end of such Interest Period) shall end on the
last Business Day of the calendar month at the end of such Interest Period; and
4
<PAGE>
(c) no Interest Period may be selected by Borrower which would
extend beyond the last day of the Revolver Commitment Period.
"LIBOR Rate" shall mean, for any Interest Period, an interest rate per
----------
annum (rounded up to the nearest one-sixteenth of one percent) equal to the rate
per annum obtained by dividing (i) the rate per annum at which deposits in U.S.
dollars are offered by funding sources acceptable to Agent to leading banks in
the London interbank market at 11:00 a.m. (London time) two Business Days before
the first day of such Interest Period in an amount substantially equal to the
amount of the applicable LIBOR Rate Loan and for a period equal to such Interest
Period by (ii) a percentage equal to 100 percent minus the Eurodollar Reserve
Percentage for such Interest Period. The LIBOR Rate for each Interest Period
shall be determined by Agent two Business Days before the first day of such
Interest Period.
"LIBOR Rate Loan" shall mean a Revolver Loan that bears interest based
---------------
on the LIBOR Rate.
"Notice of Conversion/Continuation" means a notice given by Borrower
---------------------------------
to Agent pursuant to Section 2(b)(ii), in substantially the form of Exhibit N.
---------------- ---------
"Replacement Notes" shall refer to each Replacement Revolver Note for
-----------------
the appropriate Lender that is executed by Borrower, in connection with the
addition of Rothschild as a Lender, for the purpose of replacing each original
Revolver Note as amended by the Allonge and Second Allonge for the appropriate
Lender.
C. The definition of Amended Notes set forth in Section 1 of the
Loan Agreement shall be deleted in its entirety.
D. The term "Amendment Documents" when used in this Agreement shall
-------------------
refer to this Amendment, the Replacement Notes and the Second Mortgage
Amendments.
2. Amendment of Section 2(b)(i). Section 2(b)(i) of the Loan Agreement
----------------------------
is hereby deleted and restated in its entirety to read as follows:
(i) Request for Advance Under the Revolver Loan.
-------------------------------------------
(A) Each Request for Advance under the Revolver Loan shall
be irrevocable and shall be in the form of Exhibit C on or before 11:00
---------
a.m. Denver, Colorado time (x) three Business Days immediately preceding
the day such Revolver Advance is requested to be made in case of LIBOR Rate
Loans, and (y) on the Business Day immediately preceding the day such
Revolver Advance is requested to be made in
5
<PAGE>
case of Base Rate Loans.
(B) Each request for Advance shall specify:
(1) the amount of the requested Advance, which shall
be in an aggregate minimum principal amount of $100,000 or an integral
multiple thereof for both LIBOR Rate Loans and Base Rate Loans, or such
lesser amount equal to the unadvanced portion of the Revolver Loan;
(2) the requested date of the Revolver Advance, which
shall be a Business Day;
(3) whether the Revolver Advance is to be comprised of
LIBOR Rate Loans or Base Rate Loans; and
(4) the duration of the Interest Period applicable to
LIBOR Rate Loans included in such notice. If the Request for Advance shall
fail to specify the duration of the Interest Period for any LIBOR Rate
Loan, such Interest Period shall be three months.
(C) Unless Agent shall otherwise state in writing, during
the existence of an Unmatured Event of Default or an Event of Default,
Borrower may not elect to have a Revolver Advance made as a LIBOR Rate
Loan.
(D) After giving effect to any LIBOR Rate Loan, there shall
not be more than six different Interest Periods in effect.
(E) Upon receipt of a Request for Advance, Agent shall
promptly notify each Lender thereof. Not later than 11:00 a.m. Denver time
on the date requested, each Lender shall make available to Agent the amount
of such Lender's Loan Share of the amount specified in the Request for
Advance in immediately available funds; provided, however, that Lenders
-----------------
shall not be obligated to make any Revolver Advance to Borrower that would
result in the aggregate unpaid principal balance outstanding under the
Revolver Notes exceeding the Revolver Commitment. If all conditions
precedent to such Revolver Advance have been met, Agent will on the date
requested make such Revolver Advance available to Borrower in immediately
available funds at Agent's office in Denver, Colorado.
(F) All Revolver Advances requested by Borrower shall be
made pro rata by each Lender in proportion to such Lender's Loan Share.
6
<PAGE>
3. Amendment of Section 2(b)(ii). Old Sections 2(b)(ii) and 2(b)(iii)
-----------------------------
shall be renumbered to be Sections 2(b)(iii) and 2(b)(iv), and a new Section
2(b)(ii) shall be inserted to read in its entirety as follows:
(ii) Conversion and Continuation Elections.
-------------------------------------
(A) Upon irrevocable written notice to the Agent, Borrower
may:
(1) elect to convert on any Business Day any Base Rate
Loan (or any part thereof) in an amount not less than $100,000 or an
integral multiple thereof into a LIBOR Rate Loan or;
(2) elect to convert on any Interest Payment Date any
LIBOR Rate Loan maturing on such Interest Payment Date (or any part
thereof) in an amount not less than $100,000 or an integral multiple
thereof into a Base Rate Loan; or
(3) elect to renew on any Interest Payment Date any
LIBOR Rate Loan maturing on such Interest Payment Date (or any part
thereof) in an amount not less than $100,000 or an integral multiple
thereof;
(B) Borrower shall deliver a Notice of
Conversion/Continuation to be received by Agent not later than 2:00 p.m.
Denver, Colorado time at least (x) three Business Days in advance of the
Conversion Date or continuation date, if a Loan is to be converted into or
continued as a LIBOR Rate Loan; and (y) the Business Day immediately
preceding the Conversion Date, if the Loan is to be converted into a Base
Rate Loan; specifying:
(1) the proposed Conversion Date or continuation date,
which shall be a Business Day;
(2) the aggregate amount of the Revolver Loan(s) to be
converted or renewed;
(3) the nature of the proposed conversion or
continuation; and
(4) the duration of the requested Interest Period, if
7
<PAGE>
applicable.
(C) If upon the expiration of any Interest Period
applicable to any LIBOR Rate Loan, Borrower has failed to select timely a
new Interest Period to be applicable to such LIBOR Rate Loan, or if any
Unmatured Event of Default or Event of Default shall then exist, Borrower
shall be deemed to have elected to convert such LIBOR Rate Loan into a Base
Rate Loan effective as of the expiration date of such current Interest
Period.
(D) Unless Agent shall otherwise state in writing, during
the existence of an Unmatured Event of Default or Event of Default,
Borrower may not elect to have a Revolver Loan converted into or continued
as a LIBOR Rate Loan.
(E) Notwithstanding any other provision contained in this
Agreement, after giving effect to any conversion or continuation of any
LIBOR Rate Loans, there shall not be more than six different Interest
Periods in effect.
4. Amendment of new Section 2(b)(iii). Section 2(b)(iii) as renumbered
----------------------------------
under paragraph 3 above is hereby amended to (a) delete the date "March 31,
1996" in the twelfth and thirteenth lines and substitute the date "September 30,
1997" therefor, and (b) delete the date "December 31, 1999" in the fourteenth
line and substitute the date "June 30, 2001" therefor.
5. Amendment of new Section 2(b)(iv). Section 2(b)(iv) as renumbered
---------------------------------
under paragraph 3 above is hereby deleted and restated in its entirety to read
as follows:
(iv) Optional Payments. Borrower may make optional payments on the
-----------------
outstanding principal balance of the Base Rate Loan without penalty or
premium, at any time, and from time to time, in integral multiples of
$100,000 or such lesser amount equal to the then outstanding principal
balance, together with accrued and unpaid interest on the principal amount
so paid. LIBOR Rate Loans may not be prepaid, except if it is necessary so
that Borrower can be in compliance with Section 2(g). Borrower shall give
Agent one Business Day's notice in advance of any optional payment on the
Base Rate Loan, and three Business Day's notice in advance of any
prepayment on the LIBOR Rate Loan required pursuant to Section 2(g). Such
notices shall specify which Revolver Loans (or portion thereof) are to be
prepaid and the date of prepayment. Such notices shall not be revocable by
Borrower. Upon the termination of the Revolver Commitment Period, all
prepayments of principal thereafter received under this Subsection shall
first be applied to the payment of principal indebtedness due on any Base
8
<PAGE>
Rate Loan then outstanding and then to LIBOR Rate Loans with the shortest
Interest Periods remaining.
6. Amendment of Section 2(d). Section 2(d) is hereby deleted and
-------------------------
restated in its entirety to read as follows:
(d) Computation and Payment of Interest; Late Payment Rate.
------------------------------------------------------
(i) Each Revolver Loan shall bear interest on the outstanding
principal amount thereof from the date when made at a rate per annum equal
to the LIBOR Rate or the Base Rate, as specified in the applicable Request
for Advance or Notice of Conversion/Continuation, plus the Applicable
----
Margin. After termination of the Revolver Commitment Period, the Revolver
Loan shall bear interest on the outstanding principal amount thereof at the
Base Rate plus the Applicable Margin for Base Rate Loans, and interest
shall be payable on the Interest Payment Date for Base Rate Loans.
(ii) Interest on the Loans shall accrue daily and shall be
computed on the basis of a year of 365 or 366 days, as appropriate, for
Base Rate Loans, and a year of 360 days for LIBOR Rate Loans. Interest on
the Loans shall be payable in arrears on the Interest Payment Date.
(iii) Notwithstanding anything to the contrary contained in
this Agreement, overdue principal, and (to the extent permitted under
applicable law) overdue interest, whether caused by acceleration of
maturity or otherwise, shall bear interest at a fluctuating rate,
adjustable the day of any change in such rate, equal to three percentage
points above the Base Rate (the "Late Payment Rate"), until paid, and shall
-----------------
be due and payable immediately.
7. Amendment of Section 2(e). Section 2(e) is hereby amended by adding
-------------------------
the following phrase at the end of such paragraph:
, unless the result of such extension would be to carry any Interest Period
relating to a LIBOR Rate Loan into another calendar month in which event
such Interest Period shall end on the immediately preceding Business Day.
8. Amendment of Section 2(g). Section 2(g) is hereby amended by deleting
-------------------------
the last sentence thereof and restating such sentence in its entirety to read as
follows:
Any such prepayment of principal under this Section 2 shall be applied pro
rata in
9
<PAGE>
accordance with each Lender's Loan Share, first to any Base Rate Loans then
outstanding and then to LIBOR Rate Loans with the shortest Interest Periods
remaining.
9. New Section 3A. A new Section 3A is hereby added to read in its
--------------
entirety as follows:
SECTION 3A. TAXES, YIELD PROTECTION AND ILLEGALITY
--------------------------------------
(a) Taxes.
-----
(i) Any and all payments by Borrower to the Lenders under this
Agreement shall be made free and clear of, and without deduction or
withholding for, any and all future taxes, levies, imposts, deductions,
charges or withholdings, and any stamp or documentary taxes or any other
excise or property taxes, charges or similar levies which arise from any
payment made hereunder or from the execution, delivery or registration of,
or otherwise with respect to, this Agreement or any other Loan Documents
and all liabilities with respect thereof, excluding such taxes (including
income taxes or franchise taxes) as are imposed on or measured by Lender's
net income by the jurisdiction under the laws of which Lender is organized
or any political subdivision thereof (all such non-excluded taxes, levies,
imposts, deductions, charges, withholdings and liabilities being
hereinafter referred to as "Taxes").
-----
(ii) Borrower shall indemnify Lenders and hold Lenders
harmless for the full amount of Taxes (including any Taxes imposed by any
jurisdiction on amounts payable under this Section 3A(a)) paid by Lenders
-------------
and any liability (including penalties, interest, additions to tax and
expenses) arising therefrom or with respect thereto, whether or not such
Taxes were correctly or legally asserted; provided that Lenders shall pay
--------
over to Borrower the amount of any tax refunds received by Lenders with
respect to any such Taxes (net of any tax detriment resulting from receipt
of such tax refunds to the extent not offset by payment over of such
amount) solely to the extent that (A) such tax refunds are fairly allocable
to such Taxes and (B) Borrower actually paid such Taxes. Payment under
this indemnification shall be made within 30 days from the date Lenders
make written demand therefor.
(iii) If Borrower shall be required by law to deduct or
withhold any Taxes from or in respect of any sum payable hereunder to
Lenders, then:
(A) the sum payable shall be increased as necessary so
that after making all required deductions (including deductions
applicable to
10
<PAGE>
additional sums payable under this Section 3A(a)) Lenders receive
an amount equal to the sum they would have received had no such
deductions been made;
(B) Borrower shall make such deductions, and
(C) Borrower shall pay the full amount deducted to the
relevant taxation authority or other authority in accordance with
applicable law.
(iv) Within thirty days after the date of any payment by
Borrower of Taxes Borrower shall furnish to Lenders the original or a
certified copy of a receipt evidencing payment thereof, or other evidence
of payment satisfactory to Lenders.
(b) Illegality.
----------
(i) If Lenders shall determine that the introduction of any
law, rule or regulation, or any change in any law, rule or regulation or in
the interpretation or administration thereof, has made it unlawful, or that
any central bank or other governmental authority has asserted that it is
unlawful, for Lenders to make LIBOR Rate Loans, then, on notice thereof by
Lenders to Borrower, the obligation of Lenders to make LIBOR Rate Loans
shall be suspended until Lenders shall have notified Borrower that the
circumstances giving rise to such determination no longer exist.
(ii) If Lenders shall determine that it is unlawful to
maintain any LIBOR Rate Loan, and, if any LIBOR Rate Loans are then
outstanding, Agent shall give notice thereof to Borrower, and within three
Business Days after receipt of such notice Borrower shall elect either (A)
to prepay in full all LIBOR Rate Loans of Lenders then outstanding,
together with interest accrued thereon, either on the last day of the
Interest Period thereof if Lenders may lawfully continue to maintain such
LIBOR Rate Loans to such day, or immediately, if Lenders may not lawfully
continue to maintain such LIBOR Rate Loans, together with any amounts
required to be paid in connection therewith pursuant to Section 3A(c), or
(B) to immediately convert such LIBOR Rate Loans to Base Rate Loans in
accordance with Section 2(b)(ii).
(iii) If the obligation of Lenders to make or maintain LIBOR
Rate Loans has been terminated, Borrower may elect, by giving notice to
Lenders that all Revolver Loans which would otherwise be made by Lenders as
LIBOR Rate Loans shall be instead Base Rate Loans.
(c) Increased Costs and Reduction of Return.
---------------------------------------
(i) If Lenders shall determine that, due to either (A) the
introduction
11
<PAGE>
of or any change (other than any change by way of imposition of or increase
in reserve requirements included in the calculation of the LIBOR Rate) in
or in the interpretation of any law or regulation or (B) the compliance
with any guideline, or request from any central bank or other governmental
authority (whether or not having the force of law) issued after September
5, 1995, there shall be any increase in the cost to Lenders of agreeing to
make or making, funding or maintaining any LIBOR Rate Loans (other than
changes in the rate of taxes on the overall net income of Lender), then
Agent shall give notice of such determination to Borrower, and Borrower
shall have the option either (X) to immediately convert all outstanding
LIBOR Rate Loans to Base Rate Loans in accordance with Section 2(b)(ii) or
(Y) Borrower shall be liable for, and shall from time to time, upon demand
therefor by Lenders, pay to Lenders additional amounts as are sufficient to
compensate Lenders for such increased costs. If Borrower elects to convert
to Base Rate Loans, it shall nevertheless be liable for any increased costs
incurred by Lenders regarding LIBOR Rate Loans accrued prior to the date of
conversion.
(ii) If Lenders shall have determined that (A) the
introduction of any Capital Adequacy Regulation, (B) any change in any
Capital Adequacy Regulation, (C) any change in the interpretation or
administration of any Capital Adequacy Regulation by any central bank or
other governmental authority charged with the interpretation or
administration thereof, or (D) compliance by Lenders or any corporation
controlling any of Lenders, with any Capital Adequacy Regulation; affects
or would affect the amount of capital required or expected to be maintained
by Lenders or any corporation controlling any of Lenders and (taking into
consideration Lenders' or such corporations' policies with respect to
capital adequacy and Lenders' desired return on capital) determines that
the amount of such capital is increased as a consequence of its commitment
to make Revolver Loans, credits or other obligations under this Agreement,
then, Agent shall give notice of such determination to Borrower, and
Borrower shall have the option either (X) to immediately convert all
outstanding LIBOR Rate Loans to Base Rate Loans in accordance with Section
2(b)(ii) or (Y) upon demand of Lenders, Borrower shall upon demand pay to
Lenders, from time to time as specified by Lenders, additional amounts
sufficient to compensate Lenders for such increase.
(d) Funding Losses. Borrower agrees to reimburse Lenders and to hold
--------------
Lenders harmless from any loss or expense which Lenders may sustain or
incur as a consequence of:
(i) the failure of Borrower to make any payment or mandatory
prepayment of principal of any LIBOR Rate Loan (including payments made
after any acceleration thereof);
12
<PAGE>
(ii) the failure of Borrower to borrow, continue or convert a
Revolver Loan after Borrower has given (or is deemed to have given) a
Request for Advance or a Notice of Conversion/Continuation;
(iii) the failure of Borrower to make any prepayment after
Borrower has given a notice in accordance with Section 2(b)(iv);
----------------
(iv) the prepayment (including pursuant to Section 2(b)(iv))
----------------
of a LIBOR Rate Loan on a day which is not the last day of the Interest
Period with respect thereto; or
(v) the conversion pursuant to Section 2(b)(ii) of any LIBOR
----------------
Rate Loan to a Base Rate Loan on a day that is not the last day of the
respective Interest Period;
including any such loss or expense arising from the liquidation or
reemployment of funds obtained by it to maintain its LIBOR Rate Loans
hereunder or from fees payable to terminate the deposits from which such
funds were obtained.
(e) Inability to Determine Rates. If Agent shall have determined
----------------------------
that for any reason adequate and reasonable means do not exist for
ascertaining the LIBOR Rate for any requested Interest Period with respect
to a proposed LIBOR Rate Loan or that the LIBOR Rate applicable for any
requested Interest Period with respect to a proposed LIBOR Rate Loan does
not adequately and fairly reflect, in Agent's reasonable judgment, the cost
to Lenders of funding such Loan, Agent will forthwith give notice of such
determination to Borrower. Thereafter, the obligation of Lenders to make or
maintain LIBOR Rate Loans, as the case may be, hereunder shall be suspended
until Agent revokes such notice in writing, unless means exist for
ascertaining the LIBOR Rate and Borrower agrees to pay such amount as Agent
determines in its sole and absolute discretion is necessary to reflect the
cost to Lenders of funding such Revolver Loan. Upon receipt of such notice,
Borrower may revoke any Request for Advance or Notice of
Conversion/Continuation then submitted by it. If Borrower does not revoke
such request or notice prior to the time that such Revolver Loan is made,
Lenders shall make, convert or continue the Revolver Loans, as proposed by
Borrower in the amount specified in the applicable request or notice
submitted by Borrower, but such Revolver Loans shall be made, converted or
continued as Base Rate Loans instead of LIBOR Rate Loans.
(f) Certificate of Lender. If Lenders claim reimbursement or
---------------------
compensation pursuant to this Section 3A, Agent shall deliver to Borrower a
certificate setting forth in reasonable detail the amount payable to
Lenders hereunder and such certificate shall be
13
<PAGE>
binding on Borrower unless Borrower objects to the contents of such
certificate within five Business Days after receipt thereof. If Borrower
objects, Agent and Borrower shall attempt to resolve their differences
within 10 days, and if agreement is not reached within such period then all
LIBOR Rate Loans shall be immediately converted to Base Rate Loans.
(g) Survival. The agreements and obligations of Borrower in this
--------
Section 3A shall survive the payment of all other Obligations.
10. Amendment of Section 4(a). Section 4(a) is hereby amended to delete
-------------------------
the figure "20,000,000" in the fourth line and substitute the phrase "the
Maximum Principal Amount" therefor.
11. Amendment of Section 8(1). Section 8(1) is hereby amended to delete
-------------------------
the figure "65%" in the second line and substitute the figure "60%" therefor.
12. Amendment of Section 8(m). Section 8(m) is hereby deleted and
-------------------------
restated in its entirety to read as follows:
(m) Tangible Net Worth. Borrower shall maintain a Tangible Net Worth equal
------------------
to or greater than the sum of $18,000,000 plus 40 percent of consolidated
net income determined in accordance with GAAP and earned by Borrower after
December 31, 1994 (but excluding any net losses).
13. Amendment of Section 8(n). Section 8(n) is hereby amended to delete
-------------------------
the figure "1.5" in the last line and substitute the figure "2.0" therefor.
14. Amendment of Section 9(j)(i). Section 9(j)(i) is hereby amended by
----------------------------
adding the following phrase to the end of the first sentence in line 8:
, including without limitation distributions to its partners in the
aggregate not to exceed $1,250,000 associated with the deferred gain on the
sale of oil and gas properties; provided that such distributions associated
with deferred gain are made on or before April 15, 1996, and after which
date distributions associated with deferred gain may not be made by
Borrower.
15. Amendment of Section 9(j)(ii). Section 9(j)(ii) of the Loan Agreement
-----------------------------
is hereby deleted and restated in its entirety to read as follows:
(ii) So long as a Borrowing Base Deficiency does not exist and no
Event of
14
<PAGE>
Default or Unmatured Event of Default has occurred and is
continuing, Borrower may make distributions in an aggregate cumulative
amount not to exceed 60 percent of Borrower's net income, determined
in accordance with GAAP and computed on a cumulative basis for all
periods since December 31, 1994, taking into account allowable
distributions previously declared or made since December 31, 1994;
provided, however, that the distribution of $2,078,297 made in 1995
-----------------
relating to 1994 earnings shall not be included in the calculation of
distributions declared or made since December 31, 1994;
notwithstanding any of the foregoing, distributions are allowable only
so long as they would not cause Borrower to be in contravention of the
financial covenants contained in Section 8(k), (l), (m) and (n).
16. Amendment of Section 13(b). Section 13(b) shall be amended by adding
--------------------------
the following address of Rothschild to the Lenders section:
N M Rothschild and Sons Limited
New Court, St. Swithin's Lane
London, England EC4 P 4DU
Fax No.: 071-280-5139
With a copy to:
Rothschild Denver Inc.
3020 Republic Plaza
370 Seventeenth Street
Denver, Colorado 80202
Fax No.: (303) 607-0998
17. New Exhibit N. A new Exhibit N is hereby added to read in its
-------------
entirety as Exhibit N attached hereto--"Notice of Conversion/Continuation."
18. Conditions Precedent. The amendments provided for in this Amendment
--------------------
shall not become effective until Agent has received each of the following:
A. This Amendment, executed by Borrower, Agent and Lenders;
B. The Replacement Note, executed by Borrower for each of the
Lenders;
C. Counterparts of the Second Mortgage Amendments, duly executed and
acknowledged by Borrower and Agent, and to the extent applicable, the trustee
thereunder;
D. A letter from each of John Fox and the General Partner
reconfirming their
15
<PAGE>
respective Covenant Agreement;
E. Evidence acceptable to Agent that the indebtedness secured by the
RIMCO Mortgages (as defined in that certain Subordination Agreement dated as of
September 14, 1993 between RIMCO Partners, L.P., Resource Investors Management
Company Limited Partnership and the Agent) has been fully paid and that the
RIMCO Mortgages have been released or will be released in due course.
F. Results of UCC lien searches as to Borrower for the States of
Arkansas, Colorado and West Virginia and for the following counties: Crittenden
County, Arkansas; Boyd, Greenup and Pike Counties, Kentucky; and Wayne and
Kanawha Counties, West Virginia, and for all other relevant filing jurisdictions
as to the Collateral;
G. All legal matters incident to the Loans and the Amendment
Documents shall be satisfactory to counsel to Agent, and Agent shall have
received a favorable opinion addressed to Agent and Lenders of Barry W.
Spector, Esq., counsel for Borrowers, in form and substance satisfactory to
Agent; and
H. All other documents and assurances which Agent reasonably
requires or which it may reasonably request in connection with the transactions
contemplated by this Agreement, and such documents shall be certified, when
appropriate by proper authorities.
19. Representations and Warranties. To induce Agent and Lenders to enter
------------------------------
into this Amendment, Borrower hereby represents and warrants to Agent and each
Lender that:
A. Non-Contravention. The execution, delivery and performance by
-----------------
Borrower of this Amendment, and the other Amendment Documents and the borrowings
thereunder, and the consummation of the transactions contemplated herein and
therein will not conflict with the limited partnership agreement or other
organizational or governing documents of any Related Person, or conflict with or
result in any breach of any mortgage, lien, lease, agreement, instrument, order,
judgment, decree, law, rule, regulation or any other restriction of any kind or
character to which any Related Person is a party or is subject or by which any
Related Person or its properties are bound or affected or result in the creation
or imposition of any lien, charge or encumbrance upon any property of any
Related Person.
B. Third Party Authorization. No consent, approval, exemption,
-------------------------
authorization or order of or other action by, and no notice to or filing with,
any court or governmental authority or third party is required by any Related
Person in connection with the execution, delivery or performance by Borrower of
this Amendment, or any other Amendment Document or to consummate any
transactions contemplated hereby or thereby.
16
<PAGE>
C. Authorization; Binding Effect. Borrower has full power and
-----------------------------
authority to enter into this Amendment and the other Amendment Documents. The
execution and delivery of this Amendment, and the other Amendment Documents, and
the performance and observance of their terms, conditions and obligations, have
been duly authorized by all necessary action by Borrower and the General
Partner. This Amendment and the other Amendment Documents are the legal, valid
and binding obligations of Borrower, enforceable in accordance with their
respective terms, except as such enforcement may be limited by bankruptcy,
insolvency or similar laws of general application relating to the enforcement of
creditors' rights.
D. Representations and Warranties. All representations and
------------------------------
warranties contained in Section 7 of the Original Loan Agreement and in the
Security Documents shall be true on the date hereof as if then given, and
Borrower shall have performed or observed all terms, agreements, conditions and
obligations under the Loan Agreement and under the Security Documents to be
performed or observed on or prior to the date hereof.
E. No Default. No Event of Default or Unmatured Event of Default
----------
under the Loan Agreement shall have occurred and be continuing or would result
from the entering into of this Amendment.
The foregoing representations and warranties shall be deemed to be
representations and warranties made in the Loan Agreement for all purposes.
20. Continuing Effect. Except as expressly amended hereby, the Loan
-----------------
Agreement shall continue to be and shall remain in full force and effect in
accordance with its terms. References in the Loan Agreement to "this
Agreement", "this instrument" and like terms shall be deemed to be references to
the Loan Agreement as amended by this Amendment. When used in this Amendment or
in the Loan Agreement, each reference to a term defined in the Loan Agreement,
which is amended by this Amendment, shall be deemed to be the term as amended by
this Amendment. Any reference to the "Revolver/Term Loan Agreement" in the
Collateral Documents shall be deemed to be a reference to the Loan Agreement as
amended by this Amendment. Borrower hereby confirms and acknowledges that the
term "Obligations" as used in the Security Agreement, includes all obligations
of Borrower with respect to the Revolver Loans as extended hereby and the
Replacement Notes and all other costs, fees, indemnities and expenses in
connection therewith. In connection with the execution of this Amendment and
the issuance by Borrower of the Replacement Notes, the Lenders acknowledge and
agree that the original notes dated as of November 20, 1992 (as amended by the
First and Second Allonges) held by Norwest and First American have been marked
"Replaced in rearrangement, but not in extinguishment or discharge, of
indebtedness represented hereby by Replacement Notes dated September 8, 1995"
and evidence of such notation has been provided to Borrower.
17
<PAGE>
21. Governing Law. This Amendment shall be governed by and construed
-------------
under the laws of the State of Colorado and shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and assigns.
22. Assignment. Norwest and First American hereby assign and transfer to
----------
Rothschild, without any warranties either express or implied, a sufficient part
of all their rights, title and interest in, to and under the Loan Agreement, the
Loans, the Revolver Notes and all other Loan Documents, so that all such rights
shall be owned and held by Lenders on the date hereof in the following
percentages:
Norwest - 40%
First American - 40%
Rothschild - 20%
23. Counterparts. This Amendment may be executed in one or more
------------
counterparts, with each party signing on different counterparts, each of which
shall be deemed an original, and all of which together shall constitute but one
and the same instrument.
BORROWER:
MARKWEST HYDROCARBON PARTNERS, LTD.,
a Colorado limited partnership
By: MARKWEST HYDROCARBON, INC.,
General Partner
By: _____________________________
John M. Fox
President
LENDERS:
NORWEST BANK COLORADO, NATIONAL
ASSOCIATION (successor to Norwest Bank Denver,
18
<PAGE>
National Association), a national banking association
By:_____________________________
Thomas M. Foncannon
Vice President
FIRST AMERICAN NATIONAL BANK,
a national banking association
By:______________________________
David C. May
Executive Vice President
N M ROTHSCHILD AND SONS LIMITED,
a company organized and existing under
the laws of England
By:______________________________
Name:_________________________
Title:________________________
AGENT:
NORWEST BANK COLORADO, NATIONAL
ASSOCIATION (successor to Norwest Bank Denver,
National Association), a national banking association
By:_____________________________
Thomas M. Foncannon
Vice President
19
<PAGE>
Exhibit A-1
-----------
REPLACEMENT REVOLVER NOTE
-------------------------
$10,000,000.00 Denver, Colorado
September 8, 1995
MARKWEST HYDROCARBON PARTNERS, LTD., a Colorado limited partnership,
("Borrower"), with an address of 5613 DTC Parkway, Suite 400, Englewood, CO
--------
80111, for value received, hereby promises to pay to the order of Norwest Bank
Colorado, National Association (successor to Norwest Bank Denver, National
Association), a national banking association ("Lender"), on or before June 30,
------
2001, the principal sum of Ten Million Dollars ($10,000,000.00), or so much
thereof as may be advanced by Lender pursuant to the Loan Agreement dated
November 20, 1992, as amended, between Borrower, Norwest Bank Colorado, National
Association, individually and as agent, First American National Bank and N M
Rothschild and Sons Limited (the "Loan Agreement"), together with interest on
--------------
the outstanding unpaid principal amount at a rate equal to the LIBOR Rate or the
Base Rate, plus the Applicable Margin, as provided in the Loan Agreement.
This Note is one of the notes referred to in the Loan Agreement as the
Revolver Notes, and is issued pursuant to, and is subject to the terms and
provisions of, the Loan Agreement. This Note is issued in replacement and
rearrangement, but not in extinguishment or discharge, of the original Revolver
Notes, as amended by the First and Second Allonges, in connection with the
assignment by Norwest and First American to Rothschild of a portion of their
interests in the Loan. All capitalized terms used herein but not otherwise
defined shall have the meanings set forth in the Loan Agreement. All references
herein to the "Loan Agreement" refer to such agreement as it has been amended by
First Amendment to Loan Agreement dated September 14, 1993, by Second Amendment
to Loan Agreement dated as of March 23, 1994, and by Third Amendment to Loan
Agreement dated as of the date hereof, and as such agreement may be further
amended from time to time.
As of June 30, 1997, the aggregate unpaid principal amount outstanding
under this Note shall be repaid to Lender in sixteen equal quarterly
installments, commencing September 30, 1997, as more fully provided in the Loan
Agreement, together with accrued and unpaid interest thereon. All remaining
outstanding principal of and interest on this Note shall be due and payable no
later than June 30, 2001.
Interest shall accrue daily, shall be payable in arrears on the Interest
Payment Date, commencing September 30, 1995 and at the maturity of this Note,
and shall be calculated on the
A-1-1
<PAGE>
basis of a 365 or 366-day year, as appropriate for Base Rate Loans, and a year
of 360 days for LIBOR Rate Loans. All payments of principal and interest hereof
shall be made as provided in the Loan Agreement in immediately available funds
and without set-off or counterclaim or deduction of any kind.
Notwithstanding anything to the contrary contained in this Note, overdue
principal, and (to the extent permitted under applicable law) overdue interest,
whether caused by acceleration of maturity or otherwise, shall bear interest at
the Late Payment Rate and shall be immediately due and payable.
It is not intended hereby to charge interest at a rate in excess of the
maximum rate of interest that Lender may charge to Borrower under applicable
usury and other laws, but if, notwithstanding, interest in excess of such rate
shall be paid hereunder, the interest rate on this Note shall be adjusted to the
maximum permitted under applicable law during the period or periods that the
interest rate otherwise provided herein would exceed such rate and any excess
amount applied at Lender's option to reduce the outstanding principal balance of
this Note or to be returned to Borrower.
This Note is secured by, and the holder of this Note is entitled to the
benefits of the Security Documents described in the Loan Agreement, and the
liens and security interests under the Security Documents that secure the
obligations under this Note are hereby ratified and confirmed in all respects
and remain in full force and effect. Reference is made to the Security Documents
for a description of the property covered thereby and the rights, remedies and
obligations of the holder hereof in respect thereto.
Lender shall maintain a record of all advances hereunder and all payments
made on this Note until Lender has been repaid in full; provided, however that
-----------------
the failure, error or omission by Lender to maintain such a record shall not
diminish or otherwise affect the obligation of Borrower to repay the amount
outstanding hereunder and any other amounts due to Lender.
If Borrower fails to pay any amount due under this Note and Lender has to
take any action to collect the amount due or to exercise its rights under this
Note or the Security Documents, including without limitation retaining attorneys
for collection of this Note, or if any suit or proceeding is brought for the
recovery of all or any part of or for protection of the Obligations or to
foreclose the Security Documents or to enforce Lender's rights under the
Security Documents, then Borrower agrees to pay on demand all costs and expenses
of any such action to collect, suit or proceeding, or any appeal of any such
suit or proceeding, incurred by the holder hereof, including without limitation
the fees and disbursements of attorneys for the holder hereof.
A-1-2
<PAGE>
Borrower, and all endorsers, sureties and guarantors of this Note, hereby
severally waive demand, presentment for payment, notice of dishonor, notice of
acceleration or intent to accelerate, protest, notice of protest, diligence in
collecting and assents to any extension of time with respect to any payment due
under this Note, to any substitution or release of collateral and to the
addition or release of any party. No waiver by Lender of any payment or other
right under this Note shall operate as a waiver of any other payment or right.
If any provision in this Note shall be held invalid, illegal or
unenforceable in any jurisdiction, the validity, legality or enforceability of
any defective provisions shall not be in any way affected or impaired in any
other jurisdiction, nor shall the invalid, illegal or unenforceable provision
affect or impair any other provision of this Note.
No delay or failure of the holder of this Note in the exercise of any right
or remedy provided for hereunder shall be deemed a waiver of such right or
remedy by the holder hereof, and no exercise of any right or remedy shall be
deemed a waiver of any other right or remedy that the holder may have.
Any notices given hereunder shall be in writing and shall be given as
provided in the Loan Agreement.
At the option of Lender, an action may be brought to enforce this Note in
the District Court in and for the City and County of Denver, State of Colorado,
in the United States District Court for the District of Colorado or in any other
court in which venue and jurisdiction are proper. Borrower and all endorsers,
sureties and guarantors hereof consent to venue and jurisdiction in the District
Court in and for the City and County of Denver, State of Colorado and in the
United States District Court for the District of Colorado and to jurisdiction
and service of process under Sections 13-1-124(1)(a) and 13-1-125, Colorado
Revised Statutes (1973), as amended, in any action commenced to enforce this
Agreement.
THIS NOTE IS TO BE GOVERNED BY AND CONSTRUED ACCORDING TO THE LAWS OF THE
STATE OF COLORADO.
MARKWEST HYDROCARBON PARTNERS, LTD.
By: MarkWest Hydrocarbon, Inc., General Partner
By ___________________________________________
John M. Fox, President
A-1-3
<PAGE>
Exhibit A-2
-----------
REPLACEMENT REVOLVER NOTE
-------------------------
$10,000,000.00 Denver, Colorado
September 8, 1995
MARKWEST HYDROCARBON PARTNERS, LTD., a Colorado limited partnership,
("Borrower"), with an address of 5613 DTC Parkway, Suite 400, Englewood, CO
--------
80111, for value received, hereby promises to pay to the order of First American
National Bank ("Lender"), on or before June 30, 2001, the principal sum of Ten
------
Million Dollars ($10,000,000.00), or so much thereof as may be advanced by
Lender pursuant to the Loan Agreement dated November 20, 1992, as amended,
between Borrower, Norwest Bank Colorado, National Association, individually and
as agent, First American National Bank and N M Rothschild and Sons Limited (the
"Loan Agreement"), together with interest on the outstanding unpaid principal
--------------
amount at a rate equal to the LIBOR Rate or the Base Rate, plus the Applicable
Margin, as provided in the Loan Agreement.
This Note is one of the notes referred to in the Loan Agreement as the
Revolver Notes, and is issued pursuant to, and is subject to the terms and
provisions of, the Loan Agreement. This Note is issued in replacement and
rearrangement, but not in extinguishment or discharge, of the original Revolver
Notes, as amended by the First and Second Allonges, in connection with the
assignment by Norwest and First American to Rothschild of a portion of their
interests in the Loan. All capitalized terms used herein but not otherwise
defined shall have the meanings set forth in the Loan Agreement. All references
herein to the "Loan Agreement" refer to such agreement as it has been amended by
First Amendment to Loan Agreement dated September 14, 1993, by Second Amendment
to Loan Agreement dated as of March 23, 1994, and by Third Amendment to Loan
Agreement dated as of the date hereof, and as such agreement may be further
amended from time to time.
As of June 30, 1997, the aggregate unpaid principal amount outstanding
under this Note shall be repaid to Lender in sixteen equal quarterly
installments, commencing September 30, 1997, as more fully provided in the Loan
Agreement, together with accrued and unpaid interest thereon. All remaining
outstanding principal of and interest on this Note shall be due and payable no
later than June 30, 2001.
Interest shall accrue daily, shall be payable in arrears on the Interest
Payment Date, commencing September 30, 1995 and at the maturity of this Note,
and shall be calculated on the basis of a 365 or 366-day year, as appropriate
for Base Rate Loans, and a year of 360 days for
A-2-1
<PAGE>
LIBOR Rate Loans. All payments of principal and interest hereof shall be made as
provided in the Loan Agreement in immediately available funds and without set-
off or counterclaim or deduction of any kind.
Notwithstanding anything to the contrary contained in this Note, overdue
principal, and (to the extent permitted under applicable law) overdue interest,
whether caused by acceleration of maturity or otherwise, shall bear interest at
the Late Payment Rate and shall be immediately due and payable.
It is not intended hereby to charge interest at a rate in excess of the
maximum rate of interest that Lender may charge to Borrower under applicable
usury and other laws, but if, notwithstanding, interest in excess of such rate
shall be paid hereunder, the interest rate on this Note shall be adjusted to the
maximum permitted under applicable law during the period or periods that the
interest rate otherwise provided herein would exceed such rate and any excess
amount applied at Lender's option to reduce the outstanding principal balance of
this Note or to be returned to Borrower.
This Note is secured by, and the holder of this Note is entitled to the
benefits of the Security Documents described in the Loan Agreement, and the
liens and security interests under the Security Documents that secure the
obligations under this Note are hereby ratified and confirmed in all respects
and remain in full force and effect. Reference is made to the Security Documents
for a description of the property covered thereby and the rights, remedies and
obligations of the holder hereof in respect thereto.
Lender shall maintain a record of all advances hereunder and all payments
made on this Note until Lender has been repaid in full; provided, however that
-----------------
the failure, error or omission by Lender to maintain such a record shall not
diminish or otherwise affect the obligation of Borrower to repay the amount
outstanding hereunder and any other amounts due to Lender.
If Borrower fails to pay any amount due under this Note and Lender has to
take any action to collect the amount due or to exercise its rights under this
Note or the Security Documents, including without limitation retaining attorneys
for collection of this Note, or if any suit or proceeding is brought for the
recovery of all or any part of or for protection of the Obligations or to
foreclose the Security Documents or to enforce Lender's rights under the
Security Documents, then Borrower agrees to pay on demand all costs and expenses
of any such action to collect, suit or proceeding, or any appeal of any such
suit or proceeding, incurred by the holder hereof, including without limitation
the fees and disbursements of attorneys for the holder hereof.
Borrower, and all endorsers, sureties and guarantors of this Note, hereby
severally waive
A-2-2
<PAGE>
demand, presentment for payment, notice of dishonor, notice of acceleration or
intent to accelerate, protest, notice of protest, diligence in collecting and
assents to any extension of time with respect to any payment due under this
Note, to any substitution or release of collateral and to the addition or
release of any party. No waiver by Lender of any payment or other right under
this Note shall operate as a waiver of any other payment or right.
If any provision in this Note shall be held invalid, illegal or
unenforceable in any jurisdiction, the validity, legality or enforceability of
any defective provisions shall not be in any way affected or impaired in any
other jurisdiction, nor shall the invalid, illegal or unenforceable provision
affect or impair any other provision of this Note.
No delay or failure of the holder of this Note in the exercise of any right
or remedy provided for hereunder shall be deemed a waiver of such right or
remedy by the holder hereof, and no exercise of any right or remedy shall be
deemed a waiver of any other right or remedy that the holder may have.
Any notices given hereunder shall be in writing and shall be given as
provided in the Loan Agreement.
At the option of Lender, an action may be brought to enforce this Note in
the District Court in and for the City and County of Denver, State of Colorado,
in the United States District Court for the District of Colorado or in any other
court in which venue and jurisdiction are proper. Borrower and all endorsers,
sureties and guarantors hereof consent to venue and jurisdiction in the District
Court in and for the City and County of Denver, State of Colorado and in the
United States District Court for the District of Colorado and to jurisdiction
and service of process under Sections 13-1-124(1)(a) and 13-1-125, Colorado
Revised Statutes (1973), as amended, in any action commenced to enforce this
Agreement.
THIS NOTE IS TO BE GOVERNED BY AND CONSTRUED ACCORDING TO THE LAWS OF THE
STATE OF COLORADO.
MARKWEST HYDROCARBON PARTNERS, LTD.
By: MarkWest Hydrocarbon, Inc., General Partner
By ___________________________________________
John M. Fox, President
A-2-3
<PAGE>
Exhibit A-3
-----------
REPLACEMENT REVOLVER NOTE
-------------------------
$5,000,000.00 Denver, Colorado
September 8, 1995
MARKWEST HYDROCARBON PARTNERS, LTD., a Colorado limited partnership,
("Borrower"), with an address of 5613 DTC Parkway, Suite 400, Englewood, CO
--------
80111, for value received, hereby promises to pay to the order of N M Rothschild
and Sons Limited, a company organized and existing under the laws of England
("Lender"), on or before June 30, 2001, the principal sum of Five Million
-------
Dollars ($5,000,000.00), or so much thereof as may be advanced by Lender
pursuant to the Loan Agreement dated November 20, 1992, as amended, between
Borrower, Norwest Bank Colorado, National Association, individually and as
agent, First American National Bank and N M Rothschild and Sons Limited (the
"Loan Agreement"), together with interest on the outstanding unpaid principal
--------------
amount at a rate equal to the LIBOR Rate or the Base Rate, plus the Applicable
Margin, as provided in the Loan Agreement.
This Note is one of the notes referred to in the Loan Agreement as the
Revolver Notes, and is issued pursuant to, and is subject to the terms and
provisions of, the Loan Agreement. This Note is issued in replacement and
rearrangement, but not in extinguishment or discharge, of the original Revolver
Notes, as amended by the First and Second Allonges, in connection with the
assignment by Norwest and First American to Rothschild of a portion of their
interests in the Loan. All capitalized terms used herein but not otherwise
defined shall have the meanings set forth in the Loan Agreement. All references
herein to the "Loan Agreement" refer to such agreement as it has been amended by
First Amendment to Loan Agreement dated September 14, 1993, by Second Amendment
to Loan Agreement dated as of March 23, 1994, and by Third Amendment to Loan
Agreement dated as of the date hereof, and as such agreement may be further
amended from time to time.
As of June 30, 1997, the aggregate unpaid principal amount outstanding
under this Note shall be repaid to Lender in sixteen equal quarterly
installments, commencing September 30, 1997, as more fully provided in the Loan
Agreement, together with accrued and unpaid interest thereon. All remaining
outstanding principal of and interest on this Note shall be due and payable no
later than June 30, 2001.
Interest shall accrue daily, shall be payable in arrears on the Interest
Payment Date, commencing September 30, 1995 and at the maturity of this Note,
and shall be calculated on the basis of a 365 or 366-day year, as appropriate
for Base Rate Loans, and a year of 360 days for
A-3-1
<PAGE>
LIBOR Rate Loans. All payments of principal and interest hereof shall be made as
provided in the Loan Agreement in immediately available funds and without set-
off or counterclaim or deduction of any kind.
Notwithstanding anything to the contrary contained in this Note, overdue
principal, and (to the extent permitted under applicable law) overdue interest,
whether caused by acceleration of maturity or otherwise, shall bear interest at
the Late Payment Rate and shall be immediately due and payable.
It is not intended hereby to charge interest at a rate in excess of the
maximum rate of interest that Lender may charge to Borrower under applicable
usury and other laws, but if, notwithstanding, interest in excess of such rate
shall be paid hereunder, the interest rate on this Note shall be adjusted to the
maximum permitted under applicable law during the period or periods that the
interest rate otherwise provided herein would exceed such rate and any excess
amount applied at Lender's option to reduce the outstanding principal balance of
this Note or to be returned to Borrower.
This Note is secured by, and the holder of this Note is entitled to the
benefits of the Security Documents described in the Loan Agreement, and the
liens and security interests under the Security Documents that secure the
obligations under this Note are hereby ratified and confirmed in all respects
and remain in full force and effect. Reference is made to the Security Documents
for a description of the property covered thereby and the rights, remedies and
obligations of the holder hereof in respect thereto.
Lender shall maintain a record of all advances hereunder and all payments
made on this Note until Lender has been repaid in full; provided, however that
-----------------
the failure, error or omission by Lender to maintain such a record shall not
diminish or otherwise affect the obligation of Borrower to repay the amount
outstanding hereunder and any other amounts due to Lender.
If Borrower fails to pay any amount due under this Note and Lender has to
take any action to collect the amount due or to exercise its rights under this
Note or the Security Documents, including without limitation retaining attorneys
for collection of this Note, or if any suit or proceeding is brought for the
recovery of all or any part of or for protection of the Obligations or to
foreclose the Security Documents or to enforce Lender's rights under the
Security Documents, then Borrower agrees to pay on demand all costs and expenses
of any such action to collect, suit or proceeding, or any appeal of any such
suit or proceeding, incurred by the holder hereof, including without limitation
the fees and disbursements of attorneys for the holder hereof.
Borrower, and all endorsers, sureties and guarantors of this Note, hereby
severally waive
A-3-2
<PAGE>
demand, presentment for payment, notice of dishonor, notice of acceleration or
intent to accelerate, protest, notice of protest, diligence in collecting and
assents to any extension of time with respect to any payment due under this
Note, to any substitution or release of collateral and to the addition or
release of any party. No waiver by Lender of any payment or other right under
this Note shall operate as a waiver of any other payment or right.
If any provision in this Note shall be held invalid, illegal or
unenforceable in any jurisdiction, the validity, legality or enforceability of
any defective provisions shall not be in any way affected or impaired in any
other jurisdiction, nor shall the invalid, illegal or unenforceable provision
affect or impair any other provision of this Note.
No delay or failure of the holder of this Note in the exercise of any right
or remedy provided for hereunder shall be deemed a waiver of such right or
remedy by the holder hereof, and no exercise of any right or remedy shall be
deemed a waiver of any other right or remedy that the holder may have.
Any notices given hereunder shall be in writing and shall be given as
provided in the Loan Agreement.
At the option of Lender, an action may be brought to enforce this Note in
the District Court in and for the City and County of Denver, State of Colorado,
in the United States District Court for the District of Colorado or in any other
court in which venue and jurisdiction are proper. Borrower and all endorsers,
sureties and guarantors hereof consent to venue and jurisdiction in the District
Court in and for the City and County of Denver, State of Colorado and in the
United States District Court for the District of Colorado and to jurisdiction
and service of process under Sections 13-1-124(1)(a) and 13-1-125, Colorado
Revised Statutes (1973), as amended, in any action commenced to enforce this
Agreement.
THIS NOTE IS TO BE GOVERNED BY AND CONSTRUED ACCORDING TO THE LAWS OF THE
STATE OF COLORADO.
MARKWEST HYDROCARBON PARTNERS, LTD.
By: MarkWest Hydrocarbon, Inc., General Partner
By _____________________________________________
John M. Fox, President
A-3-3
<PAGE>
EXHIBIT N
MARKWEST HYDROCARBON PARTNERS, LTD.
Notice of Conversion/Continuation
To Norwest Bank Colorado, National Association:
This Notice of Conversion/Continuation is given pursuant to Section 2(b)(ii) of
that certain Loan Agreement, dated as of November 20, 1992 as the same may have
been amended to the date hereof (the "Loan Agreement"), between Markwest
Hydrocarbon Partners, Ltd. ("Borrower"), Norwest Bank Colorado, National
Association ("Norwest"), First American National Bank ("First American"), N M
Rothschild and Sons Limited ("Rothschild") (Norwest, First American and
Rothschild being referred to as "Lenders"), and Norwest, as Agent on behalf of
Lenders. Terms defined in the Loan Agreement are used herein with the same
meanings.
The undersigned hereby gives Agent irrevocable notice that Borrower requests a
Revolver Advance under the Loan Agreement as follows:
1. Date of Conversion/Continuation. The requested date of the
proposed conversion/continuation of Loan(s) is _____________, 19__, which is a
Business Day.
2. Details of Conversion/Continuation (check and complete (A), (B),
or (C) as applicable):
[ ] (A) Convert $____________ in principal amount of Base
Rate Loans to a LIBOR Rate Loan; with an interest period of ____
months to expire on _______________, 19__;
[ ] (B) Convert $____________ in principal amount of LIBOR
Rate Loans (with the Interest Period presently ending on
_______________, 19__) to a Base Rate Loan;
[ ] (C) Continue $___________ in principal amount of
presently outstanding LIBOR Rate Loans (with the Interest Period
presently ending on _______________, 19__), as a LIBOR Rate Loan with
an interest period of ___ months to expire on _______________, 19__.
Dated: _______________, 19__.
MARKWEST HYDROCARBON PARTNERS, LTD.
By: Markwest Hydrocarbon, Inc., General Partner
By:_______________________________________________
Title:____________________________________________
N-2
<PAGE>
FOURTH AMENDMENT TO LOAN AGREEMENT
----------------------------------
This Fourth Amendment to Loan Agreement (this "Amendment") dated as of May
---------
31, 1996, is by and among MARKWEST HYDROCARBON PARTNERS, LTD., a Colorado
limited partnership (the "Borrower"), NORWEST BANK COLORADO, NATIONAL
--------
ASSOCIATION (successor to Norwest Bank Denver, National Association), a national
banking association, ("Norwest"), FIRST AMERICAN NATIONAL BANK, a national
-------
banking association ("First American"), and N M ROTHSCHILD AND SONS LIMITED, a
--------------
company organized and existing under the laws of England ("Rothschild")
----------
(Norwest, First American and Rothschild are referred to individually as a
"Lender" and collectively as the "Lenders"), and NORWEST, AS AGENT FOR THE
- ------- -------
LENDERS (in such capacity, the "Agent").
-----
RECITALS
--------
1. Borrower, Norwest, First American and Agent executed a Loan Agreement
dated as of November 20, 1992 (the "Original Loan Agreement"), whereby Lenders
-----------------------
agreed to make Revolver Loans and a Term Loan to Borrower in accordance with the
terms and conditions set forth therein. The principal of and interest on the
Term Loan have been paid in full. Borrower, Norwest, First American and Agent
executed a First Amendment to Loan Agreement dated as of September 14, 1993 (the
"First Amendment") whereby various terms of the Original Loan Agreement were
---------------
amended. Borrower, Norwest, First American and Agent executed a Second
Amendment to Loan Agreement dated as of March 23, 1994 (the "Second Amendment")
----------------
whereby various terms of the Original Loan Agreement were further amended.
Borrower, Norwest, First American, Rothschild, and Agent executed a Third
Amendment to Loan Agreement dated as of September 8, 1995 (the "Third
-----
Amendment") whereby various terms of the Original Loan Agreement were further
- ---------
amended and Rothschild was added as one of the Lenders. The Original Loan
Agreement, as amended by the First Amendment, Second Amendment and Third
Amendment, is herein referred to as the "Loan Agreement". Unless otherwise
--------------
defined herein, capitalized terms used herein shall have the meaning assigned to
them in the Loan Agreement.
2. Borrower, Agent and Lenders now desire to amend the Loan Agreement,
among other things, to increase the principal amount of the Revolver Loan from
$25,000,000 to $40,000,000, to extend the Revolver Commitment Period from June
30, 1997 to June 30, 1998, to extend the maturity date from June 30, 2001 to
June 30, 2002, and to add additional collateral to secure the Loans.
AGREEMENT
---------
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Borrower, Agent, and each of
Lenders hereby agree as follows:
1. Amendment of Section 1. A. The definitions of Allonge, Columbia
----------------------
Contracts, Fixed Charge Coverage Ratio, Loan Documents, Loan Share, Maximum
Principal Amount,
<PAGE>
Revolver Commitment Period and Revolver Note set forth in Section 1 of the Loan
Agreement shall be amended by restating the definition of each of the following
terms in their entirety to read as follows:
"Allonge" shall refer individually to each First Allonge dated as of
-------
May 31, 1996, between Borrower and Norwest, First American, or Rothschild, as
appropriate, which amends the Replacement Revolver Note payable to such Lender
to increase the principal amount of such note to $13,333,333.33, to extend the
Revolver Commitment Period from June 30, 1997 to June 30, 1998, and to extend
the maturity date from June 30, 2001 to June 30, 2002, and which are in the form
attached hereto as Exhibits A-1, A-2 and A-3. The term "Allonges" shall refer
to all three Allonges.
"Columbia Contracts" shall mean (a) Natural Gas Liquids Purchase
------------------
Agreement dated as of April 26, 1988 between Columbia Gas Transmission
Corporation ("Columbia") and Borrower as amended November 4, 1988, July 31,
1989, December 24, 1990 and January 28, 1991 (Siloam); (b) Natural Gas Liquids
Purchase Agreement dated as of December 24, 1990, between Columbia and Borrower
as amended January 28, 1991 (Boldman); (c) Contract for Construction and Lease
of Boldman Plant dated December 24, 1990 between Columbia and Borrower; (d)
Letter Agreement dated March 9, 1995 between Columbia and Borrower; and (e) the
following agreements relating to the Kenova Processing Plant: (i) Agreement to
Design and Construct New Facilities (the "Construction Agreement"), (ii)
----------------------
Purchase and Demolition Agreement-Construction Premises (the "Demolition
----------
Agreement"), (iii) Purchase and Demolition Agreement-Remaining Premises (the
- ---------
"Purchase Agreement"), and (iv) Processing Agreement-Kenova Processing Plant
- -------------------
(the "Processing Agreement"), all dated March 15, 1995 between Columbia and
--------------------
Borrower, together with any and all amendments now existing or hereafter created
to any of the foregoing to the extent such amendments are otherwise permitted
hereunder, and together with any gas processing contracts between Borrower and
any shippers on Columbia's system covering processing of such shippers' gas at
the Kenova Processing Plant.
"Fixed Charge Coverage Ratio" shall mean for the 12 most recent
---------------------------
consecutive months, the ratio for such period of (a) the sum of net income (or
net loss) plus interest expense and non-cash charges included in determining net
income (or net loss), all as determined in accordance with GAAP, to (b) the sum
of interest expense included in calculating (a).
"Loan Documents" shall mean the Loan Agreement, as amended by this
--------------
Amendment, the Amended Notes, the Security Documents, the Covenant Agreements
and all other documents executed and delivered, from time to time, by or on
behalf of Borrower to Agent or Lenders in connection herewith or therewith.
"Loan Share" means with respect to each of Norwest, First American,
----------
and Rothschild, thirty-three and one-third percent.
"Maximum Principal Amount" shall be $40,000,000.
------------------------
"Revolver Commitment Period" shall mean the period from November 20,
--------------------------
1992,
-2-
<PAGE>
to and including June 30, 1998, or such earlier date on which the Revolver
Notes become due and payable.
"Revolver Note" shall mean a Replacement Revolver Note dated September
-------------
8, 1995, substantially in the form of Exhibits A-1, A-2 and A-3 attached to the
Third Amendment, made by Borrower and payable to the order of Norwest, First
American or Rothschild, as appropriate, with appropriate insertions, as amended
by a First Allonge dated as of May 31, 1996, to increase the principal amount of
such note to $13,333,333.33 and to change the maturity date from June 30, 2001
to June 30, 2002, together with any and all renewals, extensions, amendments and
changes of, or substitutions for said note; collectively the "Revolver Notes."
--------------
B. The following additional definitions are hereby added to Section
1 of the Loan Agreement in their appropriate alphabetical order:
"Amended Notes" shall refer to each Replacement Revolver Note as
-------------
amended by the Allonge for the appropriate lender.
"Amendment to Security Agreement" shall refer to the Amendment to
-------------------------------
Security Agreement dated as of May 31, 1996, executed by Borrower and Agent in
connection with this Amendment, covering Borrower's interest in the Church Hill
Facility, Hawkins County, Tennessee and all leasehold rights, equipment,
inventory, accounts, contracts, contract rights, documents, instruments, general
intangibles, and all other personal property and proceeds related thereto.
"Third Mortgage Amendments" shall refer to the amendments dated as of
-------------------------
May 31, 1996, to each of the mortgages and deeds of trust executed by the
Borrower in connection with this Amendment and described as follows: (i) Third
Amendment to Arkansas Leasehold Deed of Trust with Security Agreement,
Assignment of Rents and Leases and Financing Statement (Revolving Credit); (ii)
Third Amendment to Mortgage, Security Agreement, Assignment of Profits and
Proceeds and Financing Statement relating to Siloam, (iii) Third Amendment to
Mortgage, Security Agreement, Assignment of Profits and Proceeds and Financing
Statement (Boldman); and (iv) Third Amendment to A Credit Line Deed of Trust
with Security Agreement, Assignment of Profits and Proceeds and Financing
Statement relating to West Virginia Property, covering Borrower's Kenova
Processing Plant, all personal property, inventory and equipment related
thereto, and all processing contracts related thereto.
C. The definition of Second Allonge set forth in Section 1 of the
Loan Agreement shall be deleted in its entirety.
D. The term "Amendment Documents" when used in this Agreement shall
-------------------
refer to this Amendment, the Allonges, the Amendment to Security Agreement, the
Third Mortgage Amendments and any necessary amendments to Financing Statements.
2. Amendment of Section 2(b)(iii). Section 2(b)(iii) is hereby
------------------------------
amended to (a) delete the date "September 30, 1997" in the twelfth and
thirteenth lines and substitute the date
-3-
<PAGE>
"September 30, 1998" therefor, and (b) delete the date "June 30, 2001" in the
fourteenth line and substitute the date "June 30, 2002" therefor.
3. Amendment of Section 4(c)(i). Section 4(c)(i) is hereby deleted and
----------------------------
restated in its entirety to read as follows:
(i) The Lenders shall determine the Borrowing Base (which shall
never exceed the Maximum Principal Amount) semi-annually, as of June 15 and
December 15 of each year that this Agreement is in effect, commencing June 15,
1996, based upon the Obligations then outstanding, the value and associated cash
flow available for debt service which the Lenders assign, in their sole
discretion, to Borrower's natural gas liquids processing plants, fractionator,
propane terminals and any other assets of Borrower now subject to the Security
Documents or as may become subject thereto in the future, but only to the extent
each of the same are subject to a perfected first priority lien in favor of the
Agent for the benefit of the Lenders, and based upon such other factors,
assumptions, criteria and general credit considerations as the Lenders in their
sole discretion deem appropriate.
4. Amendment of Section 8(b). Section 8(b) is hereby amended by
-------------------------
adding the following new subsection 8(b)(vii) at the end, to read as follows:
"(vii) On or before November 15 of each year an annual budget for
Borrower's operations for the next calendar year."
5. Amendment of Section 8(m). Section 8(m) is hereby amended by adding
-------------------------
the following phrase to the end of such section:
"plus 50 percent of the net proceeds of any public offering by
Borrower."
6. New Section 8(q). A new Section 8(q) is hereby added to Section 8 to
----------------
read as follows:
"(q) Capital Expenditure Review. Borrower shall consult with Lenders
--------------------------
concerning the details of any single project with estimated capital expenditures
in excess of $10,000,000. Not less than 45 days prior to entering into a binding
commitment to make such expenditure, Borrower will provide a complete
description of the proposed capital expenditure, the economic analysis of the
project and the projected impact on Borrower's financial condition and business.
7. Amendment of Section 9(c). Section 9(c) is hereby amended to insert
-------------------------
the following phrase after the word "except" in line 12 and before the phrase
"endorsements of negotiable instruments":
"(i) guarantees by Borrower of Debt incurred by MarkWest Coalseam
Development Company L.L.C. in connection with San Juan and Piceance Basin
projects, so long as such guarantees do not exceed $1,000,000 in the aggregate
at any one time (copies of each
-4-
<PAGE>
such guarantee shall be provided to Agent within ten days after execution), (ii)
the guarantee by Borrower contained in Section 2.5 of the Participation,
Ownership and Operating Agreement for West Shore Processing Company, LLC dated
May 2, 1996, (iii) the Secured Guarantees dated May 2, 1996 executed by MarkWest
Michigan, L.L.C. as Manager of West Shore Processing Company, LLC and Basin
Pipeline, L.L.C. in favor of Bank of America Illinois, and (iv) ..."
8. Conditions Precedent. The amendments provided for in this Amendment
--------------------
shall not become effective until Agent has received each of the following:
A. A commitment fee of $75,000, representing 1/2 of one percent of
$15,000,000, the increase in the Maximum Principal Amount from $25,000,000 to
$40,000,000.
B. This Amendment, executed by Borrower, Agent and Lenders;
C. The Allonge, executed by Borrower for each of the Lenders;
D. Counterparts of the Third Mortgage Amendments, the Amendment to
Security Agreement, and any financing statements or amendments to financing
statements necessary to perfect security interests in any personal property
included in the collateral covered by the Third Mortgage Amendments or the
Amendment to Security Agreement, duly executed and acknowledged by Borrower and
Agent, and to the extent applicable, the trustee thereunder;
E. A letter from each of John Fox and the General Partner
reconfirming their respective Covenant Agreement;
F. The following items concerning the Kenova Processing Plant:
(i) The Columbia Assessment and Remediation Plan (as defined
in the Construction Agreement) shall be acceptable to the Lenders in their
sole discretion;
(ii) A Certificate executed by the President of Borrower's
general partner certifying that (a) the Kenova Processing Plant has
satisfactorily passed the performance tests required to be ready for
"Unrestricted Service" as set forth in the Construction Agreement or
setting forth in reasonable detail deficiencies still to be corrected; (b)
such plant is currently operating in substantial compliance with the
Processing Agreement; (c) Borrower has obtained with regard to the Kenova
Processing Plant all governmental permits, licenses and approvals (other
than FERC approvals) necessary for the construction and operation of such
plant by Borrower; and (d) such plant is ready for Unrestricted Service and
has been accepted in such condition by Columbia.
G. Updated title commitment covering the Siloam Facility
demonstrating to Lenders' satisfaction that Agent will have a valid first lien
on such collateral to the full extent of the Maximum Principal Amount;
-5-
<PAGE>
H. Results of UCC lien searches as to Borrower for the States of
Arkansas, Colorado, Kentucky, Tennessee, and West Virginia and for the following
counties: Crittenden County, Arkansas; Boyd, Greenup and Pike Counties,
Kentucky; Hawkins County, Tennessee; and Wayne and Kanawha Counties, West
Virginia, and for all other relevant filing jurisdictions as to the Collateral;
I. All legal matters incident to the Loans and the Amendment
Documents shall be satisfactory to counsel to Agent, and Agent shall have
received a favorable opinion addressed to Agent and Lenders of Barry W. Spector,
Esq., counsel for Borrower, in form and substance satisfactory to Agent;
J. Revised versions of Exhibits I, J, K and L to the Loan
Agreement, current as of May 22, 1996;
K. Photocopies of all executed documents relating to Borrower's
investment in West Shore Processing Company, LLC and Basin Pipeline, L.L.C. and
the related refinancing transaction with Bank of America Illinois; and
L. All other documents and assurances which Agent reasonably
requires or which it may reasonably request in connection with the transactions
contemplated by this Agreement, and such documents shall be certified, when
appropriate by proper authorities.
9. Amended Exhibits. Exhibits I, J, K and L to the Loan Agreement shall
----------------
be amended and restated in the form of Exhibits I, J, K and L attached hereto.
10. Representations and Warranties. To induce Agent and Lenders to enter
------------------------------
into this Amendment, Borrower hereby represents and warrants to Agent and each
Lender that:
A. Non-Contravention. The execution, delivery and performance by
-----------------
Borrower of this Amendment, and the other Amendment Documents and the borrowings
thereunder, and the consummation of the transactions contemplated herein and
therein will not conflict with the limited partnership agreement or other
organizational or governing documents of any Related Person, or conflict with or
result in any breach of any mortgage, lien, lease, agreement, instrument, order,
judgment, decree, law, rule, regulation or any other restriction of any kind or
character to which any Related Person is a party or is subject or by which any
Related Person or its properties are bound or affected or result in the creation
or imposition of any lien, charge or encumbrance upon any property of any
Related Person.
B. Third Party Authorization. No consent, approval, exemption,
-------------------------
authorization or order of or other action by, and no notice to or filing with,
any court or governmental authority or third party is required by any Related
Person in connection with the execution, delivery or performance by Borrower of
this Amendment, or any other Amendment Document or to consummate any
transactions contemplated hereby or thereby.
-6-
<PAGE>
C. Authorization; Binding Effect. Borrower has full power and
-----------------------------
authority to enter into this Amendment and the other Amendment Documents. The
execution and delivery of this Amendment, and the other Amendment Documents, and
the performance and observance of their terms, conditions and obligations, have
been duly authorized by all necessary action by Borrower and the General
Partner. This Amendment and the other Amendment Documents are the legal, valid
and binding obligations of Borrower, enforceable in accordance with their
respective terms, except as such enforcement may be limited by bankruptcy,
insolvency or similar laws of general application relating to the enforcement of
creditors' rights.
D. Representations and Warranties. All representations and
------------------------------
warranties contained in Section 7 of the Original Loan Agreement and in the
Security Documents shall be true on the date hereof as if then given, and
Borrower shall have performed or observed all terms, agreements, conditions and
obligations under the Loan Agreement and under the Security Documents to be
performed or observed on or prior to the date hereof.
E. No Default. No Event of Default or Unmatured Event of Default
----------
under the Loan Agreement shall have occurred and be continuing or would result
from the entering into of this Amendment.
F. First Priority Security Interest. Upon proper filing and
--------------------------------
recording of the Third Mortgage Amendment and related financing statements
covering the Kenova Processing Plant, the Agent, on behalf of Lenders will have
a perfected first priority lien or security interest in all of the Collateral
subject to such mortgage.
The foregoing representations and warranties shall be deemed to be
representations and warranties made in the Loan Agreement for all purposes.
11. Kenova Title. Within 45 days after the receipt of FERC approval to
------------
the closure of the old Columbia Kenova plant and the transfer of its site to
Borrower, Borrower shall provide Agent with evidence acceptable to Agent that
Borrower has marketable title to the Construction Premises as defined in the
Demolition Agreement together with an ALTA form B (or other form acceptable to
the Agent) mortgagee title insurance or a binder issued by a title insurance
company satisfactory to the Agent, insuring or undertaking to insure, in the
case of a binder, that the applicable Third Mortgage Amendment creates and
constitutes a valid first lien against such collateral in favor of the Agent,
subject only to permitted exceptions, with such endorsements and affirmative
insurance as the Agent may reasonably request.
12. Continuing Effect. Except as expressly amended hereby, the Loan
-----------------
Agreement shall continue to be and shall remain in full force and effect in
accordance with its terms. References in the Loan Agreement to "this Agreement",
"this instrument" and like terms shall be deemed to be references to the Loan
Agreement as amended by this Amendment. When used in this Amendment or in the
Loan Agreement, each reference to a term defined in the Loan Agreement, which is
amended by this Amendment, shall be deemed to be the term as amended by this
Amendment. Any reference to the "Revolver/Term Loan Agreement" in the Collateral
-7-
<PAGE>
Documents shall be deemed to be a reference to the Loan Agreement as amended by
this Amendment. Borrower hereby confirms and acknowledges that the term
"Obligations" as used in the Security Agreement, includes all obligations of
Borrower with respect to the Revolver Loans as increased hereby and the Amended
Notes and all other costs, fees, indemnities and expenses in connection
therewith.
13. Governing Law. This Amendment shall be governed by and construed
-------------
under the laws of the State of Colorado and shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and assigns.
14. Assignment. Norwest and First American hereby assign and transfer to
----------
Rothschild, without any warranties either express or implied, a sufficient part
of all their rights, title and interest in, to and under the Loan Agreement, the
Loans, the Amended Notes and all other Loan Documents, so that all such rights
shall be owned and held by Lenders on the date hereof in the following
percentages:
Norwest - 33-1/3 %
First American - 33-1/3 %
Rothschild - 33-1/3 %
15. Counterparts. This Amendment may be executed in one or more
------------
counterparts, with each party signing on different counterparts, each of which
shall be deemed an original, and all of which together shall constitute but one
and the same instrument.
BORROWER:
MARKWEST HYDROCARBON PARTNERS, LTD.,
a Colorado limited partnership
By: MARKWEST HYDROCARBON, INC.,
General Partner
By: _____________________________
John M. Fox
President
LENDERS:
NORWEST BANK COLORADO, NATIONAL
-8-
<PAGE>
ASSOCIATION (successor to Norwest Bank Denver,
National Association), a national banking association
By:_____________________________
Thomas M. Foncannon
Vice President
FIRST AMERICAN NATIONAL BANK,
a national banking association
By:______________________________
Mariah G. Lundberg
Assistant Vice President
N M ROTHSCHILD AND SONS LIMITED,
a company organized and existing under
the laws of England
By:______________________________ By:________________________________
Name: ________________________ Name:___________________________
Title: _________________________ Title:__________________________
AGENT:
NORWEST BANK COLORADO, NATIONAL
ASSOCIATION (successor to Norwest Bank Denver,
National Association), a national banking association
By:_____________________________
Thomas M. Foncannon
Vice President
-9-
<PAGE>
REVOLVER NOTE
-------------
$10,000,000.00 Denver, Colorado
November 20, 1992
MARKWEST HYDROCARBON PARTNERS, LTD., a Colorado limited
partnership, ("Borrower"), with an address of 5613 DTC Parkway, Suite 400,
Englewood, CO 80111, for value received, hereby promises to pay to the order of
Norwest Bank Denver, National Association, a national banking association
("Lender"), on or before December 31, 1998, the principal sum of Ten Million
- ----------
Dollars ($10,000,000.00), or so much thereof as may be advanced by Lender
pursuant to the Loan Agreement of even date herewith between Borrower, Norwest
Bank Denver, National Association, individually and as agent, and First American
National Bank (the "Loan Agreement"), together with interest on the outstanding
---- ---------
unpaid principal balance at the Adjusted Prime Rate as provided in the Loan
Agreement.
This Note is one of the notes referred to in the Loan Agreement
as the Revolver Notes, and is issued pursuant to, and is subject to the terms
and provisions of, the Loan Agreement. All capitalized terms used herein but not
otherwise defined shall have the meanings set forth in the Loan Agreement.
As of December 31, 1994, the aggregate unpaid principal amount
outstanding under this Note shall be repaid to Lender in sixteen equal quarterly
installments, commencing March 31, 1993, as more fully provided in the Loan
Agreement, together with accrued and unpaid interest thereon. All remaining
outstanding principal of and interest on this Note shall be due and payable no
later than December 31, 1998.
Interest shall accrue daily, shall be payable on the last day of
each calendar quarter, commencing December 31, 1992 and at the maturity of this
Note, and shall be calculated on the basis of a 365 or 366-day year, as
appropriate. All payments of principal and interest hereof shall be made as
provided in the Loan Agreement in immediately available funds and without set-
off or counterclaim or deduction of any kind.
Notwithstanding anything tot he contrary contained in this Note,
overdue principal, and (to the extent permitted under applicable law) overdue
interest, whether caused by acceleration of maturity or otherwise, shall bear
interest at
<PAGE>
the Late Payment Rate and shall be immediately due and payable.
It is not intended hereby to charge interest at a rate in excess
of the maximum rate of interest that Lender may charge to Borrower under
applicable usury and other laws, but if, notwithstanding, interest in excess of
such rate shall be paid hereunder, the interest rate on this Note shall be
adjusted to the maximum permitted under applicable law during the period or
periods that the interest rate otherwise provided herein would exceed such rate
and any excess amount applied at Lender's option to reduce the outstanding
principal balance of this Note or to be returned to Borrower.
This Note is secured by, and the holder of this Note is entitled
to the benefits of the Security Documents described in the Loan Agreement.
Reference is made to the Security Documents for a description of the property
covered thereby and the rights, remedies and obligations of the holder hereof in
respect thereto.
Lender shall maintain a record of all advances hereunder and all
payments made on this Note until Lender has been repaid in full, as set forth on
Schedule I hereto; provided, however that the failure, error or omission by
-----------------
Lender to maintain such a record shall not diminish or otherwise affect the
obligation of Borrower to repay the amount outstanding hereunder and any other
amounts due to Lender.
If Borrower fails to pay any amount due under this Note and
Lender has to take any action to collect the amount due or to exercise its
rights under this Note or the Security Documents, including without limitation
retaining attorneys for collection of this Note, or if any suit or proceeding is
brought for the recovery of all or any part of or for protection of the
Obligations or to foreclose the Security Documents or to enforce Lender's rights
under the Security Documents, then Borrower agrees to pay on demand all costs
and expenses of any such action to collect, suit or proceeding, or any appeal of
any such suit or proceeding, incurred by the holder hereof, including without
limitation the fees and disbursements of attorneys for the holder hereof.
Borrower, and all endorsers, sureties and guarantors of this
Note, hereby severally waive demand, presentment for payment, notice of
dishonor, notice of acceleration or intent to accelerate, protest, notice of
protest, diligence in collecting and assents to any extension of time with
respect
-2-
<PAGE>
to any payment due under this Note, to any substitution or release of collateral
and to the addition or release of any party. No waiver by Lender of any payment
or other right under this Note shall operate as a waiver of any other payment or
right.
If any provision in this Note shall be held invalid, illegal or
unenforceable in any jurisdiction, the validity, legality or enforceability of
any defective provisions shall not be in any way affected or impaired in any
other jurisdiction, nor shall the invalid, illegal or unenforceable provision
affect or impair any other provision of this Note.
No delay or failure of the holder of this Note in the exercise of
any right or remedy provided for hereunder shall be deemed a waiver of such
right or remedy by the holder hereof, and no exercise of any right or remedy
shall be deemed a waiver of any other right or remedy that the holder may have.
Any notices given hereunder shall be in writing and shall be
given as provided in the Loan Agreement.
At the option of Lender, an action may be brought to enforce this
Note in the District. Court in and for the City and County of Denver, State of
Colorado, in the United States District Court for the District of Colorado or in
any other court in which venue and jurisdiction are proper. Borrower and all
endorsers, sureties and guarantors hereof consent to venue and jurisdiction in
the District Court in and for the City and County of Denver, State of Colorado
and in the United States District Court for the District of Colorado and to
jurisdiction and service of process under Sections 13-1-124(1)(a) and 13-1-125,
Colorado Revised Statutes (1973), as amended, in any action commenced to enforce
this Agreement.
THIS NOTE IS TO BE GOVERNED BY AND CONSTRUED ACCORDING TO THE
LAWS OF THE STATE OF COLORADO.
MARKWEST HYDROCARBON PARTNERS, LTD.
By: MarkWest Hydrocarbon, Inc.
General Partner
By:
Patrick W. Murray,
Vice President
-3-
<PAGE>
Schedule I
----------
Principal Outstanding
Amount Amount of Principal
Date of Advance Payment Balance
- ---- ---------- ------- -------
A-1
<PAGE>
REVOLVER NOTE
-------------
$10,000,000.00 Denver, Colorado
November 20, 1992
MARKWEST HYDROCARBON PARTNERS, LTD., a Colorado limited
partnership, ("Borrower"), with an address of 5613 DTC Parkway, Suite 400,
Englewood, CO 80111, for value received, hereby promises to pay to the order of
First American National Bank, a national banking association ("Lender"), on or
before December 31, 1998, the principal sum of Ten Million Dollars
($10,000,000.00), or so much thereof as may be advanced by Lender pursuant to
the Loan Agreement of even date herewith between Borrower, Norwest Bank Denver,
National Association, individually and as agent, and First American National
Bank (the "Loan Agreement"), together with interest on the outstanding unpaid
------
principal balance at the Adjusted Prime Rate as provided in the Loan Agreement.
This Note is one of the notes referred to in the Loan Agreement
as the Revolver Notes, and is issued pursuant to, and is subject to the terms
and provisions of, the Loan Agreement. All capitalized terms used herein but not
otherwise defined shall have the meanings set forth in the Loan Agreement.
As of December 31, 1994, the aggregate unpaid principal amount
outstanding under this Note shall be repaid to Lender in sixteen equal quarterly
installments, commencing March 31, 1993, as more fully provided in the Loan
Agreement, together with accrued and unpaid interest thereon. All remaining
outstanding principal of and interest on this Note shall be due and payable no
later than December 31, 1998.
Interest shall accrue daily, shall be payable on the last day of
each calendar quarter, commencing December 31, 1992 and at the maturity of this
Note, and shall be calculated on the basis of a 365 or 366-day year, as
appropriate. All payments of principal and interest hereof shall be made as
provided in the Loan Agreement in immediately available funds and without set-
off or counterclaim or deduction of any kind.
Notwithstanding anything to the contrary contained in this Note,
overdue principal, and (to the extent permitted under applicable law) overdue
interest, whether caused by acceleration of maturity or otherwise, shall bear
interest at
<PAGE>
the Late Payment Rate and shall be immediately due and payable.
It is not intended hereby to charge interest at a rate in excess
of the maximum rate of interest that Lender may charge to Borrower under
applicable usury and other laws, but if, notwithstanding, interest in excess of
such rate shall be paid hereunder, the interest rate on this Note shall be
adjusted to the maximum permitted under applicable law during the period or
periods that the interest rate otherwise provided herein would exceed such rate
and any excess amount applied at Lender's option to reduce the outstanding
principal balance of this Note or to be returned to Borrower.
This Note is secured by, and the holder of this Note is entitled to
the benefits of the Security Documents described in the Loan Agreement.
Reference is made to the Security Documents for a description of the property
covered thereby and the rights, remedies and obligations of the holder hereof in
respect thereto.
Lender shall maintain a record of all advances hereunder and all
payments made on this Note until Lender has been repaid in full, as set forth on
Schedule I hereto; provided, however that the failure, error or omission by
------------------
Lender to maintain such a record shall not diminish or otherwise affect the
obligation of Borrower to repay the amount outstanding hereunder and any other
amounts due to Lender.
If Borrower fails to pay any amount due under this Note and
Lender has to take any action to collect the amount due or to exercise its
rights under this Note or the Security Documents, including without limitation
retaining attorneys for collection of this Note, or if any suit or proceeding is
brought for the recovery of all or any part of or for protection of the
Obligations or to foreclose the Security Documents or to enforce Lender's rights
under the Security Documents, then Borrower agrees to pay on demand all costs
and expenses of any such action to collect, suit or proceeding, or any appeal of
any such suit or proceeding, incurred by the holder hereof, including without
limitation the fees and disbursements of attorneys for the holder hereof.
Borrower, and all endorsers, sureties and guarantors of this
Note, hereby severally waive demand, presentment for payment, notice of
dishonor, notice of acceleration or intent to accelerate, protest, notice of
protest, diligence in collecting and assents to any extension of time with
respect
-2-
<PAGE>
to any payment due under this Note, to any substitution or release of collateral
and to the addition or release of any party. No waiver by Lender of any payment
or other right under this Note shall operate as a waiver of any other payment or
right.
If any provision in this Note shall be held invalid, illegal or
unenforceable in any jurisdiction, the validity, legality or enforceability of
any defective provisions shall not be in any way affected or impaired in any
other jurisdiction, nor shall the invalid, illegal or unenforceable provision
affect or impair any other provision of this Note.
No delay or failure of the holder of this Note in the exercise of any
right or remedy provided for hereunder shall be deemed a waiver of such right or
remedy by the holder hereof, and no exercise of any right or remedy shall be
deemed a waiver of any other right or remedy that the holder may have.
Any notices given hereunder shall be in writing and shall be given as
provided in the Loan Agreement.
At the option of Lender, an action may be brought to enforce this Note
in the District Court in and for the City and County of Denver, State of
Colorado, in the United States District Court for the District of Colorado or in
any other court in which venue and jurisdiction are proper. Borrower and all
endorsers, sureties and guarantors hereof consent to venue and jurisdiction in
the District Court in and for the City and County of Denver, State of Colorado
and in the United States District Court for the District of Colorado and to
jurisdiction and service of process under Sections 13-1-124(1)(a) and 13-1-125,
Colorado Revised Statutes (1973), as amended, in any action commenced to enforce
this Agreement.
THIS NOTE IS TO BE GOVERNED BY AND CONSTRUED ACCORDING TO THE
LAWS OF THE STATE OF COLORADO.
MARKWEST HYDROCARBON PARTNERS, LTD.
By: MarkWest Hydrocarbon, Inc.
General Partner
By:
Patrick W. Murray,
Vice President
-3-
<PAGE>
Schedule I
----------
Principal Outstanding
Amount Amount of Principal
Date of Advance Payment Balance
- ---- ---------- ------- -------
A-1
<PAGE>
TERM NOTE
---------
$6,750,000.00 Denver, Colorado
November 20, 1992
MARKWEST HYDROCARBON PARTNERS, LTD., a Colorado limited partnership,
("Borrower"), with an address of 5613 DTC Parkway, Suite 400, Englewood, CO
80111, for value received, hereby promises to pay to the order of Norwest Bank
Denver, National Association, a national banking association ("Lender"), on or
before December 31, 1998, the principal sum of Six Million Seven Hundred Fifty
Thousand Dollars ($6,750,000.00), together with interest on the outstanding
unpaid principal balance at the Adjusted Prime Rate as provided in the Loan
Agreement of even date herewith between Borrower, Norwest Bank Denver, National
Association, individually and as agent, and First American National Bank (the
"Loan Agreement").
- -----
This Note is one of the notes referred to in the Loan Agreement
as the Term Notes, and is issued pursuant to, and is subject to the terms and
provisions of, the Loan Agreement. All capitalized terms used herein but not
otherwise defined shall have the meanings set forth in the Loan Agreement.
The outstanding principal amount of this Note shall be payable as
provided in the Loan Agreement, in twenty-four equal quarterly installments due
on the last day of each calendar quarter, commencing March 31, 1993, as more
fully described in the Loan Agreement. The entire outstanding principal balance
of this Note shall be due and payable on or before December 31, 1998 (unless
payable sooner pursuant to the terms of the Loan Agreement), together with
accrued and unpaid interest thereon.
Interest shall accrue daily, shall be payable on the last day of
each calendar quarter, commencing December 31, 1992 and at the maturity of this
Note, and shall be calculated on the basis of a 365 or 366-day year, as
appropriate. All payments of principal and interest hereof shall be made as
provided in the Loan Agreement in immediately available funds and without set-
off or counterclaim or deduction of any kind.
Notwithstanding anything to the contrary contained in this Note,
overdue principal, and (to the extent permitted under applicable law) overdue
interest, whether caused by
<PAGE>
acceleration of maturity or otherwise, shall bear interest at the Late Payment
Rate and shall be immediately due and payable.
It is not intended hereby to charge interest at a rate in excess
of the maximum rate of interest that Lender may charge to Borrower under
applicable usury and other laws, but if, notwithstanding, interest in excess of
such rate shall be paid hereunder, the interest rate on this Note shall be
adjusted to the maximum permitted under applicable law during the period or
periods that the interest rate otherwise provided herein would exceed such rate
and any excess amount applied at Lender's option to reduce the outstanding
principal balance of this Note or to be returned to Borrower.
This Note is secured by, and the holder of this Note is entitled
to the benefits of the Security Documents described in the Loan Agreement.
Reference is made to the Security Documents for a description of the property
covered thereby and the rights, remedies and obligations of the holder hereof in
respect thereto.
Lender shall maintain a record of the advances hereunder and all
payments made on this Note until Lender has been repaid in full, as set forth on
Schedule I hereto; provided however, that the failure, error or omission by
-----------------
Lender to maintain such a record shall not diminish or otherwise affect the
obligation of Borrower to repay the amount outstanding hereunder and any other
amounts due to Lender.
If Borrower fails to pay any amount due under this Note and
Lender has to take any action to collect the amount due or to exercise its
rights under this Note or the Security Documents, including without limitation
retaining attorneys for collection of this Note, or if any suit or proceeding is
brought for the recovery of all or any part of or for protection of the
Obligations or to foreclose the Security Documents or to enforce Lender's rights
under the Security Documents, then Borrower agrees to pay on demand all costs
and expenses of any such action to collect, suit or proceeding, or any appeal of
any such suit or proceeding, incurred by the holder hereof, including without
limitation the fees and disbursements of attorneys for the holder hereof.
Borrower, and all endorsers, sureties and guarantors of this
Note, hereby severally waive demand, presentment for payment, notice of
dishonor, notice of acceleration or intent to accelerate, protest, notice of
protest, diligence in collecting and assents to any extension of time with
respect
-2-
<PAGE>
to any payment due under this Note, to any substitution or release of collateral
and to the addition or release of any party. No waiver by Lender of any payment
or other right under this Note shall operate as a waiver of any other payment or
right.
If any provision in this Note shall be held invalid, illegal or
unenforceable in any jurisdiction, the validity, legality or enforceability of
any defective provisions shall not be in any way affected or impaired in any
other jurisdiction, nor shall the invalid, illegal or unenforceable provision
affect or impair any other provision of this Note.
No delay or failure of the holder of this Note in the exercise of any
right or remedy provided for hereunder shall be deemed a waiver of such right by
the holder hereof, and no exercise of any right or remedy shall be deemed a
waiver of any other right or remedy that the holder-may have.
Any notices given hereunder shall be in writing and shall be given as
provided in the Loan Agreement.
At the option of Lender, an action may be brought to enforce this Note
in the District Court in and for the City and County of Denver, State of
Colorado, in the United States District Court for the District of Colorado or in
any other court in which venue and jurisdiction are proper. Borrower and all
endorsers, sureties and guarantors hereof consent to venue and jurisdiction in
the District Court in and for the City and County of Denver, State of Colorado
and in the United States District Court for the District of Colorado and to
jurisdiction and service of process under Sections 13-1-124(1)(a) and 13-1-125,
Colorado Revised Statutes (1973), as amended, in any action commenced to enforce
this Agreement.
THIS NOTE IS TO BE GOVERNED BY AND CONSTRUED ACCORDING TO THE
LAWS OF THE STATE OF COLORADO.
MARKWEST HYDROCARBON PARTNERS, LTD.
By: MarkWest Hydrocarbon, Inc.
General Partner
By:
Patrick W. Murray,
Vice President
-3-
<PAGE>
Schedule I
----------
Principal Outstanding
Amount Amount of Principal
Date of Term Loan Payment Balance
- ---- ------------ ------- -------
A-1
<PAGE>
TERM NOTE
$6,750,000.00 Denver, Colorado
November 20, 1992
MARKWEST HYDROCARBON PARTNERS, LTD., a Colorado limited partnership,
("Borrower"), with an address of 5613 DTC Parkway, Suite 400, Englewood, CO
80111, for value received, hereby promises to pay to the order of First American
National Bank, a national banking association ("Lender"), on or before December
31, 1998, the principal sum of Six Million Seven Hundred Fifty Thousand Dollars
($6,750,000.00), together with interest on the outstanding unpaid principal
balance at the Adjusted Prime Rate as provided in the Loan Agreement of even
date herewith between Borrower, Norwest Bank Denver, National Association,
individually and as agent, and First American National Bank (the "Loan
----
Agreement").
This Note is one of the notes referred to in the Loan Agreement
as the Term Notes, and is issued pursuant to, and is subject to the terms and
provisions of, the Loan Agreement. All capitalized terms used herein but not
otherwise defined shall have the meanings set forth in the Loan Agreement.
The outstanding principal amount of this Note shall be payable as
provided in the Loan Agreement, in twenty-four equal quarterly installments due
on the last day of each calendar quarter, commencing March 31, 1993, as more
fully described in the Loan Agreement. The entire outstanding principal balance
of this Note shall be due and payable on or before December 31, 1998 (unless
payable sooner pursuant to the terms of the Loan Agreement), together with
accrued and unpaid interest thereon.
Interest shall accrue daily, shall be payable on the last day of
each calendar quarter, commencing December 31, 1992 and at the maturity of this
Note, and shall be calculated on the basis of a 365 or 366-day year, as
appropriate. All payments of principal and interest hereof shall be made as
provided in the Loan Agreement in immediately available funds and without set-
off or counterclaim or deduction of any kind.
Notwithstanding anything to the contrary contained in this Note,
overdue principal, and (to the extent permitted under applicable law) overdue
interest, whether caused by
<PAGE>
acceleration of maturity or otherwise, shall bear interest at the Late Payment
Rate and shall be immediately due and payable.
It is not intended hereby to charge interest at a rate in excess
of the maximum rate of interest that Lender may charge to Borrower under
applicable usury and other laws, but if, notwithstanding, interest in excess of
such rate shall be paid hereunder, the interest rate on this Note shall be
adjusted to the maximum permitted under applicable law during the period or
periods that the interest rate otherwise provided herein would exceed such rate
and any excess amount applied at Lender's option to reduce the outstanding
principal balance of this Note or to be returned to Borrower.
This Note is secured by, and the holder of this Note is entitled to
the benefits of the Security Documents described in the Loan Agreement.
Reference is made to the Security Documents for a description of the property
covered thereby and the rights, remedies and obligations of the holder hereof in
respect thereto.
Lender shall maintain a record of the advances hereunder and all
payments made on this Note until Lender has been repaid in full, as set forth on
Schedule I hereto; provided however, that the failure, error or omission by
----------------
Lender to maintain such a record shall not diminish or otherwise affect the
obligation of Borrower to repay the amount outstanding hereunder and any other
amounts due to Lender.
If Borrower fails to pay any amount due under this Note and
Lender has to take any action to collect the amount due or to exercise its
rights under this Note or the Security Documents, including without limitation
retaining attorneys for collection of this Note, or if any suit or proceeding is
brought for the recovery of all or any part of or for protection of the
Obligations or to foreclose the Security Documents or to enforce Lender's rights
under the Security. Documents, then Borrower agrees to pay on demand all costs
and expenses of any such action to collect, suit or proceeding, or any appeal of
any such suit or proceeding, incurred by the holder hereof, including without
limitation the fees and disbursements of attorneys for the holder hereof.
Borrower, and all endorsers, sureties and guarantors of this
Note, hereby severally waive demand, presentment for payment, notice of
dishonor, notice of acceleration or intent to accelerate, protest, notice of
protest, diligence in collecting and assents to any extension of time with
respect
-2-
<PAGE>
to any payment due under this Note, to any substitution or release of collateral
and to the addition or release of any party. No waiver by Lender of any payment
or other right under this Note shall operate as a waiver of any other payment or
right.
If any provision in this Note shall be held invalid, illegal or
unenforceable in any jurisdiction, the validity, legality or enforceability of
any defective provisions shall not be in any way affected or impaired in any
other jurisdiction, nor shall the invalid, illegal or unenforceable provision
affect or impair any other provision of this Note.
No delay or failure of the holder of this Note in the exercise of any
right or remedy provided for hereunder shall be deemed a waiver of such right by
the holder hereof, and no exercise of any right or remedy shall be deemed a
waiver of any other right or remedy that the holder may have.
Any notices given hereunder shall be in writing and shall be given as
provided in the Loan Agreement.
At the option of Lender, an action may be brought to enforce this Note
in the District Court in and for the City and County of Denver, State of
Colorado, in the United States District Court for the District of Colorado or in
any other court in which venue and jurisdiction are proper. Borrower and all
endorsers, sureties and guarantors hereof consent to venue and jurisdiction in
the District Court in and for the City and County of Denver, State of Colorado
and in the United States District Court for the District of Colorado and to
jurisdiction and service of process under Sections 13-1-124(1)(a) and 13-1-125,
Colorado Revised Statutes (1973), as amended, in any action commenced to enforce
this Agreement.
THIS NOTE IS TO BE GOVERNED BY AND CONSTRUED ACCORDING TO THE
LAWS OF THE STATE OF COLORADO.
MARKWEST HYDROCARBON PARTNERS, LTD.
By: MarkWest Hydrocarbon, Inc.
General Partner
By:
Patrick W. Murray,
Vice President
-3-
<PAGE>
Schedule I
----------
Principal Outstanding
Amount Amount of Principal
Date of Term Loan Payment Balance
- ---- ------------ ------- -------
A-1
<PAGE>
WORKING CAPITAL NOTE
--------------------
$2,500,000.00 Denver, Colorado
November 20, 1992
MARKWEST HYDROCARBON PARTNERS, LTD., a Colorado limited partnership,
("Borrower"), with an address of 5613 DTC Parkway, Suite 400, Englewood, CO
80111, for value received, hereby promises to pay to the order of Norwest Bank
Denver, National Association, a national banking association ("Lender"), on or
before December 31, 1994, the principal sum of Two Million Five Hundred Thousand
Dollars ($2,500,000.00), or so much thereof as may be advanced by Lender
pursuant to the Working Capital Loan Agreement of even date herewith between
Borrower, Norwest Bank Denver, National Association, individually and as agent,
and First American National Bank (the "Loan Agreement"), together with interest
on the outstanding unpaid principal balance at the Adjusted Prime Rate as
provided in the Loan Agreement.
This Note is one of the notes referred to in the Loan Agreement as the
Working Capital Notes and is issued pursuant to, and is subject to the terms and
provisions of, the Loan Agreement. All capitalized terms used herein but not
otherwise defined shall have the meanings set forth in the Loan Agreement.
The entire outstanding principal balance of this Note shall be due on
or before December 31, 1994 (unless payable sooner pursuant to the terms of the
Loan Agreement), together with accrued and unpaid interest thereon. Interest
shall accrue daily, shall be payable on the last day of each calendar quarter,
commencing December 31, 1992, and at the maturity of this Note, and shall be
calculated on the basis of a 365 or 366-day year, as appropriate. All payments
of principal and interest hereof shall be made as provided in the Loan Agreement
in immediately available funds and without set-off or counterclaim or deduction
of any kind.
Notwithstanding anything to the contrary contained in this Note,
overdue principal, and (to the extent permitted under applicable law) overdue
interest, whether caused by acceleration of maturity or otherwise, shall bear
interest at the Late Payment Rate and shall be immediately due and payable.
It is not intended hereby to charge interest at a rate in excess of
the maximum rate of interest that Lender may
<PAGE>
charge to Borrower under applicable usury and other laws, but if,
notwithstanding, interest in excess of such rate shall be paid hereunder, the
interest rate on this Note shall be adjusted to the maximum permitted under
applicable law during the period or periods that the interest rate otherwise
provided herein would exceed such rate and any excess amount applied at Lender's
option to reduce the outstanding principal balance of this Note or to be
returned to Borrower.
This Note is secured by, and the holder of this Note is entitled to
the benefits of the Security Documents described in the Loan Agreement.
Reference is made to the Security Documents for a description of the property
covered thereby and the rights, remedies and obligations of the holder hereof in
respect thereto.
Lender shall maintain a record of advances hereunder and all payments
made on this Note until Lender has been repaid in full, as set forth on Schedule
I hereto; provided, however that the failure, error or omission by Lender to
------------------
maintain such a record shall not diminish or otherwise affect the obligation of
Borrower to repay the amount outstanding hereunder and any other amounts due to
Lender.
Lender shall maintain a record of all advances hereunder and payments
made on this Note and letters of credit issued under this Note until Lender has
been repaid in full, as set forth on Schedule I hereto; provided, however that
------------------
the failure, error or omission by Lender to maintain such a record shall not
diminish or otherwise affect the obligation of Borrower to repay the amount
outstanding hereunder and any other amounts due to Lender.
If Borrower fails to pay any amount due under this Note and Lender has
to take any action to collect the amount due or to exercise its rights under
this Note or the Security Documents, including without limitation retaining
attorneys for collection of this Note; or if any suit or proceeding is brought
for the recovery of all or any part of or for protection of the Obligations or
to foreclose the Security Documents or to enforce Lender's rights under the
Security Documents, then Borrower agrees to pay on demand all costs and expenses
of any such action to collect, suit or proceeding, or any appeal of any such
suit or proceeding, incurred by the holder hereof, including without limitation
the fees and disbursements of attorneys for the holder hereof.
Borrower, and all endorsers, sureties and guarantors of this Note,
hereby severally waive demand, presentment for payment, notice of dishonor,
notice of acceleration or intent
-2-
<PAGE>
to accelerate, protest, notice of protest, diligence in collecting, and assents
to any extension of time with respect to any payment due under this Note, to any
substitution or release of collateral and to the addition or release of any
party. No waiver by Lender of any payment or other right under this Note shall
operate as a waiver of any other payment or right.
If any provision in this Note shall be held invalid, illegal or
unenforceable in any jurisdiction, the validity, legality or enforceability of
any defective provisions shall not be in any way affected or impaired in any
other jurisdiction, nor shall the invalid, illegal or unenforceable provision
affect or impair any other provision of this Note.
No delay or failure of the holder of this Note in the exercise of any
right or remedy provided for hereunder shall be deemed a waiver of such right or
remedy by the holder hereof, and no exercise of any right or remedy shall be
deemed a waiver of any other right or remedy that the holder may have.
Any notices given hereunder shall be in writing and shall be given as
provided in the Loan Agreement.
At the option of Lender, an action may be brought to enforce this Note
in the District Court in and for the City and County of Denver, State of
Colorado, in the United States District Court for the District of Colorado or in
any other court in which venue and jurisdiction are proper. Borrower and all
endorsers, sureties and guarantors hereof consent to venue and jurisdiction in
the District Court in and for the City and County of Denver, State of Colorado
and in the United States District Court for the District of Colorado and to
jurisdiction and service of process under Sections 13-1-124(1)(a) and 13-1-125,
Colorado Revised Statutes (1973), as amended, in any action commenced to enforce
this Agreement.
-3-
<PAGE>
THIS NOTE IS TO BE GOVERNED BY AND CONSTRUED' ACCORDING TO THE LAWS OF
THE STATE OF COLORADO.
MARKWEST HYDROCARBON PARTNERS, LTD.
By: MarkWest Hydrocarbon, Inc.
General Partner
By:
Patrick W. Murray,
Vice President
-4-
<PAGE>
Schedule I
----------
Principal Outstanding
Amount Principal
of Advance Balance
(plus draws (including draws
under Letters Amount of under letters
Date of Credit) Payment of Credit)
- ---- ---------- ------- ----------
A-1
<PAGE>
WORKING CAPITAL NOTE
--------------------
$2,500,000.00 Denver, Colorado
November 20, 1992
MARKWEST HYDROCARBON PARTNERS, LTD., a Colorado limited partnership,
("Borrower"), with an address of 5613 DTC Parkway, Suite 400, Englewood, CO
80111, for value received, hereby promises to pay to the order of First American
National Bank, a national banking association ("Lender"), on or before December
31, 1994, the principal sum of Two Million Five Hundred Thousand Dollars
($2,500,000.00), or so much thereof as may be advanced by Lender pursuant to the
Working Capital Loan Agreement of even date herewith between Borrower, Norwest
Bank Denver, National Association, individually and as agent, and First American
National Bank (the "Loan Agreement"), together with interest on the outstanding
unpaid principal balance at the Adjusted Prime Rate as provided in the Loan
Agreement.
This Note is one of the notes referred to in the Loan Agreement
as the Working Capital Notes and is issued pursuant to, and is subject to the
terms and provisions of, the Loan Agreement. All capitalized terms used herein
but not otherwise defined shall have the meanings set forth in the Loan
Agreement.
The entire outstanding principal balance of this Note shall be
due on or before December 31, 1994 (unless payable sooner pursuant to the terms
of the Loan Agreement), together with accrued and unpaid interest thereon.
Interest shall accrue daily, shall be payable on the last day of each calendar
quarter, commencing December 31, 1992, and at the maturity of this Note, and
shall be calculated on the basis of a 365 or 366-day year, as appropriate. All
payments of principal and interest hereof shall be made as provided in the Loan
Agreement in immediately available funds and without set-off or counterclaim or
deduction of any kind.
Notwithstanding anything to the contrary contained in this Note,
overdue principal, and (to the extent permitted under applicable law) overdue
interest, whether caused by acceleration of maturity or otherwise, shall bear
interest at the Late Payment Rate and shall be immediately due and payable.
It is not intended hereby to charge interest at a rate in excess
of the maximum rate of interest that Lender may
<PAGE>
charge to Borrower under applicable usury and other laws, but if,
notwithstanding, interest in excess of such rate shall be paid hereunder, the
interest rate on this Note shall be adjusted to the maximum permitted under
applicable law during the period or periods that the interest rate otherwise
provided herein would exceed such rate and any excess amount applied at Lender's
option to reduce the outstanding principal balance of this Note or to be
returned to Borrower.
This Note is secured by, and the holder of this Note is entitled to
the benefits of the Security Documents described in the Loan Agreement.
Reference is made to the Security Documents for a description of the property
covered thereby and the rights, remedies and obligations of the holder hereof in
respect thereto.
Lender shall maintain a record of advances hereunder and all payments
made on this Note until Lender has been repaid in full, as set forth on Schedule
I hereto; provided, however that the failure, error or omission by Lender to
-----------------
maintain such a record shall not diminish or otherwise affect the obligation of
Borrower to repay the amount outstanding hereunder and any other amounts due to
Lender.
Lender shall maintain a record of all advances hereunder and payments
made on this Note and letters of credit issued under this Note until Lender has
been repaid in full, as set forth on Schedule I hereto; provided, however that
------------------
the failure, error or omission by Lender to maintain such a record shall not
diminish or otherwise affect the obligation of Borrower to repay the amount
outstanding hereunder and any other amounts due to Lender.
If Borrower fails to pay any amount due under this Note and Lender has
to take any action to collect the amount due or to exercise its rights under
this Note or the Security Documents, including without limitation retaining
attorneys for collection of this Note, or if any suit or proceeding is brought
for the recovery of all or any part of or for protection of the Obligations or
to foreclose the Security Documents or to enforce Lender's rights under the
Security Documents, then Borrower agrees to pay on demand all costs and expenses
of any such action to collect, suit or proceeding, or any appeal of any such
suit or proceeding, incurred by the holder hereof, including without limitation
the fees and disbursements of attorneys for the holder hereof.
Borrower, and all endorsers, sureties and guarantors of this Note,
hereby severally waive demand, presentment for payment, notice of dishonor,
notice of acceleration or intent
-2-
<PAGE>
to accelerate, protest, notice of protest, diligence in collecting, and assents
to any extension of time with respect to any payment due under this Note, to any
substitution or release of collateral and to the addition or release of any
party. No waiver by Lender of any payment or other right under this Note shall
operate as a waiver of any other payment or right.
If any provision in this Note shall be held invalid, illegal or
unenforceable in any jurisdiction, the validity, legality or enforceability of
any defective provisions shall not be in any way affected or impaired in any
other jurisdiction, nor shall the invalid, illegal or unenforceable provision
affect or impair any other provision of this Note.
No delay or failure of the holder of this Note in the exercise of any
right or remedy provided for hereunder shall be deemed a waiver of such right or
remedy by the holder hereof, and no exercise of any right or remedy shall be
deemed a waiver of any other right or remedy that the holder may have.
Any notices given hereunder shall be in writing and shall be given as
provided in the Loan Agreement.
At the option of Lender, an action may be brought to enforce this Note
in the District Court in and for the City and County of Denver, State of
Colorado, in the United States District Court for the District of Colorado or in
any other court in which venue and jurisdiction are proper. Borrower and all
endorsers, sureties and guarantors hereof consent to venue and jurisdiction in
the District Court in and for the City and County of Denver, State of Colorado
and in the United States District Court for the District of Colorado and to
jurisdiction and service of process under Sections 13-1-124(1)(a) and 13-1-125,
Colorado Revised Statutes (1973), as amended, in any action commenced to enforce
this Agreement.
-3-
<PAGE>
THIS NOTE IS TO BE GOVERNED BY AND CONSTRUED ACCORDING TO THE LAWS OF
THE STATE OF COLORADO.
MARKWEST HYDROCARBON PARTNERS, LTD.
By: MarkWest Hydrocarbon, Inc.
General Partner
By:
Patrick W. Murray,
Vice President
--4--
<PAGE>
Schedule I
----------
Principal Outstanding
Amount Principal
of Advance Balance
(plus draws (including draws
under letters Amount of under Letters
Date of Credit) Payment of Credit)
- ---- ---------- ------- ----------
A-1
<PAGE>
WORKING CAPITAL
LOAN AGREEMENT
Among
MARKWEST HYDROCARBON PARTNERS, LTD.
and
NORWEST BANK DENVER, NATIONAL ASSOCIATION,
individually and as Agent,
and
FIRST AMERICAN NATIONAL BANK
November 20, 1992
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
Page
----
<S> <C> <C>
SECTION 1. DEFINITIONS 1
SECTION 2. THE WORKING CAPITAL LOAN 13
(a) Terms of the Working Capital Loan 13
(b) Borrowing Procedures 13
(c) The Loan Date 14
(d) Computation and Payment of Interest; Late Payment Rate 14
(e) Payments by Borrower 14
(f) Payments to Lenders 15
(g) Optional Payments 15
(h) Mandatory Payments. 15
(i) Fees 16
(j) Adjustments 16
(k) Increased Capital 17
SECTION 3. LETTERS OF CREDIT 17
(a) Issuance of Standby Letters of Credit 17
(b) Payments Treated as an Advance 18
(c) Restriction on Liability 18
(d) No Duty to Inquire 19
(e) Reimbursement by Lenders 20
SECTION 4. CONDITIONS OF LENDING 20
(a) Initial Advance 20
(b) Subsequent Advances 23
SECTION 5. BORROWING BASE 24
(a) Initial Borrowing Base 24
(b) Information 24
(c) Subsequent Determinations of Borrowing Base 24
SECTION 6. BORROWING BASE DEFICIENCY 26
(a) Add Additional Collateral 26
(b) Repay Excess Debt 26
SECTION 7. SECURITY 26
SECTION 8. REPRESENTATIONS AND WARRANTIES 27
(a) Existence 27
(b) Non-Contravention 27
(c) Third Party Authorization 28
(d) Authorization; Binding Effect 28
(e) Litigation 28
(f) Taxes 28
(g) Liens 29
(h) Names and Places of Business 29
(i) Use of Proceeds 29
(j) Other Obligations 29
(k) Full Disclosure 29
(l) Margin Stock 30
(m) ERISA 30
(n) Security Documents 30
</TABLE>
-2-
<PAGE>
<TABLE>
<S> <C>
(o) Compliance with Laws 30
(p) Financial Condition 31
(q) Environmental Matters 31
(r) Investment Company Act 31
(s) Public Utility Holding Company Act 31
(t) Title to Properties; First Priority Security Interest 31
(u) Partners, Shareholders and Subsidiaries of Borrower and of Related Persons 32
(v) Location of Inventory 32
(w) Eligibility of Items Included in Borrowing Base 32
SECTION 9. AFFIRMATIVE COVENANTS 32
(a) Payment and Performance of Working Capital Loan 32
(b) Financial Statements 32
(c) Preservation of Existence, Etc. 34
(d) Maintenance of Property 34
(e) Payment of Other Obligations 34
(f) Insurance 35
(g) Inspection of Property, Books and Records;
Confidentiality Agreement 36
(h) Notices 37
(i) Compliance with Laws 38
(j) Further Assurances 38
(k) Current Ratio 39
(l) Funded Debt to Total Capitalization 39
(m) Tangible Net Worth 39
(n) Fixed Charge Coverage Ratio 39
(o) Environmental Matters 39
SECTION 10. NEGATIVE COVENANTS 39
(a) Debt 40
(b) Liens 40
(c) Guaranty Obligations 41
(d) Loans and Advances 41
(e) Limitation on Investments and New Businesses 42
(f) Mergers and Consolidations 42
(g) Location of Inventory 43
(h) Burdensome Undertakings 43
(i) Change in Location of Business 43
(j) Restricted Distributions 43
(k) Disposition of Assets 44
(l) ERISA 44
(m) Use of Proceeds 44
(n) Transactions with Affiliates 45
(o) Contracts; Take-or-Pay Agreements 45
(p) Amendments to Organizational Documents 45
(q) Amendments to RIMCO Loan Documents 46
SECTION 11. EVENTS OF DEFAULT 46
(a) Non-Payment 46
(b) Certain Default 46
(c) Other Defaults 46
(d) Representation or Warranty 46
(e) Security Documents and Covenant Agreements 46
(f) Judgments 47
</TABLE>
-3-
<PAGE>
<TABLE>
<S> <C>
(g) Insolvency 47
(h) Bankruptcy, Etc. 47
(i) Cross-Default 48
(j) ERISA 48
(k) Loan Documents 48
(l) Material Adverse Change 48
(m) Partners of Borrower 49
(n) Ownership of the General Partner 49
(o) Failure to be a Partnership 49
(p) Columbia Contracts 49
(q) Regulatory Change 49
SECTION 12. REMEDIES 49
(a) Automatic Acceleration of Loan 49
(b) Optional Acceleration of Loan 49
(c) Setoff 50
SECTION 13. THE AGENT 51
(a) Appointment 51
(b) Delegation of Duties 51
(c) Exculpatory Provisions 51
(d) Reliance by Agent 52
(e) Notice of Default 52
(f) Non-Reliance on Agent and Other Lenders 52
(g) Indemnification 53
(h) Agent and Lenders in Their Individual Capacity 54
(i) Successor Agent 54
(j) Borrower Entitled to Rely on Agent 54
SECTION 14. MISCELLANEOUS 54
(a) No Waiver; Cumulative Remedies 54
(b) Notices 55
(c) Counterpart Execution 56
(d) Governing Law; Entire Agreement 56
(e) Amendments and Waivers 56
(f) Costs, Expenses and Indemnity 56
(g) Inconsistent Provisions; Severability 58
(h) Incorporation of Exhibits and Schedules 58
(i) Amendment of Defined Instruments 58
(j) References and Titles 59
(k) Calculations and Determinations 59
(l) Usury 59
(m) Waiver of Right to Trial by Jury 59
(n) Successors and Assigns 60
(o) Term of Agreement 60
(p) Jurisdiction 60
</TABLE>
LIST OF EXHIBITS
----------------
<TABLE>
<CAPTION>
Exhibit Title
- ------- -----
<S> <C>
A Form of Working Capital Note
B Credit and Collection Policy of Borrower
C Request for Advance
</TABLE>
-4-
<PAGE>
<TABLE>
<S> <C>
D Covenant Agreement
E Borrower's Counsel Opinion
F Local Counsel Opinion
G Borrowing Base Certification
H Litigation
I Limited Partners of Borrower and Shareholders of the General Partner
J Location of Borrower's Products and Inventory
K Compliance Certificate
L Loans and Advances to Officers and Employees
M Letter of Credit Application Form
</TABLE>
-5-
<PAGE>
WORKING CAPITAL LOAN AGREEMENT
------------------------------
THIS WORKING CAPITAL LOAN AGREEMENT (this "Agreement"), dated as of
---------
November 20, 1992, is among MARKWEST HYDROCARBON PARTNERS, LTD., a Colorado
limited partnership, ("Borrower") with an address of 5613 DTC Parkway, Suite
--------
400, Englewood, Colorado 80111, NORWEST BANK DENVER, NATIONAL ASSOCIATION, a
national banking association ("Norwest"), with an address of 1740 Broadway,
-------
Denver, Colorado 80274-8699, FIRST AMERICAN NATIONAL BANK, a national banking
association ("First American"), with an address of 4894 Poplar Ave., Memphis,
--------------
Tennessee 38117, (Norwest and First American are referred to individually as a
"Lender" and collectively as the "Lenders"), and NORWEST, AS AGENT FOR THE BANKS
- ------- -------
(in such capacity, the "Agent").
-----
Borrower desires to borrow from the Lenders to provide funds for the
purposes set forth below, and the Lenders are willing to lend such funds to
Borrower to accomplish those purposes, subject to the terms and conditions
contained or referred to herein. Accordingly, in consideration of the mutual
agreements, provisions and covenants contained herein, the parties agree as
follows:
SECTION #. DEFINITIONS. As used herein, each of the following
-----------
capitalized terms shall have the meaning given it in this Section 1:
"Adjusted Prime Rate" shall mean an annual rate which equals the
-------------------
sum of the floating commercial loan rate of the Agent announced from time to
time as its prime rate but which may not be the lowest or best rate charged by
the Agent to any customer (the "Prime Rate") plus one percentage point per year,
adjusted in each case as of the banking day in which a change in the Prime Rate
occurs.
"Advances" shall have the meaning given it in Section 2(a).
--------
"Affiliate" shall mean as to any Person, each other Person which,
---------
directly or indirectly (through one or more intermediaries or otherwise), is in
control of, is controlled by, or is under common control with, such Person.
"Borrowing Base" shall mean, at the particular time in question,
--------------
either the amount provided for in Section 5(a) or the amount determined by the
Lenders in accordance with the provisions of Section 5(c); provided, however,
that in no event shall the Borrowing Base exceed $5,000,000.
"Borrowing Base Certification" shall have the meaning set forth
----------------------------
in Section 5(b).
"Borrowing Base Deficiency" shall have the meaning set forth in
-------------------------
Section 6. "Business Day" shall mean a day other than Saturdays or Sundays on
which commercial banks are open for business with the public in Denver, Colorado
and Memphis, Tennessee .
"Cash Collateral" means Cash Collateral Instruments pledged by
---------------
Borrower to the Agent on behalf of the Lenders in which the Agent has a
perfected, first priority security interest, together with any funds on deposit
in, or otherwise to the credit of, any deposit account of Borrower with the
Agent, to the extent such deposit account is pledged as collateral to the Agent
on behalf of the Lenders.
"Cash Collateral Instruments" means, collectively, (a) open
---------------------------
market commercial paper maturing within 120 days after acquisition therof, which
has the highest credit rating of either Standard & Poor's Corporation or Moody's
Investors Service, Inc., (b) certificates of deposit maturing within six (6)
months from the date thereof issued by the Agent, (c) direct obligations of the
United States Government or any agency thereof maturing within one hundred
eighty (180) days after the acquisition thereof, and (d) other instruments that
have been previously approved by the Lenders in writing for inclusion as Cash
Collateral Instruments.
"Code" means the Internal Revenue Code of 1986, as amended,
----
together with the regulations promulgated thereunder.
"Collateral" shall mean all tangible or intangible, real or
----------
personal property subject to any of the Security Agreements, including without
limitation, all right, title and interest of Borrower in and to its Receivables,
Products, inventory, Eligible
-6-
<PAGE>
Product Inventory, Exchange Balances, contract rights (including the Contracts),
general intangibles and Cash Collateral.
"Columbia Contracts" shall mean (a) the Natural Gas Liquids
------------------
Purchase Agreement dated as of April 26, 1988 between Columbia Gas Transmission
Corporation and Borrower as amended November 4, 1988, July 31, 1989, December
24, 1990 and January 28, 1991 (Siloam); (b) the Natural Gas Liquids Purchase
Agreement dated as of December 24, 1990, between Columbia Gas Transmission
Corporation and Borrower as amended January 28, 1991 (Boldman); and (c) the
Contract for Construction and Lease of Boldman Plant dated December 24, 1990
between Columbia Gas Transmission Corporation and Borrower, together with any
and all amendments now existing or hereafter created to any of the foregoing to
the extent such amendments are otherwise permitted hereunder.
"Commitment" means the amount of the Borrowing Base at the time
----------
in question minus the aggregate face amount of all outstanding Letters of Credit
at the time in question; provided that in no event shall the Commitment exceed
$5,000,000 at any time from the date hereof until and including December 31,
1994.
"Commitment Period" shall mean the period from the date of this
-----------------
Agreement to and including December 31, 1994, or such earlier date on which the
Working Capital Notes become due and payable.
"Consolidated" refers to the consolidation of any Person, in
------------
accordance with GAAP, with its properly consolidated subsidiaries. Reference
herein to Borrower's financial statements, financial position, financial
condition, liabilities, etc. refer to the consolidated financial statements,
position, condition, liabilities, etc. of Borrower and its properly consolidated
subsidiaries.
"Contract" means a contract or contractual arrangement, whether
--------
oral or written (or both), between Borrower and an Obligor evidencing a valid
and binding obligation of such Obligor to pay for Products purchased from, or
services rendered by, Borrower.
"Controlled Group" means the Borrower and all Persons under
common control or treated as a single employer with the Borrower pursuant to
Section 414(b), (c), (n) or (o) of the Internal Revenue Code of 1986, as
amended, and regulations promulgated thereunder.
"Covenant Agreements" shall mean a letter agreement in the form
-------------------
of Exhibit D attached hereto, one from each of the General Partner and John Fox.
"Credit and Collection Policy" means those credit and collection
----------------------------
policies and practices of Borrower in effect on the date hereof relating to
Borrower's Receivables, except for modifications that would not impair the
collectability of any Eligible Receivable of Borrower or any Eligible Hidro Gas
Receivable, and modifications consented to by Agent. The Credit and Collection
Policy of Borrower is described in Exhibit B hereto.
"Current Ratio" shall mean the ratio of Borrower's current assets
-------------
to current liabilities, both determined in accordance with GAAP.
"Debt" shall mean as to any Person, at a particular date, the sum
----
(without duplication) of (a) all indebtedness of such Person for borrowed money
or for the deferred purchase price of property or services, (b) all obligations
of such Person in respect of surety bonds, letters of credit, bankers'
acceptances, or similar obligations issued or created for the account of such
Person, (c) all capitalized lease obligations of such Person, (d) all
indebtedness created or arising under any conditional sale or other title
retention agreement, (e) open lines of credit to finance futures contracts,
commodities and/or options contracts, (f) all indebtedness referred to in
clauses (a) through (e) above secured by a lien, encumbrance or security
interest on or in property owned by such Person, even though such Person has not
assumed or become liable for the payment of such indebtedness, and (g) all
guaranties in respect of indebtedness or obligations of other Persons of the
kinds referred to in clauses (a) through (f) above.
"Delinquent Receivable" means a Receivable of Borrower:
(i) as to which any payment, or part thereof, remains
unpaid for 45 days from the original invoice date for
such payment; or
(ii) which, consistent with the Credit and Collection
Policy of Borrower, would otherwise be classified as
delinquent by Borrower.
-7-
<PAGE>
"Designated Obligor" means, at any time, all Obligors except
------------------
Hidro Gas; provided, however, that any Obligor shall cease to be a Designated
Obligor with respect to receivables or Exchange Balances upon five (5) Business
Days' notice thereof by Agent to Borrower, which notice shall set forth the
reason for such cessation.
"Determination Date" has the meaning given it in Section
------------------
5(c)(ii).
"Eligible Exchange Balances" means an Exchange Balance which:
--------------------------
(i) arises under a Products Agreement;
(ii) arises with a customer located in the United States
and relates to refined petroleum products in good and salable
condition located in the United States;
(iii) is not in dispute in any material respect;
(iv) is not owed by an Obligor who is generally unable to
fulfill its obligations;
(v) with respect to which the likelihood of payment or
performance thereof is not impaired by virtue of three-party exchange
or circumstances whereby the Obligor might satisfy its obligations by
means of satisfying an obligation of Borrower to a third party;
(vi) the Obligor of which is a Designated Obligor; and
(vii) has been previously approved in writing by the
Lenders for inclusion in Eligible Exchange Balances.
"Eligible Hidro Gas Receivables" shall mean at any time those
------------------------------
Receivables of Borrower for which Hidro Gas is the Obligor and which otherwise
satisfy the provisions of paragraphs (iii) through (x) of the definition of
Eligible Receivable; provided, however, that the amount of such Receivables to
-------- -------
be included in determining the Borrowing Base hereunder shall never exceed the
amount of all outstanding letters of credit that have been issued in support of
such Receivables, which letters of credit shall each be in form and substance
satisfactory to Agent and shall have been issued or confirmed by a United States
bank (state or national bank) acceptable to the Lenders, and which letter of
credit shall have been assigned to the Agent as additional collateral under the
Security Agreement, if so requested by the Agent.
"Eligible Product Inventory" means any Products:
--------------------------
(i) to which Borrower has title and which are stored in
Borrower owned facilities or facilities for which Borrower has
contracted for storage, whether by lease or otherwise, and such
contract is subject to a perfected, first priority lien in favor of
Agent on behalf of the Lenders;
(ii) in which the Agent on behalf of the Lenders has a
perfected, first priority security interest; and
(iii) as to which Borrower has furnished to Agent
reasonably detailed information in a Borrowing Base Certification;
reduced by all charges of all kinds against such Products, and transportation,
processing and other handling charges for such Products.
"Eligible Product Inventory Value" means as of any Determination
--------------------------------
Date an amount equal to the market value of the Products comprising the Eligible
Product Inventory. The market value of the Products comprising the Eligible
Product Inventory for any Determination Date shall be the price determined by
reference to a published index, such price to be adjusted for transportation,
and market differential; which determination, including the index and the
adjustments, must be acceptable to Lenders. Oil Price Information Service is
acceptable to all parties hereto.
-8-
<PAGE>
"Eligible Receivable" means a Receivable of Borrower:
-------------------
(i) the Obligor of which is a United States resident, is
not an Affiliate of any of the parties to this Agreement, and is not a
government or a governmental subdivision or agency;
(ii) the Obligor of which is a Designated Obligor;
(iii) the Obligor of which is not the Obligor of any
Delinquent Receivables;
(iv) which is not a Delinquent Receivable;
(v) the Products for which such Receivable represents
the right to payment have been delivered to the purchaser thereof;
(vi) in which Lender has a perfected, first priority
security interest prior to all other Liens;
(vii) which is denominated and payable only in United
States dollars in the United States;
(viii) which arises under a Contract which has been duly
authorized and which, together with the Receivable, is in full force
and effect and constitutes the legal, valid and binding obligation of
the Obligor of such receivable enforceable in accordance with its
terms and is not subject to any dispute, offset, counterclaim or
defense whatsoever;
(ix) which, together with the Contract related thereto,
does not contravene in any material respect any laws, rules or
regulations applicable thereto (including, without limitation, laws,
rules and regulations relating to truth in lending, fair credit
billing, fair credit reporting, equal credit opportunity, fair debt
collection practices and privacy) and with respect to which no party
to the Contract related thereto is in violation of any such law, rule
or regulation in any material respect;
(x) which satisfies all applicable requirements of the
Credit and Collection Policy; and
(xi) as to which the Agent has not notified Borrower that
the Lenders have determined, in their sole discretion, that such Receivable
(or class of Receivables) is not acceptable collateral.
"Employee Option Agreement" shall mean the Option Plan of
-------------------------
MarkWest Hydrocarbon Partners, Ltd. dated April 6, 1992 (without regard to any
future amendments, modifications or changes thereto without the Required Lenders
prior consent).
"ERISA" shall mean the Employee Retirement Income Security Act of
-----
1974, as amended from time to time, together with all rules and regulations
promulgated with respect thereto.
"ERISA Plan" shall mean any pension benefit plan subject to
----------
Section 302 of ERISA or Title IV of ERISA maintained by Borrower or any member
of a controlled group (as defined in Section 4001 (a)(14) of ERISA).
"Event of Default" shall have the meaning set forth in Section
----------------
11.
"Exchange Balance" means a right of Borrower to the delivery of
----------------
refined petroleum products created as a result of a Products Agreement between
Borrower and a customer.
"First American Loan" shall mean the loan to Borrower pursuant to
-------------------
a Loan Agreement dated June 19, 1992 in the principal amount not to exceed
$3,500,000 and secured by an Arkansas Leasehold Deed of Trust with Security
Agreement and Assignment of Rents and Leases dated June 19, 1992.
-9-
<PAGE>
"Fiscal Quarter" shall mean a three-month period ending on the
--------------
last day of each March, June, September and December of any year.
"Fiscal Year" shall mean a twelve-month period ending on December
-----------
31 of any year.
"Fixed Charge Coverage Ratio" shall mean for any period, the
---------------------------
ratio for such period of (a) the sum of net income (or net loss) plus interest
expense and non-cash charges included in determining net income (or net loss),
all as determined in accordance with GAAP, to (b) the sum of interest expense
included in calculating (a) and the principal portion of Debt required to be
repaid during such period.
"Florida Mesa Project" shall mean the project in which the
--------------------
Borrower has invested, whose purpose is the drilling, production, and gathering
of coal bed methane gas located in La Plata County, Colorado.
"Funded Debt" shall mean the aggregate amount of Debt for
-----------
borrowed money with a maturity in excess of one year (including guarantees of
such Debt) and capitalized leases, minus the outstanding principal balance, if
any, under this Working Capital Loan.
"GAAP" shall mean generally accepted accounting principles and
----
practices as consistently applied (except as otherwise required due to changes
in GAAP) by Borrower and certified to by the firm of independent certified
public accountants regularly employed as Borrower's auditors, such principles
and practices at all times being consistent with requirements of the Financial
Accounting Standards Board of the American Institute of Certified Public
Accountants in effect from time to time, as applicable to the nature of the
business conducted by Borrower; provided, however, if any change in any
-------- -------
accounting principle or practice is required by the Financial Accounting
Standards Board (or any such successor), all financial covenants provided for
herein may be prepared in accordance with such change only after notice of such
change is given to the Agent, and the Lenders agree to such change insofar as it
affects the financial covenants.
"General Partner" means MarkWest Hydrocarbon, Inc., a Colorado
---------------
corporation.
"Hidro Gas" shall mean Hidro Gas Juarez S.A. DE C.V., a
---------
corporation formed under the laws of Mexico, or its affiliate, Texas Gas and
Oil, Ltd., a corporation formed under the laws of the Bahamas.
"Initial Financial Statements" shall mean the audited financial
----------------------------
statements of Borrower for the Fiscal Year ending December 31, 1991, and the
unaudited quarterly financial statements (consisting of a current balance sheet
and profit and loss statement) for Borrower as of September 30, 1992.
"Issuer" shall mean Norwest, in its capacity as the issuer of
------
Letters of Credit hereunder, and its successors in such capacity.
"Late Payment Rate" shall have the meaning set forth in Section
-----------------
2(d)(ii).
"Letter of Credit" shall mean any standby letter of credit issued
----------------
by the Issuer pursuant to Section 3, and all letters of credit so issued shall
be collectively referred to as the "Letters of Credit."
-----------------
"Letter of Credit Balance" shall mean the Lenders' maximum
------------------------
aggregate liability under all Letters of Credit outstanding at the time in
question.
"Loan Date" shall have the meaning set forth in Section 2(c).
---------
"Loan Documents" means this Agreement, the Working Capital Notes,
--------------
the Letters of Credit, the Security Documents, the Covenant Agreements and all
other documents executed and delivered by or on behalf of Borrower to the Agent
or the Lenders in connection herewith or therewith.
"Loan Share" means with respect to each of Norwest and First
----------
American, fifty percent.
"Mortgages" shall have the meaning set forth in the Revolver/Term
---------
Facility.
-10-
<PAGE>
"NationsBank Loan" shall mean the loan to Borrower pursuant to a
----------------
Credit Agreement with NationsBank of Texas, N.A., formerly known as NCNB Texas
National Bank, dated April 16, 1990, as may have been amended prior to the date
hereof, in the principal amount of $7,000,000 and secured by a Security
Agreement dated as of April 16, 1990 by Borrower in favor of NationsBank of
Texas, N.A.
"Net Eligible Exchange Balance" means an amount as of any
-----------------------------
Determination Date determined as the difference between (i) the aggregate amount
presently due to Borrower under all Eligible Exchange Balances (such amount to
be determined by multiplying the quantities of Products due Borrower in
accordance with the terms of the Products Agreement giving rise to such Eligible
Exchange Balances times the then applicable Mt. Belvieu price for such Products;
provided that such amounts shall be included only to the extent they satisfy all
- --------
applicable requirements of the Credit and Collection Policy), and (ii) the
aggregate amount owed by Borrower under all Eligible Exchange Balances (such
amount to be determined by multiplying the quantities of Products Borrower owes
to third parties in accordance with the terms of the Products Agreement giving
rise to such Eligible Exchange Balance times the then applicable Mt. Belvieu
price for such Products).
"Obligations" means all Debt from time to time owing by Borrower
-----------
to the Lenders under or pursuant to any of the Loan Documents.
"Obligor" shall mean when used with respect to Receivables, a
-------
Person party to a Contract and obligated to make payments pursuant thereto and
when used with respect to Exchange Balances, the party obligated to Borrower
pursuant to a Products Agreement.
"Ordinary Course of Business" shall mean, in respect of any
---------------------------
transaction, the ordinary course of such Person's business, substantially as
conducted by such Person prior to or as of the date hereof, and undertaken by
such Person in good faith and not for purposes of evading any covenant or
restriction in any Loan Document, and, as applied to Borrower, shall include the
acquisition of natural gas reserves and investments or participation in the
Florida Mesa Project or other coal bed methane gas projects.
"Person" shall mean an individual, partnership, corporation,
------
association, business trust, joint stock company, trust or trustee thereof,
unincorporated association, joint venture, governmental unit or any agency or
subdivision thereof, or any other legally recognizable entity.
"Products" shall mean all oil, natural gas, unprocessed natural
--------
gas, natural gas liquids, gaseous or liquid hydrocarbons, processed natural gas,
butane, isobutane, propane, natural gasoline, gasoline, MTBE, other products
obtained from the processing of natural gas or fractionating or processing of
natural gas liquids, now or hereafter located in or on, transported through,
processed in or otherwise related to the Collateral subject to any of the
Mortgages including, without limitation, any and all of the same held as
inventory.
"Products Agreement" shall mean a standard written refined
------------------
petroleum products reciprocal exchange agreement.
"Receivable" means the indebtedness of any Obligor under a
----------
Contract arising from a sale of Products by Borrower or from services rendered
by Borrower, and includes the right to payment of any interest or finance
charges and other obligations of such Obligor with respect thereto.
"Related Person" shall mean any of Borrower and each Subsidiary
--------------
of Borrower.
"Request for Advance" shall mean a request for Advance meeting
-------------------
the requirements of Section 2(b) hereof.
"Required Lenders" shall mean at any time Lenders, the Loan
----------------
Shares of which aggregate 100 percent.
"Responsible Person" shall mean any officer of the General
------------------
Partner and any other Person employed by either a Related Person or the General
Partner and who should be aware of the terms of this Agreement.
"Revolver/Term Facility" shall mean the loan provided for
----------------------
pursuant to that certain Loan Agreement of even date herewith between Borrower,
the Lenders and the Agent, providing for (a) a six-year term loan, and (b)
a two-year revolving loan, the principal balance of which at the termination of
the revolving period shall be amortized over sixteen equal quarterly principal
-11-
<PAGE>
payments; which loans shall not exceed $20,000,000 in aggregate principal amount
outstanding at any one time and are secured by various "Security Documents" (as
such term is defined therein).
"RIMCO Loan" shall mean the loan to Borrower pursuant to the Note
----------
Agreement dated December 15, 1989 in principal amount up to $11,500,000, and
secured by a Mortgage and Security Agreement dated as of April 29, 1988, to
Rimco Partners, L.P., as modified by a First Modification and Amendment of
Mortgage and Security Agreement dated as of January 15, 1990 between Borrower
and Rimco Partners, L.P., as agent for itself and others, and by Second
Modification and Amendment of Mortgage and Security Agreement dated as of
October 1, 1990, between Borrower and RIMCO Partners, L.P., the Resigning Agent,
and Resource Investors Management Company Limited Partnership, the Successor
Agent.
"Security Agreements" shall mean one or more chattel mortgages,
-------------------
acts of collateral mortgage, security agreements and assignments of proceeds of
even date herewith, in favor of the Agent on behalf of the Lenders, covering all
or any part of the Collateral.
"Security Documents" means the Mortgages and Security Agreements
------------------
and all other security agreements, deeds of trust, mortgages, chattel mortgages,
assignments, pledges, guaranties, financing statements, continuation statements,
extension agreements and other agreements or instruments now or hereafter
delivered by Borrower to the Agent on behalf of the Lenders or to the Lenders in
connection with this Agreement or any transaction contemplated hereby to secure
or guarantee the payment of any part of the Obligations or the performance of
any other duties and obligations of Borrower under the Loan Documents, whenever
made or delivered, and shall also include all of the "Security Documents" as
defined in the Revolver/Term Facility.
"Subsidiary" means, with respect to any Person, any corporation,
----------
association, partnership, joint venture, or other business or corporate entity,
enterprise or organization which is directly or indirectly (through one or more
intermediaries) controlled by or owned fifty-one percent or more by such Person.
"Tangible Net Worth" shall mean the partners' equity of Borrower
------------------
less intangible assets.
"Total Capitalization" means the sum of Funded Debt plus
--------------------
partners' equity.
"Unmatured Event of Default" shall mean any event that with the
--------------------------
passage of time or giving of notice, or both, would constitute an Event of
Default under Section 11.
"Working Capital Loan" or "Loan" shall mean the loan provided for
--------------------
in Section 2(a) hereof, together with each additional loan, if any, made to
Borrower by the Lenders, at the option of the Lenders, existing as well as
contemplated, excluding the Revolver/Term Facility.
"Working Capital Note" or "Note" shall mean a note substantially
------------------------------
in the form of Exhibit A attached hereto, made by Borrower and payable to the
order of Norwest or to First American, as appropriate, with appropriate
insertions as to date, together with any and all renewals, extensions,
amendments and changes of, or substitutions for said note; collectively, the
"Working Capital Notes" or "Notes."
--------------------------------
SECTION #. THE WORKING CAPITAL LOAN.
------------------------
(a) Terms of the Working Capital Loan.
---------------------------------
Subject to the terms and conditions of this Agreement, each Lender agrees to
make advances to Borrower (such advances are called the "Advances") from time to
time during the Commitment Period, in an aggregate principal amount not to
exceed its Loan Share of the Commitment. Advances under the Working Capital
Loan shall be evidenced by the Working Capital Notes. So long as an Event of
Default or an Unmatured Event of Default has not occurred, during the Commitment
Period Borrower may borrow, repay and reborrow under the Working Capital Notes
in accordance with Section 2(b) below. The entire outstanding principal balance
of, together with accrued interest on, the Working Capital Loan shall be due and
payable on December 31, 1994.
(b) Borrowing Procedures. (i) Each Request for Advance under
--------------------
the Working Capital Loan shall be in the form of Exhibit C attached hereto and
---------
shall be submitted to the Agent on or before 11:00 a.m. Denver, Colorado time on
the Business Day immediately preceding the day such Advance is requested to be
made. Upon receipt of a Request for Advance, the Agent shall promptly notify
each Lender thereof. Not later than 11:00 a.m. Denver time on the next Business
Day, each
-12-
<PAGE>
Lender shall make available to the Agent the amount of such Lender's Loan Share
of the amount specified in the Request for Advance in immediately available
funds; provided, however, that the Lenders shall not be obligated to make any
-------- -------
Advance to Borrower that would result in the aggregate unpaid principal balance
outstanding under the Working Capital Notes exceeding the Commitment. If all
conditions precedent to such Advance have been met, Agent will on the date
requested make such Advance available to Borrower in immediately available funds
at Agent's office in Denver, Colorado.
(ii) Each Advance under the Working Capital Loan shall be
in an amount of at least $100,000 or such lesser amount equal to the
unadvanced portion of the Working Capital Loan. Each Advance shall be
evidenced by the Working Capital Notes.
(iii) All Advances requested by Borrower shall be made pro
rata by each Lender in proportion to such Lender's Loan Share.
(c) The Loan Date. The initial Advance under the Working
-------------
Capital Loan shall be made on a date and at a time (the "Loan Date") selected by
---------
Borrower, but in no event earlier than the time all conditions of lending
described in Section 4(a) below have been satisfied or waived by the Lenders.
(d) Computation and Payment of Interest; Late Payment Rate.
------------------------------------------------------
(i) Interest on the Working Capital Loan shall accrue
daily and shall be computed on the basis of a year of 365 or 366 days,
as appropriate. Interest on the Working Capital Loan shall be payable
in arrears on the last day of each Fiscal Quarter, beginning December
31, 1992.
(ii) Notwithstanding anything to the contrary contained in
this Agreement, overdue principal, and (to the extent permitted under
applicable law) overdue interest, whether caused by acceleration of
maturity or otherwise, shall bear interest at a fluctuating rate,
adjustable the day of any change in such rate, equal to three
percentage points above the Adjusted Prime Rate (the "Late Payment
---- -------
Rate)", until paid, and shall be due and payable immediately.
----
(e) Payments by Borrower. All payments of principal and
--------------------
interest hereunder shall be made at the Agent's offices at 1740 Broadway,
Denver, Colorado 80274-8699 (or at such other place as the Agent shall have
designated to Borrower in writing at least one Business Day prior to the due
date or prepayment date, as the case may be) by 12:00 noon Denver time on the
date due or the date of prepayment (as the case may be) in immediately available
funds and without set-off or counterclaim or deduction of any kind. If any
payment to be made by Borrower hereunder or under the Working Capital Notes
shall become due on a day other than a Business Day, such payment shall be made
on the next succeeding Business Day and such extension of time shall be included
in computing any interest and fees in respect of such payment.
(f) Payments to Lenders. Each payment by Borrower to the Agent
-------------------
on account of principal of and interest on the Working Capital Loan or otherwise
hereunder shall be distributed the same day in like funds as received from
Borrower by Agent pro rata according to the Loan Share of each Lender in like
funds; provided that in the event Agent receives less than the aggregate amount
-------- ----
due to all Lenders on any day, Agent shall distribute ratably to each Lender in
the case of any payment, the portion of the aggregate amount received by Agent
on such day multiplied by the Loan Share of such Lender.
(g) Optional Payments. During the Commitment Period, Borrower
-----------------
may make optional payments on the outstanding principal balance of the Working
Capital Loan without penalty or premium, at any time, and from time to time, in
integral multiples of $100,000, or such lesser amount equal to the then
outstanding principal balance, together with accrued interest on the principal
amount so paid. Borrower shall give the Agent one Business Day's notice in
advance of any optional payment on the Working Capital Loan.
(h) Mandatory Payments. If at any time, or from time to time, a
------------------
Borrowing Base Deficiency exists, Borrower shall, within three Business Days
after Agent on behalf of Lenders gives written notice of such fact to Borrower
pursuant to Section 6 hereof, make a mandatory prepayment to Agent for
distribution to Lenders in the principal amount of such Borrowing Base
Deficiency, together with all accrued and unpaid interest on, and fees related
to, the principal amount so prepaid, unless Borrower has satisfied the condition
set out in Section 6(a) hereof. Any such prepayment of principal under this
Section 2 shall be applied pro rata in accordance with each Lender's Loan Share
to the unpaid principal balance of the Working Capital Loan thereof until
-13-
<PAGE>
the Working Capital Loan is paid in full.
(i) Fees.
----
(i) During the Commitment Period, Borrower shall pay
to the Lenders an unused commitment fee on the average
daily difference between the Commitment and the
aggregate outstanding principal amount under the
Working Capital Notes, at an annual rate of one-half of
one percent (0.5%), payable quarterly in arrears, with
the first such payment due December 31, 1992 (for the
period from the date hereof through December 31, 1992)
and ending on the last day of the Commitment Period.
(ii) Borrower shall pay to the Lenders on the Loan
Date a one-time commitment fee of $25,000 in the aggregate.
(iii) The fee for each Letter of Credit shall be an
amount equal to the greater of 1.25% per annum of the face amount of
such Letter of Credit, or $250. The Agent shall retain for its own
account annually the first $250.00 of the Letter of Credit fee for
each Letter of Credit, and shall promptly remit to each Lender pro
rata according to the Loan Share of such Lender, the Letter of Credit
fee actually received in excess of $250.00. The first year's fee shall
be payable by Borrower at the time a Letter of Credit is issued.
Subsequent annual fees shall be due and payable on the anniversary
date of the applicable Letter of Credit. Annual fees shall be prorated
for any period less than a year that any Letter of Credit remains
outstanding pursuant to the terms of such Letter of Credit other than
as the result of one or more draws thereunder.
(j) Adjustments. If any Lender (a "benefitted Lender") shall at
-----------
any time receive any payment of all or part of its Working Capital Loan, or
interest thereon, or receive any collateral in respect thereof (whether
voluntarily or involuntarily, by set-off, pursuant to events or proceedings of
the nature referred to in Section 12(c), or otherwise), in a greater proportion
than its Loan Share, such benefitted Lender shall purchase for cash from the
other Lender such portion of such other Lender's Working Capital Loan, or shall
provide such other Lender with the benefits of any such collateral, or the
proceeds thereof, as shall be necessary to cause such benefitted Lender to share
the excess payment or benefits of such collateral or proceeds ratably with the
other Lender; provided, however, that if all or any portion of such excess
payment or benefits is thereafter recovered from such benefitted Lender, such
purchase shall be rescinded, and the purchase price and benefits returned, to
the extent of such recovery, but without interest. Borrower agrees that any
Lender so purchasing a portion of another Lender's Working Capital Loan may
exercise all rights of payment (including, without limitation, rights of set-
off) with respect to such portion as fully as if such Lender were the direct
holder of such portion.
(k) Increased Capital. If either (A) the introduction of or any
-----------------
change in or in the interpretation of any law or regulation after the date
hereof (and excluding any new laws or changes presently known to Agent even if
they have not yet become effective) or (B) compliance by Issuer or any Lender
with any guideline or request from any central bank or other governmental
authority (whether or not having the force of law) affects or would affect the
amount of capital required or expected to be maintained by Issuer or any Lender
or any corporation controlling Issuer or any Lender and Issuer or such Lender
determines that the amount of such capital is increased by or based upon the
existence of the Letters of Credit or similar contingent obligations or the
existence of the Revolver Commitment and other commitments of this type then,
upon demand by Issuer or such Lender, Borrower shall immediately pay to Issuer
or such Lender, from time to time as specified by Issuer or such Lender,
additional amounts sufficient to compensate Issuer or such Lender in light of
such circumstances, to the extent that Issuer or such Lender reasonably
determines such increase in capital to be allocable to the issuance or
maintenance of Letters of Credit or the Revolver Commitment. Issuer or such
Lender claiming compensation under this Section 2(k) shall provide Borrower with
a certificate setting forth in reasonable detail the amount payable to Issuer or
such Lender, the reason for the additional compensation and the calculation of
the additional compensation.
SECTION #. LETTERS OF CREDIT.
-----------------
(a) Issuance of Standby Letters of Credit. Each request of
-------------------------------------
Borrower for the issuance of a Letter of Credit hereunder shall be on the form
of the application for issuance of a Letter of Credit attached hereto as Exhibit
-------
M, properly completed, and shall be received by the Issuer at least three
- -
Business Days prior to the date of proposed issuance. Upon receipt of an
application for the issuance of a Letter of Credit and upon meeting the
Conditions of Lending set forth in Section 4 hereof, the Issuer shall issue
standby Letters of Credit during the Commitment Period, and such Letters of
Credit shall be issued in such amounts and
-14-
<PAGE>
under such circumstances as the Issuer deems appropriate consistent with its
existing policies. Notwithstanding anything to the contrary set forth herein,
the Issuer shall not be obligated to issue, extend or amend any Letter of Credit
such that the Letter of Credit (i) would result in an aggregate unpaid principal
balance outstanding under the Working Capital Notes (including, without
limitation, the face amount of any other Letters of Credit that are still in
effect) which exceeds the Commitment, or (ii) has an expiration date later than
the Commitment Period.
(b) Payments Treated as an Advance. Each payment by the Issuer
------------------------------
under any outstanding Letter of Credit shall be deemed to be an Advance bearing
interest at the Adjusted Prime Rate from the date of such payment, shall be
entitled to all of the benefits of the Security Documents and shall be subject
to all terms of this Agreement. Each Lender, upon receipt of a written advice of
any payment under a Letter of Credit, shall make available to the Agent for the
account of the Issuer, whether or not the conditions of lending set forth in
Section 4 have been complied with, an amount in immediately available funds
equal to its Loan Share of the amount of the drawing, whereupon the Lenders
shall each be deemed to have made an Advance. A written advice(s) setting forth
in reasonable detail the amounts owing under this Section 3, submitted by Issuer
to Borrower from time to time, shall be conclusive, absent manifest error, as to
the amounts thereof.
(c) Restriction on Liability. The beneficiary of each Letter of
------------------------
Credit shall be deemed the agent of Borrower (provided that this shall not
preclude Borrower from pursuing such rights and remedies it may have against
such beneficiary at law or under any other agreement) and none of the Issuer,
the Agent, either Lender or their respective correspondents shall be responsible
for:
(i) the use which may be made of any Letter of Credit or
for any actions or omissions of the beneficiary of any Letter of
Credit;
(ii) the existence or nonexistence of a default under any
instrument secured or supported by any Letter of Credit or any other
event which gives rise to a right to call upon any Letter of Credit;
(iii) the validity, sufficiency or genuineness of any
document delivered in connection with any Letter of Credit, even if
such document should in fact prove to be in any or all respects
invalid, fraudulent or forged;
(iv) except as specifically required by a Letter of Credit,
failure of any instrument to bear any reference or adequate reference
to any Letter of Credit, or failure of documents to accompany any
draft at negotiation, or failure of any person to note the amount of
any draft on the reverse of any Letter of Credit or to surrender or
take up any Letter of Credit; or
(v) errors, omissions, interruptions or delays in
transmission or delivery of any messages by mail, cable, telegraph,
wireless, or otherwise.
The Issuer, the Agent and the Lenders shall not be responsible for any act,
error, neglect or default, omissions, insolvency or failure in the business of
any of the correspondents of the Issuer, for any refusal by the Issuer or any of
its correspondents to pay or honor drafts drawn under any Letter of Credit
because of any applicable law, decree or edict, legal or illegal, of any
governmental agency now or hereafter in force, or for any matter beyond the
control of such Person. The happening of any one or more of the contingencies
referred to in the preceding clauses of this Section shall not affect, impair or
prevent the vesting of any of the rights or powers of the Issuer, the Agent and
the Lenders under this Agreement or the obligation of Borrower to make
reimbursements hereunder. In furtherance and extension and not in limitation of
the specific provisions hereinabove set forth, Borrower agrees that any action,
not contrary to the terms of any Letter of Credit, which is taken by Issuer in
issuing such Letter of Credit or by any correspondent of Issuer under or in
connection with such Letter of Credit shall be binding on Borrower and shall not
put Issuer or any of Issuer's correspondents under any resulting liability to
Borrower unless it is the result of such Person's gross negligence or willful
misconduct and Borrower makes a like agreement as to any inaction or omission on
the part of Issuer or any of its correspondents unless it is the result of such
Person's gross negligence or willful misconduct.
(d) No Duty to Inquire. Borrower agrees that Issuer is
------------------
authorized and instructed to accept and pay drafts under any Letter of Credit
without requiring, and without responsibility for, the determination as to the
existence of any event giving rise to said draft, either at the time of
acceptance of payment or thereafter, other than obtaining any documents
expressly required by the Letter of Credit. Borrower agrees that Issuer is under
no duty to ascertain or inquire as to the validity or accuracy of any such
-15-
<PAGE>
document or the authority of the Person executing or delivering such document or
draft or making such a demand (whether by tested telex or otherwise). Borrower
agrees to hold the Issuer, the Agent and the Lenders harmless from and
indemnified against any liability or claim in connection with or arising out of
the foregoing provisions and the subject matter of this Section 3.
(e) Reimbursement by Lenders. Issuer irrevocably agrees to grant
------------------------
and hereby grants to each Lender, and, to induce Issuer to issue Letters of
Credit hereunder, each Lender irrevocably agrees to accept and purchase and
hereby accepts and purchases from Issuer, on the terms and conditions
hereinafter stated, for such Lender's own account and risk an undivided interest
equal to such Lender's Loan Share of Issuer's obligations and rights under each
Letter of Credit issued hereunder and the amount of each draft paid by Issuer
thereunder.
SECTION #. CONDITIONS OF LENDING.
---------------------
(a) Initial Advance. (i) The Lenders shall have no obligation to
---------------
make the initial Advance under the Working Capital Loan unless the Agent shall
have received all of the following, at the Agent's office in Denver, Colorado,
duly executed and delivered and in form and substance satisfactory to the Agent
and its counsel:
(A) This Agreement, executed by Borrower, the Agent
and the Lenders;
(B) The Working Capital Notes;
(C) Counterparts of the Security Documents, duly
executed and acknowledged by Borrower, together with the appropriate
financing statements, as may be necessary or advisable under
applicable law in order to perfect and maintain, to the full extent
permitted by applicable law, the first priority liens and security
interests created thereby;
(D) Evidence satisfactory to the Agent that all
amounts outstanding under each of the First American Loan and the
NationsBank Loan are being simultaneously paid in full from the
proceeds of the Revolver/Term Facility, or, as to the NationsBank
Loan, from the proceeds hereof, by Borrower and all commitments of the
lenders thereunder have been terminated and released and the liens and
security interests securing such loans have been or simultaneously
herewith are being fully released or reconveyed;
(E) Results of UCC lien searches as to Borrower for
the Secretaries of State of Arizona, Arkansas, Colorado, Kansas,
Michigan, Texas and West Virginia and for the following counties:
Crittenden County, Arkansas; Boyd, Greenup and Pike Counties, Kentucky
and Wayne County, West Virginia, and for all other relevant filing
jurisdictions as to the Collateral;
(F) Evidence that the Agent has been named as
mortgagee/loss payee under all policies of casualty insurance, and as
an additional insured under all policies of liability insurance, as
required by Section 9(f);
(G) The Covenant Agreements, executed by the parties
thereto;
(H) A duly executed and acknowledged subordination
agreement between Resource Investors Management Company Limited
Partnership and the Agent, in form and substance acceptable to the
Agent;
(I) A certificate, dated the Loan Date and executed on
behalf of Borrower by the president or a vice president of the General
Partner, stating the substance of Subsections 4(a)(ii)(A), (C) and
(D);
(J) A certificate, dated the Loan Date and executed on
behalf of Borrower by an appropriate party, which shall certify to the
correctness and completeness of the following exhibits attached
thereto: copies of any partnership authorization of Borrower
authorizing the execution of the Loan Documents and the consummation
of the transactions contemplated herein and therein; copies of the
limited partnership agreement of Borrower and all amendments thereto,
and the certificate of limited partnership of Borrower;
-16-
<PAGE>
(K) A certificate, dated the Loan Date and executed by
the Secretary or assistant Secretary of the General Partner, which
shall contain the names and signature of the officers of the General
Partner authorized to execute the Loan Documents on behalf of the
Borrower, and which shall certify to the correctness and completeness
of the articles of incorporation and bylaws of the General Partner,
and the resolutions duly adopted by the Board of Directors of the
General Partner authorizing the execution of the Loan Documents and
the consummation of the transactions contemplated herein and therein;
(L) Certificates from the Colorado Secretary of State
as to the good standing of Borrower and of the General Partner; and
(M) All other documents and assurances which the Agent
reasonably requires or which it may reasonably request in connection
with the transactions contemplated by this Agreement, and such
documents shall be certified, when appropriate, by proper authorities.
(ii) The Lenders shall have no obligation to make any
Advances hereunder unless the following shall be true and correct on
and as of the date of such Advance:
(A) All representations and warranties contained in
Section 8 and in the Security Documents shall be true on the Loan Date
as if then given, and Borrower shall have performed or observed all
terms, agreements, conditions and obligations hereunder and under the
Security Documents to be performed or observed on or prior to the Loan
Date;
(B) All legal matters incident to the Working Capital
Loan shall be satisfactory to counsel to the Agent, and the Agent
shall have received on the Loan Date a favorable opinion addressed to
the Agent and the Lenders of (x) Barry Spector, Esq., counsel for
Borrower, substantially in the form set forth in Exhibit E, together
with the certificate provided for in such Exhibit, which opinion shall
cover the matters set forth in Sections 8(a)(i), (ii) and (iii), (b),
(c), (d), (e), (r) and (s), and such other matters as the Agent or its
counsel may reasonably request, and (y) Rex M. Terry, Esq. of Hardin,
Jesson, Dawson & Terry, local counsel for Arkansas; and P. Bruce
Leslie, Esq. of McBrayer, McGinnis, Leslie & Kirkland, local counsel
for Kentucky, substantially in the form of Exhibit F attached hereto;
(C) No Event of Default or Unmatured Event of Default
shall have occurred and be continuing or would result from the making
of the requested Advance; and
(D) Since December 31, 1991, there has been no
material adverse change in the business, financial position or results
of operations of Borrower.
(b) Subsequent Advances.The obligation of the Lenders to make
-------------------
subsequent Advances under the Working Capital Loan as set forth in Section 2 and
issue Letters of Credit is subject to satisfaction of the conditions set forth
in such Section and the following conditions precedent:
(i) A certificate, dated the date of the requested
Advance or issuance of the Letter of Credit, and executed
on behalf of Borrower by the president or a vice
president of the General Partner, stating the substance
of Subsections 4(a)(ii)(A), (C) and (D);
(ii) All representations and warranties contained in
Section 8 hereof and in the Security Documents shall be true on the
date of such requested Advance as if then given, and Borrower shall
have performed or observed all terms, agreements, conditions and
obligations hereunder and under the Security Documents to be performed
or observed on or prior to the date of such requested Advance;
(iii) No Event of Default or Unmatured Event of Default
shall have occurred and be continuing or would result from the making
of the requested Advance;
(iv) Since December 31, 1991, there has been no material
adverse change in the
-17-
<PAGE>
business, financial position or results of operations of Borrower;
(v) All legal matters relating to the Loan Documents, such
Advance and the consummation of the transactions contemplated thereby
shall be reasonably satisfactory to the Agent's counsel; and
(vi) Such Advance shall not be prohibited by any laws or
any regulation or order of any court or governmental authority or
agency and shall not subject the Lender to any penalty or other
onerous condition under or pursuant to any such law, regulation or
order.
SECTION #. BORROWING BASE.
--------------
(a) Initial Borrowing Base. During the period from the date
----------------------
hereof to the first Determination Date, the Borrowing Base shall be
$4,343,278.00.
(b) Information. Within 10 days of the end of each calendar
-----------
month, commencing November 10, 1992, Borrower shall submit to the Agent, a
"Borrowing Base Certification," which shall be substantially in the form of
----------------------------
Exhibit G hereto, incorporating the requested information as of the end of the
- ---------
month for the immediately preceding calendar month as to Borrower's Eligible
Receivables, Eligible Hidro Gas Receivables, Eligible Product Inventory Value,
Net Eligible Exchange Balances and Cash Collateral and such other information
requested by the Agent, all in form and substance acceptable to the Agent
relating to the Collateral, to be used by the Lenders in determining the
Borrowing Base.
(c) Subsequent Determinations of Borrowing Base. (i) Subject to
-------------------------------------------
the other provisions of this Section 5(c), the Borrowing Base shall be
designated on each Determination Date (as defined below) as the amount equal to
the sum of:
(A) eighty percent (80%) of the Eligible Receivables,
plus
(B) one hundred percent (100%) of the Eligible Hidro
Gas Receivables, plus
(C) eighty percent (80%) of the Eligible Products
Inventory Value, plus
(D) eighty percent (80%) of the Net Eligible Exchange
Balances, plus
(E) one hundred percent (100%) of the Cash Collateral
as set forth in the Borrowing Base Certification provided to Agent
pursuant to Section 5(b); provided that the aggregate of the Eligible
--------
Products Inventory Value and the Net Eligible Exchange Balances
included as components of the Borrowing Base shall never exceed
$3,000,000 of the Borrowing Base in any calendar month (except that
such $3,000,000 limit shall not apply in the months of August,
September and October of any Fiscal Year); and provided further that
-------- -------
if in any calendar month the Net Eligible Exchange Balances is a
negative amount, then such negative amount will be deducted from the
Eligible Products Inventory Value in determining the Borrowing Base
for such calendar month.
(ii) Lenders shall have five (5) days after the receipt of
a Borrowing Base Certification to dispute the
calculation of the Borrowing Base in such Borrowing Base
Certification. If either Lender disputes the calculation
it shall give Agent notice thereof within the five-day
period. If Agent has received notice from any Lender of
any dispute, it shall within the same five-day period
notify Borrower of such dispute and of the amount of the
Borrowing Base as recalculated by the Lenders. The
amount of the Borrowing Base as so recalculated by the
Lenders and set forth in such notice shall take effect
on the date specified therein which may not be earlier
than the date on which such notice is received by
Borrower and shall continue in effect until the next
Determination Date. Any such recalculation shall be made
by the Lenders in good faith based on the information in
such Borrowing Base Certification and any other
information available to the Lenders at the time in
question regarding the Eligible Receivables, Eligible
Hidro Gas Receivables, Eligible Product Inventory,
Eligible Product Inventory Value, Net Eligible Exchange
-18-
<PAGE>
Balances and Cash Collateral.
The date on which the Borrowing Base is so designated either by Agent
or by operation of the Borrowing Base Certification if Agent does not
give timely notice objecting thereto, shall be called a "Determination
Date". A Determination Date may occur during the period between the
date on which a Request for Advance is submitted and the day on which
such Advance is to be made. Until the Borrowing Base has been
determined pursuant to this Section 5(c) for any period, the Borrowing
Base shall be the amount determined pursuant to this Section 5 for the
immediately preceding period.
(iii) If Borrower does not furnish to the Agent the
information required by Section 5(b) by the date specified therein,
the Agent may designate the Borrowing Base at any amount which the
Lenders determine based on the relevant information then available to
the Lenders and the Agent. The Agent may redesignate the Borrowing
Base from time to time thereafter until the Lenders receive the
required information, whereupon a new Borrowing Base shall be
determined as described above.
SECTION #. BORROWING BASE DEFICIENCY. If the aggregate unpaid
-------------------------
principal amount outstanding under the Working Capital Notes plus the aggregate
face amount of all outstanding Letters of Credit exceeds the Borrowing Base then
in effect (the "Borrowing Base Deficiency"), Borrower shall take one of the
-------------------------
following actions following receipt of notice from the Agent of the existence of
such Borrowing Base Deficiency:
(a) Add Additional Collateral. Within 3 Business Days following
-------------------------
receipt of such notice from the Agent, provide sufficient additional collateral
or security for the Working Capital Loan, in form and substance acceptable to
the Lenders in their sole discretion; or
(b) Repay Excess Debt. Within 3 Business Days following receipt
-----------------
of such notice from the Agent, make a mandatory prepayment on the Working
Capital Loan in accordance with Section 2(h) in an amount equal to the Borrowing
Base Deficiency.
Failure of Borrower to comply with this Section 6 shall be an immediate Event of
Default.
SECTION #. SECURITY. The repayment of the Working Capital Loan and
--------
the Working Capital Notes and all extensions and renewals thereof, and the
performance of all obligations of Borrower hereunder, shall be secured by the
Security Documents.
SECTION #. REPRESENTATIONS AND WARRANTIES. Borrower represents and
------------------------------
warrants to the Agent and each Lender that:
(a) Existence.
---------
(i) Borrower is a limited partnership duly organized,
validly existing and in good standing under the laws of the State of
Colorado, and is qualified to do business in Arkansas, Kentucky, Texas
and West Virginia and in every other jurisdiction in which the nature
of its business or the ownership of its assets requires such
qualification and failure to so qualify could have a material adverse
effect on Borrower, its business, operations, assets, property,
prospects or condition (financial or otherwise);
(ii) Each of the Related Persons other than Borrower is
duly organized, validly existing and in good standing under the laws
of the state of its incorporation or formation and is qualified to do
business in every jurisdiction in which the nature of its business or
the ownership of its assets requires such qualification and failure to
so qualify could have a material adverse effect on Borrower or such
Related Person, its business, operations, assets, property, prospects
or condition (financial or otherwise);
(iii) Each Related Person has the power and authority to
own the property which it owns and to carry on its business as such
business is now conducted; and
(iv) Each Related Person has all franchises, permits,
licenses and similar agreements
-19-
<PAGE>
necessary to carry on its business as now conducted, and has not
received any notices of default or termination under any of such
agreements.
(b) Non-Contravention. The execution, delivery and performance
-----------------
by the Borrower of this Agreement, and the other Loan Documents and the
borrowings hereunder and the consummation of the transactions contemplated
herein and therein will not conflict with the limited partnership agreement or
other organizational or governing documents of any Related Person, or conflict
with or result in any breach of any mortgage, lien, lease, agreement,
instrument, order, judgment, decree, law, rule, regulation or any other
restriction of any kind or character to which any Related Person is a party or
is subject or by which any Related Person or its properties are bound or
affected or result in the creation or imposition of any lien, charge or
encumbrance upon any property of any Related Person.
(c) Third Party Authorization. No consent, approval, exemption,
-------------------------
authorization or order of or other action by, and no notice to or filing with,
any court or governmental authority or third party is required by any Related
Person in connection with the execution, delivery or performance by Borrower of
this Agreement, or any other Loan Document or to consummate any transactions
contemplated hereby or thereby.
(d) Authorization; Binding Effect. Borrower has full power and
-----------------------------
authority to enter into this Agreement and the other Loan Documents. The
execution and delivery of this Agreement, and the other Loan Documents, and the
performance and observance of their terms, conditions and obligations, have been
duly authorized by all necessary action by Borrower and the General Partner.
This Agreement and the Working Capital Notes are, and the other Loan Documents
when duly executed and delivered will be, legal, valid and binding obligations
of Borrower, enforceable in accordance with their respective terms, except as
such enforcement may be limited by bankruptcy, insolvency or similar laws of
general application relating to the enforcement of creditors' rights.
(e) Litigation. Except as disclosed in Exhibit H attached
---------- ---------
hereto, there are no actions, suits, proceedings or claims against any Related
Person or the General Partner or any of their respective properties pending or,
to the knowledge of Borrower, threatened before any court or by or before any
governmental instrumentality, which could have a material adverse effect on the
business, operations, property, prospects or condition (financial or otherwise)
of any Related Person or the ability of Borrower to perform its obligations
under this Agreement, or any of the other Loan Documents. There exists no
default or breach by any Related Person with respect to any order, writ,
injunction, decree or demand of any court or governmental instrumentality, nor
does the execution, delivery or performance by Borrower of this Agreement or any
of the other Loan Documents result in any such default or breach.
(f) Taxes. Each Related Person has filed all required tax
-----
returns and paid all taxes and other governmental charges or levies imposed upon
or against it or its properties, including the Security Agreements and the
Collateral, or profits before the same became in default, except those being
contested in good faith and by appropriate proceedings, for which adequate
reserves have been set up by such Person, and for which there is no risk of loss
of any of the Collateral.
(g) Liens. All property and assets of Borrower are free and
-----
clear of all liens and encumbrances except (i) the liens permitted by Section
10(b) hereof, and (ii) the liens pursuant to the First American Loan and the
NationsBank Loan both of which will be released simultaneously with the
execution of this Agreement.
(h) Names and Places of Business. No Related Person has been
----------------------------
known by, or used any other partnership, trade, or fictitious name. The chief
executive office and principal place of business of Borrower and the General
Partner have been located at the address of Borrower set out in Section 14(b)
for at least the four months immediately preceding the date hereof. The places
where Borrower keeps its books and records concerning the Collateral is at
Borrower's address set forth for notices in Section 14(b), and has been there
for at least the four months immediately preceding the date hereof.
(i) Use of Proceeds. The proceeds of the Working Capital Loan
---------------
shall be used solely for working capital purposes of Borrower, including
repayment in full of any outstanding loans or obligations under the NationsBank
Loan, and the issuance of standby Letters of Credit pursuant to the terms of
this Agreement. In no event shall funds from any Advance be used directly or
indirectly by any Person for personal, family, household or agricultural
purposes.
(j) Other Obligations. No Related Person has any outstanding
-----------------
Debt of any kind (including contingent obligations, tax assessments, and unusual
forward or long-term commitments) which is, in the aggregate, material to such
-20-
<PAGE>
Related Person or material with respect to Borrower's Consolidated financial
condition and not shown in the Initial Financial Statements.
(k) Full Disclosure. No certificate, statement, report or other
---------------
information delivered herewith or heretofore by any Related Person or the
General Partner to Agent or the Lenders in connection with the negotiation of
this Agreement or in connection with any transaction contemplated hereby
contains any untrue statement of a material fact or omits to state any material
fact known to such Person necessary to make the statements contained herein or
therein not materially misleading as of the date made or deemed made. There is
no fact known to any Related Person or the General Partner that has not been
disclosed to the Agent or the Lenders in writing that could materially and
adversely affect Borrower's properties, business, prospects or condition
(financial or otherwise).
(l) Margin Stock. No Related Person is engaged principally, or
------------
as one of its important activities, in the business of extending credit to
others for the purpose of purchasing or carrying any "margin stock" or any
"margin securities" (as such terms are defined respectively in Regulation U and
Regulation G promulgated by the Board of Governors of the Federal Reserve
System).
(m) ERISA. Neither Borrower nor any member of its Controlled
-----
Group maintains, or has ever maintained any ERISA Plan. Borrower and the members
of its Controlled Group are in compliance with ERISA and the Code in all
material respects as to all employee benefit plans maintained by Borrower and
the members of its Controlled Group. Neither Borrower nor any member of its
Controlled Group is, or has ever been, required to contribute to, or has, or has
ever had, any other absolute or contingent liability in respect of, any
"multiemployer plan" as defined in Section 4001 of ERISA. Neither the Borrower
nor any member of its Controlled Group has ever represented, promised, or
contracted (whether in oral or written form) to any current or former employee
(either individually or as a group) that such current or former employee(s)
would be provided, at any cost to any member of the Controlled Group, with any
employee welfare benefits (within the meaning of Section 3(1) of ERISA)
following retirement or termination of employment. All members of the Controlled
Group have complied in all material respects with the notice and continuation
coverage requirements of Section 4980B of the Code.
(n) Security Documents. The warranties and representations
------------------
contained in the Security Documents are true and correct in all material
respects.
(o) Compliance with Laws. Each Related Person is in material
--------------------
compliance with all laws, rules and regulations, and determination of any
arbitrator or governmental authority applicable to or binding upon it or any of
its property or to which it or any of its property is subject.
(p) Financial Condition. The Initial Financial Statements fairly
-------------------
present Borrower's financial position at the date thereof and the results of
Borrower's operations and cash flows for the period thereof. Since December 31,
1991, there has been no material adverse change in the business, financial
position or results of operations of Borrower.
(q) Environmental Matters. (i) The operations of each Related
---------------------
Person comply in all material respects with all federal, state or local laws,
statutes, rules, regulations, and all administrative orders, licenses,
authorizations and permits of any governmental authority, relating to
environmental or public health and safety; (ii) none of the operations of any
Related Person is the subject of federal, state or local investigation
evaluating whether any material remedial action is needed to respond to a
release of any hazardous or toxic waste, substance or constituent into the
environment; (iii) no Related Person has (and to the best knowledge of Borrower,
nor has any other person) filed any notice under any federal, state or local law
indicating that such Person is responsible for the release into the environment,
or the improper storage, of any material amount of any hazardous or toxic waste,
substance or constituent or that any such waste, substance or constituent has
been released, or is improperly stored, upon any property of such Person; and
(iv) no Related Person otherwise has any known material contingent liability in
connection with the release into the environment, or the improper storage, of
any such waste, substance or constituent.
(r) Investment Company Act. No Related Person is an "investment
----------------------
company" or a company "controlled" by an "investment company", within the
meaning of the Investment Company Act of 1940, as amended.
(s) Public Utility Holding Company Act. No Related Person is a
----------------------------------
"holding company", or a "subsidiary company" of a "holding company", or an
"affiliate" of a "holding company" or of a "subsidiary company" of a "holding
company", within the meaning of the Public Utility Holding Company Act of 1935,
as amended.
-21-
<PAGE>
(t) Title to Properties; First Priority Security Interest. Each
-----------------------------------------------------
Related Person and the General Partner have good and indefeasible title to all
of their respective material properties and assets, free and clear of all liens
except those permitted by Section 10(b) hereof. Upon filing and recording of the
Security Agreements and the related financing statements in the locations
specified in the opinions provided to the Lenders pursuant to Section
4(a)(ii)(B) hereof, the Agent, on behalf of the Lenders will have a perfected
first priority lien or security interest in all of the Collateral.
(u) Partners, Shareholders and Subsidiaries of Borrower and of
----------------------------------------------------------
Related Persons. The General Partner is the sole general partner of Borrower.
- ---------------
The identity of the limited partners of Borrower and their respective limited
partnership interests are set forth in Exhibit I hereto and the identity and
---------
percentage ownership interest of the shareholders of the General Partner are set
forth in Exhibit I. Borrower does not presently have any Subsidiaries or own any
---------
stock or equity interest in any corporation, partnership, joint venture or
association, except for Borrower's interests in the Florida Mesa Project and
except, after the date hereof, interests acquired as permitted by Section 10(e)
hereof.
(v) Location of Inventory. The location of all of Borrower's
---------------------
Products and inventory is set forth in Exhibit J hereto.
---------
(w) Eligibility of Items Included in Borrowing Base. Borrower
-----------------------------------------------
represents and covenants to and with the Agent and Lenders that each item
included in a Borrowing Base Certificate at any time and from time to time is
one of the following: an Eligible Receivable, an Eligible Hidro Gas Receivable,
Eligible Product Inventory, an Eligible Exchange Balance or Cash Collateral.
SECTION #. AFFIRMATIVE COVENANTS. Until payment in full of the
---------------------
Working Capital Loan and termination of all Commitments by the Lenders to make
Advances hereunder, without the prior written consent of the Required Lenders:
(a) Payment and Performance of Working Capital Loan. Borrower
-----------------------------------------------
shall duly and punctually pay or cause to be paid in lawful money of the United
States, the principal and interest on the Working Capital Loan upon the dates,
at the place and in the manner set forth in Section 2 hereof, and perform and
observe all other obligations of Borrower under this Agreement and the other
Loan Documents.
(b) Financial Statements. Each of the Related Persons shall keep
--------------------
proper books of record and account in which full, true and correct entries will
be made of all business, dealings and affairs in accordance with GAAP, and
Borrower shall deliver to the Agent sufficient copies for each Lender, at
Borrower's expense and in an acceptable format:
(i) Within 120 calendar days after the end of each Fiscal
Year, complete audited annual financial statements of Borrower,
together with all notes thereto, prepared in reasonable detail in
accordance with GAAP, together with an unqualified opinion, based on
an audit conducted by Price Waterhouse or other independent certified
public accountants selected by Borrower and acceptable to the Lenders,
stating that such financial statements present fairly the financial
position for the periods indicated in conformity with GAAP applied on
a basis consistent with prior years (except as otherwise required due
to changes in GAAP);
(ii) Within 45 calendar days after the end of each
calendar month, an unaudited monthly income statement, balance sheet
and statement of cash flows for the subject month, prepared in
reasonable detail and in accordance with GAAP;
(iii) Together with delivery of each of the financial
statements described in Subsection (i) and (ii) above, a certificate
signed by the president or chief financial officer of the General
Partner of Borrower in the form of Exhibit K attached hereto, stating
----------
that he or she has read this Agreement and made all other necessary
investigations, attesting to the authenticity of such financial
statements, showing the calculation of and compliance with the
financial covenants contained in this Agreement, and stating that in
making the examination and reporting on such financial statements, he
or she concluded that there did not exist any condition or event at
the end of such Fiscal Year or at the time of such certificate which
constituted an Event of Default or an Unmatured Event of Default, or,
if such condition or event existed, specifying the nature and period
of existence of any such condition or event;
-22-
<PAGE>
(iv) Within 120 calendar days after the end of each Fiscal
Year, annual unaudited Consolidated financial statements of the
General Partner, together with all notes thereto, prepared in
reasonable detail in accordance with GAAP applied on a basis
consistent with prior years; provided, however, that if the General
-------- -------
Partner has an audited financial statement prepared for any reason, at
any time, then such audited financial statement shall be promptly
furnished to the Agent together with any opinion obtained from its
independent certified public accountants relating thereto;
(v) As soon as available, and in any event within 10 days
after the end of each month, a Borrowing Base Certification as
provided in Section 5(b);
(vi) Within 30 days after the same are filed, copies of
all financial statements, registration statements and regular,
periodical or special reports that any Related Person or the General
Partner may make to, or file with, the Securities and Exchange
Commission or any stock exchange; and
(vii) Within 30 days, such additional financial and other
information as any of the Agent or either of the Lenders may from time
to time reasonably request, including without limitation reasonable
detail with respect to the information provided on an aggregate basis.
(c) Preservation of Existence, Etc. (i) Borrower shall maintain
-------------------------------
in full force and effect Borrower's existence as a limited partnership and its
good standing under the laws of the State of Colorado and its right to
transact business in the States of Arkansas, Kentucky, Texas and West
Virginia; and (ii) each Related Person shall maintain its good standing under
the laws of the state of its formation and its right to transact business in
all states where its activities and ownership of assets are such that
qualification to transact business is necessary under the laws of such states
and failure to so qualify could have a material adverse effect on such Person
or on Borrower, or on Borrower's business, property, prospects, assets,
operations or condition (financial or otherwise).
(d) Maintenance of Property. Borrower shall maintain, preserve,
-----------------------
protect and keep in good repair and in good working order and condition the
Collateral; and each Related Person shall maintain all other properties, real or
personal, used or useful in its business in good repair and in good working
order and condition.
(e) Payment of Other Obligations. (i) Each Related Person shall
----------------------------
duly and punctually pay and discharge (A) all taxes, assessments and other
governmental charges assessed against or imposed upon or with respect to such
Person or its properties or assets prior to the date when they shall become
delinquent unless the same are being contested in good faith and by appropriate
proceedings and appropriate reserves have been established in accordance with
GAAP and there is no risk of loss of any of the Collateral; (B) all charges for
labor, materials and supplies which if unpaid might become a lien against any
part of the property of such Person unless the same are being contested in good
faith and by appropriate proceedings and appropriate reserves have been
established in accordance with GAAP and there is no risk of loss of any of the
Collateral; and (C) all federal and state social security, worker's compensation
and similar taxes, payments and contributions for which such Person may be
liable, before the same become delinquent unless the same are being contested in
good faith and by appropriate proceedings and appropriate reserves have been
established in accordance with GAAP and there is no risk of loss of any of the
Collateral; and
(ii) duly and punctually pay all Debt obligations
(principal and interest), including without limitation, accounts
payable and lease obligations, unless the same are being contested in
good faith and by appropriate proceedings and appropriate reserves
have been established in accordance with GAAP.
(f) Insurance. Each Related Person shall keep all of its
---------
insurable property, real and personal, adequately insured at all times against
fire and against such other risks as are customarily insured against by similar
businesses of a comparable size, and fully insure against its employer's and
public liability risks in financially sound and reputable insurance companies,
all in such amounts and upon such terms and conditions, including deductibles,
consistent with industry standards. Each insurance policy covering Collateral
shall be endorsed (i) to provide for payment of losses to the Agent for the
benefit of the Lenders as its interests may appear, (ii) to provide that such
policies may not be cancelled, reduced or affected in any manner for any reason
without fifteen days prior notice to the Agent, (iii) to provide for any other
matters specified in any applicable Security Document or which the Lenders or
the Agent may reasonably require; (iv) to provide for insurance against fire,
casualty and any other hazards normally insured against, in the amount of the
full value (less a reasonable deductible not to exceed amounts customary in the
industry for similarly situated
-23-
<PAGE>
businesses and properties) of the property insured, and (v) business
interruption insurance in an amount equal to the cost of operating Borrower's
business as reasonably determined by Borrower for a six-month period, which may
change from time to time depending upon Borrower's costs of operation at the
time in question. Each Related Person shall at all times maintain adequate
insurance against its liability for injury to persons or property, which
insurance shall be by financially sound and reputable insurers. A true and
complete list of all currently existing insurance of Borrower has been furnished
to the Agent prior to the date hereof. It is understood, and Agent and Lenders
agree, that based on existing circumstances Borrower has no obligation to insure
inventory.
(g) Inspection of Property, Books and Records; Confidentiality
----------------------------------------------------------
Agreement. Borrower shall permit the Agent's and any Lender's duly authorized
- ---------
officers, employees and agents to inspect (and make copies of or abstracts
therefrom) the Collateral and the other property, books and records of Borrower
and to discuss Borrower's affairs, finances and accounts with Borrower's
officers and its independent accountants, and furnish any other data which the
Agent or any Lender may reasonably request, all at the expense of Borrower and
at any reasonable time and as often as the Agent or any Lender may reasonably
request; provided that Borrower shall not be liable for expenses arising out of
-------- ----
the gross negligence or willful misconduct of the inspecting party; provided,
--------
further, that Borrower shall not be required to give access to any party
- -------
inspecting the property subject to any of the Mortgages, if such inspecting
party refuses or is unwilling or unable to comply with the reasonable safety
requirements of Borrower relating to the property to be inspected. Each Lender
agrees that, until the occurrence of an Event of Default, it will take all
reasonable steps to keep confidential any proprietary information given to it by
any Related Person, including without limitation any environmental information
or reports pertaining to the property subject to the Mortgages; provided,
--------
however, that this restriction shall not apply to information which (i) has at
- -------
the time in question entered the public domain, (ii) is required to be disclosed
by law or by any order, rule or regulation (whether valid or invalid) of any
court or governmental agency, or authority, (iii) is disclosed to such Lender's
external auditors, (iv) is disclosed to such Lender's affiliates', agents or
attorneys, or (v) is furnished to purchasers or prospective purchasers of
participations or other interests in the Working Capital Loan or the Working
Capital Notes; provided that before making the disclosures described in the
-------- ----
immediately preceding clauses (iv) and (v), such Lender shall direct in writing
the Persons to whom such proprietary information is to be disclosed to comply
with the confidentiality provisions set forth in this Section 9(g). Borrower
agrees that if either Lender breaches its confidentiality agreement contained in
this Section 9(g), Borrower's exclusive remedy shall be an action for actual
damages and such breach shall not be asserted in any action for payment
hereunder or under the Working Capital Notes or in a foreclosure of any of the
Security Documents.
(h) Notices. Borrower shall give written notice to the Agent
-------
within 3 days after a Responsible Person becomes aware of any of the
following:
(i) Any material adverse change in the business,
property, prospects, assets, operations or condition (financial or
otherwise), of Borrower or any other Related Person;
(ii) Any Event of Default or Unmatured Event of Default;
(iii) The institution of any litigation or other proceeding
before any governmental body or official against any Related Person or
any of their respective assets and any developments in any pending
litigation or other proceeding before any governmental body or
official that could materially affect Borrower or such Related Person,
its business, property, prospects, assets, operations or condition
(financial or otherwise);
(iv) Any existing or pending investigation or inquiry by
any governmental authority in connection with any applicable
Environmental Laws (as such term is defined in the Mortgages);
(v) The institution of, or material development in, any
litigation affecting any of the Collateral, or any other dispute or
claim that could have a material adverse effect on any of the
Collateral or the calculation of the Borrowing Base;
(vi) Any fact that causes or may cause the Agent, on
behalf of the Lenders, or the Lenders to fail to have a valid,
enforceable and perfected first priority lien on or security interest
in any of the Collateral, except as expressly permitted by this
Agreement or the Security Documents and except as a result of the acts
or omissions of the Agent or either Lender; or
(vii) The shut-down of any natural gas liquids processing
facility owned or leased by Borrower for a period of 48 consecutive
hours or more or of any planned shut-down of any such facility that is
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<PAGE>
expected to be in effect for a period of 48 consecutive hours or more
(notice of any actual shut-down shall be given to Agent within 24
hours after the occurrence thereof and notice of any such planned
shut-down shall be given to Agent in advance).
(i) Compliance with Laws. Each Related Person shall comply in
--------------------
all material respects with all applicable laws, statutes, rules and regulations
of the United States and of any state or municipality, and of any official,
arbitrator or governmental authority, in respect of the conduct of business and
ownership of property by such Person.
(j) Further Assurances. Borrower shall promptly and, insofar as
------------------
not contrary to applicable law, at Borrower's own expense, (i) file and refile
in such offices, at such times and as often as may be reasonably necessary,
every instrument and every amendment thereto, and take such other action, as may
be reasonably necessary or desirable to create, perfect, maintain and preserve
all liens and security interests intended to be created by Borrower under the
Security Documents in favor of the Agent for the benefit of the Lenders or in
favor of the Lenders and to protect and preserve the rights and remedies of the
Agent and the Lenders thereunder, (ii) furnish to the Agent evidence reasonably
satisfactory to the Agent of all such filings and refilings, (iii) otherwise do
all things necessary or expedient to be done to effectively create, perfect,
maintain and preserve the liens and security interests intended to be created by
the Security Documents as a lien on real property and fixtures and a security
interest in personal property and fixtures, and (iv) pay all fees and expenses
(including counsel fees) incident to this Agreement and in compliance with this
Section. In addition, Borrower covenants and agrees that if all or any part of
the Working Capital Loan becomes subject to the provisions of the Financial
Institutions Reform, Recovery and Enforcement Act of 1989, as it may be amended
from time to time, or other governmental regulation requiring appraisals,
surveys or similar requirements as to all or any part of the Collateral,
Borrower shall promptly provide the Agent and the Lenders with any appraisals,
surveys or other items required to have the Working Capital Loan be in
compliance with all applicable state and federal laws, at its sole cost and
expense.
(k) Current Ratio. Borrower shall maintain a Current Ratio of
-------------
not less than 1.1 to 1.0.
(l) Funded Debt to Total Capitalization. Borrower's Funded Debt
-----------------------------------
shall not exceed 65% of its Total Capitalization.
(m) Tangible Net Worth. Borrower shall maintain a Tangible Net
------------------
Worth equal to or greater than the sum of $15,000,000 plus 25 percent of
consolidated net income determined in accordance with GAAP and earned by
Borrower after December 31, 1991 (but excluding any net losses).
(n) Fixed Charge Coverage Ratio. Borrower shall maintain a Fixed
---------------------------
Charge Coverage Ratio, determined as of the end of any Fiscal Quarter,
commencing with the Fiscal Quarter ending December 31, 1992, calculated on a
rolling four quarter basis, of not less than 1.5.
(o) Environmental Matters. No Related Person shall cause or
---------------------
permit the use or storage of Hazardous Substances or Solid Waste (as such terms
are defined in the Mortgages) on, in or in connection with such Persons's
properties or disposal of Hazardous Substances or Solid Waste from such Person's
properties, except in full compliance with all Environmental Laws (as such term
is defined in the Mortgages), or make any use of such Person's properties that
results in any requirement that such Person apply for or obtain a permit under
RCRA (as such term is defined in the Mortgages) or other Environmental Law for
the treatment, storage or disposal of Hazardous Substances or Solid Waste.
Borrower covenants and agrees to keep or cause each Related Person's properties
to be kept free of any Hazardous Substances or Solid Waste except in full
compliance with all Environmental Laws, and, promptly upon the discovery that
the presence of any such substance on any of their respective properties is not
in full compliance, to remove the same (or if removal is prohibited by law, to
take whatever action is required by law) at Borrower's sole expense.
SECTION #. NEGATIVE COVENANTS. Until payment in full of the Working
------------------
Capital Loan and termination of all Commitments by the Lenders to make advances
hereunder, neither Borrower nor any of the other Related Persons shall, without
the prior written consent of the Required Lenders:
(a) Debt. Create, incur, assume or permit to exist any Debt,
----
except:
(i) The Working Capital Loan and the Revolver/Term
Facility;
(ii) Debt incurred to finance the acquisition or
construction by Borrower of one or more projects consistent with
Borrower's covenant contained in Section 10(e) hereof and for which
recourse is
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<PAGE>
limited to the property included in the project and is non-
recourse to Borrower and the Collateral;
(iii) Obligations under leases, whether capital or
operating leases, provided that the obligations payable in any one
-------- ----
year do not, in the aggregate, exceed $2,000,000;
(iv) Debt incurred pursuant to Borrower's or any Related
Person's hedging activities related to such Person's line of business
in the futures or commodities market such that (A) the liability under
open lines of credit to finance futures contracts, commodities and/or
options contracts does not exceed $1,000,000 in the aggregate at any
one time outstanding, and (B) recourse is limited to Borrower's or any
Related Person's position in futures contracts;
(v) Current accounts and charges, payable or accrued,
incurred in the ordinary course of Borrower's or any Related Person's
business; and
(vi) Debt under the RIMCO Loan in a maximum principal
amount not to exceed at any one time outstanding (A) $11,500,000 from
the date hereof through and including December 1, 1992, and (B)
$500,000 thereafter.
(b) Liens. Create, assume or permit to exist any mortgage,
-----
pledge, security interest, lien or other encumbrance upon any Related
Person's properties or assets, whether now owned or hereafter
acquired, real or personal, except:
(i) The Security Documents;
(ii) Liens for taxes not delinquent or being contested in
good faith and by appropriate proceedings and for which adequate
reserves have been set aside on such Person's books;
(iii) Operator's, mechanic's, workmen's, materialmen's and
other like liens arising in the Ordinary Course of Business in respect
of obligations not overdue or which are being contested in good faith
and by appropriate proceedings and for which adequate reserves have
been set aside on such Person's books and for which there is no risk
of loss of any of the Collateral;
(iv) Liens or encumbrances, if any, permitted by the
Security Documents; and
(v) Liens securing Debt permitted by Section 10(a) above.
(c) Guaranty Obligations. Assume, guarantee, endorse or
--------------------
otherwise become or be contingently liable (by direct or indirect agreement,
contingent or otherwise, or by operation of law, to provide funds for payment,
to supply funds to, or otherwise invest in, a debtor, or otherwise assure a
creditor against loss) for the Debt, obligation, undertaking or other liability
of any other Person, or otherwise become or be responsible in any manner
(whether by agreement to purchase any obligations, stock, assets, goods or
services, or to supply or advance any funds, assets, goods or services, or
otherwise) with respect to any undertaking of any other Person, except (i)
guarantees by Borrower of Debt incurred by MarkWest Energy Partners, Ltd. in
connection with the Florida Mesa Project so long as such guarantees do not
exceed $1,000,000 in the aggregate at any one time, and (ii) endorsements of
negotiable instruments for deposit or collection and similar transactions in the
ordinary course of its business.
(d) Loans and Advances. Make any loans or advances to any
------------------
Person, except for (i) accounts receivable or notes receivable arising from the
sale or lease of goods or services in the Ordinary Course of Business; (ii) as
part payment in the Ordinary Course of Business on its ordinary equipment
rental, repair, replacement and operating needs, or (iii) loans and advances to
officers and employees of Borrower to the extent and in the amount reflected in
Exhibit L.
(e) Limitation on Investments and New Businesses. (i) Make any
--------------------------------------------
expenditure or commitment or incur any obligation or enter into or engage in any
transaction except in the Ordinary Course of Business, (ii) engage directly or
indirectly in any business or conduct any operations except in connection with
gas processing and gathering, gas liquids fractionation, gas and gas liquids
marketing, MTBE manufacturing, refining and marketing and gasoline blending and
oil and gas exploration and production, (iii) make any acquisitions of or
capital contributions to or other investments in any Person unless the following
conditions are satisfied: (A) the investment is in a Person engaged in any of
the businesses described in (e)(ii) above, and (B) Agent has received
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<PAGE>
10 days' advance notice of such investment. Notwithstanding the foregoing, the
Related Persons may make (1) investments in open market commercial paper,
maturing within 365 days after acquisition thereof, which has a credit rating of
at least A-2 or P-2 by either Standard & Poor's Corporation or Moody's Investors
Service, Inc., (2) marketable obligations issued or unconditionally guaranteed
by the United States of America or an instrumentality or agency thereof and
entitled to the full faith and credit of the United States of America, and (3)
demand deposits, time deposits (including certificates of deposit), repurchase
agreements, Eurodollar time deposits or bankers' acceptances, maturing in each
case within 12 months from the date of deposit thereof, with a domestic office
of either Lender.
(f) Mergers and Consolidations. Merge or consolidate into or
--------------------------
with any Person, or sell, lease, convey, transfer or otherwise dispose of all or
a substantial part of its assets to or with any Person, except: (i) a merger or
consolidation in connection with the acquisition by Borrower of property or
facilities as a result of a stock or equity transaction in the ordinary course
of its business and after the consummation of which Borrower is the surviving
entity; (ii) a merger or consolidation of any Consolidated Subsidiary of the
Borrower with or into the Borrower, provided that the Borrower shall be the
--------
continuing or surviving corporation; in both cases, so long as no Event of
Default or Unmatured Event of Default has occurred or is continuing or would be
caused by the consummation of such merger or consolidation and Agent receives
within 10 days after such merger or consolidation a certificate from the chief
financial officer or any Vice President of the General Partner that Borrower is
in compliance with the provisions of this Agreement.
(g) Location of Inventory. Borrower shall not store any of its
---------------------
Products or inventory except at the locations described in Exhibit J hereto
without giving the Agent notice of a change within 30 days thereof and the
execution of any and all Security Documents the Agent and its counsel deem
necessary or desirable to grant a perfected first priority lien in favor of
Agent for the benefit of the Lenders in such Products or inventory;
notwithstanding the foregoing, Borrower shall not, under any circumstances,
store any of its Products or inventory in a location outside of the United
States.
(h) Burdensome Undertakings. Undertake, or become contractually
-----------------------
bound to undertake, any action not in the Ordinary Course of Business that could
materially adversely affect Borrower or its business, properties, prospects,
assets, operations or condition (financial or otherwise).
(i) Change in Location of Business. Move its place of business
------------------------------
or chief executive office or the place where Borrower keeps its books and
records concerning the Collateral (including, without limitation, the records
with respect to its accounts and contract rights), from one state to another
without giving the Agent 45 days' prior written notice of the proposed new
location thereof.
(j) Restricted Distributions. Make any dividends or
------------------------
distributions of assets or declare or pay any cash or liquidating distribution
or dividends or make any other distribution to any of its partners or
shareholders, other than the following:
(i) Whether or not an Event of Default or Unmatured Event
of Default has occurred or is continuing, Borrower may make
distributions to each of its partners in an amount equal to such
partner's estimated federal and state income tax liabilities (assuming
each partner is taxable at the maximum marginal income tax rates)
resulting from such partner's interest in Borrower. Such distribution
shall not occur earlier than 30 days prior to the date such payments
are due;
(ii) So long as a Borrowing Base Deficiency does not exist
and no Event of Default or Unmatured Event of Default has occurred,
Borrower may make distributions in an aggregate cumulative amount not
to exceed 75 percent of Borrower's net income, determined in
accordance with GAAP and computed on a cumulative basis for all
periods since December 31, 1991, taking into account allowable
distributions previously declared or made since December 31, 1991;
provided, however, that such distributions are allowable so long as
-------- -------
they would not cause Borrower to be in contravention of the financial
covenants contained in Sections 9(k), (l), (m) and (n); and
(iii) As to any Subsidiary of Borrower, the foregoing
restrictions of this Section 10(j) shall not apply.
(k) Disposition of Assets. Sell, transfer, lease, exchange or
---------------------
otherwise dispose of any of its assets, real or personal, except as
follows:
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<PAGE>
(i) sales, transfers, leases, exchanges or other
dispositions of assets by Borrower or any other Related Person in the
Ordinary Course of Business; and
(ii) sales, transfers, leases, exchanges or other
dispositions of assets by Borrower and the other Related Persons not
in the Ordinary Course of Business, so long as such transaction is on
fair and reasonable terms and the proceeds from all such transactions
do not exceed $250,000 in the aggregate in any calendar year.
(l) ERISA. Establish, maintain or contribute to any ERISA Plans
-----
or incur any obligation to contribute to any "multiemployer plan" as defined in
Section 4001 of ERISA or represent, promise, or contract (in oral or written
form) to any current or former employee (individually or as a group) that such
current or former employee(s) would be provided, at any cost to any member of
the Controlled Group, with any employee welfare benefits (as defined in Section
3(1) of ERISA) following retirement or termination of employment.
(m) Use of Proceeds. Use any funds from the Working Capital Loan
---------------
directly or indirectly for the purpose, whether immediate, incidental or
ultimate, of purchasing, acquiring or carrying any "margin stock" or any "margin
securities" (as such terms are defined respectively in Regulation U and
Regulation G promulgated by the Board of Governors of the Federal Reserve
System) or to extend credit to others directly or indirectly for the purpose of
purchasing or carrying any such margin stock or margin securities.
(n) Transactions with Affiliates. Enter into any transaction
----------------------------
with any Affiliate, except any transaction that is in the ordinary course of
such Related Person's business and that is upon fair and reasonable terms no
less favorable to such Related Person than would obtain in a comparable arm's-
length transaction with a Person not an Affiliate of such Related Person.
(o) Contracts; Take-or-Pay Agreements. Amend or modify the
---------------------------------
Columbia Contracts in any manner or permit any of them to be amended or modified
or any term waived by any party thereto or assign any of its rights thereunder.
Enter into any "take-or-pay" contract or other contract which requires it to pay
for oil, gas, other hydrocarbons or other minerals prior to taking delivery
thereof, provided that Borrower may enter into such contracts so long as the
--------
term thereof does not exceed one year, and provided further that Borrower may
-------- -------
enter into such contracts if the products purchased thereunder are needed by the
associated facility at the time of delivery thereof. Examples of permitted
contracts include (i) futures contracts to hedge (but not speculate) against
future changes in prices and (ii) reciprocal exchange agreements or back to back
contracts in which Borrower avoids the cost of all or a portion of the cost of
transportation of natural gas or natural gas liquids (in this subsection called
"gas and liquids") processed by it by exchanging such gas and liquids for gas
and liquids processed by others which are closer in location to Borrower's
ultimate purchaser. Examples of prohibited contracts include: (1) essentially
speculative contracts entered into primarily in hopes of benefitting from price
changes and (i) providing for the purchase of gas and liquids not covered by a
back to back contract permitting an exchange or sale thereof within 180 days
after the date of purchase or (ii) providing for the purchase of gas and liquids
that will not be consumed in Borrower's operations within 180 days after the
purchase thereof; and (2) contracts for the future sale or purchase of gas or
liquids that are not for the purpose of facilitating the ultimate sale of gas or
liquids owned, distributed or processed by Borrower. Notwithstanding the
foregoing provisions of this section, Borrower may enter into speculative
contracts not related to Borrower's operations primarily in hopes of benefitting
from price changes so long as the aggregate liability (including contingent or
potential liability) and costs of Borrower thereunder do not exceed $1,250,000
at any time.
(p) Amendments to Organizational Documents. Amend the
--------------------------------------
partnership agreement of Borrower or any other organizational documents of any
Related Person.
(q) Amendments to RIMCO Loan Documents. Amend, modify or waive,
----------------------------------
or consent or acquiesce in the amendment, modification, or waiver of any term
or provision of any document evidencing or securing the RIMCO Loan, or any
other document executed in connection with the RIMCO Loan.
SECTION #. EVENTS OF DEFAULT. The occurrence of any of the following
-----------------
shall constitute an event of default ("Event of Default") hereunder:
----------------
(a) Non-Payment. Failure by Borrower to (i) pay any installment
-----------
of principal of, or interest on, the Working Capital Notes, any fees or other
amounts payable hereunder or under the Working Capital Notes or any of the
Security
-28-
<PAGE>
Documents within three Business Days after its due date, or (ii) comply with the
provisions of Section 6 within the 3-day period set forth therein.
(b) Certain Defaults. Failure by Borrower to perform or observe
----------------
any term, covenant, agreement, condition or provision contained in any of
Sections 9(b), (c)(ii), (g), (h), (k), (l), (m) or (n), or Sections 10(a)
through (q), inclusive.
(c) Other Defaults. Failure by Borrower to perform or observe
--------------
any other covenant, agreement, condition or provision contained in this
Agreement or in the Working Capital Notes (which covenant, agreement, condition
or provision is not included in Subsection 11(a) or (b)) and such failure
continues unremedied for a period of 30 days.
(d) Representation or Warranty. Any representation or warranty
--------------------------
of the Borrower, whether contained in this Agreement or in any certificate or
other writing required or contemplated by this Agreement or in the Security
Agreement, or any representation or warranty of any party to a Covenant
Agreement shall be false or misleading in any material respect as of the date
made or deemed made.
(e) Security Documents and Covenant Agreements.
-------------------------------------------
(i) Occurrence of any of the events of default defined in
any of the Security Documents or Covenant Agreements.
(ii) Any of the Security Documents shall for any reason
(other than pursuant to the terms thereof or as a direct result of any
act or omission of Lenders or Agent) cease to create a valid security
interest in the collateral purported to be covered thereby or such
security interest shall for any reason cease to be a perfected and
first priority lien and security interest, subject only to those
matters expressly permitted by Section 10(b) hereof or by the
applicable Security Document.
(iii) Any of the Covenant Agreements shall cease to be in
full force and effect.
(iv) Failure of the General Partners or John Fox, as
applicable, to perform or observe any covenant, agreement, condition
or provision contained in its or his respective Covenant Agreement.
(v) Failure by Borrower to perform or observe any term,
covenant, agreement, condition or provision contained in the Security
Agreement.
(f) Judgments. Any money judgment, writ or warrant of
---------
attachment, or similar process in an amount of $250,000 (in the aggregate) or
more shall be entered or filed against any Related Person or any of its assets
and shall remain unvacated, unbonded or unstayed for a period of 30 calendar
days, or in any event later than five calendar days prior to the date of any
proposed sale thereunder.
(g) Insolvency. Any Related Person or the General Partner shall
----------
become insolvent, admit in writing its inability to pay its debts as they
mature, or make an assignment for the benefit of creditors; or apply for or
consent to the appointment of a receiver or trustee for it or for a substantial
part of its property or business; or such a receiver or trustee otherwise shall
be appointed and shall not be discharged within 30 calendar days after such
appointment.
(h) Bankruptcy, Etc.. Bankruptcy, insolvency, reorganization or
----------------
liquidation proceedings or other proceedings for relief under any bankruptcy law
or any other law for the relief of debtors shall be instituted by or against any
Related Person or the General Partner (except for an involuntary petition
against any Related Person or the General Partner, which shall not constitute an
Event of Default if such petition is vacated or dismissed within 15 Business
Days after the filing thereof), or any order, judgment or decree shall be
entered against any Related Person or the General Partner decreeing its
dissolution or division.
(i) Cross-Default. Any event of default shall occur as to any
-------------
other agreement now or hereafter existing relating to extensions of credit to
any Related Person or the General Partner by the Lenders or either of them,
including without limitation the Revolver/Term Facility, or by any third party,
including without limitation, the RIMCO Loan, or any event which with the
passage of time or giving of notice, or both, would permit the holder or holders
of such indebtedness to cause such indebtedness to be declared to be due and
payable prior to its stated maturity.
-29-
<PAGE>
(j) ERISA. An employee benefit plan that is intended to be
-----
qualified under the Code shall lose its qualification, and the loss can
reasonably be expected to impose on the Controlled Group liability (for
additional taxes to Plan participants, or otherwise) in the aggregate amount of
$250,000 or more; any member of the Controlled Group engages in or becomes
liable for a non-exempt prohibited transaction and the initial tax or additional
tax under Section 4975 of the Code might reasonably be expected to exceed
$100,000; a violation of Section 404 or 405 of ERISA or Section 401(a)(2) of the
Code that can be reasonably expected to expose the Controlled Group to liability
in excess of $250,000; any member of the Controlled Group is assessed a tax
under Section 4980B of the Code or is liable for failure to comply with the
Section 4980B notice and continuation coverage requirements that can be
reasonably expected to result in liability to the Controlled Group in excess of
$250,000; any member of the Controlled Group is assessed a penalty under Section
502(c)(2) of ERISA or Section 6652(e) of the Code that can be reasonably
expected to expose the Controlled Group to liability in excess of $250,000; or
any combination of the foregoing events that involves potential liability in
excess of $250,000.
(k) Loan Documents. This Agreement, the Working Capital Notes,
--------------
any of the other Loan Documents or any of the Covenant Agreements shall for any
reason be revoked or invalidated, or otherwise cease to be in full force and
effect, except as a direct result of the acts or omissions of the Agent or the
Lenders.
(l) Material Adverse Change. Any material adverse change occurs
-----------------------
in Borrower's financial condition or business or operations (including, without
limitation, any material adverse change caused by Borrower becoming subject to
any statute, regulation or order of any governmental authority after the date
hereof).
(m) Partners of Borrower. The General Partner ceases to be the
--------------------
sole general partner of Borrower. Any change occurs in the identity or ownership
interests of any limited partner of Borrower owning at least a 10% interest at
such time, other than pursuant to the Employee Option Agreement or pursuant to
the RIMCO Loan documents.
(n) Ownership of the General Partner. John Fox and the members
--------------------------------
of his immediate family cease to own collectively at least seventy-five percent
(75%) of the issued and outstanding voting stock of General Partner.
(o) Failure to be a Partnership. Borrower is not treated as a
---------------------------
partnership for federal income tax purposes.
(p) Columbia Contracts. Any of the Columbia Contracts shall
------------------
cease to be in full force and effect for any reason, including, without
limitation, as the result of being rejected or disaffirmed by Columbia Gas
Transmission Corporation, a debtor in possession under federal bankruptcy
laws.
(q) Regulatory Change. There shall be any legislative action by
-----------------
any local, state or federal agency or other governmental entity resulting in any
regulatory control of Borrower's operations, the result of which has or could
have, in Lenders' reasonable opinion, a significant financial impact on, or
control of, its financial condition.
SECTION #. REMEDIES. (a) Automatic Acceleration of Loan. Upon the
-------- ------------------------------
occurrence of any Event of Default specified in Section 11(g) or (h), the
obligation of the Lenders to make Advances under the Working Capital Loan shall
automatically terminate and the unpaid principal amount of the Working Capital
Loan and all interest and other amounts payable hereunder, under the Working
Capital Notes or any of the Security Documents, shall automatically become due
and payable without further act of the Agent or the Lenders.
(b) Optional Acceleration of Loan. Upon the occurrence of any
-----------------------------
Event of Default (other than those specified in Section 12(a) above), the Agent
may, from time to time, do any or all of the following:
(i) Declare all or any part of the Working Capital Loan to
be forthwith due and payable, together with all accrued and unpaid
interest thereon and all other amounts payable hereunder or under any
of the other Loan Documents, without presentment, demand, protest or
other notice of any kind, all of which are expressly waived by
Borrower;
(ii) Declare the Commitments terminated;
-30-
<PAGE>
(iii) With respect to any and all contingent, unmatured or
unliquidated obligations of Borrower hereunder, including without
limitation any and all outstanding Letters of Credit, declare and
require that cash in an amount equal to the aggregate outstanding
amount of all such obligations be immediately paid over, pledged and
delivered to the Agent on behalf of the Lenders to be held as Cash
Collateral for such obligations; and
(iv) Proceed with every remedy provided for herein or in
the Working Capital Notes, the Security Documents or any contract,
agreement or undertaking supplemental hereto and the Lenders shall
have, without limitation, all of the rights of a secured party under
the Uniform Commercial Codes as then in effect with respect to any
security then held for the Loans.
The enforcement of any rights of the Agent and the Lenders as to the
security for the Loans shall not affect the rights of the Agent or the Lenders
to enforce payment of the Working Capital Loan against Borrower and to recover
judgment against Borrower for any portion thereof remaining unpaid.
(c) Setoff. Upon the occurrence of any Event of Default, each
------
Lender shall have the right at any time and from time to time, without prior
notice to Borrower (which notice is hereby waived by Borrower to the fullest
extent permitted by law), to setoff and apply any debt owing to Borrower by such
Lender, including without limitation, any deposits (general or special, time or
demand, provisional or final) now or hereafter maintained by Borrower with such
Lender, against any and all obligations of Borrower now or hereafter existing
under this Agreement or any of the other Loan Documents, although such
obligations may be contingent or unmatured, and for such purpose Borrower hereby
grants a security interest in and assigns to each Lender all such deposit
accounts.
SECTION #. THE AGENT.
---------
(a) Appointment. Each Lender hereby irrevocably designates and
-----------
appoints Norwest as the Agent of such Lender under this Agreement and the other
Loan Documents, and each such Lender irrevocably authorizes Norwest as the Agent
for such Lender, to take such action on its behalf under the provisions of this
Agreement and the other Loan Documents and to exercise such powers and perform
such duties as are expressly delegated to the Agent by the terms of this
Agreement and the other Loan Documents, together with such other powers as are
reasonably incidental thereto. Notwithstanding any provision to the contrary
contained elsewhere in this Agreement, the Agent shall not have any duties or
responsibilities, except those expressly set forth herein, or any fiduciary
relationship with any Lender, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Agreement or any other Loan Document or otherwise exist against the Agent.
(b) Delegation of Duties. The Agent may execute any of its
--------------------
duties under this Agreement and the other Loan Documents by or through agents or
attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. The Agent shall not be responsible to the
Lenders for the negligence or misconduct of any agents or attorneys-in-fact
selected by it with reasonable care.
(c) Exculpatory Provisions. Neither the Agent nor any of its
----------------------
officers, directors, employees, agents, attorneys-in-fact or affiliates shall be
(i) liable for any action lawfully taken or omitted to be taken by it or such
Person or entity under or in connection with this Agreement or any other Loan
Document (except for its or such Person's or entity's own gross negligence or
willful misconduct), or (ii) responsible in any manner to any of the Lenders for
any recitals, statements, representations or warranties made by the Borrower or
any representative thereof contained in this Agreement or any other Loan
Document or in any certificate, report, statement or other document referred to
or provided for in, or received by the Agent under or in connection with, this
Agreement or any other Loan Document or for the value, validity, effectiveness,
genuineness, enforceability or sufficiency of this Agreement or the Working
Capital Notes or any other Loan Document or for any failure of the Borrower to
perform its obligations hereunder or thereunder. The Agent shall not be under
any obligation to any Lender to ascertain or to inquire as to the observance or
performance of any of the agreements contained in, or conditions of, this
Agreement or any other Loan Document, or to inspect the properties, books or
records of the Borrower.
(d) Reliance by Agent. The Agent shall be entitled to rely, and
-----------------
shall be fully protected in relying, upon any Working Capital Note, writing,
resolution, notice, consent, certificate, affidavit, letter, telecopy or telex
message, statement, order or other document or conversation believed by it to be
genuine and correct and to have been signed, sent or made by the proper person
or persons and upon advice and statements of legal counsel (including, without
limitation, counsel to the Borrower), independent accountants and other experts
selected by the Agent. The Agent may deem and treat the payee of any Working
Capital Note as the
-31-
<PAGE>
owner thereof for all purposes unless a written notice of assignment,
negotiation or transfer thereof shall have been filed with the Agent. The Agent
shall be fully justified in failing or refusing to take any action under this
Agreement or any other Loan Document unless it shall first receive such advice
or concurrence of the Required Lenders as it deems appropriate or it shall first
be indemnified to its satisfaction by the Lenders against any and all liability
and expense which may be incurred by it by reason of taking or continuing to
take any such action. The Agent shall in all cases be fully protected in acting,
or in refraining from acting, under this Agreement and the Working Capital Notes
and the other Loan Documents in accordance with a request of the Required
Lenders, and such request and any action taken or failure to act pursuant
thereto shall be binding upon all the Lenders and all future holders of the
Working Capital Notes.
(e) Notice of Default. The Agent shall not be deemed to have
-----------------
knowledge or notice of the occurrence of any Unmatured Event of Default or Event
of Default hereunder unless the Agent has received notice from a Lender or the
Borrower referring to this Agreement, describing such Unmatured Event of Default
or Event of Default and stating that such notice is a "notice of default." In
the event that the Agent receives such a notice, the Agent shall give notice
thereof to the Lenders.
(f) Non-Reliance on Agent and Other Lenders. Each Lender
---------------------------------------
expressly acknowledges that neither the Agent nor any of its officers,
directors, employees, agents, attorneys-in-fact or affiliates has made any
representations or warranties to it and that no act by the Agent hereinafter
taken, including any review of the affairs of the Borrower, shall be deemed to
constitute any representation or warranty by the Agent to any Lender. Each
Lender represents to the Agent that it has, independently and without reliance
upon the Agent or any other Lender, and based on such documents and
information as it has deemed appropriate, made its own appraisal of and
investigation into the business, operations, property, financial and other
condition and creditworthiness of the Borrower and made its own decision to
make its Working Capital Loan hereunder and enter into this Agreement. Each
Lender also represents that it will, independently and without reliance upon
the Agent or any other Lender, and based on such documents and information as
it shall deem appropriate at the time, continue to make its own credit
analysis, appraisals and decisions in taking or not taking action under this
Agreement and the other Loan Documents, and to make such investigation as it
deems necessary to inform itself as to the business, operations, property,
financial and other condition and creditworthiness of the Borrower. Except for
notices, reports and other documents expressly required to be furnished to the
Lenders by the Agent hereunder, the Agent shall not have any duty or
responsibility to provide any Lender with any credit or other information
concerning the business, operations, property, condition (financial or
otherwise), prospects or creditworthiness of the Borrower which may come into
the possession of the Agent or any of its officers, directors, employees,
agents, attorneys-in-fact or affiliates.
(g) Indemnification. Lenders agree to indemnify the Agent in its
---------------
capacity as such (to the extent not reimbursed by the Borrower and without
limiting the obligation of the Borrower to do so), ratably according to the
respective amounts of their original Commitments, from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind whatsoever which may at any time
(including, without limitation, at any time following the payment of the Working
Capital Notes) be imposed on, incurred by or asserted against the Agent in any
way relating to or arising out of this Agreement, any of the other Loan
Documents or the transactions contemplated hereby or thereby or any action taken
or omitted by the Agent under or in connection with any of the foregoing;
provided that no Lender shall be liable for the payment of any portion of such
- --------
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements resulting solely from the Agent's gross
negligence or willful misconduct. The agreements in this subsection shall
survive the payment of the Working Capital Notes and all other amounts payable
hereunder.
(h) Agent and Lenders in Their Individual Capacity. Each of the
----------------------------------------------
Agent, the Lenders and their respective affiliates may make loans to, accept
deposits from and generally engage in any kind of business with the Borrower as
though such Person was not the Agent and/or Lender, as the case may be,
hereunder and under the other Loan Documents. With respect to Advances made by
it and any Working Capital Note issued to it, the Agent shall have the same
rights and powers under this Agreement and the other Loan Documents as any
Lender and may exercise the same as though it were not the Agent, and the terms
"Lender" and "Lenders" shall include the Agent in its individual capacity.
(i) Successor Agent. The Agent may resign as Agent upon 10 days'
---------------
notice to the Lenders. If the Agent shall resign as Agent under this Agreement
and the other Loan Documents, then the Required Lenders shall appoint from among
the Lenders a successor agent for the Lenders, which successor agent shall be
approved by the Borrower, whereupon such successor agent shall succeed to the
rights, powers and duties of the Agent, and the term "Agent" shall mean such
successor agent effective upon its appointment, and the former Agent's rights,
powers and duties as Agent shall be terminated, without any other or further act
or deed on the part of such former Agent or any of the parties to this Agreement
or any holders of the Working Capital Notes, other than to give notice of the
appointment of such successor agent to Borrower. Borrower is entitled to rely
upon the existing Agent until Borrower has received notice of the appointment of
a successor agent. After any retiring Agent's resignation as Agent, the
provisions of this
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<PAGE>
subsection shall inure to its benefit as to any actions taken or omitted to be
taken by it while it was Agent under this Agreement and the other Loan
Documents.
(j) Borrower Entitled to Rely on Agent. Borrower shall be
----------------------------------
entitled to rely upon the Agent's written actions and representations.
SECTION #. MISCELLANEOUS.
-------------
(a) No Waiver; Cumulative Remedies. No delay on the part of the
------------------------------
Agent or any Lender in exercising any right, power, privilege or remedy
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise or waiver of any right, power, privilege, or remedy hereunder preclude
any other or further exercise of such right, power, privilege, or remedy
hereunder or the exercise of any other right, power or privilege or remedy. The
rights and remedies of the Agent and the Lenders contained herein are
cumulative and not exclusive of any right or remedy which the Agent and the
Lenders shall otherwise have pursuant to the Security Documents, the Working
Capital Notes or applicable law. The obligations of Borrower contained herein
are cumulative, and compliance by Borrower with any covenant shall not excuse
compliance by Borrower with any other covenant.
(b) Notices. All notices given hereunder shall be in writing,
-------
shall be given by certified mail, return receipt requested, overnight courier
service, telecopy, facsimile or copy delivered by hand, and, (i) if mailed,
shall be deemed received three Business Days after having been deposited in a
receptacle for United States mail, postage prepaid, (ii) if delivered by
overnight air courier service, shall be deemed received one Business Day after
having been deposited with such overnight air courier service, postage prepaid,
and (iii) if delivered by telex, telecopy or hand delivery, shall be deemed
received on the day the notice is sent, in each case addressed as follows:
If to Borrower, to:
MarkWest Hydrocarbon Partners, Ltd.
5613 DTC Parkway, Suite 400
Englewood, Colorado 80111
Attention: Finance Department
Fax. No.: (303) 290-8769
If to the Lenders, to:
Norwest Bank Denver, National Association
1700 Broadway
Denver, Colorado 80274-0099
Attention: Energy and Minerals Group
Fax. No.: (303) 863-5196
First American National Bank
4894 Poplar Avenue
Memphis, TN 38117
Attention: National Accounts
Fax. No.: (901) 762-5665
If to the Agent, to:
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<PAGE>
Norwest Bank Denver, National Association
1700 Broadway
Denver, Colorado 80274-0099
Attention: Energy and Minerals Group
Fax. No.: (303) 863-5196
Any party may, by written notice so delivered to the others, change the address
or facsimile number to which delivery shall thereafter be made.
(c) Counterpart Execution. This Agreement may be executed in any
---------------------
number of counterparts which together will be but one and the same instrument.
This Agreement shall become effective whenever each party shall have signed at
least one counterpart.
(d) Governing Law; Entire Agreement. THIS AGREEMENT AND THE
-------------------------------
WORKING CAPITAL NOTES SHALL BE DEEMED TO BE CONTRACTS UNDER THE LAWS OF COLORADO
AND FOR ALL PURPOSES SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF SUCH
STATE. Such documents and any other Loan Documents, together with the Security
Documents, constitute and incorporate the entire agreement between the Agent,
the Lenders and Borrower concerning the subject matter hereof and thereof, and
supersede and cancel any prior or contemporaneous agreements, verbal or written,
between the Agent, the Lenders and Borrower concerning the subject matter hereof
and thereof.
(e) Amendments and Waivers. No waiver of any provision of this
----------------------
Agreement, the Working Capital Notes, the Covenant Agreements or any of the
Security Documents, and no consent with respect to any departure by Borrower
therefrom or by the respective parties to the Covenant Agreements, shall be
effective unless the same shall be in writing and signed by the Agent, at the
direction of the Required Lenders. No amendment of any provision of this
Agreement shall be effective unless the same shall be in writing and signed by
the Agent and the Required Lenders. All consents, waivers and other action to be
taken by the Lenders hereunder shall only be taken upon approval of the Required
Lenders. Any waiver shall be effective only in the specific instance and for the
specific purpose for which given. Any consent or approval contemplated herein by
the Required Lenders or the Lenders may be granted or withheld in the sole
discretion of such Persons.
(f) Costs, Expenses and Indemnity. Borrower shall reimburse and
-----------------------------
pay the Agent, the Issuer and the Lenders for all fees, costs and expenses
(including, without limitation, attorneys' fees, court costs and legal expenses
and consultants' and experts' fees and expenses, the costs of the Agent's
inspection of the Collateral and the costs and expenses of title or lien
searches and filing and recording fees and expenses), reasonably incurred or
expended in connection with (i) the preparation, execution and delivery of this
Agreement, the Working Capital Notes and the other Loan Documents, subject
-------
however to the terms of the letter agreement between Borrower and the Agent
- -------
regarding the maximum legal fees to be charged by the Agent's counsel for the
preparation and execution of the Loan Documents to be delivered at closing, (ii)
the enforcement of this Agreement, the Working Capital Notes and the other Loan
Documents and any amendments, waivers or modifications of such documents, (iii)
the breach by Borrower of any representation or warranty contained in this
Agreement, the Security Documents or any other Loan Document, (iv) the failure
by Borrower to perform any agreement, covenant, condition, indemnity or
obligation contained in this Agreement, the Security Documents or any other Loan
Document, (v) the Agent's or the Lenders' exercise of any of their rights and
remedies under this Agreement, the Security Documents and the other Loan
Documents, or (vi) the protection of the Collateral and the liens thereon and
security interests therein. Borrower shall indemnify, defend and hold harmless
the Agent, the Issuer and each Lender and persons or entities owned or
controlled by or affiliated with such Persons and their respective directors,
officers, shareholders, partners, employees, consultants and agents (herein
individually called an "Indemnified Party," and collectively called "Indemnified
----------------- -----------
Parties") from and against, and reimburse and pay Indemnified Parties with
- -------
respect to, any and all claims, demands, liabilities, losses, damages
(including, without limitation, actual, consequential, exemplary and punitive
damages), causes of action, judgments, penalties, fees, costs and expenses
(including, without limitation, attorneys' fees, court costs and legal expenses
and consultants' and experts' fees and expenses), of any and every kind or
character, known or unknown, fixed or contingent, that may be imposed upon,
asserted against or incurred or paid by or on behalf of any Indemnified Party on
account of, in connection with, or arising out of (a) any bodily injury or death
or property damage occurring in or upon or in the vicinity of the Collateral
through any cause whatsoever, (b) any act performed or omitted to be performed
hereunder or the breach of or failure to perform any warranty, representation,
indemnity, covenant, agreement or condition contained in this Agreement, the
Security Documents or any other Loan Documents, (c) any transaction, act,
omission, event or circumstance arising out of or in any way connected with the
Collateral or with this Agreement, the Security Documents or any other Loan
Documents, and (d) subject to the exceptions and limitations contained in the
Security Agreements, the violation of or failure to comply with any statute,
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<PAGE>
law, rule, regulation or order now existing or hereafter occurring, including
without limitation, "Environmental Laws" (as defined in the Security Agreements)
and statutes, laws, rules, regulations and orders relating to "Hazardous
Substances" (as defined in the Security Agreements). The foregoing indemnities
shall not apply to any Indemnified Party to the extent the subject of the
indemnification is caused by or arises out of the gross negligence or willful
misconduct of that or another Indemnified Party or a successful suit by Borrower
against such Indemnified Party. If Borrower and the Indemnified Party are
jointly named in any action covered by this Section 14, the Indemnified Party
shall cooperate in the defense of such action to the extent its own rights or
defenses are not compromised thereby. Subject to the exceptions and limitations
contained in the Security Agreements, the foregoing indemnities shall not
terminate upon release, foreclosure or other termination of this Agreement or
the Security Documents, but shall survive such release, foreclosure or
termination and the repayment of the Loans. Any amount to be paid hereunder by
Borrower to the Agent, the Issuer or any Lender or for which Borrower has
indemnified an Indemnified Party shall be a demand obligation owing by Borrower
to the Agent, the Issuer or such Lender and shall bear interest at the Late
Payment Rate until paid, and shall constitute a part of the Working Capital Loan
and be indebtedness secured by the Security Documents.
(g) Inconsistent Provisions; Severability. In case of any
-------------------------------------
irreconcilable conflict between the provisions of this Agreement and those of
the Security Documents and the Working Capital Notes, the provisions of this
Agreement shall govern. The invalidity, illegality or unenforceability of any
provision of any of the Loan Documents shall not in any way affect or impair the
legality or enforceability of the remaining provisions of each of the Loan
Documents.
(h) Incorporation of Exhibits and Schedules. All Exhibits and
---------------------------------------
Schedules attached to this Agreement are a part hereof and are incorporated
herein for all purposes.
(i) Amendment of Defined Instruments. Unless the context
--------------------------------
otherwise requires or unless otherwise provided herein the terms defined in
this Agreement which refer to a particular agreement, instrument or document
also refer to and include all renewals, extensions and modifications of such
agreement, instrument or document, provided that nothing contained in this
section shall be construed to authorize any such renewal, extension or
modification.
(j) References and Titles. All references in this Agreement to
---------------------
Exhibits, Schedules, Sections and Subsections and other subdivisions refer to
the Exhibits, Schedules, Sections and Subsections and other subdivisions of this
Agreement unless expressly provided otherwise. Headings are for convenience only
and do not constitute any part of such subdivisions and shall be disregarded in
construing the language contained in such subdivisions. The words "this
Agreement", "this instrument", "herein", "hereof", "hereby", "hereunder" and
words of similar import refer to this Agreement as a whole and not to any
particular subdivision unless expressly so limited. Pronouns in masculine,
feminine and neuter genders shall be construed to include any other gender, and
words in the singular form shall be construed to include the plural and vice
versa, unless the context otherwise requires.
(k) Calculations and Determinations. Unless otherwise expressly
-------------------------------
provided herein or unless the Lenders otherwise consent, all financial
statements and reports furnished to the Agent or the Lenders hereunder shall be
prepared and all financial computations and determinations pursuant hereto shall
be made in accordance with GAAP.
(l) Usury. It is not intended hereby to charge interest at a
-----
rate in excess of the maximum rate of interest that the Agent and the Lenders
may charge to Borrower under applicable usury and other laws, but if,
notwithstanding, interest in excess of such rate shall be paid hereunder, the
interest rates provided for herein shall be adjusted to the maximum permitted
under applicable law during the period or periods that any of the interest rates
otherwise provided herein would exceed such rate and any excess amount applied
at the Lenders' option to reduce the outstanding principal balance of the
Working Capital Loans or to be returned to Borrower.
(m) Waiver of Right to Trial by Jury. EACH PARTY TO THIS
--------------------------------
AGREEMENT HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM,
DEMAND, ACTION OR CAUSE OF ACTION (a) ARISING UNDER THIS AGREEMENT OR ANY
OTHER LOAN DOCUMENT, OR (b) IN ANY WAY CONNECTED WITH OR RELATED TO INCIDENTAL
TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM WITH RESPECT TO THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR THE TRANSACTIONS RELATED HERETO OR
THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING; AND EACH
PARTY HEREBY AGREES AND CONSENTS THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN
ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN
EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO
TRIAL BY JURY.
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<PAGE>
(n) Successors and Assigns. This Agreement shall be binding upon
----------------------
and shall inure to the benefit of the parties hereto and their respective
successors and assigns, except that Borrower may not transfer or assign any of
its rights or obligations hereunder without the Agent's, the Issuer's and each
of the Lenders' prior written consent. The Working Capital Note, this Agreement
and any other Loan Document may be endorsed, assigned, or transferred in whole
or in part by any Lender, and any subsequent holder and assignee of same shall
succeed to and be possessed of the rights of such Lender under such documents to
the extent transferred and assigned; provided however, that such endorsement,
-------- -------
assignment or transfer shall not be binding upon Borrower until Borrower has
received written notice of such endorsement, assignment or transfer.
(o) Term of Agreement. Except as set forth in Section 14(f),
-----------------
this Agreement shall continue in full force and effect so long as any
indebtedness or other obligation of Borrower to the Lenders remains unpaid or
outstanding or Borrower has any right to Advances hereunder.
(p) Jurisdiction. At the option of the Agent or the Lenders, an
------------
action may be brought to enforce this Agreement in the District Court in and for
the City and County of Denver, State of Colorado, in the United States District
Court for the District of Colorado or in any other court in which venue and
jurisdiction are proper. Borrower and all guarantors hereof consent to venue and
jurisdiction in the District Court in and for the City and County of Denver,
State of Colorado and in the United States District Court for the District of
Colorado and to jurisdiction and service of process under Sections 13-1-
124(1)(a) and 13-1-125, Colorado Revised Statutes (1973), as amended, in any
action commenced to enforce this Agreement.
EXECUTED to be effective as of the day and year first above written.
MARKWEST HYDROCARBON PARTNERS,
LTD.
By: MarkWest Hydrocarbon, Inc.
General Partner
By:
Patrick W. Murray,
Vice President
NORWEST BANK DENVER,
NATIONAL ASSOCIATION,
individually and as Agent
By: ____________________________
Mark Williamson,
Vice President
FIRST AMERICAN NATIONAL BANK
By: ____________________________
David C. May,
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<PAGE>
Vice President
-37-
<PAGE>
NATURAL GAS LIQUIDS PURCHASE AGREEMENT
(Boldman Plant)
THIS AGREEMENT made and entered into this 24th day of December, 1990, by
and between COLUMBIA GAS TRANSMISSION CORPORATION, herein called "Columbia", and
MARKWEST HYDROCARBON PARTNERS, LTD. (herein called "MarkWest").
RECITALS:
A. Columbia desires to deliver all liquid hydrocarbons extracted from
natural gas at the Boldman Extraction Plant, operated by Columbia (the "Boldman
Plant" or "Plant").
B. MarkWest desires to receive all of those liquid hydrocarbons in
accordance with the terms of this Agreement.
NOW THEREFORE, in consideration of the mutual covenants and agreements
contained herein, the parties agree as follows:
1. Commitment. (a) MarkWest agrees to receive and purchase One Hundred
----------
Percent (100%) of the natural gas liquids produced by Columbia from the Boldman
Plant. In conjunction therewith, MarkWest agrees that it shall receive and
remove the liquids recovered by Columbia at the Plant on a daily basis, to the
extent that the recovery of those natural gas liquids requires daily removal. In
the event that a failure of MarkWest to timely remove natural gas liquids from
the Boldman Plant causes Columbia to exceed the storage capacities for those
liquid products at the Boldman Plant, then Columbia shall have the right to sell
those liquids to the extent required to alleviate storage capacity problems, and
shall remit to MarkWest any proceeds received in those sales less all necessary
and reasonable costs and expenses incurred by Columbia in selling those
products. All liquids sold by Columbia under the provisions of this Paragraph
1., shall be deemed received and accepted by MarkWest from Columbia for the
purposes of determining the reimbursements by MarkWest under Paragraph 4.,
below.
(b) Columbia agrees that it shall utilize its best efforts to
maximize the liquid recovery (propane and heavier hydrocarbons) from the Plant
utilizing the Plant equipment as ultimately constructed and installed.
(c) Subject to the limitations hereinafter set forth, Columbia
agrees to use its best efforts to avoid taking any action not compelled by law
or regulation which will reduce the volume of natural gas being supplied to the
Boldman Plant, or reduce the recovery of natural gas liquids at the Boldman
Plant, or divert elsewhere the streams of natural gas that would otherwise flow
through and be processed by the Boldman Plant.
<PAGE>
MarkWest and Columbia agree that the streams of natural gas are primarily part
of Columbia's current natural gas supply for service to the public and
Columbia's use of said natural gas streams to meet its public service obligation
at the lowest reasonable cost shall be paramount. Columbia shall have the right
to manage its gas supply, including the subject natural gas streams, in the
manner in which Columbia, in its sole discretion, deems most appropriate to meet
its public service obligation at the lowest reasonable cost, without any
liability to MarkWest on account thereof. That right shall specifically include,
but not be limited to, the right to curtail, interrupt, or divert the natural
gas streams for such periods as Columbia, in its sole judgment, deems necessary.
It is provided, however, that should Columbia divert the natural gas streams,
otherwise deliverable to the Boldman Plant, to other extraction plants, the
liquids extracted from those streams shall remain committed to MarkWest under
the terms of this Agreement.
2. Delivery Point of Natural Gas Liquids. (a) MarkWest shall receive
-------------------------------------
delivery of natural gas liquids under this Agreement where the liquid passes
from the loading facilities into MarkWest's transportation vehicles at the
Boldman Plant site. Columbia agrees to provide MarkWest the use of adequate
space at the Plant site for MarkWest to conduct loading of the natural gas
liquids produced at the Plant. MarkWest shall be solely responsible for any
expenses incurred in loading natural gas liquids at Boldman, and removing and
transporting the natural gas liquids from the truck loading facilities.
(b) Title to the natural gas liquids and all components thereof
shall pass from Columbia to MarkWest at the Delivery Point. As between the
parties, Columbia shall be solely responsible for the natural gas liquids and
all damages arising out of their extraction and handling up to the Delivery
Point, and MarkWest shall be solely responsible for those liquids, and the
handling thereof, from and after the Delivery Point.
(c) Composition of the natural gas liquids delivered to MarkWest
shall be determined by chromatographic analysis conducted by, and at the expense
of Columbia. The mass of natural gas liquids delivered to MarkWest, shall be
determined by the truck scales located at MarkWest's Siloam Fractionation Plant.
3. Term. This Agreement shall be effective upon the date hereof, and
----
shall continue in force through April 30, 2003. Thereafter, this Agreement shall
continue for successive periods of two (2) years each, until either party gives
notice of termination to the other party at least one (1) year prior to April
30, 2003, or one (1) year prior to the end of each succeeding 2-year period.
2
<PAGE>
4. Reimbursement by MarkWest. (a) (Interim Period) During the period from
-------------------------
Acceptance of the Plant as described in 2.4(a) of the Contract for Construction
and Lease of Boldman Plant through and including thirty (30) days following
written notice from Columbia, MarkWest shall compensate Columbia in cash for all
natural gas liquids received from Columbia. The price shall be the actual spot
gas pricing for the Columbia Gulf Transmission Company (Columbia Gulf),
interconnection at the Texaco Henry Plant, Louisiana delivery point as published
weekly in Natural Gas Week, Spot Prices on Natural Gas Pipeline Systems,
----------------
Delivered-to-Pipeline ($/MMBtu), in the "This Week" column, plus one-half (1/2)
of the maximum rate specified in Columbia Gulf's ITS-1 Tariff, as such rate may
be revised from time to time, excluding retainage. This pricing will be applied
to the actual liquid deliveries in Dekatherms received and accepted by MarkWest
during the preceding week to arrive at the compensation amount.
(b) (Interim period Billing and Payment) During the interim period,
on or before the 10th day of each month, Columbia shall receive from MarkWest a
statement stating the number of gallons received from Columbia on a daily basis
during the preceding month, by product from Ethane through Hexanes plus.
Thereafter, on or before the 15th day of the same month, Columbia will submit a
statement and invoice to MarkWest indicating all amounts due under this
Agreement for the preceding month. MarkWest shall remit payment based on that
invoice by the later of (i) the 25th day of the month in which the invoice is
received by MarkWest or (ii) ten (10) days following receipt of the invoice.
(c) (Subsequent Period) Beginning at the end of the thirty-day
period specified in 4(a), above, and throughout the remainder of the term of
this Agreement, MarkWest shall reimburse Columbia for all natural gas liquids
received from Columbia by delivering to Columbia a quantity of Dekatherms
contained in the natural gas liquids received and accepted by MarkWest. The
Dekatherms in the form of natural gas shall conform to Columbia's or Columbia
Gulf's tariff gas quality specifications then in effect at the actual Delivery
Point.
(d) With respect to ethane, MarkWest shall only be obligated to
receive liquids from Columbia hereunder, representing ethane, up to a maximum of
Two and One-Half Percent (2 1/2%) of the natural gas liquids delivered by
Columbia. Should the natural gas liquids delivered hereunder contain in excess
of 2 1/2% by liquid volume ethane, then MarkWest, at its option, shall have the
right to refuse to receive deliveries of those natural gas liquids; provided,
should MarkWest accept those excess ethane liquids, it will reimburse Columbia
as provided in 4(a) or 4(c) above, as appropriate.
3
<PAGE>
(e) MarkWest shall have no obligation to reimburse Columbia for any
fuel incurred in operating the Boldman Plant.
(f) For purposes of calculating Btu's received by MarkWest
hereunder, the liquid chromatographic analysis as determined by Columbia using
the chromatograph at Boldman will be used to determine liquid product
composition by weight percent.
The amount of liquid product received by MarkWest will be determined at
MarkWest's transport scales at its Siloam Fractionation Plant and the conversion
factors listed below will be used to convert weight to liquid volume:
<TABLE>
<CAPTION>
Product Pounds Mass per Gallon
------- ---------------------
<S> <C>
Ethane 2.9696
Propane 4.2268
Iso-butane 4.6927
Normal Butane 4.8690
Iso-Pentane 5.2082
Normal-Pentane 5.261
Hexanes+ 5.5344
</TABLE>
The natural gas liquid products shall be deemed to contain the following amounts
of Btu's per gallon:
<TABLE>
<CAPTION>
Product Btu per Gallon
------- --------------
<S> <C>
Ethane 69,586
Propane 90,830
Iso-butane 98917
Normal butane 102,911
Iso-Pentane 108,805
Normal pentane 110,091
Hexanes + 115,021
</TABLE>
The factors given above will be used to convert the liquid product by component
by volume to BTU's for determining reimbursement volumes and/or compensation as
provided elsewhere in this Agreement.
5. Delivery of Natural Gas. (a) The terms and the provisions of this
-----------------------
paragraph, shall apply solely to reimbursement through deliveries of natural
gas, as set forth in Paragraph 4(c), above, for the subsequent period.
(b) The reimbursement in the form of natural gas conforming to
Columbia's (or Columbia Gulf's, as appropriate) tariff gas quality
specifications in effect at the time of such reimbursement and, as otherwise
required under this Agreement, shall be made by MarkWest to Columbia at any or
all of the receipt points specified in Exhibit "A", attached hereto and made
4
<PAGE>
a part hereof, subject to physical capability, or any other receipt points upon
which the parties agree, which agreement will not be unreasonably withheld.
(c) MarkWest shall have the right, but not the obligation, during
the term of this Agreement, to effectuate reimbursement by delivery of natural
gas required by this Agreement into the Columbia Gulf System at Rayne,
Louisiana, or at other points, subject to the physical capability of Columbia
Gulf.
(d) Measurement of the gas delivered at the receipt points as
specified in Exhibit "A" shall be computed based upon existing meters and
calorimeters located at those points. For determining the amounts of natural gas
delivered at those receipt points, all volumes shall be converted to Btu's based
upon the heating value contained in the natural gas at the receipt points
measured at standard conditions (60 degrees Fahrenheit, 14.73 psia, 14.40 psia
barometric, gross heating value dry basis).
(e) MarkWest shall be responsible for obtaining all transportation
arrangements required to deliver the natural gas to the receipt points, and
shall be responsible for all transportation costs incurred in delivering the gas
to the receipt points.
(f) Columbia shall be responsible for all costs incurred in
connection with the transportation of the natural gas from and after the receipt
points; provided, however, MarkWest shall reimburse Columbia for transportation
costs associated with the transportation of this natural gas on the Columbia
Gulf System; such reimbursement will be at the equivalent maximum rates
specified in Columbia Gulf's ITS-1 Tariff (and Columbia Gulf's ITS-2 Tariff for
deliveries upstream of Rayne, Louisiana), as such rates may be revised from time
to time. In the event Columbia Gulf is generally discounting its ITS-1 and/or
ITS-2 rates, the reimbursement rate hereunder will be reduced accordingly during
the period in which the generally available discounts are in effect. At the time
deliveries are made to Columbia Gulf by MarkWest, MarkWest shall also deliver
volumes for Colllmhia Gulf's transportation retainage, at the equivalent
percentages specified in Columbia Gulf's ITS-1 and/or ITS-2 Tariffs, as
applicable, as such percentages may be revised from time to time.
(g) It is recognized that due to operating conditions, the Btu's of
liquids received by MarkWest and the Btu's of natural gas to be delivered to
Columbia may not be in balance in any one particular month. MarkWest shall
adjust deliveries of gas within a mutually agreeable time-frame in order to
balance any excess or deficiency.
5
<PAGE>
(h) Should MarkWest fail to deliver gas consistent with the
provisions of (g), above, then Columbia, in the event of deficiency, shall have
the right to either (i) reduce deliveries of natural gas liquids to MarkWest to
the extent necessary to balance the natural gas due Columbia with the natural
gas delivered by MarkWest, or (ii) demand payment of an amount equal to the
product of the volume of gas which was required and the effective price at the
time deliveries were to have been made for Columbia Gulf Transmission Co.,
Rayne, La. delivery point, spot prices Delivered-to-Pipeline, as published
weekly in Natural Gas Week, or other mutually agreeable sources, plus the cost
----------------
of transportation which would otherwise be incurred by MarkWest in delivering
that gas to a Columbia Gas Transmission receipt point specified in this
Agreement, plus the equivalent maximum transportation rates of Columbia Gulf
specified in its ITS-1 Tariff, as such rates may be revised from time to time,
if the receipt point is on Columbia Gulf's System. If a demand for payment is
made and payment is not received within thirty (30) days of that demand,
Columbia may apply the amount owed by MarkWest against any moneys owed by
Columbia to MarkWest.
(i) For natural gas tendered by MarkWest to the Columbia Gulf
System, and which, for whatever reason, was not received by Columbia Gulf and/or
redelivered to Columbia, MarkWest shall have the right to deliver these volumes
with reasonable dispatch, over the succeeding months following Columbia Gulf's
failure to receive volumes tendered, at any or all of the receipt points
specified hereunder, subject to physical capability.
6. Unprofitability. (a) As used herein, the term "unprofitable" shall
---------------
mean that the revenues derived from the operation of the MarkWest Siloam
Fractionation Plant are less than the direct and overhead expenses incurred in
operating that Plant.
(b) During the term hereof, should the continued operation of
MarkWest's Siloam Fractionation Plant prove unprofitable, then MarkWest shall
notify Columbia in writing. Thereafter, the parties shall meet and attempt to
renegotiate the terms of this Agreement, as may be required to return the Plant
to a profitable status. In the event that the parties are unable to agree upon
renegotiated terms, within forty-five (45) days following receipt of the notice,
then MarkWest, or its successor or assignee, shall continue to honor all terms
of this Agreement from that date for a period not to exceed twelve (12) calendar
months.
7. Billing and Payment. Should any payments be required under 5(h),
-------------------
above, then on or before the 15th day of the month following the applicable
month, Columbia will submit a statement and invoice to MarkWest indicating all
amounts due under this
6
<PAGE>
Contract for the preceding month. MarkWest shall remit payment based on that
invoice by the 25th day of the month in which the invoice is received, unless
the invoice is received by MarkWest after the 15th day of that month; in which
case, MarkWest will have an equal amount of days following the 25th day of that
month in which to remit payment.
8. Insurance and Indemnity. (a) During the terms of this Agreement,
-----------------------
MarkWest agrees that it shall carry and maintain, at its own expense, the kinds
of insurance including self-insured retentions and deductibles, and the minimum
amounts of coverage set forth in the Insurance Schedule attached as Exhibit B.
(b) Columbia shall indemnify and hold harmless MarkWest from and
against any and all loss, damage, and liability, and from any and all claims for
damages on account of or by reason of bodily injury, including death, which may
be sustained, or claimed to be sustained by any person, including the employees
of Columbia, MarkWest's General Contractor, Contractors and of any Subcontractor
or Columbia, and from and against any and all damages to property, and including
property of MarkWest, caused by or arising out of, or claimed to have been
caused by or to have arisen out of, an act or omission of Columbia or its
agents, or employees in connection with Columbia's operation of the plant or
other conduct with respect to the plant, whether or not insured against;
provided, however, that the foregoing indemnification will not cover loss,
damage or liability arising from the sole negligence or willful misconduct of
MarkWest, its agents and employees; and Columbia shall, at its own cost and
expense, defend any claim, suit, action, or proceeding, whether groundless or
not, which may be commenced against MarkWest by reason thereof or in connection
therewith, and Columbia shall pay any and all judgments which may be recovered
in any such action, claim, proceeding, or suit, following all appeals as may be
pursued by Columbia, and defray any and all expenses, including costs and
attorneys' fees, which may be incurred in or by reason of such actions, claims,
proceedings, or suits.
(c) MarkWest shall indemnify and hold harmless Columbia from and
against any and all loss, damage, and liability and from any and all claims for
damages on account of or by reason of bodily injury, including death, which may
be sustained or claimed to be sustained by any person, including the employees
of MarkWest, its General Contractor, Contractors and of any Subcontractor or
MarkWest, and from and against any and all damages to property, and including
property of Columbia, caused by or arising out of, or claimed to have been
caused by or to have arisen out of an act or omission of MarkWest or its agents,
employees, General Contractor, Contractors or Subcontractors in connection with
MarkWest's loading of plant products at the Boldman Plant or other conduct with
respect to the Boldman Plant, whether or not insured against; provided, however,
that the
7
<PAGE>
foregoing indemnification will not cover loss, damage or liability arising from
the sole negligence or willful misconduct of Columbia, its agents and employees;
and MarkWest shall, at its own cost and expense, defend any claim, suit, action,
or proceeding whether groundless or not, which may be commenced against Columbia
by reason thereof or in connection therewith, and MarkWest shall pay any and all
judgments which may be recovered in any such action, claim, proceeding, or suit,
following all appeals as may be pursued by MarkWest, and defray any and all
expenses, including costs and attorneys' fees, which may be incurred in or by
reason of such actions, claims, proceedings, or suits.
9. Miscellaneous. (a) This Agreement may be assigned by either party
-------------
hereto with the consent of the other party, such consent should not be
unreasonably withheld, and shall be binding upon and shall inure to the benefit
of each party's successors and assigns. Any assignment by MarkWest of the
Boldman Plant shall be made expressly subject to the terms of this Agreement.
Further, no mortgage, pledge, encumbrance or assignment for security of this
Agreement by MarkWest shall be considered an assignment, and may, therefore, be
made without consent.
(b) Any notices required or permitted under this Agreement shall be
made through the U.S. Postal Service, to the following addresses:
MarkWest Hydrocarbon Partners, Ltd.
5613 DTC Parkway, Suite 400
Englewood, CO 80111
Columbia Gas Transmission Corporation
Box 1273
Charleston, WV 25325
Attention of Assistant General Counsel, Corporate Matters
(c) This Agreement shall be construed in accordance with the laws of
the State of West Virginia.
(d) Any and all disputes, claims or controversies arising from the
interpretation of this Agreement, or a party's obligations
hereunder, shall be resolved by binding arbitration conducted in
accordance with the rules of the American Arbitration
Association.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day
and year last above written.
ATTEST: COLUMBIA GAS TRANSMISSION CORPORTION
By: /s/ R. Larry Robinson
Title: President
ATTEST: MARKWEST HYDROCARBON PARTNERS, LTD.
By: MarkWest Hydrocarbon, Inc., its general partner
By: /s/ John M. Fox
Title: President
9
<PAGE>
EXHIBIT "A"
To That Certain Natural Gas Liquids Purchase Agreement (Boldman Plant) by
and Between Columbia Gas Transmission Corporation and MarkWest Energy Partners,
Ltd.
<TABLE>
<CAPTION>
RECEIPT POINTS
FROM AT COUNTY AND STATE
- ---- -- ----------------
(COMMON NAME)
-------------
<S> <C> <C>
Panhandle Eastern Maumee Lucas Co., Ohio
Pipeline Co.
Tennessee Gas Broad Run Kanawha Co., WV
Pipeline Co. Unionville Beaver Co., PA
Texas Eastern Lebanon Warren Co., Ohio
Transmission Corp. Hooker Fairfield Co., OH
Eagle Chester Co., PA
Pennsburg, Exc. Bucks Co., PA
Texas Gas Lebanon Warren Co., Ohio
Transmission Corp.
Transcontinental Dranesville Fairfax Co., VA
Gas Pipeline Corp. Rockville Montgomery Co., MD
Downington Chester Co., PA
Columbia Gulf Leach Boyd Co. KY
</TABLE>
Additionally, Columbia Gulf Transmission Company's Rayne,Louisiana, facilities
and any other points, subject to physical capability, on the Columbia Gulf
System shall be receipt points under this Agreement.
10
<PAGE>
EXHIBIT B
As required and for the purposes specified in Paragraph 8 of the Contract
to which this Exhibit is attached, MarkWest shall carry and maintain, at its own
expense, the kinds of insurance, including self-insured retentions and
deductibles, and the minimum amounts of coverage set forth in the insurance
schedule below:
Insurance Endorsements or Certifications. MarkWest shall obtain
----------------------------------------
endorsements (or assurances on the Certificate of Insurance) on every insurance
contract (except for Workers' Compensation insurance contract, as required by
law) carried to comply with this article as follows:
(1) An endorsement or certification of contractual liability coverage
insuring performance of the indemnification of Columbia by MarkWest.
(2) All insurance policies carried by MarkWest to comply with the
requirements herein shall contain an endorsement or certification
naming Columbia as an additional insured under the insurance contract.
(3) All insurance policies shall contain a waiver of subrogation as to
Columbia, its agents, officials, parents, directors, officers and
employees.
Coverage
- --------
Coverage in Markwest's insurance policies shall be as specified in this
clause unless modified in writing by Columbia.
(1) Worker's Compensation
---------------------
Statutory coverage, including occupational disease if and as required
in a separate act. Coverage should also include:
(a) An all-states endorsement.
(b) Employer's Liability Coverage B $500,000.
11
<PAGE>
<TABLE>
<CAPTION>
(2) Comprehensive General Combined Single Limit
--------------------- ---------------------
Liability Insurance
-------------------
<S> <C>
Bodily injury and
Including Pollution Liability Property Damage:
(limited to Sudden & $1,000,000
Accidental Occurrences Each occurrence
only) Premises & (Excluding automobile)
Operations Owners and Annual Aggregate:
MarkWest's Protective for $1,000,000
Columbia, Blanket
Contractual, Completed
Operations, Broadform
Property Damage, Stop
Gap Coverage for Workers'
Compensation
Monopolistic states and, if
applicable, Product
Liability. (The Contractual
Section of the coverage
must cover the specific and
contractual agreement
being entered into.)
</TABLE>
The policy shall contain a severability of interest clause or a cross-liability
endorsement. Coverage shall expressly include damage resulting from fire,
explosion, injury or destruction of property below the surface or any injury or
loss resulting therefrom, excavating, pile driving, moving shoring, or
underpinning of any structures, or use of equipment for the purpose of
excavating or drilling in streets or elsewhere. Coverage shall be provided by
MarkWest for any and all necessary or required blasting and explosion hazards,
including coverage for underground and collapse.
Personal Injury
- ---------------
Personal injury coverage shall be provided for the above coverages with limits
of liability as stated. The fellow employees and contractual liability
exclusions are to be deleted.
Automobile Liability Insurance Combined Single Limit
- ------------------------------ ---------------------
Including owned, non-owned, Bodily Injury: $1,000,000
and hired vehicles. Property Damage: $1,000,000
MarkWest shall also comply with all applicable No-Fault Laws.
12
<PAGE>
(4) Umbrella Liability Insurance
----------------------------
Umbrella liability coverage in the amount of $5,000,000 combined
single limit, bodily injury and property damage. This coverage shall
be in excess of the primary coverage required in all other sections of
this article.
(5) Cancellation or Non-Renewal Agreement
-------------------------------------
Company will be furnished at least 30 days prior notice of any non-
renewal and/or cancellation and/or reduction in limits of material
change in any of the required coverages.
Proof of Coverage
- -----------------
MarkWest must furnish not later than the time of signing of this contract,
properly executed certificates of insurance and, if requested, shall furnish
Columbia with copies of the policies with all endorsements prior to the
commencement of any work hereunder.
13
<PAGE>
AMENDMENT TO NATURAL GAS LIQUIDS PURCHASE AGREEMENT (BOLDMAN PLANT)
THIS AMENDMENT made and entered into this 28th day of January, 1991, by and
between COLUMBIA GAS TRANSMISSION CORPORATION, herein called "Columbia" and
MARKWEST HYDROCARBON PARTNES, LTD., herein called "MarkWest."
RECITALS:
A. MarkWest and Columbia entered into a Natural Gas Liquids Purchase
Agreement, dated December 24, 1990 ("Agreement").
B. In accordance with the intentions and understandings of the parties,
MarkWest and Columbia desire to enter into this Amendment.
NOW THEREFORE, in consideration of the mutual covenants and agreements
contained herein, the parties agree to amend the Agreement as follows:
1. Section 4, Paragraph (a) shall be amended by deleting the phrase "one-
half (1/2) of the maximum rate specified in Columbia Gulf's ITS-1 Tariff, as
such rate may be revised from time to time, excluding retainage" and replacing
it with "additional compensation of $0.04 per MMBtu."
2. Except for the foregoing, all other terms and provisions of the Natural
Gas Liquids Purchase Agreement, dated December 24, 1990 shall remain in full
force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment the day and
year first above written.
COLUMBIA GAS TRANSMISSION CORPORATION
By: /s/ Michael W.
Its Senior Vice President
MARKWEST HYDROCARBON PARTNERS, LTD.
By: MarkWest Hydrocarbon, Inc.
Its General Partner
By: /s/ John M. Fox
Its President
14
<PAGE>
MARKWEST HYDROCARBON, INC.
1996 INCENTIVE COMPENSATION PLAN
Section 1. Purpose.
-------
MarkWest Hydrocarbon, Inc. has adopted this 1996 Incentive
Compensation Plan (the "Plan") for the purpose of providing a financial
incentive for certain employees of MarkWest Hydrocarbon, Inc. and its
subsidiaries (collectively the "Company") and to enable the Company to retain
such employees and to attract other well-qualified candidates.
Section 2. Effective Date.
--------------
The Plan shall be effective as of the Effective Date, and shall first
apply with respect to Plan Year ending December 31, 1996. The Plan was adopted
by the Board of Directors on July 31, 1996.
Section 3. Definitions.
-----------
As used in the Plan, the following terms shall have the meanings set
forth below:
(a) "Board of Directors" shall mean the Board of Directors of the
Company.
(b) "Bonus" or "Bonus Award" shall mean the cash bonus which may
be paid to a Participant pursuant to the Plan for any Plan Year.
(c) "Bonus Committee" shall mean the Committee appointed by the
Board of Directors to administer the Plan.
(d) "Bonus Pool" shall mean the total amount from which Bonus
Awards may be paid for any Plan Year.
(e) "Company" shall mean MarkWest Hydrocarbon, Inc., a Delaware
corporation, and all of its subsidiaries. For this purpose, a subsidiary shall
mean any corporation in an unbroken chain of corporations beginning with
MarkWest Hydrocarbon, Inc. if each of the corporations other than the last
corporation in the unbroken chain owns stock possessing 50 percent or more of
the total combined voting power of all classes of stock in one of the other
corporations in such chain.
(f) "Designated Beneficiary" shall mean any person designated by a
Participant in accordance with the terms of the Plan to receive payment of all
or a
<PAGE>
portion of the remaining balance owed to such Participant in the event of the
death of the Participant prior to receiving the entire amount owed to such
Participant.
(g) "Disability" shall mean the termination of employment due to
mental or physical disability, such disability being determined by a competent
medical authority acceptable to the Company.
(h) "Effective Date" shall mean the date of the closing of the
reorganization transactions contemplated by the Reorganization Agreement made as
of August 1, 1996, by and among MarkWest Hydrocarbon, Inc., MarkWest Hydrocarbon
Partners, Ltd., MWHC Holding, Inc. and RIMCO Associates, Inc..
(i) "Eligible Employee" shall mean any full-time, non-union
employee of the Company.
(j) "Participant" shall mean an Eligible Employee who is selected
by the Bonus Committee to participate in the Plan in any given Plan Year.
(k) "Plan" shall mean the MarkWest Hydrocarbon, Inc. 1996
Incentive Compensation Plan as set forth herein.
(l) "Plan Year" shall mean the calendar year. The first Plan Year
shall commence on the Effective Date and shall end on December 31, 1996.
(m) "Retirement" shall mean termination of employment with the
Company after attainment of age 65.
(n) "Salary" shall mean the amount of compensation paid by the
Company to a Participant during the Plan Year for services rendered, as
reflected on Form W-2 issued to such Participant with respect to such Plan Year.
4. Bonus Awards.
------------
(a) Participation. No later than each December l, the Bonus
Committee shall determine the Eligible Employees who will be Participants in the
Plan for the Plan Year ending on the next following December 31. The Eligible
Employees who are selected shall be notified in writing of their selection by
the Bonus Committee as soon as practicable. The selection of a Eligible Employee
as a Participant for one Plan Year does not mean that such Eligible Employee
will necessarily be selected as a Participant for any following Plan Year.
(b) Bonus Pool. The Bonus Pool represents the total amount of
Bonuses to be granted for a Plan Year. The amount of the Company's contribution
or allocation to the Bonus Pool for a Plan Year is within the discretion of the
Bonus
-2-
<PAGE>
Committee. As soon as practicable after the end of each Plan Year, the Bonus
Committee shall compute the amount of the Bonus Pool for such Plan Year. The
Bonus Committee, after consulting with the Board of Directors, may increase or
decrease the Bonus Pool on the basis of the overall profitability of the Company
or such other factors or considerations as it deems appropriate.
(c) Bonus Awards. The Bonus Committee, in its absolute discretion,
determines the amount of the Bonus for each Participant. The allocation of the
Bonus Pool among the Participants will be made based upon a combination of
individual performance, the overall profitability of the Company, and the
profitability of that portion of the Company in which the Participant is
directly involved. Notwithstanding the foregoing, a Bonus may not be paid to any
Participant for a Plan Year that exceeds 25 percent of the Participant's Salary
for such Plan Year. Generally, Bonuses shall be paid only to Participants who
are employed by the Company on the December 31 ending the Plan Year; however,
the Bonus Committee shall have the right to pay Bonuses to Participants who
retired or were disabled subsequent to December l of the Plan Year, or to the
Designated Beneficiary or the estate of a Participant whose death occurred
subsequent to December l of a Plan Year. The Bonus Committee is not obligated to
award the entire Bonus Pool to Participants for any Plan Year.
(d) Timing of Payment of Bonus. The Bonus Committee, in its
absolute discretion, shall determine whether the Bonus awarded to a Participant
is to be (a) paid in a lump sum, (b) paid partly in a lump sum and partly on a
deferred basis, or (c) paid totally on a deferred basis. All payments shall be
paid in cash. Lump sum payments shall be paid before March 31 following the end
of the Plan Year.
In the event that a Participant's employment is terminated for any
reason other than Retirement or Disability, the Company shall not be obligated
to pay any amount owed under the Plan to that Participant.
(e) Bonus Subject to Forfeiture. A Participant's right to a Bonus
and the right of such Participant or his Designated Beneficiary to unpaid
amounts will be terminated, or, if payments have begun, all further payments
will be discontinued and forfeited if the Bonus Committee determines that the
Participant has engaged in conduct inimical to the interests of the Company, or
has engaged, without the prior written consent of the Bonus Committee, as an
officer, director, partner, owner, joint venturer, employee, or consultant to
any business which competes with the business of the Company.
-3-
<PAGE>
Section 5. Bonus Committee.
---------------
The Bonus Committee shall have all powers as may be necessary to carry
out its duties under the Plan, including the power to determine all questions
pertaining to claims for benefits and procedures for claim review, and the power
to resolve all other issues arising under the Plan. The Bonus Committee shall
be responsible for construction of the Plan and the proper administration
thereof. In making its determination as to whether a Participant's Bonus is to
be paid in cash or to be deferred, or to be paid partly in cash and partly
deferred, and the manner in which a Participant's Bonus Account shall be paid,
the Bonus Committee shall exercise sole and absolute discretion and it shall not
be bound by any requests of the Participant.
Notwithstanding the foregoing, the Bonus Committee may consult with
the Participant and may take into account the age of the Participant, the
financial needs of the Participant, and/or the effect of federal and state taxes
on both the Company and the Participant that would result from any particular
method of payment. No one or more particular instances of a decision by the
Bonus Committee in this regard shall imply a course of dealing or customary
practice which is binding in any other future instances. The actions taken and
the decisions made by the Bonus Committee shall be final and binding upon all
interested parties.
Section 6. Miscellaneous.
-------------
(a) Amendment, Suspension or Termination. The Board of Directors
may from time to time amend, suspend, or terminate, in whole or in part, any or
all of the provisions of this Plan; provided, however, that no such action shall
adversely affect the right of any Participant or Designated Beneficiary with
respect to any bonus to which either of them may have become entitled hereunder
prior to the effective date of such amendment, suspension, or termination.
(b) Limitations. This Plan is not to be construed as constituting
a contract of employment. Nothing contained herein shall affect or impair the
Company's right to terminate the employment of a Eligible Employee. The
Company's obligation hereunder to make payment of Bonuses hereunder merely
constitute the unsecured promise of the Company to make payment from its general
assets, and no Participant or Designated Beneficiary shall have any interest in,
or a lien or prior claim upon, any property of the Company.
(c) Indemnification. No member of the Board of Directors of the
Bonus Committee shall have any liability for any decision or action if made or
done in good faith, nor for any error or miscalculation unless such error or
miscalculation is a result of fraud, deliberate disregard of the terms of the
Plan, or gross neglect. The Company shall indemnify each director and member of
the
-4-
<PAGE>
Bonus Committee acting in good faith, pursuant to the terms of the Plan,
against any loss or expense arising therefrom.
(d) Governing law. The terms of this Plan shall be governed by and
construed in accordance with the laws of the State of Colorado.
-5-
<PAGE>
MARKWEST HYDROCARBON, INC.
1996 STOCK INCENTIVE PLAN
Section 1. Purpose.
-------
The purpose of the Plan is to promote the interests of the Company and
its stockholders by aiding the Company in attracting and retaining management
personnel capable of assuring the future success of the Company, to offer such
personnel incentives to put forth maximum efforts for the success of the
Company's business and to afford such personnel an opportunity to acquire a
proprietary interest in the Company.
Section 2. Definitions.
-----------
As used in the Plan, the following terms shall have the meanings set
forth below:
(a) "Affiliate" shall mean (i) any entity that, directly or
indirectly through one or more intermediaries, is controlled by the Company, and
(ii) any entity in which the Company has a significant equity interest, in each
case as determined by the Committee. The Partnership shall be deemed an
Affiliate as of the Effective Date.
(b) "Award" shall mean any Option, Stock Appreciation Right,
Restricted Stock, Restricted Stock Unit, Performance Award, Dividend Equivalent
or Other Stock-Based Award granted under the Plan.
(c) "Award Agreement" shall mean any written agreement, contract or
other instrument or document evidencing any Award granted under the Plan.
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time, and any regulations promulgated thereunder.
(e) "Committee" shall mean a committee of the Board of Directors of
the Company designated by such Board to administer the Plan, which shall consist
of members appointed from time to time by the Board of Directors.
(f) "Company" shall mean MarkWest Hydrocarbon, Inc., a Delaware
corporation, and any successor corporation.
(g) "Dividend Equivalent" shall mean any right granted under Section
6(e) of the Plan.
<PAGE>
(h) "Effective Date" shall mean the date, if any, on which the
consummation of the Reorganization Transactions occurs.
(i) "Eligible Person" shall mean any employee or officer of the
Company or any Affiliate who the Committee determines to be an Eligible Person.
A director of the Company who is not also an employee of the Company or an
Affiliate shall not be an Eligible Person.
(j) "Fair Market Value" shall mean, with respect to any property
(including, without limitation, any Shares or other securities), the fair market
value of such property determined by such methods or procedures as shall be
established from time to time by the Committee.
(k) "Incentive Stock Option" shall mean an option granted under
Section 6(a) of the Plan that is intended to meet the requirements of Section
422 of the Code or any successor provision.
(l) "Non-Qualified Stock Option" shall mean an option granted under
Section 6(a) of the Plan that is not intended to be an Incentive Stock Option.
(m) "Option" shall mean an Incentive Stock Option or a Non-Qualified
Stock Option.
(n) "Other Stock-Based Award" shall mean any right granted under
Section 6(f) of the Plan.
(o) "Participant" shall mean an Eligible Person designated to be
granted an Award under the Plan.
(p) "Partnership" shall mean MarkWest Hydrocarbon Partners, Ltd., a
Colorado limited partnership.
(q) "Performance Award" shall mean any right granted under Section
6(d) of the Plan.
(r) "Person" shall mean any individual, corporation, partnership,
association or trust.
(s) "Plan" shall mean this 1996 Stock Incentive Plan, as amended from
to time.
(t) "Reorganization Transactions" shall mean those transactions
contemplated by the Reorganization Agreement to be entered into among the
Company, the Partnership and the other parties thereto.
-2-
<PAGE>
(u) "Restricted Stock" shall mean any Share granted under Section
6(c) of the Plan.
(v) "Restricted Stock Unit" shall mean any unit granted under Section
6(c) of the Plan evidencing the right to receive a Share (or a cash payment
equal to the Fair Market Value of a Share) at some future date.
(w) "Rule 16b-3" shall mean Rule 16b-3 promulgated by the Securities
and Exchange Commission under the Securities Exchange Act of 1934, as amended,
or any successor rule or regulation.
(x) "Shares" shall mean shares of Common Stock, $.01 par value, of
the Company or such other securities or property as may become subject to Awards
pursuant to an adjustment made under Section 4(c) of the Plan.
(y) "Stock Appreciation Right" shall mean any right granted under
Section 6(b) of the Plan.
Section 3. Administration.
--------------
(a) Power and Authority of the Committee. The Plan shall be
------------------------------------
administered by the Committee. Subject to the express provisions of the Plan and
to applicable law, the Committee shall have full power and authority to: (i)
designate Participants; (ii) determine the type or types of Awards to be granted
to each Participant under the Plan; (iii) determine the number of Shares to be
covered by (or with respect to which payments, rights or other matters are to be
calculated in connection with) each Award; (iv) determine the terms and
conditions of any Award or Award Agreement; (v) amend the terms and conditions
of any Award or Award Agreement and accelerate the exercisability of Options or
the lapse of restrictions relating to Restricted Stock, Restricted Stock Units
or other Awards; (vi) determine whether, to what extent and under what
circumstances Awards may be exercised in cash, Shares, other securities, other
Awards or other property, or canceled, forfeited or suspended; (vii) determine
whether, to what extent and under what circumstances cash, Shares, other
securities, other Awards, other property and other amounts payable with respect
to an Award under the Plan shall be deferred either automatically or at the
election of the holder thereof or the Committee; (viii) interpret and administer
the Plan and any instrument or agreement relating to, or Award made under, the
Plan; (ix) establish, amend, suspend or waive such rules and regulations and
appoint such agents as it shall deem appropriate for the proper administration
of the Plan; and (x) make any other determination and take any other action that
the Committee deems necessary or desirable for the administration of the Plan.
Unless otherwise expressly provided in the Plan, all designations,
determinations, interpretations and other decisions under or with
-3-
<PAGE>
respect to the Plan or any Award shall be within the sole discretion of the
Committee, may be made at any time and shall be final, conclusive and binding
upon any Participant, any holder or beneficiary of any Award and any employee of
the Company or any Affiliate. In exercising its authority pursuant to the Plan,
the Committee shall adhere to all provisions of the Code as are applicable to
the grant, issuance and exercise of any Award.
(b) Replacement of Partnership Options. In addition to the power and
----------------------------------
authority granted to the Committee under Section 3(a) hereof, the Committee
shall have full power and authority to make grants of Options to employees of
the Partnership who shall become employees of the Company pursuant to the
Reorganization Transactions, which grants shall be effective only on and after
the Effective Date, and which Options shall serve to replace options held by
such employees for equity in the Partnership by substantially equivalent rights
to purchase Shares in the Company. The Committee shall determine, in its sole
discretion, the terms and conditions of Award Agreements related to such
Options.
(c) Delegation. The Committee may delegate its powers and duties
----------
under the Plan to one or more officers of the Company or any Affiliate or a
committee of such officers, subject to such terms, conditions and limitations as
the Committee may establish in its sole discretion; provided, however, that the
-------- -------
Committee shall not delegate its powers and duties under the Plan with regard to
officers or directors of the Company or any Affiliate who are subject to Section
16 of the Securities Exchange Act of 1934, as amended.
Section 4. Shares Available for Awards.
---------------------------
(a) Shares Available. Subject to adjustment as provided in Section
----------------
4(c), the number of Shares available for granting Awards under the Plan shall be
600,000. Shares to be issued under the Plan may be either Shares reacquired and
held in the treasury or authorized but unissued Shares. If any Shares covered by
an Award or to which an Award relates are not purchased or are forfeited, or if
an Award otherwise terminates without delivery of any Shares, then the number of
Shares counted against the aggregate number of Shares available under the Plan
with respect to such Award, to the extent of any such forfeiture or termination,
shall again be available for granting Awards under the Plan. The Company shall
at all times keep available the number of Shares to satisfy Awards granted under
the Plan.
(b) Accounting for Awards. For purposes of this Section 4, if an
---------------------
Award entitles the holder thereof to receive or purchase Shares, the number of
Shares covered by such Award or to which such Award relates shall be counted on
the date of grant of such Award against the aggregate number of Shares available
for granting Awards under the Plan.
-4-
<PAGE>
(c) Adjustments. In the event that the Committee shall determine that
-----------
any dividend or other distribution (whether in the form of cash, Shares, other
securities or other property), recapitalization, stock split, reverse stock
split, reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase or exchange of Shares or other securities of the Company, issuance of
warrants or other rights to purchase Shares or other securities of the Company
or other similar corporate transaction or event affects the Shares such that an
adjustment is determined by the Committee to be appropriate in order to prevent
dilution or enlargement of the benefits or potential benefits intended to be
made available under the Plan, then the Committee shall, in such manner as it
may deem equitable, adjust any or all of (i) the number and type of Shares (or
other securities or other property) which thereafter may be made the subject of
Awards, (ii) the number and type of Shares (or other securities or other
property) subject to outstanding Awards and (iii) the purchase or exercise price
with respect to any Award; provided, however, that the number of Shares covered
-------- -------
by any Award or to which such Award relates shall always be a whole number.
Section 5. Eligibility.
-----------
(a) Designation of Participants. Any Eligible Person, including any
---------------------------
Eligible Person who is an officer or director of the Company or any Affiliate,
shall be eligible to be designated a Participant. In determining which Eligible
Persons shall receive an Award and the terms of any Award, the Committee may
take into account the nature of the services rendered by the respective Eligible
Persons, their present and potential contributions to the success of the Company
or such other factors as the Committee, in its discretion, shall deem relevant.
Notwithstanding the foregoing, an Incentive Stock Option may only be granted to
full or part-time employees (which term as used herein includes, without
limitation, officers and directors who are also employees) and an Incentive
Stock Option shall not be granted to an employee of an Affiliate unless such
Affiliate is also a "subsidiary corporation" of the Company within the meaning
of Section 424(f) of the Code or any successor provision.
(b) Award Limitations Under the Plan. No Eligible Person, who is any
--------------------------------
employee of the Company at the time of grant, may be granted any Award or
Awards, the value of which Awards are based solely on an increase in the value
of the Shares after the date of grant of such Awards, for more than 10,000
Shares, in the aggregate, in any one calendar year, beginning with the period
commencing on the Effective Date and ending on December 31, 2006. The foregoing
annual limitation specifically includes the grant of any Awards representing
"qualified performance-based compensation" within the meaning of Section 162(m)
of the Code.
-5-
<PAGE>
Section 6. Awards.
------
(a) Options. The Committee is hereby authorized to grant Options to
-------
Participants with the following terms and conditions and with such additional
terms and conditions not inconsistent with the provisions of the Plan as the
Committee shall determine:
(i) Exercise Price. The purchase price per Share purchasable under
--------------
an Option shall be determined by the Committee; provided, however, that
-------- -------
such purchase price shall not be less than 100% of the Fair Market Value of
a Share on the date of grant of such Option.
(ii) Option Term. The term of each Option shall be fixed by the
-----------
Committee.
(iii) Time and Method of Exercise. The Committee shall determine
---------------------------
the time or times at which an Option may be exercised in whole or in part
and the method or methods by which, and the form or forms (including,
without limitation, cash, Shares, promissory notes, other securities, other
Awards or other property, or any combination thereof, having a Fair Market
Value on the exercise date equal to the relevant exercise price) in which,
payment of the exercise price with respect thereto may be made or deemed to
have been made.
(iv) Incentive and Non-Qualified Stock Options. Each Option granted
-----------------------------------------
pursuant to the plan shall specify whether it is an Incentive Stock Option
or a Non-qualified Stock Option, provided that the Committee may in the
case of the grant of an Incentive Stock Option give the Participant the
right to receive in its place a Non-qualified Stock Option.
(b) Stock Appreciation Rights. The Committee is hereby authorized to
-------------------------
grant Stock Appreciation Rights to Participants subject to the terms of the Plan
and any applicable Award Agreement. A Stock Appreciation Right granted under
the Plan shall confer on the holder thereof a right to receive upon exercise
thereof the excess of (i) the Fair Market Value of one Share on the date of
exercise (or, if the Committee shall so determine, at any time during a
specified period before or after the date of exercise) over (ii) the grant price
of the Stock Appreciation Right as specified by the Committee, which price shall
not be less than 100% of the Fair Market Value of one Share on the date of grant
of the Stock Appreciation Right. Subject to the terms of the Plan and any
applicable Award Agreement, the grant price, term, methods of exercise, dates of
exercise, methods of settlement and any other terms and conditions of any Stock
Appreciation Right shall be as determined by the Committee. The Committee may
impose such conditions or restrictions on the exercise of any Stock Appreciation
Right as it may deem appropriate.
-6-
<PAGE>
(c) Restricted Stock and Restricted Stock Units. The Committee is
-------------------------------------------
hereby authorized to grant Awards of Restricted Stock and Restricted Stock Units
to Participants with the following terms and conditions and with such additional
terms and conditions not inconsistent with the provisions of the Plan as the
Committee shall determine:
(i) Restrictions. Shares of Restricted Stock and Restricted Stock
------------
Units shall be subject to such restrictions as the Committee may impose
(including, without limitation, any limitation on the right to vote a Share
of Restricted Stock or the right to receive any dividend or other right or
property with respect thereto), which restrictions may lapse separately or
in combination at such time or times, in such installments or otherwise as
the Committee may deem appropriate.
(ii) Stock Certificates. Any Restricted Stock granted under the Plan
------------------
shall be evidenced by issuance of a stock certificate or certificates,
which certificate or certificates shall be held by the Company. Such
certificate or certificates shall be registered in the name of the
Participant and shall bear an appropriate legend referring to the terms,
conditions and restrictions applicable to such Restricted Stock. In the
case of Restricted Stock Units, no Shares shall be issued at the time such
Awards are granted.
(iii) Forfeiture; Delivery of Shares. Except as otherwise
------------------------------
determined by the Committee, upon termination of employment (as determined
under criteria established by the Committee) during the applicable
restriction period, all Shares of Restricted Stock and all Restricted Stock
Units at such time subject to restriction shall be forfeited and reacquired
by the Company; provided, however, that the Committee may, when it finds
-------- -------
that a waiver would be in the best interest of the Company, waive in whole
or in part any or all remaining restrictions with respect to Shares of
Restricted Stock or Restricted Stock Units. Any Share representing
Restricted Stock that is no longer subject to restrictions shall be
delivered to the holder thereof promptly after the applicable restrictions
lapse or are waived. Upon the lapse or waiver of restrictions and the
restricted period relating to Restricted Stock Units evidencing the right
to receive Shares, such Shares shall be issued and delivered to the holders
of the Restricted Stock Units.
(d) Performance Awards. The Committee is hereby authorized to grant
------------------
Performance Awards to Participants subject to the terms of the Plan and any
applicable Award Agreement. A Performance Award granted under the Plan (i) may
be denominated or payable in cash, Shares (including, without limitation,
Restricted Stock), other securities, other Awards or other property and (ii)
shall confer on the holder thereof the right to receive payments, in whole or in
part,
-7-
<PAGE>
upon the achievement of such performance goals during such performance periods
as the Committee shall establish. Subject to the terms of the Plan and any
applicable Award Agreement, the performance goals to be achieved during any
performance period, the length of any performance period, the amount of any
Performance Award granted, the amount of any payment or transfer to be made
pursuant to any Performance Award and any other terms and conditions of any
Performance Award shall be determined by the Committee.
(e) Dividend Equivalents. The Committee is hereby authorized to grant
--------------------
to Participants Dividend Equivalents under which such Participants shall be
entitled to receive payments (in cash, Shares, other securities, other Awards or
other property as determined in the discretion of the Committee) equivalent to
the amount of cash dividends paid by the Company to holders of Shares with
respect to a number of Shares determined by the Committee. Subject to the terms
of the Plan and any applicable Award Agreement, such Dividend Equivalents may
have such terms and conditions as the Committee shall determine.
(f) Other Stock-Based Awards. The Committee is hereby authorized to
------------------------
grant to Participants such other Awards that are denominated or payable in,
valued in whole or in part by reference to, or otherwise based on or related to,
Shares (including, without limitation, securities convertible into Shares), as
are deemed by the Committee to be consistent with the purpose of the Plan;
provided, however, that such grants must comply with Rule 16b-3 and applicable
- -------- -------
law. Subject to the terms of the Plan and any applicable Award Agreement, the
Committee shall determine the terms and conditions of such Awards. Shares or
other securities delivered pursuant to a purchase right granted under this
Section 6(f) shall be purchased for such consideration, which may be paid by
such method or methods and in such form or forms (including without limitation,
cash, Shares, promissory notes, other securities, other Awards or other property
or any combination thereof), as the Committee shall determine, the value of
which consideration, as established by the Committee, shall not be less than
100% of the Fair Market Value of such Shares or other securities as of the date
such purchase right is granted.
(g) General.
-------
(i) No Cash Consideration for Awards. Awards shall be granted for no
--------------------------------
cash consideration or for such minimal cash consideration as may be
required by applicable law.
(ii) Awards May Be Granted Separately or Together. Awards may, in
--------------------------------------------
the discretion of the Committee, be granted either alone or in addition to,
in tandem with or in substitution for any other Award or any award granted
under any plan of the Company or any Affiliate other than the Plan. Awards
granted in addition to or in tandem with other Awards or in addition to or
in
-8-
<PAGE>
tandem with awards granted under any such other plan of the Company or any
Affiliate may be granted either at the same time as or at a different time
from the grant of such other Awards or awards.
(iii) Forms of Payment under Awards. Subject to the terms of the
-----------------------------
Plan and of any applicable Award Agreement, payments or transfers to be
made by the Company or an Affiliate upon the grant, exercise or payment of
an Award may be made in such form or forms as the Committee shall determine
(including, without limitation, cash, Shares, promissory notes, other
securities, other Awards or other property or any combination thereof), and
may be made in a single payment or transfer, in installments or on a
deferred basis, in each case in accordance with rules and procedures
established by the Committee. Such rules and procedures may include,
without limitation, provisions for the payment or crediting of reasonable
interest on installment or deferred payments or the grant or crediting of
Dividend Equivalents with respect to installment or deferred payments.
(iv) Limits on Transfer of Awards. No Award and no right under any
----------------------------
such Award shall be transferable by a Participant otherwise than by will or
by the laws of descent and distribution; provided, however, that, if so
-------- -------
determined by the Committee, a Participant may, in the manner established
by the Committee, designate a beneficiary or beneficiaries to exercise the
rights of the Participant and receive any property distributable with
respect to any Award upon the death of the Participant. Each Award or
right under any Award shall be exercisable during the Participant's
lifetime only by the Participant or, if permissible under applicable law,
by the Participant's guardian or legal representative. No Award or right
under any such Award may be pledged, alienated, attached or otherwise
encumbered, and any purported pledge, alienation, attachment or encumbrance
thereof shall be void and unenforceable against the Company or any
Affiliate.
(v) Term of Awards. The term of each Award shall be for such period
--------------
as may be determined by the Committee.
(vi) Restrictions; Securities Exchange Listing. All certificates for
-----------------------------------------
Shares or other securities delivered under the Plan pursuant to any Award
or the exercise thereof shall be subject to such stop transfer orders and
other restrictions as the Committee may deem advisable under the Plan or
the rules, regulations and other requirements of the Securities and
Exchange Commission and any applicable federal or state securities laws,
and the Committee may cause a legend or legends to be placed on any such
certificates to make appropriate reference to such restrictions. If the
Shares or other securities are traded on a securities exchange, the Company
shall not be required to deliver any Shares or other securities covered by
an Award unless
-9-
<PAGE>
and until such Shares or other securities have been admitted for trading on
such securities exchange.
Section 7. Amendment and Termination; Adjustments.
--------------------------------------
Except to the extent prohibited by applicable law and unless
otherwise expressly provided in an Award Agreement or in the Plan:
(a) Amendments to the Plan. The Board of Directors of the Company may
----------------------
amend, alter, suspend, discontinue or terminate the Plan; provided, however,
-------- -------
that, notwithstanding any other provision of the Plan or any Award Agreement,
without the approval of the stockholders of the Company, no such amendment,
alteration, suspension, discontinuation or termination shall be made that,
absent such approval:
(i) would cause Rule 16b-3 to become unavailable with respect to the
Plan;
(ii) would violate the rules or regulations of the Nasdaq National
Market, any other securities exchange or the National Association of
Securities Dealers, Inc. that are applicable to the Company; or
(iii) would cause the Company to be unable, under the Code, to
grant Incentive Stock Options under the Plan.
(b) Amendments to Awards. The Committee may waive any conditions of
--------------------
or rights of the Company under any outstanding Award, prospectively or
retroactively. The Committee may not amend, alter, suspend, discontinue or
terminate any outstanding Award, prospectively or retroactively, without the
consent of the Participant or holder or beneficiary thereof, except as otherwise
herein provided.
(c) Correction of Defects, Omissions and Inconsistencies. The
----------------------------------------------------
Committee may correct any defect, supply any omission or reconcile any
inconsistency in the Plan or any Award in the manner and to the extent it shall
deem desirable to carry the Plan into effect.
Section 8. Income Tax Withholding; Tax Bonuses.
-----------------------------------
(a) Withholding. 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 a Participant, are withheld or collected from such
Participant. In order to assist a Participant in
-10-
<PAGE>
paying all or a portion of the federal and state taxes to be withheld or
collected upon exercise or receipt of (or the lapse of restrictions relating to)
an Award, the Committee, in its discretion and subject to such additional terms
and conditions as it may adopt, may permit the Participant to satisfy such tax
obligation by (i) electing to have the Company withhold a portion of the Shares
otherwise to be delivered upon exercise or receipt of (or the lapse of
restrictions relating to) such Award with a Fair Market Value equal to the
amount of such taxes or (ii) delivering to the Company Shares other than Shares
issuable upon exercise or receipt of (or the lapse of restrictions relating to)
such Award with a Fair Market Value equal to the amount of such taxes. The
election, if any, must be made on or before the date that the amount of tax to
be withheld is determined.
(b) Tax Bonuses. The Committee, in its discretion, shall have the
-----------
authority, at the time of grant of any Award under this Plan or at any time
thereafter, to approve cash bonuses to designated Participants to be paid upon
their exercise or receipt of (or the lapse of restrictions relating to) Awards
in order to provide funds to pay all or a portion of federal and state taxes due
as a result of such exercise or receipt (or the lapse of such restrictions). The
Committee shall have full authority in its discretion to determine the amount of
any such tax bonus.
Section 9. General Provisions.
------------------
(a) No Rights to Awards. No Eligible Person, Participant or other
-------------------
Person shall have any claim to be granted any Award under the Plan, and there is
no obligation for uniformity of treatment of Eligible Persons, Participants or
holders or beneficiaries of Awards under the Plan. The terms and conditions of
Awards need not be the same with respect to any Participant or with respect to
different Participants.
(b) Award Agreements. No Participant will have rights under an Award
----------------
granted to such Participant unless and until an Award Agreement shall have been
duly executed on behalf of the Company.
(c) No Limit on Other Compensation Arrangements. Nothing contained in
-------------------------------------------
the Plan shall prevent the Company or any Affiliate from adopting or continuing
in effect other or additional compensation arrangements, and such arrangements
may be either generally applicable or applicable only in specific cases.
(d) No Right to Employment. The grant of an Award shall not be
----------------------
construed as giving a Participant the right to be retained in the employ of the
Company or any Affiliate, nor will it affect in any way the right of the Company
or an Affiliate to terminate such employment at any time, with or without cause.
In addition, the Company or an Affiliate may at any time dismiss a Participant
from
-11-
<PAGE>
employment free from any liability or any claim under the Plan, unless otherwise
expressly provided in the Plan or in any Award Agreement.
(e) Governing Law. The validity, construction and effect of the Plan
-------------
or any Award, and any rules and regulations relating to the Plan or any Award,
shall be determined in accordance with the laws of the State of Colorado.
(f) Severability. If any provision of the Plan or any Award is or
------------
becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction
or would disqualify the Plan or any Award under any law deemed applicable by the
Committee, such provision shall be construed or deemed amended to conform to
applicable laws, or if it cannot be so construed or deemed amended without, in
the determination of the Committee, materially altering the purpose or intent of
the Plan or the Award, such provision shall be stricken as to such jurisdiction
or Award, and the remainder of the Plan or any such Award shall remain in full
force and effect.
(g) No Trust or Fund Created. Neither the Plan nor any Award shall
------------------------
create or be construed to create a trust or separate fund of any kind or a
fiduciary relationship between the Company or any Affiliate and a Participant or
any other Person. To the extent that any Person acquires a right to receive
payments from the Company or any Affiliate pursuant to an Award, such right
shall be no greater than the right of any unsecured general creditor of the
Company or any Affiliate.
(h) No Fractional Shares. No fractional Shares shall be issued or
--------------------
delivered pursuant to the Plan or any Award, and the Committee shall determine
whether cash shall be paid in lieu of any fractional Shares or whether such
fractional Shares or any rights thereto shall be canceled, terminated or
otherwise eliminated.
(i) Headings. Headings are given to the Sections and subsections of
--------
the Plan solely as a convenience to facilitate reference. Such headings shall
not be deemed in any way material or relevant to the construction or
interpretation of the Plan or any provision thereof.
Section 10. Effective Date of the Plan.
--------------------------
The Plan shall be effective as of the Effective Date, subject to
approval by the stockholders of the Company within one year thereafter.
-12-
<PAGE>
Section 11. Term of the Plan.
----------------
Unless the Plan shall have been discontinued or terminated as provided
in Section 7(a), the Plan shall terminate on the tenth anniversary of the
Effective Date. No Award shall be granted after the termination of the Plan.
However, unless otherwise expressly provided in the Plan or in an applicable
Award Agreement, any Award theretofore granted may extend beyond the termination
of the Plan, and the authority of the Committee provided for hereunder with
respect to the Plan and any Awards, and the authority of the Board of Directors
of the Company to amend the Plan, shall extend beyond the termination of the
Plan.
-13-
<PAGE>
MARKWEST HYDROCARBON, INC.
1996 NONEMPLOYEE DIRECTOR STOCK OPTION PLAN
Section 1. Purpose of the Plan. The purpose of this MarkWest Hydrocarbon,
-------------------
Inc. 1996 Nonemployee Director Stock Option Plan is to promote the interests of
the Company by enhancing its ability to attract and retain the services of
experienced and knowledgeable independent directors and by providing additional
incentive for these directors to increase their interest in the Company's long-
term success and progress. None of the options granted hereunder shall be
"incentive stock options" within the meaning of Section 422 of the Code (as
hereinafter defined).
Section 2. Definitions. As used herein, the following definitions shall
-----------
apply:
(a) "Board" shall mean the Board of Directors of the Company.
-----
(b) "Code" shall mean the Internal Revenue Code of 1986, as
----
amended.
(c) "Committee" shall mean a committee of two or more persons
---------
appointed by the Board of Directors of the Company.
(d) "Common Stock" shall mean the Common Stock, $.01 par value, of
------------
the Company.
(e) "Company" shall mean MarkWest Hydrocarbon, Inc., a Delaware
-------
corporation.
(f) "Continuous Status as a Director" shall mean the absence of any
-------------------------------
interruption or termination of service as a Director.
(g) "Director" shall mean a member of the Board.
--------
(h) "Employee" shall mean any person, including officers and
--------
Directors, employed by the Company or any parent or Subsidiary of the
Company. The payment of a Director's fee by the Company shall not be
sufficient in and of itself to constitute "employment" by the Company.
(i) "Exchange Act" shall mean the Securities Exchange Act of 1934,
------------
as amended.
(j) "Fair Market Value" the Fair Market Value of a Share shall be
-----------------
determined by the Committee in its discretion; provided, however, that
-------- -------
where there is a public market for the Common Stock, the fair market value
per Share shall be the closing price of the Common Stock in the over-
the-
<PAGE>
counter market on the date of grant, as reported in The Wall Street
---------------
Journal (or, if not so reported, as otherwise reported by the National
-------
Association of Securities Dealers Automated Quotation ("NASDAQ") System or,
in the event the Common Stock is traded on the NASDAQ National Market
System or listed on a stock exchange, the fair market value per Share shall
be the closing price on such system or exchange on the date of grant of the
Option, as reported in The Wall Street Journal).
-----------------------
(k) "Option" shall mean a stock option granted pursuant to the
------
Plan.
(l) "Optioned Stock" shall mean the Common Stock subject to an
--------------
Option.
(m) "Optionee" shall mean an Outside Director who receives an
--------
Option.
(n) "Outside Director" shall mean a Director who is not an
----------------
Employee.
(o) "Parent" shall mean a "parent corporation," whether now or
------
hereafter existing, as defined in Section 425(e) of the Code.
(p) "Plan" shall mean this 1996 Nonemployee Director Stock Option
----
Plan.
(q) "Shares" shall mean shares of the Common Stock, as adjusted in
------
accordance with Section 10 of the Plan.
(r) "Subsidiary" shall mean a "subsidiary corporation," whether
----------
now or hereafter existing, as defined in Section 425(f) of the Code.
Section 3. Stock Subject to the Plan. Subject to the provisions of
-------------------------
Section 10 of the Plan, the maximum aggregate number of Shares which may be
optioned and sold under the Plan is 20,000 Shares of Common Stock. The Shares
may be authorized but unissued shares of Common Stock or shares of Common Stock
which have been reacquired by the Company. If an Option should expire or become
unexercisable for any reason without having been exercised in full, the
unpurchased Shares which were subject thereto shall, unless the Plan shall have
been terminated, become available for future grant under the Plan. If Shares
which were acquired upon exercise of an Option are subsequently repurchased by
the Company, such Shares shall not in any event be returned to the Plan and
shall not become available for future grant under the Plan.
-2-
<PAGE>
Section 4. Administration of and Grants of Options under the Plan.
------------------------------------------------------
(a) Administrator. Except as otherwise required herein, the Plan
-------------
shall be administered by the Committee.
(b) Procedure for Grants. The provisions set forth in this
--------------------
Section 4(b) shall not be amended more than once every six months, other
than to comport with changes in the Code, the Employee Retirement Income
Security Act of 1974, as amended, or the rules thereunder. All grants of
Options hereunder shall be automatic and nondiscretionary and shall be made
strictly in accordance with the following provisions:
(i) No person shall have any discretion to select which
Outside Directors shall be granted Options or to determine the number
of Shares to be covered by Options granted to Outside Directors;
provided, however, that any individual Outside Director may decline to
-------- -------
accept any Option, in whole or in part, that would otherwise be
granted to such Outside Director under this Plan.
(ii) Norman H. Foster, Barry W. Spector and David R. Whitney
shall each receive an Option to purchase 500 Shares on the date the
Plan is approved by the Board of Directors, and such Options granted
pursuant to this section 4(b)(ii) shall become exercisable in three
equal annual installments with the first one-third installment vesting
on the first anniversary of the date of grant and the two remaining
one-third installments vesting on the second and third anniversary of
the date of grant, respectively.
(iii) Each new Outside Director shall be automatically
granted an Option (an "Initial Grant") to purchase 500 Shares upon the
date on which such person first becomes a Director, whether through
election by the shareholders of the Company or appointment by the
Board of Directors to fill a vacancy. Options granted under this
section 4(b)(iii) shall become exercisable in three equal annual
installments with the first one-third installment vesting on the first
anniversary of the date of the Initial Grant and the two remaining
one-third installments vesting on the second and third anniversary of
the Initial Grant, respectively.
(iv) Each Outside Director shall automatically receive, on
the date of each Annual Meeting of Stockholders, beginning with the
Annual Meeting of Stockholders held in 1997, an Option to purchase 500
Shares of the Company's Common Stock, such Option to become
exercisable one year subsequent to the date of grant; provided,
--------
-3-
<PAGE>
however, that such Option shall only be granted to Outside Directors
-------
who have served since the date of the last Annual Meeting of
Stockholders and will continue to serve after the date of grant of
such Option.
(v) The terms of an Option granted hereunder shall be as
follows:
(A) the term of the Option shall be three years.
(B) the exercise price per Share shall be 100% of the
Fair Market Value per Share on the date of grant of the Option.
(C) to the extent necessary to comply with the
applicable provisions of Rule 16b-3 promulgated under the
Exchange Act ("Rule 16b-3"), no Option will be exercisable
until a date more than six months subsequent to the date of the
grant of that Option.
(c) Powers of the Committee. Subject to the provisions and
-----------------------
restrictions of the Plan, the Committee shall have the authority, in its
discretion: (i) to determine, upon review of relevant information and in
accordance with the Plan, the Fair Market Value of the Common Stock; (ii)
to determine the exercise price per share of Options to be granted, which
exercise price shall be determined in accordance with Section 7(a) of the
Plan; (iii) to interpret the Plan; (iv) to prescribe, amend and rescind
rules and regulations relating to the Plan; (v) to authorize any person to
execute on behalf of the Company any instrument required to effectuate the
grant of an Option previously granted hereunder; and (vi) to make all other
determinations deemed necessary or advisable for the administration of the
Plan.
(d) Effect of Committee's Decision. All decisions, determinations
------------------------------
and interpretations of the Committee shall be final and binding on all
Optionees and any other holders of any Options granted under the Plan.
Section 5. Eligibility. Options may be granted only to Outside Directors.
-----------
All Options shall be automatically granted in accordance with the terms set
forth in Section 4(b) hereof. The Plan shall not confer upon any Optionee any
right with respect to continuation of service as a Director or nomination to
serve as a Director, nor shall it interfere in any way with any rights which the
Director or the Company may have to terminate his or her directorship at any
time.
Section 6. Term of Plan. The Plan shall become effective upon the earlier
------------
of (i) its adoption by the Board or (ii) its approval by the stockholders of the
-4-
<PAGE>
Company as described in Section 16 of the Plan. The Plan shall continue in
effect for a term of five years unless sooner terminated under Section 12 of the
Plan.
Section 7. Exercise Price and Consideration.
--------------------------------
(a) Exercise Price. The per Share exercise price for the Shares
--------------
to be issued pursuant to exercise of an Option shall be 100% of the Fair
Market Value per Share on the date of grant of the Option.
(b) Form of Consideration. Subject to compliance with applicable
---------------------
provisions of Section 16(b) of the Exchange Act, (or other applicable law),
the consideration to be paid for the Shares to be issued upon exercise of
an Option, including the method of payment, shall be determined by the
Committee and may consist entirely of (i) cash, (ii) check, (iii) other
Shares which (X) in the case of Shares acquired upon exercise of an Option,
have been owned by the Optionee for more than six months on the date of
surrender, and (Y) have a Fair Market Value on the date of exercise equal
to the aggregate exercise price of the Shares as to which said Option shall
be exercised, (iv) authorization for the Company to retain from the total
number of Shares as to which the Option is exercised that number of Shares
having a Fair Market Value on the date of exercise equal to the exercise
price for the total number of Shares as to which the Option is exercised,
(v) delivery (including by facsimile) to the Company or its designated
agent of a properly executed irrevocable option exercise notice together
with irrevocable instructions to a broker-dealer to sell a sufficient
portion of the shares and deliver the sale proceeds directly to the Company
to pay for the exercise price, (vi) by delivering an irrevocable
subscription agreement for the Shares which irrevocably obligates the
option holder to take and pay for the Shares not more than twelve months
after the date of delivery of the subscription agreement, (vii) any
combination of the foregoing methods of payment or (viii) such other
consideration and method of payment for the issuance of Shares as may be
permitted under applicable laws. In making any determination as to the
type of consideration to accept, the Committee shall consider whether
acceptance of such consideration may be reasonably expected to benefit the
Company.
Section 8. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Stockholder. Any Option
-----------------------------------------------
granted hereunder shall be exercisable at such times as are set forth in
Section 4(b) hereof; provided, however, that no Options shall be
-------- -------
exercisable until stockholder approval of the Plan in accordance with
Section 16 hereof has been obtained. An Option may not be exercised for a
fraction of a Share. An Option shall be deemed to be exercised when written
notice of such exercise
-5-
<PAGE>
has been given to the Company in accordance with the terms of the Option by
the person entitled to exercise the Option and full payment for the Shares
with respect to which the Option is exercised has been received by the
Company. Full payment may consist of any consideration and method of
payment allowable under Section 7(c) of the Plan. Until the issuance (as
evidenced by the appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company) of the stock certificate
evidencing such Shares, no right to vote or receive dividends or any other
rights as a stockholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. A share certificate for the
number of Shares so acquired shall be issued to the Optionee as soon as
practicable after exercise of the Option. No adjustment will be made for a
dividend or other right for which the record date is prior to the date the
stock certificate is issued, except as provided in Section 10 of the Plan.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares which thereafter may be available, both for purposes of
the Plan and for sale under the Option, by the number of Shares as to which
the Option is exercised.
(b) Termination of Status as a Director. If an Outside Director
-----------------------------------
ceases to serve as a Director, such Outside Director may exercise his/her
Option to the extent that he/she was entitled to exercise such Option at
the date of such termination. To the extent that such Outside Director was
not entitled to exercise an Option at the date of such termination, or if
such Outside Director does not exercise such Option (which he/she was
entitled to exercise) within the time specified herein, the Option shall
terminate.
(c) Disability of Optionee. Notwithstanding the provisions of
----------------------
Section 8(b) above, in the event an Optionee is unable to continue service
as a Director with the Company as a result of such Optionee's total and
permanent disability (as defined in Section 22(e)(3) of the Code), such
Optionee may exercise his/her Option to the extent entitled to exercise
such Option at the date of such termination. To the extent that such
Optionee was not entitled to exercise the Option at the date of such
termination, or if such Optionee does not exercise such Option (which
he/she was entitled to exercise) within the time specified herein, the
Option shall terminate.
(d) Death of Optionee. Notwithstanding the provisions of Section
-----------------
8(b) above, in the event of the death of an Optionee:
(i) during the term of the Option who is at the time of
death a Director of the Company and who has been in Continuous Status
as a Director since the date of grant of the Option, the Option may be
exercised by the Optionee's estate or by a person who acquired the
right to exercise the Option by bequest or inheritance, but only to
the extent
-6-
<PAGE>
of the right to exercise that would have accrued had the Optionee
continued living and remained in Continuous Status as a Director for
six months after the date of death; or
(ii) within 30 days after the termination of Continuous
Status as a Director, the Option may be exercised by the Optionee's
estate or by a person who acquired the right to exercise the Option by
bequest or inheritance, but only to the extent of the right to
exercise that had accrued at the date of termination.
Section 9. Non-Transferability of Options. The Option may not be sold,
------------------------------
pledged, assigned, hypothecated, transferred, or disposed of in any manner other
than by will or by the laws of descent or distribution or pursuant to a
qualified domestic relations order as defined by the Code or Title I of the
Employee Retirement Income Security Act of 1974, as amended, or the rules
thereunder. The Option may be exercised, during the lifetime of the Optionee,
only by the Optionee.
Section 10. Adjustments Upon Changes in Capitalization, Dissolution or
----------------------------------------------------------
Merger.
- ------
(a) In the event that the number of outstanding shares of Common
Stock of the Company is changed by a stock dividend, stock split, reverse
stock split, combination, reclassification or similar change in the capital
structure of the Company without consideration, the number of Shares
available under this Plan and the number of Shares subject to outstanding
Options and the exercise price per share of such Options shall be
proportionately adjusted, subject to any required action by the Board or
stockholders of the Company and compliance with applicable securities laws;
provided, however, that no certificate or scrip representing fractional
-------- -------
shares shall be issued upon exercise of any Option and any resulting
fractions of a Share shall be ignored. Such adjustment shall be made by
the Board, whose determination in that respect shall be final, binding and
conclusive.
(b) In the event of a dissolution or liquidation of the Company, a
merger in which the Company is not the surviving corporation, a transaction
or series of related transactions in which 51% of the then outstanding
voting stock is sold or otherwise transferred (including (i) a public
announcement that any person has acquired or has the right to acquire
beneficial ownership of 51% or more of the then outstanding shares of
Common Stock (for this purpose, the terms "person" and "beneficial
ownership" shall have the meanings provided in Section 13(d) of the
Exchange Act or related rules promulgated by the Securities Exchange
Commission) and (ii) the commencement of or public announcement of an
intention to make a tender or exchange offer for 51% or more of the then
outstanding shares of the
-7-
<PAGE>
Common Stock) or the sale of substantially all of the assets of the
Company, any or all outstanding Options shall, notwithstanding any contrary
terms of the written agreement governing such Option, accelerate and become
exercisable in full at least ten days prior to (and shall expire on) the
consummation of such dissolution, liquidation, merger or sale of stock or
sale of assets on such conditions as the Board shall determine unless the
successor corporation assumes the outstanding Options or substitutes
substantially equivalent options as determined by the Board. The
acceleration of the outstanding Options shall be conditioned on the actual
occurrence of such a dissolution, liquidation, merger or sale of stock or
assets.
Section 11. Time of Granting Options. The date of grant of an Option
------------------------
shall, for all purposes, be the date determined in accordance with Section 4(b)
hereof. Notice of the determination shall be given to each Outside Director to
whom an Option is so granted within a reasonable time after the date of such
grant.
Section 12. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. The Board may at any time amend,
-------------------------
alter, suspend, or discontinue the Plan, but no amendment, alteration,
suspension, or discontinuance shall be made which would impair the rights
of any Optionee under any grant theretofore made, without his or her
consent. In addition, to the extent necessary and desirable to comply with
Rule 16b-3 (or any other applicable law or regulation), the Company shall
obtain stockholder approval of any Plan amendment in such a manner and to
such a degree as required.
(b) Effect of Amendment or Termination. Any such amendment or
----------------------------------
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between the
Optionee and the Board, which agreement must be in writing and signed by
the Optionee and the Company.
Section 13. Conditions Upon Issuance of Shares. Shares shall not be
----------------------------------
issued pursuant to the exercise of an Option unless the exercise of such Option
and the issuance and delivery of such Shares pursuant thereto shall comply with
all relevant provisions of law, including, without limitation, the Securities
Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, state securities laws, and the requirements of any stock exchange
upon which the Shares may then be listed or quoted, and shall be further subject
to the approval of counsel for the Company with respect to such compliance. As
a condition to the exercise of an Option, the Company may require the person
exercising such Option to represent and warrant at the time of any such exercise
that the Shares are being
-8-
<PAGE>
purchased only for investment and without any present intention to sell or
distribute such Shares, if, in the opinion of counsel for the Company, such a
representation is required by any of the aforementioned relevant provisions of
law. Inability of the Company to obtain authority from any regulatory body
having jurisdiction, which authority is deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any Shares hereunder, shall relieve
the Company of any liability in respect of the failure to issue or sell such
Shares as to which such requisite authority shall not have been obtained.
Section 14. Reservation of Shares. The Company, during the term of this
---------------------
Plan, will at all times reserve and keep available such number of the Shares
available for issuance pursuant to this Plan as shall be sufficient to satisfy
the requirements of the Plan.
Section 15. Option Agreement. Options shall be evidenced by written
----------------
option agreements in such form as the Board shall approve.
Section 16. Stockholder Approval.
--------------------
(a) The Plan shall be subject to approval by the stockholders of
the Company within 12 months of its adoption by the Board. If such
stockholder approval is obtained at a duly held stockholders' meeting, it
may be obtained by the affirmative vote of the holders of a majority of the
outstanding shares of the Company present or represented and entitled to
vote thereon. If such stockholder approval is obtained by written consent,
it may be obtained by the written consent of the holders of a majority of
the outstanding shares of the Company.
(b) Any required approval of the stockholders of the Company shall
be solicited substantially in accordance with Section 14(a) of the Exchange
Act and the rules and regulations promulgated thereunder.
Section 17. Information to Optionees. The Company shall provide to each
------------------------
Optionee, during the period for which such Optionee has one or more Options
outstanding, copies of all annual reports to stockholders, proxy statements and
other information provided to all stockholders of the Company.
-9-
<PAGE>
NON-COMPETE AGREEMENT
This Non-compete Agreement is made and entered into this ____ day of
_________________, 1996, by and between John M. Fox (Fox) and MarkWest
Hydrocarbon, Inc. (MarkWest). In consideration of the mutual covenants and
agreements contained herein, and in recognition of other consideration had and
received by Fox, the sufficiency, adequacy and receipt of which is hereby
acknowledged, the parties agree as follows:
1. Fox agrees that for as long as he is an officer or director of
MarkWest and for two years thereafter, he will not, either directly or
indirectly (including through other firms or entities controlled by Fox),
participate in any future oil and gas exploration or production activities
within geographic areas in which MarkWest is then conducting oil and gas
exploration and production activities, or within geographic areas in which
MarkWest intends to or has expressed an interest to participate in oil and gas
exploration or production activities, except and to the extent that Fox has
first offered MarkWest the opportunity to participate in that activity, and then
only to the extent that MarkWest, through its independent and disinterested
directors, has deemed it advisable and in the best interests of MarkWest not to
participate in that activity.
In witness whereof, the parties have executed this Agreement the date first
above written.
____________________________
John M. Fox
MARKWEST HYDROCARBON, INC.
By:_________________________
<PAGE>
Computation of Earnings per Common Share
Six Months Ended,
Years Ended December 31, June 30,
------------------------ ---------
1991 1992 1993 1994 1995 1995 1996
---- ---- ---- ---- ---- ---- ----
Proforma net income $5,486 $3,389 $312 $3,696 $4,887 $2,601 $2,818
Proforma weighted
average common shares
outstanding 4,878 4,878 4,878 4,964 4,990 4,990 5,041
Proforma net income
per common share $1.12 $0.69 $0.06 $0.74 $0.98 $0.52 $0.56
Page 1 of 1
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our reports dated August 2, 1996, relating
to the financial statements of MarkWest Hydrocarbon, Inc. and MarkWest
Hydrocarbon Partners, Ltd., which appear in such Prospectus. We also consent to
the references to us under the heading "Experts" in such Prospectus.
PRICE WATERHOUSE LLP
Denver, Colorado
August 2, 1996
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Markwest Hydrocarbon, Inc.
Englewood, Colorado
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated April 5, 1996 relating to the
financial statements of Basin Pipeline L.L.C. which is contained in that
Prospectus.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
BDO Seidman, LLP
Denver, Colorado
August 1, 1996
