<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 13, 1996
REGISTRATION NO. 333-09513
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
----------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
----------------
MARKWEST HYDROCARBON, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 84-1352233
(STATE OR JURISDICTION 4923
OF (PRIMARY STANDARD (I.R.S. EMPLOYER
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. [_]
----------------
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.
b. Description of 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
Information..................... Not Applicable
h. Management's Discussion and
Analysis of Financial
Condition and Results of
Operations...................... Management's Discussion and Analysis of
Financial Condition and Results of
i. Changes in and Disagreements Operations
with Accountants on
Accounting and Financial
Disclosure...................... Not Applicable
j. Directors and Executive
Officers........................ Management; Principal Stockholders
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 SEPTEMBER 13, 1996
2,400,000 SHARES
[LOGO OF MARKWEST APPEARS HERE]
MARKWEST HYDROCARBON, INC.
COMMON STOCK
The 2,400,000 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. Proceeds from the
Offering in the amount of $10.0 million will be used by the Company to repay
indebtedness incurred by the predecessor to the Company to fund an equivalent
distribution to such predecessor's partners. See "Use of Proceeds" and
"Reorganization."
The Common Stock has been approved for listing on the Nasdaq National Market
under the symbol "MWHX," subject to official notice of issuance.
FOR A DISCUSSION OF 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
360,000 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: Victory Michigan Compressor Station (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 APPEARS HERE]
----------------
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
3
<PAGE>
be produced from an extension of the Northern Niagaran Reef trend in western
Michigan. To date, over 2.5 trillion cubic feet equivalent 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 16.2 trillion cubic feet (Tcf) per year in 1986 to 21.3 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 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."
5
<PAGE>
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.... 2,400,000 shares
Common Stock to be Outstanding after
the Offering (1)...................... 8,125,000 shares
Use of Proceeds........................ Repayment of indebtedness (including
$10.0 million of indebtedness incurred
to make $10.0 million of distributions
to partners
of MarkWest Partnership) and capital
expenditures in the Michigan Core
Area. See "Use of Proceeds" and
"Certain Transactions--Partnership
Distributions."
Nasdaq National Market Symbol.......... MWHX
</TABLE>
- --------
(1) Excludes (i) 163,695 shares issuable upon exercise of stock options
outstanding as of the effective date of the Offering with a weighted average
exercise price of $7.11 per share under the Company's 1996 Stock Incentive
Option Plan; (ii) 486,305 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 net income, combined
(5)............................ $ 5,173 $ 3,102
======== =======
PRO FORMA PER COMMON SHARE:
Pro forma net income............ $ 0.06 $ 0.65 $ 0.86 $ 0.46 $ 0.49
======= ======= ======== ======== =======
Pro forma weighted average
common shares outstanding (6).. 5,602 5,688 5,714 5,714 5,785
======= ======= ======== ======== =======
Pro forma net income, as
adjusted (7)................... $ 0.71 $ 0.39
======== =======
Pro forma net income, combined
(5)............................ $ 0.70 $ 0.38
======== =======
Pro forma weighted average
shares outstanding, as adjusted
(6)............................ 7,375 8,067
======== =======
STATEMENT OF CASH FLOWS DATA:
Cash flows from operating
activities..................... $ 2,217 $ 994 $ 5,436 $ 10,671 $10,945
Cash flows provided by (used in)
investing activities........... $(6,917) $ 9,068 $(12,610) $ (5,212) $(2,569)
Cash flows provided by (used in)
financing activities........... $ (315) $(5,886) $ 2,467 $(10,514) $(8,471)
OTHER DATA:
NGL production (gallons)........ 93,502 99,735 92,239 49,826 43,094
EBITDA (8)...................... $ 3,500 $ 7,426 $ 9,930 $ 5,420 $ 6,280
Capital expenditures............ $ 6,941 $ 1,442 $ 12,426 $ 5,297 $ 2,522
Partnership distributions....... $ 3,040 $ 320 $ 4,150 $ 3,381 $ 3,219
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
JUNE 30, 1996
-----------------------------------
PRO FORMA, AS
ACTUAL PRO FORMA (9) ADJUSTED (10)
------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................. $ 666 $ 895 $ 4,745
Working capital........................... 5,144 5,373 9,223
Total assets.............................. 43,991 44,120 48,070
Total debt................................ 12,350 22,350 --
Total partners' capital/stockholders'
equity................................... 26,464 13,487 39,687
</TABLE>
- --------
* The financial information set forth is that derived from the financial
statements and operating data of MarkWest Partnership, the predecessor to the
Company.
(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 a
portion of the estimated proceeds of this Offering to repay indebtedness
outstanding prior to the Offering. See "Use of Proceeds" and the Unaudited Pro
Forma Condensed Consolidated Financial Statements included elsewhere in this
Prospectus.
(5)Pro forma net income combined presents pro forma net income, as adjusted,
giving effect to the Basin acquisition. The amounts presented are computed
based on MarkWest Partnership's ownership interest in Basin as of June 30, 1996
of 5.3%. MarkWest Partnership intends to acquire additional ownership of Basin
through capital expenditures through the end of 1997, at which time it is
expected the ownership interest will be 60%. If the 60% ownership interest was
used, the pro forma net income combined per common share amounts would be $0.66
and $0.34 for the year ended December 31, 1995 and the six months ended June
30, 1996, respectively. See the Unaudited Pro Forma Condensed Consolidated
Financial Statements included elsewhere in this Prospectus for detailed
computations of the pro forma effects at both ownership levels.
(6)See the Unaudited Pro Forma Condensed Consolidated Financial Statements
included elsewhere in this Prospectus.
(7)Pro forma net income, as adjusted, per common share is presented to give
effect to the issuance of the number of shares required for net proceeds to
repay indebtedness outstanding prior to the Offering, including the
indebtedness incurred to fund the Partnership Distribution. The amount is
computed by dividing pro forma net income, as adjusted, as described in (4)
above, by the total of the pro forma weighted average common shares outstanding
prior to the Offering plus the additional shares for which the net proceeds
will be used to repay the indebtedness.
(8)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, as defined by the Company, may not be comparable to similarly titled
measures used by other companies. EBITDA, which is not a measure under
generally accepted accounting principles, is not intended to represent cash
flows for the period, nor has it been presented as an alternative to operating
income, or 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. The Company has included EBITDA because
it understands that such measure is used by certain investors to determine the
Company's ability to service its indebtedness. In addition, the Company uses
EBITDA to measure its performance against its industry peer group. EBITDA
should not be used as an indicator of the performance of the Company's
investing and financing activities.
(9)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.
(10)Further adjusted to reflect the sale of 2,400,000 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:
"Bcf" means billion cubic feet of natural gas.
"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.
"EPA" means the Environmental Protection Agency.
"Extraction" means removing liquid and liquefiable hydrocarbons from natural
gas.
"FERC" means the Federal Energy Regulatory Commission.
"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.
"Mcf" means thousand cubic feet of natural gas.
"MGal/D" or "MGal per day" mean thousand gallons per day.
"MMcf" means million cubic feet of natural gas.
"MMcf/D" or "MMcf per day" means million cubic feet per day.
"NGLs" means natural gas liquids.
"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.
"Sour gas" means natural gas which contains sulfur compounds in excess of a
specified amount.
"Tcf" means trillion cubic feet of natural gas.
"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.
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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 70% of the Company's total revenues during 1995
and approximately 69% 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."
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.
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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."
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."
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 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.
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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, nor does the Company insure against potential loss
of product in such storage facilities. Losses resulting from the occurrence of
such events in excess of the Company's insurance could have a material adverse
effect on the financial condition and results of operation of the Company. 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 70% of the Company's total revenues during 1995 and
approximately 69% 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 9%, respectively, of the Company's revenues during the first six
months of 1996 and 18% and 8%, respectively, of the Company's revenues during
1995. The existing contracts with Ashland expired in August 1996. Negotiations
for renewal of these contracts have been completed, and the Company expects to
execute new contracts with Ashland by the end of September 1996 providing for
a new three-year term effective September 1, 1996. 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."
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
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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. In the event FERC does not
confirm such exemption, the rates charged by the Company for processing
services at the Kenova plant would be subject to regulation by FERC, and such
rates and regulation could affect the volume of natural gas delivered to the
facility by producers. If imposed, such regulation could have a material
adverse effect on the Company's results of operations. 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 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."
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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 60% of the outstanding Common Stock (58% 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% 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.
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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 amount of $7.17 in the net tangible book value per
share of Common Stock from the initial public offering price. See "Dilution."
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 5,725,000 shares of its Common Stock. In addition, the Company
will have 163,695 shares reserved for issuance upon the exercise of options
granted under the Company's 1996 Stock Incentive Plan, 486,305 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 8,125,000 shares of Common Stock to be outstanding
following this Offering, the 2,400,000 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 5,725,000 shares were issued and sold by the Company in
private transactions in reliance upon exemptions from registration under the
Securities
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Act. Of these shares, except as limited by lock-up agreements, up to 5,513,279
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 5,480,610 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 200,375 shares of Common Stock will be issued upon
exercise of certain options held by non-affiliates of MarkWest Partnership.
The Company believes that the transactions contemplated by the Reorganization
Agreement (referred to in this Prospectus as the "Reorganization") will
qualify as 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 5,725,000 shares of the Company's Common
Stock. The Reorganization Agreement provides that the partners 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) substantially
equivalent to the partners' interests 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
$2.28. 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 163,695 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"). 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."
17
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,400,000 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 $26.2 million ($30.2 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 $3.8 million of proceeds from 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 investment-grade 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 $2.28 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
2,400,000 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 $39.3 million, or $4.83 per share. This represents an immediate increase
in net tangible book value of $2.55 per share to existing stockholders and an
immediate dilution of $7.17 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...... $ 2.28
Increase in pro forma net tangible book value attributable
to new investors.......................................... 2.55
Pro forma net tangible book value after the Offering......... 4.83
------
Dilution to new investors.................................... $ 7.17
======
</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......... 5,725,000 70% $13,487,000 32% $ 2.36
New investors................. 2,400,000 30% 28,800,000 68% 12.00
--------- --- ----------- ---
Total....................... 8,125,000 100% $42,287,000 100% $ 8.25
========= === =========== ===
</TABLE>
The computations in the tables above exclude: (i) 163,695 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 $7.11
per share under the Company's 1996 Stock Incentive Plan; (ii) 486,305 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 2,400,000 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) (UNAUDITED)
<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; 5,725,000 shares issued and
outstanding; 8,125,000 shares issued and
outstanding pro forma as adjusted (1)........ -- 57 81
Additional paid-in capital.................... -- 13,834 40,003
Notes receivable (2).......................... (592) (397) (397)
------- ------- -------
Total stockholders' equity.................. 26,464 13,487 39,687
------- ------- -------
Total capitalization...................... $38,814 $35,837 $39,687
======= ======= =======
</TABLE>
- --------
(1) Excludes (i) 163,695 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 $7.11 per share under the Company's 1996 Stock
Incentive Option Plan; (ii) 486,305 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 MarkWest Partnership, the
predecessor to 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 MarkWest Partnership, the predecessor to 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 net income,
combined (5)........... $ 5,173 $ 3,102
======= =======
PRO FORMA PER COMMON
SHARE:
Pro forma net income.... $ 0.98 $ 0.60 $ 0.06 $ 0.65 $ 0.86 $ 0.46 $ 0.49
======= ======= ======= ======= ======= ======= =======
Pro forma weighted
average common shares
outstanding (6)........ 5,602 5,602 5,602 5,688 5,714 5,714 5,785
======= ======= ======= ======= ======= ======= =======
Pro forma net income, as
adjusted (7)........... $ 0.71 $ 0.39
======= =======
Pro forma net income,
combined (5)........... $ 0.70 $ 0.38
======= =======
Pro forma weighted
average shares
outstanding, as
adjusted (6)........... 7,375 8,067
======= =======
</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) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF CASH FLOWS
DATA:
Cash flows from
operating activities.. $ 7,912 $10,563 $ 2,217 $ 994 $ 5,436 $ 10,671 $10,945
Cash flows provided by
(used in) investing
activities............ $(6,787) $(7,246) $(6,917) $ 9,068 $(12,610) $ (5,212) $(2,569)
Cash flows provided by
(used in) financing
activities............ $(5,872) $ 34 $ (315) $(5,886) $ 2,467 $(10,514) $(8,471)
OTHER DATA:
NGL production
(gallons)............. 87,722 88,616 93,502 99,735 92,239 49,826 43,094
EBITDA (8)............. $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
Partnership
distributions......... $ 5,102 $ 3,877 $ 3,040 $ 320 $ 4,150 $ 3,381 $ 3,219
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF JUNE 30, 1996
---------------------------------- ------------------------------
PRO PRO FORMA, AS
1991 1992 1993 1994 1995 ACTUAL FORMA (9) ADJUSTED (10)
------ ------ ------ ------ ------ ------ --------- -------------
(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 $ 895 $ 4,745
Working capital........ 6,890 6,253 2,715 10,634 10,369 5,144 5,373 9,223
Total assets........... 32,684 41,092 40,668 35,913 46,896 43,991 44,120 48,070
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 13,487 39,687
</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 $10.1
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 a portion of the estimated proceeds of this Offering to repay average
indebtedness outstanding prior to the Offering. See "Use of Proceeds" and the
Unaudited Pro Forma Condensed Consolidated Financial Statements included
elsewhere in this Prospectus.
(5) Pro forma net income combined presents pro forma net income, as
adjusted, giving effect to the Basin acquisition. The amounts presented are
computed based on MarkWest Partnership's ownership interest in Basin as of
June 30, 1996 of 5.3%. MarkWest Partnership intends to acquire additional
ownership of Basin through capital expenditures through the end of 1997, at
which time it is expected the ownership interest will be 60%. If the 60%
ownership interest was used, the pro forma net income combined per common
share amounts would be $0.66 and $0.34 for the year ended December 31, 1995
and the six months ended June 30, 1996, respectively. See the Unaudited Pro
Forma Condensed Consolidated Financial Statements included elsewhere in this
Prospectus for detailed computations of the pro forma effects at both
ownership levels.
(6) See the Unaudited Pro Forma Condensed Consolidated Financial Statements
included elsewhere in this Prospectus.
(7) Pro forma net income, as adjusted, per common share is presented to give
effect to the issuance of the number of shares required for net proceeds to
repay indebtedness outstanding prior to the Offering, including the
indebtedness incurred to fund the Partnership Distribution. The amount is
computed by dividing pro forma net income, as adjusted, as described in (4)
above, by the total of the pro forma weighted average common shares
outstanding prior to the Offering plus the additional shares for which the net
proceeds will be used to repay the indebtedness.
(8) 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, as defined by the Company, may not be comparable to similarly
titled measures used by other companies. EBITDA, which is not a measure under
generally accepted accounting purposes, is not intended to represent cash
flows for the period, nor has it been presented as an alternative to operating
income, or 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. The Company has included
EBITDA because it understands that such measure is used by certain investors
to determine the Company's ability to service its indebtedness. In addition,
the Company uses EBITDA to measure its performance against its industry peer
group. EBITDA should not be used as an indicator of the performance of the
Company's investing and financing activities.
(9) 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.
(10) Further adjusted to reflect the sale of 2,400,000 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.
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
23
<PAGE>
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 $350,000. 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 increase of $820,000 was due to a
$3.0 million price-related increase, offset by $2.2 million volume-related
decrease. 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%. The increase of $4.6
million was due to a $2.9 million volume-related increase and a $1.7 million
price-related increase. 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, offset by a decrease in
interest rates from 8.125% to 7.50%, 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 a $2.0 million increase due to an increase in
average NGL sales prices, offset by a $1.2 million decrease due to reduced
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, including a net volume-related decrease of $3.1
million offset by a net price-related increase of $2.6 million.
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 $10.1 million.
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<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 of
approximately $16.0 million in 1994 to $8.1 million in 1995, a decrease in
interest rates, the capitalization of approximately $301,000 of interest in
connection with the construction of the Kenova gas processing plant, and the
early extinguishment of a note that required the Company to pay additional
interest averaging $400,000 per year based on the throughput of the Company's
Siloam facility.
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 $1.8 million increase due to additional volumes
sold, offset by a $2.9 million decrease due to lower average NGL sales prices.
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 which is reflected in the $6.5 million volume-related
decrease, offset by an increase of $443,000 related to price.
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 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.
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<PAGE>
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 of approximately $13.0
million in 1993 to $16.0 million in 1994, and an increase in 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 following summary table reflects comparative cash flows for the Company
for the years ended December 31, 1993, 1994 and 1995 and the six months ended
June 30, 1995 and 1996:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------- -----------------
1993 1994 1995 1995 1996
------- ------- -------- -------- -------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net cash provided by operating
activities.................... $ 2,217 $ 994 $ 5,436 $ 10,671 $10,945
Net cash provided by (used in)
investing activities.......... $(6,917) $ 9,068 $(12,610) $ (5,212) $(2,569)
Net cash provided by (used in)
financing activities.......... $ (315) $(5,886) $ 2,467 $(10,514) $(8,471)
</TABLE>
For the six months ended June 30, 1996, net cash provided by operating
activities increased by $274,000 over the six months ended June 30, 1995. This
increase resulted primarily from an increase in revenue of $5.7 million, which
was offset by a $4.8 million increase in feedstock purchases, operating
expenses and general and administrative expenses. Cash flows from operations
was further reduced by an increase in working capital requirements. At
December 31, 1995, accounts receivable increased while revenues decreased due
to a short-term, non-revenue generating advance of $3.1 million to affiliates
of MEC, the Company's partner in West Shore. Accounts payable increased while
costs and expenses decreased due to the timing of the payments for prepaid
feedstock.
Cash used in investing activities decreased $2.6 million for the period
ending June 30, 1996, as compared to the period ending June 30, 1995, due to
the completion of the Kenova facility under construction the prior year. Cash
used in investing activities in 1995 was principally due to the expenditures
resulting from the construction of the Kenova facility. Cash provided from
investing activities in 1994 was principally due to the proceeds from the sale
of the Company's San Juan Basin coalbed methane properties and associated
gathering systems. Cash used in investing activities in 1993 was principally
due to the increased expenditures related to developing the San Juan Basin
coalbed methane properties.
Financing activities during the six months ended June 30, 1995 and 1996
principally consisted of payments on long-term debt. Cash provided by
financing activities in 1995 was principally due to the increase in borrowing
levels at the end of the year to finance construction of the Kenova facility.
Cash used in financing activities in 1994 resulted from the pay-down of long-
term debt under the Company's credit facility.
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 at least the next twelve months. 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,
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<PAGE>
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.
The loan agreements contain affirmative and negative covenants customary in
commercial lending transactions, including restrictions on the incurrence of
additional debt, restrictions on the payment of dividends that would cause the
Company to violate the financial covenants contained in the loan agreements,
maintenance of a specified tangible new worth, current ratio, ratio of funded
debt to total capitalization and fixed charge coverage ratio.
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 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 $213,000 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's hedging activities generally
fall into three categories--contracting for future purchases of natural gas at
a predetermined BTU differential based upon a basket of Gulf Coast NGL prices,
the fixing of margins between propane sales prices and natural gas
reimbursement costs by purchasing natural gas contracts and simultaneously
selling propane contracts (or a substitute for propane such as crude oil) of
approximately the same BTU value, and the purchase of propane futures
contracts to hedge future sales of propane at the Company's terminals or gas
plants.
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.
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<PAGE>
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.
29
<PAGE>
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, according to statistics
compiled by LPG Almanac, an independent natural gas data source, 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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<PAGE>
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 16.2 Tcf per year in 1986 to 21.3 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.
31
<PAGE>
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 southeast. Because
32
<PAGE>
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 $11.0 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 approximately 130 million gallons
per year. The Siloam plant also has over 14.0 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 3.0 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 9.0 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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<PAGE>
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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<PAGE>
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 $10.0 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 exclusive gathering,
treatment and processing agreements with MPC covering the natural gas
production from all wells and leases presently owned by MPC within Manistee,
Mason and Oceana Counties, Michigan. In addition, West Shore has a gathering,
treating and processing agreement with Oceana Acquisition Company ("Oceana")
covering the production from the initial phase of Oceana's drilling program in
Oceana County, 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 equivalent 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,
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<PAGE>
treatment and processing facilities and capacity to be provided by 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.
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
37
<PAGE>
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.
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
38
<PAGE>
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 prior to the end of 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.
Sales Contracts. The Company has three significant contracts for sales of
NGLs. The Company entered into two contracts, which expired August 31, 1996,
with Ashland pursuant to which Ashland agreed to purchase all of the normal
butane produced by the Company during each calendar year the contracts were in
effect. The Company has completed negotiations with Ashland for two new
contracts that the Company anticipates to execute by the end of September
1996, effective for a new three year term commencing September 1, 1996. The
new contracts provide that Ashland will purchase the total production of
normal butane and isobutane produced at the Company's Siloam plant. The
Company currently is operating under the terms of the new contracts. In 1995,
butanes represented approximately
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<PAGE>
24% of all NGLs produced by the Company. 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 a significant sales contract 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 8% 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. 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."
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<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 in constructing
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<PAGE>
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. To
date, however, the Company has experienced no material uninsured losses.
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.
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<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. In the event FERC does not confirm such exemption, the rates
charged by the Company for processing services at the Kenova plant would be
subject to regulation by FERC, and such rates and regulation could affect the
volume of natural gas delivered to the facility by producers. If imposed, such
regulation could have a material adverse effect on the Company's results of
operations.
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. Although the FERC has not been requested to or issued
any order or opinion
43
<PAGE>
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 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.
44
<PAGE>
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. The Company believes that it is in material compliance with all
applicable environmental laws and regulations.
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.
45
<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, Business 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 the University of Florida and a
masters degree in international marketing and finance from the American
Graduate School of International Management.
46
<PAGE>
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 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.
47
<PAGE>
MICHAEL R. LA RUE joined MarkWest in 1991 as Controller. In 1993, Mr. La Rue
became Manager, Business 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 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.
48
<PAGE>
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 4,580
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 6,331
Vice President of Engineering and
Business 1994 $109,515 $34,333 --
Development.......................... 1993 $117,875 $ 2,664 --
</TABLE>
49
<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........ 4,580 7.16% $6.99 August 1, 2001
Arthur J. Denney........ 6,331 9.89% $6.99 August 1, 2001
</TABLE>
FISCAL YEAR-END OPTION VALUES
The following table sets forth certain information with respect to stock
options held by each of the Company's Named Executive Officers. There have
been no option exercises by the Named Executive Officers since the formation
of the Company.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL YEAR- IN-THE-MONEY OPTIONS AT
END (#) FISCAL YEAR-END ($)(1)
------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
John M. Fox................. 5,725 1,425 $28,682 $ 7,139
Brian T. O'Neill............ 6,641 5,095 33,271 25,526
Arthur J. Denney............ 5,388 6,096 26,994 30,541
</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 650,000 shares of Common Stock. As of July 15, 1996, an
aggregate of approximately 486,305 shares of Common Stock had been reserved
for issuance under the Stock Incentive Plan and options to purchase an
aggregate of 163,695 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 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.
50
<PAGE>
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 $6.99 to
$7.86, 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.
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
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<PAGE>
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 5,725,000 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 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
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<PAGE>
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.
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. Management nevertheless
believes that the terms of the Company's co-investments with MAK-J Energy are
as favorable to the Company as could have been obtained from unaffiliated
third parties. 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 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
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<PAGE>
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.
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<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)................... 3,806,084 66.5% 46.8%
Erin Partners, Ltd. (5).................. 601,663 10.5 7.4
John M. Fox (6).......................... 4,069,661 71.0 50.1
Brian T. O'Neill (7)..................... 831,894 14.4 10.2
Arthur J. Denney......................... 66,314 1.2 *
David R. Whitney (8)..................... 200,375 3.5 2.5
Barry W. Spector......................... 5,699 * *
Norman H. Foster......................... 0 * *
All directors and executive officers as a
group (8 persons) (6)(7)................ 5,183,627 90.2% 63.6%
</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 5,725,000 shares of Common Stock were issued and outstanding,
options to acquire a total of 19,384 shares of Common Stock were exercisable
within sixty days and 19,384 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 8,125,000 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 257,853 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 pecuniary interest (within the
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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.
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<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 5,725,000 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) 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
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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 1,019,675 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 Common Stock has been approved for listing on the Nasdaq National Market
under the trading symbol "MWHX," subject to official notice of issuance.
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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
8,125,000 shares of Common Stock, assuming no exercise of the Underwriters'
over-allotment option. In addition to the 2,400,000 shares of Common Stock
offered hereby, as of the effective date of the Offering, there will be
5,725,000 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
5,480,610 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 5,513,279 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 650,000 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 163,695 shares subject to options which are expected
to be the subject matter of such registration statement.
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<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........................................................... 2,400,000
=========
</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 360,000 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.
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
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<PAGE>
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.
61
<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
PRO FORMA AS ADJUSTED
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
PRO FORMA COMBINED
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of June 30,
1996................................................................... F-29
Unaudited Pro Forma Condensed Consolidated Statement of Operations for
the year ended December 31, 1995:
5.3% Ownership Basis................................................... F-30
60% Ownership Basis.................................................... F-31
Unaudited Pro Forma Condensed Consolidated Statement of Operations for
the six months ended June 30, 1996:
5.3% Ownership Basis................................................... F-32
60% Ownership Basis.................................................... F-33
Notes to Unaudited Pro Forma Condensed Consolidated Financial
Statements.............................................................. F-34
</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 5,725,000 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, 650,000 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
Trade receivables................. 4,180 5,735 3,588
Short-term advances............... -- 3,174 --
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>
<CAPTION>
TOTAL
GENERAL LIMITED PARTNERS'
PARTNER PARTNERS CAPITAL
------- -------- ---------
<S> <C> <C> <C>
Balance, December 31, 1992........................ $13,824 $5,790 $19,614
Net income........................................ 376 164 540
Payments on notes receivable from partners........ -- 236 236
Distributions..................................... (1,919) (1,121) (3,040)
------- ------ -------
Balance, December 31, 1993........................ 12,281 5,069 17,350
Net income........................................ 3,533 1,587 5,120
Purchase of partnership interests financed by
notes receivable................................. -- 422 422
Notes receivable from partners.................... -- (422) (422)
Contributions..................................... -- 33 33
Distributions..................................... (214) (106) (320)
------- ------ -------
Balance, December 31, 1994........................ 15,600 6,583 22,183
Net income........................................ 4,203 1,871 6,074
Purchase of partnership interests financed by
notes receivable................................. -- 11 11
Notes receivable from partners.................... -- (11) (11)
Contributions/transfers........................... (30) 34 4
Distributions..................................... (2,876) (1,274) (4,150)
Option granted in conjunction with extinguishment
of debt.......................................... 726 324 1,050
------- ------ -------
Balance, December 31, 1995........................ 17,623 7,538 25,161
Net income for the six months ended June 30,
1996............................................. 3,099 1,389 4,488
Purchase of partnership interests financed by
notes receivable................................. -- 68 68
Notes receivable from partners.................... -- (68) (68)
Contributions..................................... -- 34 34
Distributions..................................... (2,203) (1,016) (3,219)
------- ------ -------
Balance, June 30, 1996............................ $18,519 $7,945 $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 -- -- --
(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
accounts payable and
accrued liabilities........ (1,554) (3,989) 1,392 2,796 943
------- ------- ------- --------- -------
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) (2,566)
Proceeds from sale of assets.. -- 10,166 -- -- --
Decrease (increase) in
intangible and other assets.. 24 344 (184) 85 (3)
------- ------- ------- --------- -------
Net cash provided by (used in)
investing activities......... (6,917) 9,068 (12,610) (5,212) (2,569)
------- ------- ------- --------- -------
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 (102)
------- ------- ------- --------- -------
Net cash provided by (used in)
financing activities......... (315) (5,886) 2,467 (10,514) (8,471)
------- ------- ------- --------- -------
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 committed 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
Cash held in escrow................................... 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.
Cash held in escrow 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. The amounts were accessible by
the Partnership as of December 31, 1994 without restriction and, consequently,
are classified as cash equivalents.
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.
REVENUE RECOGNITION
Revenue is recognized when product is shipped or when services are rendered.
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 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
F-13
<PAGE>
MARKWEST HYDROCARBON PARTNERS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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
additional limited
F-14
<PAGE>
MARKWEST HYDROCARBON PARTNERS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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. Options to purchase 1.3%, 2.5% and 2.9% of the Partnership were
outstanding at December 31, 1994 and 1995 and June 30, 1996, respectively, of
which .3%, .6 %, and .9%, respectively, were exercisable. These percentages do
not include the option to acquire 3.5% of the Partnership described in Note 2.
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 charged $324,000 and $178,000 (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, which
represented management's best estimate of the actual cost of such services. No
material amounts of administratives expenses were charged 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. 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 $5,735,000
and $3,588,000 (unaudited), respectively, which included receivables from
employees and officers of $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.
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......................... 16,479 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.
F-16
<PAGE>
MARKWEST HYDROCARBON PARTNERS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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)
(SEE
NOTE 5)
<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
YEAR ENDED ENDED FROM JANUARY 1 FROM MAY 6
DECEMBER 31, JUNE 30, THROUGH MAY 5, THROUGH JUNE 30,
1995 1995 1996 1996
------------ ----------- -------------- ----------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(SEE NOTE 5)
<S> <C> <C> <C> <C>
REVENUE:
Pipeline and transportation fees................................. $ 841,380 $ 420,690 $ 304,361 $229,850
Other income..................................................... 74 10 -- --
----------- ----------- --------- --------
Total revenue...................................................... 841,454 420,700 304,361 229,850
----------- ----------- --------- --------
COSTS AND EXPENSES:
Pipeline operating and other costs............................... 669,004 253,298 202,907 92,316
General and administrative....................................... 205,219 92,562 61,280 10,366
----------- ----------- --------- --------
Total costs and expenses........................................... 874,223 345,860 264,187 102,682
----------- ----------- --------- --------
OTHER EXPENSES:
Depreciation..................................................... 899,728 449,864 299,909 80,118
Interest......................................................... 1,100,022 660,513 516,362 --
----------- ----------- --------- --------
Total other expenses............................................... 1,999,750 1,110,377 816,271 80,118
----------- ----------- --------- --------
Net loss........................................................... (2,032,519) $(1,035,537) $(776,097) $ 47,050
=========== ========= ========
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>
FROM
JANUARY 1 FROM MAY 6
YEAR ENDED SIX MONTHS THROUGH THROUGH
DECEMBER 31, ENDED MAY 5, JUNE 30,
1995 JUNE 30, 1995 1996 1996
------------ ------------- ----------- ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(SEE NOTE 5)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss............................................................... $(2,032,519) $(1,202,882) $(776,097) $ 47,050
Adjustments to reconcile net loss to net cash provided by operating
activities--
Depreciation.......................................................... 899,728 617,208 816,271 80,118
Changes in operating assets and liabilities:
Trade accounts receivable............................................ 24,407 12,848 7,193 8,072
Intercompany accounts................................................ 180,287 94,977 -- 260,955
Trade accounts payable............................................... 488,264 619,329 462,235 92,814
Interest payable..................................................... 512,200 39,722 (178,938) --
Accrued expenses..................................................... 3,302 -- 209,077 (83,631)
----------- ------------ --------- --------
Cash provided by operating activities.................................... 75,669 181,202 539,741 405,378
----------- ------------ --------- --------
CASH USED IN INVESTING ACTIVITIES--
Purchase of property and equipment....................................... (489,828) (678,159) (543,224) (396,188)
----------- ------------ --------- --------
CASH PROVIDED BY FINANCING ACTIVITIES--
Proceeds from long-term debt............................................. 417,114 506,199 -- --
----------- ------------ --------- --------
Net increase (decrease) in cash.......................................... 2,955 9,242 (3,483) 9,190
Cash, beginning of year.................................................. 691 691 3,646 163
----------- ------------ --------- --------
Cash, end of year........................................................ $ 3,646 $ 9,933 $ 163 $ 9,353
- --------------------------------------------------
=========== ============ ========= ========
</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 does not believe the Company currently
has 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. ACQUISITION OF THE COMPANY (UNAUDITED)
On May 6, 1996, the Company was acquired by West Shore Processing Company,
LLC ("West Shore") (98%), MarkWest Michigan LLC. ("MML") (1.2%) and Michigan
Energy Company LLC ("MEC") (.8%). West Shore is a newly formed entity which is
currently owned 95% by MEC and 5% by MML. MEC is also a newly formed Company
controlled by shareholders of Gas Fund, the entity which made loans to the
Company under the Credit Agreement described in Note 2.
The net assets of the Company, principally the pipeline and minor amounts of
working capital, were acquired in consideration for forgiveness of amounts due
by the Company to Gas Fund under the Credit Agreement. This transaction has
been accounted for in accordance with purchase accounting and, accordingly,
the purchase price of $10.4 million has been allocated to the property and
equipment ($10.3 million) and working capital ($.1 million) acquired based on
estimates of their relative fair values at the date of acquisition. The
amounts reflected in the June 30, 1996 balance sheet and the statements of
operations and of cash flows for the period from May 6, 1996 through June 30,
1996 reflect the revised basis of assets and liabilities resulting from the
change in ownership.
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 2,400,000
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. These adjustments have been presented
in two separate sets of pro forma financial statements. The Reorganization and
Offering Adjustments have been reflected in the first set of pro formas, with
the resultant balances being labeled "Pro Forma, As Adjusted." These
statements are presented on pages F-26 through F-28. The second set of pro
formas adjusts the Pro Forma, As Adjusted balances to give effect to the
planned acquisition of Basin, with the resultant balances labeled "Pro Forma
Combined." In addition, because the Company's interest in Basin at June 30,
1996 is 5.3% but is expected to increase to 60% by the end of 1997 separate
pro forma statements have been presented to reflect both ownership levels.
Although the Company would not consolidate Basin's financial statements until
it achieved control of Basin, full consolidation has been assumed at both
ownership levels for purposes of these presentations.
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, 1995 for the pro forma consolidated statements 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
(PRO FORMA, AS ADJUSTED)
JUNE 30, 1996
($000S)
<TABLE>
<CAPTION>
MARKWEST
MARKWEST HYDROCARBON
HYDROCARBON PARTNERS, REORGANIZATION OFFERING PRO FORMA,
INC. LTD. ADJUSTMENTS ADJUSTMENTS AS ADJUSTED
----------- ----------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents............ $ 1 $ 666 $ 229 (b) $ 3,849 (c) $ 4,745
Accounts receivable..... -- 3,588 -- -- 3,588
Product inventory....... -- 3,287 -- -- 3,287
Materials and supplies
inventory.............. -- 264 -- -- 264
Prepaid expenses and
other assets........... -- 359 -- -- 359
Prepaid feedstock....... -- 2,157 -- -- 2,157
---- -------- -------- -------- -------
Total current assets.... 1 10,321 229 3,849 14,400
---- -------- -------- -------- -------
Property, plant and
equipment, at cost..... -- 43,408 -- -- 43,408
Accumulated
depreciation, depletion
and amortization....... -- (10,810) -- -- (10,810)
---- -------- -------- -------- -------
Net property, plant and
equipment.............. -- 32,598 -- -- 32,598
---- -------- -------- -------- -------
Intangible assets, net
of accumulated
amortization........... -- 443 -- -- 443
Other assets............ 100 629 -- (100)(i) 629
---- -------- -------- -------- -------
Total assets............ $101 $ 43,991 $ 229 $ 3,749 $48,070
==== ======== ======== ======== =======
LIABILITIES AND EQUITY
Current liabilities:
Trade accounts payable.. $-- $ 4,430 $ -- $ -- $ 4,430
Accrued liabilities..... 100 418 -- (100)(i) 418
Interest payable........ -- 99 -- -- 99
Accrued bonus and profit
sharing................ -- 230 -- -- 230
---- -------- -------- -------- -------
Total current
liabilities............ 100 5,177 -- (100) 5,177
Deferred income taxes... -- -- 3,206 (a) -- 3,206
Long-term debt.......... -- 12,350 10,000 (d) (22,350)(g) --
---- -------- -------- -------- -------
Total liabilities....... 100 17,527 13,206 (22,450) 8,383
Minority interest....... -- -- -- -- --
Common stock............ -- -- 57 (f) 24 (h) 81
Additional Paid-in
Capital................ 1 -- 13,430 (f) 26,175 (h) 39,606
Partners' capital....... -- 26,464 (12,977)(e) -- --
(13,487)(f)
Retained earnings....... -- -- -- -- --
---- -------- -------- -------- -------
Partners'
capital/stockholders'
equity................. 1 26,464 (12,977) 26,199 39,687
---- -------- -------- -------- -------
Total liabilities and
equity................. $101 $ 43,991 $ 229 $ 3,749 $48,070
==== ======== ======== ======== =======
</TABLE>
F-26
<PAGE>
MARKWEST HYDROCARBON, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(PRO FORMA, AS ADJUSTED)
FOR THE YEAR ENDED DECEMBER 31, 1995
($000S, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARKWEST
MARKWEST HYDROCARBON
HYDROCARBON PARTNERS, REORGANIZATION OFFERING PRO FORMA,
INC. LTD. ADJUSTMENTS ADJUSTMENTS AS ADJUSTED
----------- ----------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues:
Plant revenue........... $-- $33,823 $ -- $ -- $33,823
Terminal and marketing
revenue................ -- 13,172 -- -- 13,172
Oil and gas and other
revenue................ -- 1,075 -- -- 1,075
---- ------- ----- ------- -------
Total revenue........... -- 48,070 -- -- 48,070
---- ------- ----- ------- -------
Costs and Expenses:
Plant feedstock
purchases.............. -- 17,308 -- -- 17,308
Terminal and marketing
purchases.............. -- 11,937 -- -- 11,937
Operating expenses...... -- 4,706 -- -- 4,706
General and
administrative
expenses............... -- 4,189 -- -- 4,189
Depreciation, depletion
and amortization....... -- 1,754 -- -- 1,754
---- ------- ----- ------- -------
Total costs and
expenses............... -- 39,894 -- -- 39,894
---- ------- ----- ------- -------
Earnings (loss) from
operations............. -- 8,176 8,176
Interest income
(expense), net......... -- (352) -- 508 (j) 156
---- ------- ----- ------- -------
-- 7,824 508 8,332
Minority interest....... -- -- -- -- --
---- ------- ----- ------- -------
Income (loss) before
income taxes........... -- 7,824 508 8,332
(Provision) benefit for
income taxes........... -- -- -- (3,128)(k) (3,128)
---- ------- ----- ------- -------
Net income.............. $-- $ 7,824 $ -- $(2,620) $ 5,204
==== ======= ===== ======= =======
Weighted average common
shares outstanding..... 7,375 (t)
=======
Net income per common
share.................. $ .71
=======
</TABLE>
F-27
<PAGE>
MARKWEST HYDROCARBON, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(PRO FORMA, AS ADJUSTED)
FOR THE SIX MONTHS ENDED JUNE 30, 1996
($000S, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARKWEST
MARKWEST HYDROCARBON
HYDROCARBON PARTNERS, REORGANIZATION OFFERING PRO FORMA,
INC. LTD. ADJUSTMENTS ADJUSTMENTS AS ADJUSTED
----------- ----------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues:
Plant revenue........... $-- $18,045 $ -- $ -- $18,045
Terminal and marketing
revenue................ -- 9,831 -- -- 9,831
Oil and gas and other
revenue................ -- 744 -- -- 744
---- ------- ----- ------- -------
Total revenue........... -- 28,620 -- -- 28,620
---- ------- ----- ------- -------
Costs and Expenses:
Plant feedstock
purchases.............. -- 8,538 -- -- 8,538
Terminal and marketing
purchases.............. -- 8,683 -- -- 8,683
Operating expenses...... -- 2,979 -- -- 2,979
General and
administrative
expenses............... -- 2,140 -- -- 2,140
Depreciation, depletion
and amortization....... -- 1,326 -- -- 1,326
---- ------- ----- ------- -------
Total costs and
expenses............... -- 23,666 -- -- 23,666
---- ------- ----- ------- -------
Earnings (loss) from
operations............. -- 4,954 4,954
Interest income
(expense), net......... -- (466) -- 509(j) 43
---- ------- ----- ------- -------
-- 4,488 509 4,997
Minority interest....... -- -- -- -- --
---- ------- ----- ------- -------
Income (loss) before
income taxes .......... -- 4,488 509 4,997
(Provision) benefit for
income taxes........... -- -- (1,859)(k) (1,859)
---- ------- ----- ------- -------
Pro forma net income.... $-- $ 4,488 $ -- $(1,350) $ 3,138
==== ======= ===== ======= =======
Weighted average common
shares outstanding..... 8,067 (t)
=======
Net income per common
share.................. $ .39
=======
</TABLE>
F-28
<PAGE>
MARKWEST HYDROCARBON, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(PRO FORMA COMBINED)
JUNE 30, 1996
($000S)
<TABLE>
<CAPTION>
BASIN
HISTORICAL PIPELINE PRO
PRO FORMA, BASIN ACQUISITION FORMA
AS ADJUSTED PIPELINE ADJUSTMENTS COMBINED
----------- ---------- ----------- --------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....... $ 4,745 $ 9 $(4,680)(l) $ 74
Accounts receivable............. 3,588 261 -- 3,849
Product inventory............... 3,287 -- -- 3,287
Materials and supplies
inventory...................... 264 -- -- 264
Prepaid expenses and other
assets......................... 359 8 -- 367
Prepaid feedstock............... 2,157 -- -- 2,157
------- ------- ------- -------
Total current assets............ 14,400 278 (4,680) 9,998
------- ------- ------- -------
Property, plant and equipment,
at cost........................ 43,408 10,333 17,081 (l) 70,822
Accumulated depreciation,
depletion and amortization..... (10,810) (80) -- (10,890)
------- ------- ------- -------
Net property, plant and
equipment...................... 32,598 10,253 17,081 59,932
------- ------- ------- -------
Intangible assets, net of
accumulated amortization....... 443 -- -- 443
Other assets.................... 629 -- (629)(m) --
------- ------- ------- -------
Total assets.................... $48,070 $10,531 $11,772 $70,373
======= ======= ======= =======
LIABILITIES AND EQUITY
Current liabilities:
Trade accounts payable.......... $ 4,430 $ 93 $ -- $ 4,523
Accrued liabilities............. 418 32 -- 450
Interest payable................ 99 -- 865 (l) 964
Accrued bonus and profit
sharing........................ 230 -- -- 230
------- ------- ------- -------
Total current liabilities....... 5,177 125 865 6,167
Deferred income taxes........... 3,206 -- -- 3,206
Long-term debt.................. -- -- 11,536 (l) 11,536
------- ------- ------- -------
Total liabilities............... 8,383 125 12,401 20,909
Minority interest............... -- -- 9,777 (o) 9,777
Partners' capital/stockholders
equity:
Contributed capital............. -- 10,359 (10,359)(n) --
Common stock.................... 81 -- -- 81
Additional paid-in-capital...... 39,606 -- -- 39,606
Retained earnings............... -- 47 (47)(n) --
------- ------- ------- -------
Total partners
capital/stockholders equity.... 39,687 10,406 (10,406) 39,687
------- ------- ------- -------
Total liabilities and equity.... $48,070 $10,531 $11,772 $70,373
======= ======= ======= =======
</TABLE>
F-29
<PAGE>
MARKWEST HYDROCARBON, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(PRO FORMA COMBINED)
FOR THE YEAR ENDED DECEMBER 31, 1995
($000S, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
BASIN
PIPELINE
ACQUISITION
HISTORICAL ADJUSTMENTS PRO
PRO FORMA, BASIN @ 5.3% FORMA
AS ADJUSTED PIPELINE OWNERSHIP COMBINED
----------- ---------- ----------- --------
<S> <C> <C> <C> <C>
Revenues:
Plant revenue................ $33,823 $ -- $ -- $33,823
Terminal and marketing
revenue..................... 13,172 -- -- 13,172
Oil and gas and other
revenue..................... 1,075 841 -- 1,916
------- ------- ------ -------
Total revenue................ 48,070 841 -- 48,911
------- ------- ------ -------
Costs and Expenses:
Plant feedstock purchases.... 17,308 -- -- 17,308
Terminal and marketing
purchases................... 11,937 -- -- 11,937
Operating expenses........... 4,706 669 -- 5,375
General and administrative
expenses.................... 4,189 205 -- 4,394
Depreciation, depletion and
amortization................ 1,754 900 -- 2,654
------- ------- ------ -------
Total costs and expenses..... 39,894 1,774 -- 41,668
------- ------- ------ -------
Earnings (loss) from
operations.................. 8,176 (933) -- 7,243
Interest income (expense),
net......................... 156 (1,100) 1,100 (q) 156
------- ------- ------ -------
8,332 (2,033) 1,100 7,399
Minority interest............ -- -- 884 (p) 884
------- ------- ------ -------
Income (loss) before income
taxes....................... 8,332 (2,033) 1,984 8,283
(Provision) benefit for
income taxes................ (3,128) -- 18 (k) (3,110)
------- ------- ------ -------
Net income................... $ 5,204 $(2,033) $2,002 $ 5,173
======= ======= ====== =======
Weighted average common
shares outstanding.......... 7,375(t) 7,375(t)
======= =======
Net income per common share.. $ .71 $ .70
======= =======
</TABLE>
F-30
<PAGE>
MARKWEST HYDROCARBON, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(PRO FORMA COMBINED)
FOR THE YEAR ENDED DECEMBER 31, 1995
($000S, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
BASIN
PIPELINE
ACQUISITION
HISTORICAL ADJUSTMENTS PRO
PRO FORMA, BASIN @ 60% FORMA
AS ADJUSTED PIPELINE OWNERSHIP COMBINED
----------- ---------- ----------- --------
<S> <C> <C> <C> <C>
Revenues:
Plant revenue............... $33,823 $ -- $ -- $33,823
Terminal and marketing
revenue.................... 13,172 -- -- 13,172
Oil and gas and other
revenue.................... 1,075 841 -- 1,916
------- ------- ------ -------
Total revenue............... 48,070 841 -- 48,911
------- ------- ------ -------
Costs and Expenses:
Plant feedstock purchases... 17,308 -- -- 17,308
Terminal and marketing
purchases.................. 11,937 -- -- 11,937
Operating expenses.......... 4,706 669 -- 5,375
General and administrative
expenses................... 4,189 205 -- 4,394
Depreciation, depletion and
amortization............... 1,754 900 -- 2,654
------- ------- ------ -------
Total costs and expenses.... 39,894 1,774 -- 41,668
------- ------- ------ -------
Earnings (loss) from
operations................. 8,176 (933) -- 7,243
Interest income (expense),
net........................ 156 (1,100) 1,100(q) 156
------- ------- ------ -------
8,332 (2,033) 1,100 7,399
Minority interest........... -- -- 373(p) 373
------- ------- ------ -------
Income (loss) before income
taxes...................... 8,332 (2,033) 1,473 7,772
(Provision) benefit for
income taxes............... (3,128) -- 210(k) (2,918)
------- ------- ------ -------
Net income.................. $ 5,204 $(2,033) $1,683 $ 4,854
======= ======= ====== =======
Weighted average common
shares outstanding......... 7,375 (t) 7,375 (t)
======= =======
Net income per common
share...................... $ .71 $ .66
======= =======
</TABLE>
F-31
<PAGE>
MARKWEST HYDROCARBON, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(PRO FORMA COMBINED)
FOR THE SIX MONTHS ENDED JUNE 30, 1996
($000S, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
BASIN
PIPELINE
ACQUISITION
HISTORICAL ADJUSTMENTS PRO
PRO FORMA, BASIN @ 5.3% FORMA
AS ADJUSTED PIPELINE OWNERSHIP COMBINED
----------- ---------- ----------- --------
<S> <C> <C> <C> <C>
Revenues:
Plant revenue............... $18,045 $ -- $ -- $18,045
Terminal and marketing
revenue.................... 9,831 -- -- 9,831
Oil and gas and other
revenue.................... 744 534 -- 1,278
------- ----- ----- -------
Total revenue............... 28,620 534 -- 29,154
------- ----- ----- -------
Costs and Expenses:
Plant feedstock purchases... 8,538 -- -- 8,538
Terminal and marketing
purchases.................. 8,683 -- -- 8,683
Operating expenses.......... 2,979 295 -- 3,274
General and administrative
expenses................... 2,140 72 -- 2,212
Depreciation, depletion and
amortization............... 1,326 380 427 (r) 2,133
------- ----- ----- -------
Total costs and expenses.... 23,666 747 427 24,840
------- ----- ----- -------
Earnings (loss) from
operations................. 4,954 (213) (427) 4,314
Interest income (expense),
net........................ 43 (516) 516 (q) (390)
(433)(s)
------- ----- ----- -------
4,997 (729) (344) 3,924
Minority interest........... -- -- 1,016 (p) 1,016
------- ----- ----- -------
Income (loss) before income
taxes...................... 4,997 (729) 672 4,940
(Provision) benefit for
income taxes............... (1,859) -- 21 (k) (1,838)
------- ----- ----- -------
Pro forma net income........ $ 3,138 $(729) $ 693 $ 3,102
======= ===== ===== =======
Weighted average common
shares outstanding......... 8,067 (t) 8,067 (t)
======= =======
Net income per common
share...................... $ .39 $ .38
======= =======
</TABLE>
F-32
<PAGE>
MARKWEST HYDROCARBON, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(PRO FORMA COMBINED)
FOR THE SIX MONTHS ENDED JUNE 30, 1996
($000S, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
BASIN
PIPELINE
ACQUISITION
HISTORICAL ADJUSTMENTS PRO
PRO FORMA, BASIN @ 60% FORMA
AS ADJUSTED PIPELINE OWNERSHIP COMBINED
----------- ---------- ----------- --------
<S> <C> <C> <C> <C>
Revenues:
Plant revenue............... $18,045 $ -- $-- $18,045
Terminal and marketing
revenue.................... 9,831 -- -- 9,831
Oil and gas and other
revenue.................... 744 534 -- 1,278
------- ----- ---- -------
Total revenue............... 28,620 534 -- 29,154
------- ----- ---- -------
Costs and Expenses:
Plant feedstock purchases... 8,538 -- -- 8,538
Terminal and marketing
purchases.................. 8,683 -- -- 8,683
Operating expenses.......... 2,979 295 -- 3,274
General and administrative
expenses................... 2,140 72 -- 2,212
Depreciation, depletion and
amortization............... 1,326 380 427 (r) 2,133
------- ----- ---- -------
Total costs and expenses.... 23,666 747 427 24,840
------- ----- ---- -------
Earnings (loss) from
operations................. 4,954 (213) (427) 4,314
Interest income (expense),
net........................ 43 (516) 516 (q) (390)
(433)(s)
------- ----- ---- -------
4,997 (729) (344) 3,924
Minority interest........... -- -- 429 (p) 429
------- ----- ---- -------
Income (loss) before income
taxes...................... 4,997 (729) 85 4,353
(Provision) benefit for
income taxes............... (1,859) -- 240 (k) (1,619)
------- ----- ---- -------
Pro forma net income........ $ 3,138 $(729) $325 $ 2,734
======= ===== ==== =======
Weighted average common
shares outstanding......... 8,067 (t) 8,067 (t)
======= =======
Net income per common
share...................... $ .39 $ .34
======= =======
</TABLE>
F-33
<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 receipt of cash from employees who financed their acquisition of
stock with notes receivable and proceeds received upon exercise of options.
(c) Represents the incremental cash to the Company from net proceeds of the
Offering, assuming that $22.4 million of the expected net proceeds of $26.2
million was used to retire debt, including the debt incurred to fund the
$10.0 million Partnership Distribution.
(d) Represents debt incurred to fund the Partnership Distribution.
(e) Represents decreases in partners' capital resulting from the Partnership
Distribution and the deferred taxes recorded upon the Reorganization (see
(a) above), offset by increases resulting from cash received as described
in (b) above.
(f) Represents the issuance of shares in exchange for the contribution of
partners' capital.
(g) Reflects the retirement of existing debt with proceeds from the Offering.
(h) Represents the issuance of shares for net proceeds from the Offering of
$26.2 million.
(i) Represents the elimination of deferred offering costs and the related
accrued liabilities because these have been reflected in the computation of
net proceeds.
(j) 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.
(k) 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.
(l) Reflects the planned increase in the investment in Basin Pipeline, L.L.C.
of $16.2 million, funded by the $4.7 million remaining cash after the
Offering and $11.5 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 statements 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 ($865,000 using an interest rate of
7.5%) has been capitalized. A change of .125% in the assumed interest rate
would result in an increase or decrease of $14,000 in the amount of
capitalized interest. 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.
(m) Represents reclassification of the initial investment in Basin from other
assets to property, plant and equipment.
(n) Represents the elimination of the book equity accounts of Basin.
(o) Represents the 40% minority interest in Basin, assuming the Company owns
60% of Basin as discussed in (l) above.
(p) Represents the 40% minority interest impact of the Basin adjustments.
(q) 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.
(r) 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. The total cost of the assets contracted is
estimated to be $17.1 million, including $.9 million of capitalized
interest, and is depreciated using the straight-line method over the
estimated useful life of the assets of 20 years.
(s) Represents interest expense at 7.5% on the amount assumed to be borrowed in
conjunction with the Basin acquisition (see (l) above). A change of .125%
in the assumed interest rate would result in an increase or decrease in
interest expense of $7,000.
(t) Represents the weighted average number of common shares outstanding during
the applicable period, which is computed by adding the number of common and
common equivalent shares issued in the Reorganization, which are assumed to
be outstanding for all periods presented, to the number of shares issued in
the Offering for which the net proceeds will be used to repay average
outstanding indebtedness during the applicable period, including the
indebtedness incurred to fund the Partnership Distribution.
F-34
<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 two narrative phrases (31 mile regulated pipeline in Michigan) and
(50+ mile Michigan planned expansion); Natural Gas Refinery Plant icon labeled
"Gas Processing Services" followed by four narrative phrases (2 extraction
plants in Appalachia), (1 NGL Fractionator in Appalachia), (38 mile NGL
pipeline in Appalachia) and (1 planned Extraction/Fractionation plant in
Michigan); 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................................................................. 30
Management............................................................... 46
Certain Transactions..................................................... 52
Principal Stockholders................................................... 55
Description of Capital Stock............................................. 57
Shares Eligible for Future Sale.......................................... 59
Underwriting............................................................. 60
Legal Matters............................................................ 61
Experts.................................................................. 61
Additional Information................................................... 61
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.
---------------
2,400,000 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............................. 35,000
Blue Sky fees and expenses..................................... 10,000
Printing and engraving expenses................................ 135,000
Legal fees and expenses........................................ 150,000
Auditors' accounting fees and expenses......................... 140,000
Transfer Agent and Registrar fees.............................. 5,000
Miscellaneous expenses......................................... 92,874
---------
Total...................................................... $ 585,000
=========
</TABLE>
- --------
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 5,725,000 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 Amended and Restated 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>
- --------
** Confidential treatment requested.
+ Previously filed.
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 13TH DAY OF SEPTEMBER, 1996.
MARKWEST HYDROCARBON, INC.
John M. Fox
By: _________________________________
JOHN M. FOX PRESIDENT AND CHIEF
EXECUTIVE OFFICER
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.
SIGNATURE TITLE DATE
--------- ----- ----
John M. Fox
- ------------------------------------- President and Chief September 13,
JOHN M. FOX Executive Officer 1996
(Principal
Executive Officer)
and Director
Brian T. O'Neill
- ------------------------------------- Senior Vice September 13,
BRIAN T. O'NEILL President, and 1996
Chief Operating
Officer and
Director
Rita E. Harvey Director of Finance
- ------------------------------------- and Treasurer September 13,
RITA E. HARVEY (Principal 1996
Financial and
Accounting Officer)
Arthur J. Denney* Director September 13,
- ------------------------------------- 1996
ARTHUR J. DENNEY
Norman H. Foster* Director September 13,
- ------------------------------------- 1996
NORMAN H. FOSTER
II-5
<PAGE>
SIGNATURE TITLE DATE
--------- ----- ----
Director
Barry W. Spector* September 13,
- ------------------------------------- 1996
BARRY W. SPECTOR
Director
David R. Whitney* September 13,
- ------------------------------------- 1996
DAVID R. WHITNEY
*By Brian T. O'Neill as attorney-in-fact
II-6
<PAGE>
Draft of September 10, 1996
---------------------------
MARKWEST HYDROCARBON, INC.
2,400,000 SHARES
COMMON STOCK
UNDERWRITING AGREEMENT
DILLON, READ & CO. INC.
GEORGE K. BAUM & COMPANY
_______________, 1996
<PAGE>
UNDERWRITING AGREEMENT
____________, 1996
Dillon, Read & Co. Inc.
535 Madison Avenue
New York, New York 10022
George K. Baum & Company
120 W. 12th Street, Suite 800
Kansas City, Missouri 64105
as Managing Underwriters
Dear Sirs:
MarkWest Hydrocarbon, Inc., a Delaware corporation (the "Company"),
proposes to issue and sell to the underwriters named in Schedule A (the
"Underwriters") 2,400,000 shares (the "Firm Shares") of Common Stock, par value
$0.01 per share (the "Common Stock"), of the Company. In addition, solely for
the purpose of covering overallotments, the Company proposes to issue and sell,
at the Underwriters' option, up to 360,000 additional shares of the Common Stock
(the "Additional Shares"). The Additional Shares and the Firm Shares are
collectively referred to as the "Shares". The Shares are described in the
Prospectus which is referred to below.
The Company has filed, in accordance with the provisions of the Securities
Act of 1933, as amended, and the rules and regulations thereunder (collectively,
the "Act"), with the Securities and Exchange Commission (the "Commission") a
registration statement on Form S-1 (Commission File No. 333-09513), including a
prospectus, relating to the Shares. The Company has furnished to you, for use
by the Underwriters and by dealers, copies of one or more preliminary
prospectuses (collectively, the "Preliminary Prospectus") relating to the
Shares. Except where the context otherwise requires, the registration statement
as in effect at the time of execution of this Agreement or, if the registration
statement is not yet effective, as amended when it becomes effective, including
all documents filed as a part thereof, and including any registration statement
filed pursuant to Rule 462(b) under the Act increasing the size of the offering
registered under the Act and any information contained in a prospectus
subsequently filed with the Commission pursuant to Rule 424(b) under the Act and
deemed to be part of the registration statement at the time of effectiveness
pursuant to Rule 430A under the Act, is herein called the "Registration
Statement", and the prospectus in the form filed by the Company with the
Commission pursuant to Rule 424(b) under the Act or, if no such filing is
required, in the form of final prospectus included in the Registration Statement
at the time it became effective, is herein called the "Prospectus".
<PAGE>
The Company, MarkWest Hydrocarbon Partners, Ltd., a Colorado limited
partnership ("MarkWest Partnership"), all of the partners of MarkWest
Partnership (the "Partners"), RIMCO Partners, L.P. and RIMCO Partners, L.P. II
(RIMCO Partners, L.P. and RIMCO Partners, L.P. II are sometimes hereinafter
collectively referred to as "RIMCO") have entered into a Reorganization
Agreement, dated as of August 1, 1996 (the "Reorganization Agreement"), and the
Company and MarkWest Partnership have entered into an Assignment and Assumption
Agreement, dated as of _____________, 1996 (the "Assignment and Assumption
Agreement"). Pursuant to the terms and conditions of the Reorganization
Agreement and the Assignment and Assumption Agreement (i) RIMCO will exercise
its options for an aggregate of _______ shares of Common Stock, (ii) all of the
Partners, including RIMCO, will exchange their partnership interests for an
aggregate of _________ shares of Common Stock, (iii) outstanding options to
purchase interests of MarkWest Partnership held by current and former employees
of MarkWest Partnership (the "Option Holders") will be replaced by options to
purchase ________ shares of Common Stock pursuant to the Company's 1996 Stock
Incentive Plan, (iv) the Company will succeed to all of the business, assets and
liabilities of MarkWest partnership and (v) MarkWest Partnership will be
dissolved.
The Company and the Underwriters agree as follows:
1. Sale and Purchase. On the basis of the representations and warranties
-----------------
and the other terms and conditions herein set forth, the Company agrees to sell
2,400,000 shares of Common Stock to the respective Underwriters and each of the
Underwriters, severally and not jointly, agrees to purchase from the Company the
respective number of Firm Shares (subject to such adjustment as you may
determine to avoid fractional shares) set forth opposite the name of such
Underwriter on Schedule A at a purchase price of $____ per Share. You may
release the Firm Shares for public sale promptly after this Agreement becomes
effective. You may from time to time increase or decrease the public offering
price after the initial public offering to such extent as you may determine.
In addition, on the basis of the representations and warranties and the
other terms and conditions herein set forth, the Company hereby grants to the
several Underwriters an option to purchase, and the Underwriters shall have the
right to purchase, severally and not jointly, from the Company all or a portion
of the Additional Shares as may be necessary to cover overallotments made in
connection with the offering of the Firm Shares, at the same purchase price per
share to be paid by the several Underwriters to the Company for the Firm Shares.
This option may be exercised in whole or in part from time to time on or before
the thirtieth day following the date hereof, by written notice to the Company.
Any such notice shall set forth the aggregate number of Additional Shares as to
which the option is being exercised, and the date and time when the Additional
Shares are to be delivered (any such date and time being herein referred to as
an "additional time of purchase"); provided, however, that no additional time of
purchase shall occur earlier than the time of purchase (as defined below) nor
earlier than the second business day* after the date on which the option shall
- --------------
*As used herein, "business day" shall mean a day on which the New York
Stock Exchange is open for trading.
2
<PAGE>
have been exercised nor later than the eighth business day after the date on
which the option shall have been exercised. The number of Additional Shares to
be sold to each Underwriter at an additional time of purchase shall be the
number which bears the same proportion to the aggregate number of Additional
Shares being purchased at such additional time of purchase as the number of Firm
Shares set forth opposite the name of such Underwriter on Schedule A bears to
the total number of Firm Shares (subject, in each case, to such adjustment as
you may determine to eliminate fractional shares).
2. Payment and Delivery. Payment of the purchase price for the Firm
--------------------
Shares shall be made to the Company by certified or official bank checks, in
immediately available funds, at the office of Dillon, Read & Co. Inc. in New
York City, against delivery of the certificates for the Firm Shares to you for
the respective accounts of the Underwriters. Such payment and delivery shall be
made at 9:30 A.M., New York City time, on ____________, 1996 (unless another
time shall be agreed to by you and the Company or unless postponed in accordance
with the provisions of Section 8). The time at which such payment and delivery
are actually made is called the "time of purchase". Certificates for the Firm
Shares shall be delivered to you in definitive form in such names and in such
denominations as you shall specify on the second business day preceding the time
of purchase. For the purpose of expediting the checking of the certificates for
the Firm Shares by you, the Company agrees to make such certificates available
to you for such purpose at least one full business day preceding the time of
purchase.
Payment of the purchase price for the Additional Shares shall be made to
the Company at the additional time of purchase in the same manner and at the
same office as the payment for the Firm Shares. Certificates for the Additional
Shares shall be delivered to you in definitive form in such names and in such
denominations as you shall specify on the second business day preceding the
additional time of purchase. For the purpose of expediting the checking of the
certificates for the Additional Shares by you, the Company agrees to make such
certificates available to you for such purpose at least one full business day
preceding the additional time of purchase.
3. Representations and Warranties of the Company. The Company represents
---------------------------------------------
and warrants to each of the Underwriters that:
(a) Each Preliminary Prospectus filed as part of the Registration
Statement as originally filed or as part of any amendment thereto, or filed
pursuant to Rule 424 under the Act, complied when so filed in all material
respects with the Act; when the Registration Statement becomes or became
effective and at all times subsequent thereto up to the time of purchase
and the additional time of purchase, the Registration Statement and the
Prospectus, and any supplements or amendments thereto, complied and will
comply in all material respects with the provisions of the Act; and the
Registration Statement at all such times did not and will not contain an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading, and the Prospectus at all such times did not and will not
contain an untrue statement of a material fact or omit to state a 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
3
<PAGE>
misleading; provided, however, that the Company makes no representation or
warranty with respect to any statement contained in the Registration Statement
or the Prospectus in reliance upon and in conformity with information concerning
the Underwriters and furnished in writing by or on behalf of any Underwriter
through you to the Company expressly for use in the Registration Statement or
the Prospectus and set forth in the section of the Registration Statement and
the Prospectus entitled "Underwriting".
(b) As of the date of this Agreement, the Company has an authorized
capitalization as set forth under the column entitled "June 30, 1996 Actual" in
the section of the Registration Statement and the Prospectus entitled
"Capitalization" and, as of the time of purchase, the capitalization of the
Company will be as set forth under the column entitled "June 30, 1996 Pro Forma
As Adjusted" in the section of the Registration Statement and the Prospectus
entitled "Capitalization"; all of the issued and outstanding shares of capital
stock of the Company have been duly authorized and validly issued and are fully
paid and nonassessable and are free of statutory and contractual preemptive
rights.
(c) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Delaware with full
power and authority to (i) own its properties and conduct its business as
described in the Registration Statement and the Prospectus and (ii) execute and
deliver this Agreement and to issue, sell and deliver the Shares as herein
contemplated.
(d) All of the issued and outstanding shares of capital stock of each of
the subsidiaries of the Company listed on Schedule C hereto under the caption
"WHOLLY OWNED SUBSIDIARIES" (the "Wholly Owned Subsidiaries") are owned directly
by the Company; all of such shares have been duly authorized and validly issued
and are fully paid and nonassessable and, except as described in the Prospectus,
are owned free and clear of any pledge, lien, encumbrance, security interest or
other claim; there are no outstanding rights, subscriptions, warrants, calls,
preemptive rights, options or other agreements of any kind with respect to the
capital stock of any of the Wholly Owned Subsidiaries. The Company has such
ownership interest in each of the subsidiaries of the Company listed on Schedule
C hereto under the caption "MICHIGAN SUBSIDIARIES" (the "Michigan Subsidiaries")
as described in the Prospectus, and except as described in the Prospectus, such
ownership interest is owned free and clear of any pledge, lien, encumbrance,
security interest or other claim; except as described in the Prospectus, there
are no outstanding rights, subscriptions, warrants, calls, preemptive rights,
options or other agreements of any kind with respect to the ownership interest
of any of the Michigan Subsidiaries. The Wholly Owned Subsidiaries and the
Michigan Subsidiaries are hereinafter referred to as the "Subsidiaries."
(e) Each of the Wholly Owned Subsidiaries has been duly incorporated and is
validly existing as a corporation in good standing under the laws of its
respective jurisdiction of incorporation, with full corporate power and
authority to own its respective properties and to conduct its respective
businesses. Each of the Michigan Subsidiaries has been duly
4
<PAGE>
organized and is validly existing as a limited liability company in good
standing under the laws of its respective jurisdiction of organization, with
full limited liability company power and authority to own its respective
properties and to conduct its respective business.
(f) Each of the Company and each of the Subsidiaries is duly qualified or
licensed by and is in good standing in each jurisdiction in which it owns or
leases property or conducts its business and in each other jurisdiction in which
the failure, individually or in the aggregate, to be so qualified or licensed
could have a material adverse effect on the properties, assets, operations,
business, business prospects or financial condition of the Company and the
Subsidiaries taken as a whole; each of the Company and each of the Subsidiaries
is in compliance in all material respects with the laws, orders, rules,
regulations and directives issued or administered by each such jurisdiction.
(g) Neither the Company nor any of the Subsidiaries is in breach of, or in
default under (nor has any event occurred which with notice, lapse of time or
both would constitute a breach of, or default under), its charter or bylaws, or
in the performance or observance of any obligation, agreement, covenant or
condition contained in any license, indenture, lease, mortgage, deed of trust,
bank loan or credit agreement, material supply agreement or other agreement or
instrument to which the Company or any of the Subsidiaries is a party or by
which any of them may be bound or affected. The execution, delivery and
performance of this Agreement, the issuance of the Shares and the consummation
of the transactions contemplated hereby will not conflict with, or result in any
breach of or constitute a default under (nor constitute any event which with
notice, lapse of time or both would constitute a breach of, or default under),
the charter, bylaws or other organizational documents of the Company or any of
the Subsidiaries or under any provision of any license, indenture, lease,
mortgage, deed of trust, bank loan or credit agreement, material supply
agreement or other agreement or instrument to which the Company or any of the
Subsidiaries is a party or by which any of them or their properties may be bound
or affected, or under any federal, state, local or foreign law, regulation or
rule or any decree, judgment or order applicable to the Company or any of the
Subsidiaries.
(h) The Firm Shares and the Additional Shares, when issued and delivered to
and paid for by the Underwriters as contemplated hereby, will be duly authorized
and validly issued and fully paid and nonassessable, free and clear of any
pledge, lien, encumbrance, security interest, preemptive right or other claim.
(i) This Agreement has been duly authorized, executed and delivered by the
Company.
(j) The capital stock of the Company, including the Shares, conforms in all
material respects to the description thereof contained in the Registration
Statement and the Prospectus; and the certificates for the Shares are in due and
proper form and the holders of
5
<PAGE>
the Shares after making payment therefor will not be subject to personal
liability by reason of being such holders.
(k) No approval, authorization, consent or order of or filing with any
federal, state, local or foreign governmental or regulatory commission, board,
body, authority or agency is required in connection with the issuance and sale
of the Shares as contemplated hereby, other than registration of the Shares
under the Act, clearance of the offering of the Shares with the National
Association of Securities Dealers, Inc. (the "NASD") and any necessary
qualification under the securities or blue sky laws of the various jurisdictions
in which the Shares are being offered by the Underwriters.
(l) No person has the right, contractual or otherwise, to cause the Company
to issue to it, or register pursuant to the Act, any securities of the Company
in consequence of the issue and sale of the Shares to the Underwriters
hereunder.
(m) Price Waterhouse LLP, whose reports on the consolidated financial
statements of the Company and the Subsidiaries are included in the Registration
Statement and the Prospectus, are independent public accountants with respect to
the Company as required by the Act and the applicable published rules and
regulations thereunder.
(n) All legal or governmental proceedings, contracts or documents of a
character required to be described in the Registration Statement or the
Prospectus or to be filed as an exhibit to the Registration Statement have been
so described or filed as required.
(o) There is no action, suit or proceeding pending or threatened against
the Company or any of the Subsidiaries or any of their properties, at law or in
equity, or before or by any federal, state, local or foreign governmental or
regulatory commission, board, body, authority or agency that could result in a
judgment, decree or order having a material adverse effect on the properties,
assets, operations, business, business prospects or financial condition of the
Company and the Subsidiaries taken as a whole.
(p) The audited and unaudited financial statements included in the
Registration Statement and the Prospectus present fairly in all material
respects the consolidated financial condition of the Company and the
Subsidiaries as of the dates indicated and the consolidated results of
operations and cash flows of the Company and the Subsidiaries for the periods
specified; such financial statements have been prepared in conformity with
generally accepted accounting principles applied on a consistent basis during
the periods involved.
(q) Subsequent to the respective dates as of which information is given in
the Registration Statement and the Prospectus, and except as may be otherwise
stated in the Registration Statement or the Prospectus, there has not been: (A)
any material adverse change in the properties, assets, operations, business,
business prospects or financial condition, present or prospective, of the
Company and the Subsidiaries taken as a whole;
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(B) any transaction, that is material to the Company and the Subsidiaries taken
as a whole, contemplated or entered into by the Company or any of the
Subsidiaries; or (C) any obligation, contingent or otherwise, directly or
indirectly incurred by the Company or any of the Subsidiaries that is material
to the Company and the Subsidiaries taken as a whole.
(r) The Company has obtained the agreement of the stockholders listed on
Schedule B not to sell, contract to sell, grant any option to sell, transfer or
otherwise dispose of, directly or indirectly, any shares of Common Stock, or
securities convertible into or exchangeable for Common Stock or warrants or
other rights to purchase Common Stock, for a period of 180 days from the date of
the Prospectus without the prior written consent of Dillon, Read & Co. Inc.
(s) Neither the Company nor any of the Subsidiaries has violated any
foreign, federal, state or local law or regulation relating to the protection of
human health and safety, the environment or hazardous or toxic substances or
wastes, pollutants or contaminants ("Environmental Laws"), nor any federal or
state law relating to discrimination in the hiring, promotion or pay of
employees nor any applicable federal or state wages and hours laws, nor any
provisions of the Employee Retirement Income Security Act or the rules and
regulations promulgated thereunder, which in each case might result in a
material adverse effect on the properties, assets, operations, business,
business prospects or financial condition of the Company and the Subsidiaries
taken as a whole.
(t) The Company and each of the Subsidiaries has such permits, licenses,
franchises and authorizations of governmental or regulatory authorities
("permits"), including without limitation under any applicable Environmental
Laws, as are necessary to own, lease and operate its respective properties and
to conduct its business; the Company and each of the Subsidiaries has fulfilled
and performed all of its material obligations with respect to such permits and
no event has occurred which allows, or after notice or lapse of time would
allow, revocation or termination thereof or results in any other material
impairment of the rights of the holder of any such permit; and, except as
described in the Prospectus, such permits contain no restrictions that are
materially burdensome to the Company or any of the Subsidiaries.
(u) Based on the prior experience of the Company and the Subsidiaries with
respect to compliance with Environmental Laws, the Company reasonably has
concluded that the costs and liabilities associated with compliance by the
Company and the Subsidiaries with Environmental Laws are not likely to have,
singly or in the aggregate, a material adverse effect on the properties, assets,
operations, business, business prospects or financial condition of the Company
and the Subsidiaries taken as a whole.
(v) Neither the Company nor any of the Subsidiaries, nor any employee of
the Company or any of the Subsidiaries, has made any payment of funds of the
Company or any
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of the Subsidiaries prohibited by law, and no funds of the Company or any of the
Subsidiaries have been set aside to be used for any payment prohibited by law.
(w) The Company and the Subsidiaries have filed all federal or state income
or franchise tax returns required to be filed and have paid all taxes shown
thereon as due, and there is no material tax deficiency which has been or might
be asserted against the Company or any of the Subsidiaries; all material tax
liabilities are adequately provided for on the books of the Company and the
Subsidiaries.
(x) The Company has not incurred any liability for any finder's fees or
similar payments in connection with the transactions herein contemplated.
(y) The Company has (i) generally satisfactory title to all its interests
in its oil and gas properties, title investigations having been carried out by
the Company in accordance with the general practice in the oil and gas industry,
(ii) good and marketable title in fee simple to all other real property owned by
it and (iii) good and marketable title to all personal property owned by it, in
each case free and clear of all liens, encumbrances, claims, security interests,
subleases and defects except such as are described in the Prospectus or such as
do not materially affect the value of such property and do not interfere with
the use made and proposed to be made of such property by the Company; and any
real property and buildings held under lease by the Company are held by it under
valid, subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and proposed to be made of such
property and buildings by the Company;
(z) The Reorganization Agreement and the Assignment and Assumption
Agreement have been duly authorized, executed and delivered, as applicable, by
each of the Company, the MarkWest Partnership and the Partners, and are in full
force and effect and constitute a valid and legally binding obligation of each
of the Company, the MarkWest Partnership and the Partners, as the case may be,
enforceable against each person in accordance with their terms, except as
enforcement may be limited by (A) any bankruptcy, reorganization, insolvency,
fraudulent conveyance or transfer, moratorium or similar laws affecting
creditors' rights generally and (B) general principles of equity (regardless of
whether such is considered in a proceeding at law or in equity).
(aa) The execution, delivery and performance of the Reorganization
Agreement and the Assignment and Assumption Agreement and the consummation of
the transactions contemplated thereby does not conflict with, or result in any
breach of or constitute a default under (nor constitute any event which with
notice, lapse of time or both would constitute a breach of, or default under),
the charter, bylaws or other organizational documents of the Company, the
MarkWest Partnership, or any of their respective subsidiaries or under any
provision of any license, indenture, lease, mortgage, deed of trust, bank loan
or credit agreement, supply agreement or other agreement or instrument to which
the Company, the MarkWest Partnership or any of their respective subsidiaries is
a party or by which any of
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them or their properties may be bound or affected except for any such conflict,
breach or default for which the Company or MarkWest Partnership has received a
waiver or consent as of the date hereof and except for any such conflict, breach
or default which would not result in a material adverse effect on the
properties, assets, operations, business, business prospects or financial
condition of the Company and the Subsidiaries taken as a whole, or under any
federal, state, local or foreign law, regulation or rule or any decree, judgment
or order applicable to the Company, the MarkWest Partnership or any of their
respective subsidiaries.
(bb) No authorization, approval, consent or order of, or filing with, any
court or governmental authority or agency is required in connection with the
consummation of the transactions effected or contemplated by the Reorganization
Agreement or the Assignment and Assumption Agreement, other than (i) such
authorizations, approvals, consents and orders as have been obtained or such
filing as have been made prior to the date hereof, (ii) the filing of a
certificate of dissolution with the Secretary of State of the State of Colorado
and (iii) such authorizations, approvals, consents, orders and filings as to
which the failure to obtain or make would not, individually or in the aggregate,
have a material adverse effect on the properties, assets, operations, business,
business prospects or financial condition of the Company and the Subsidiaries
taken as a whole.
(cc) Upon the consummation of the transactions contemplated by the
Reorganization Agreement and the Assignment and Assumption Agreement, the
properties and assets of MarkWest Partnership, including its subsidiaries, were
duly and validly transferred and assigned by the Company and the Subsidiaries,
in each case free and clear of all liens, security interests, pledges, charges,
encumbrances, mortgages and defects (except such as are described or referred to
in the Prospectus and the financial statements and the notes thereto contained
therein or such as do not interfere with the use made and proposed to be made of
such property by the Company and the Subsidiaries).
(dd) Neither the Company nor any of the Subsidiaries is an "investment
company" within the meaning of the Investment Company Act of 1940, as amended,
or is subject to regulation under such Act.
4. Certain Covenants of the Company. The Company hereby agrees:
--------------------------------
(a) to furnish such information as may be required and otherwise to
cooperate in qualifying the Shares for offering and sale under the securities or
blue sky laws of such states as you may designate and to maintain such
qualifications in effect as long as required for the distribution of the Shares,
provided that the Company shall not be required to qualify as a foreign
corporation or to consent to the service of process under the laws of any such
state (except service of process with respect to the offering and sale of the
Shares); promptly to advise you of the receipt by the Company of any
notification with respect to the suspension of the qualification of the Shares
for sale in any jurisdiction or the initiation or threatening
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<PAGE>
of any proceeding for such purpose; and to use its best efforts to obtain the
withdrawal of any order of suspension at the earliest practicable moment;
(b) to make available to you in New York City, as soon as practicable after
the Registration Statement becomes effective, and thereafter from time to time
to furnish to the Underwriters, as many copies of the Prospectus (or of the
Prospectus as amended or supplemented if the Company shall have made any
amendment or supplement thereto after the effective date of the Registration
Statement) as the Underwriters may request for the purposes contemplated by the
Act;
(c) to advise you promptly and if requested by you to confirm such advice
in writing, (i) when the Registration Statement has become effective and when
any post-effective amendment thereto becomes effective and (ii) when the
Prospectus is filed with the Commission pursuant to Rule 424(b) under the Act,
if required under the Act (which the Company agrees to file in a timely manner
under such Rule);
(d) to advise you promptly, confirming such advice in writing, of any
request by the Commission for amendments or supplements to the Registration
Statement or the Prospectus or for additional information with respect thereto,
or of notice of institution of proceedings for or the entry of a stop order
suspending the effectiveness of the Registration Statement and, if the
Commission should enter a stop order suspending the effectiveness of the
Registration Statement, to use its best efforts to obtain the lifting or removal
of such order as soon as possible; to advise you promptly of any proposal to
amend or supplement the Registration Statement or the Prospectus and to file no
such amendment or supplement to which you shall object in writing;
(e) to furnish to you and, upon request to each of the other Underwriters,
for a period of five years from the date of this Agreement (i) copies of all
reports or other communications that the Company shall send to its stockholders
or from time to time shall publish or publicly disseminate and (ii) copies of
all annual, quarterly and current reports filed with the Commission on Forms 10-
K, 10-Q and 8-K, or such other similar form as may be designated by the
Commission, and any other document filed by the Company pursuant to Section 12,
13, 14 or 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act");
(f) to advise the Underwriters promptly of the happening of any event known
to the Company within the time during which a prospectus relating to the Shares
is required to be delivered under the Act that, in the reasonable judgment of
the Company, would require the making of any change in the Prospectus then being
used, so that the Prospectus, as then supplemented, would not include an untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein, in the light of the circumstances under which they are
made, not misleading and, during such time, promptly to prepare and furnish, at
the Company's expense, to the Underwriters such amendments or supplements to
such
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<PAGE>
Prospectus as may be necessary to reflect any such change in such quantities as
requested by the Underwriters, and to furnish to you a copy of such proposed
amendment or supplement before filing any such amendment or supplement with the
Commission;
(g) to make generally available to its security holders, and to deliver to
you, an earnings statement of the Company (which need not be audited and which
will satisfy the provisions of Section 11(a) of the Act including, at the option
of the Company, Rule 158) covering a period of 12 months beginning after the
effective date of the Registration Statement but ending not later than 15 months
after the date of the Registration Statement, as soon as is reasonably
practicable after the termination of such 12-month period;
(h) to furnish to you three signed copies of the Registration Statement, as
initially filed with the Commission, and of all amendments thereto (including
all exhibits thereto) and sufficient conformed copies of the foregoing (other
than exhibits) for distribution of a copy to each of the other Underwriters;
(i) to furnish to you as early as practicable prior to the time of purchase
and the additional time of purchase, as the case may be, but not later than two
business days prior thereto, a copy of the latest available unaudited interim
consolidated financial statements, if any, of the Company and the Subsidiaries
that have been read by the Company's independent certified public accountants as
stated in their letter to be furnished pursuant to Section 6(b);
(j) to apply the net proceeds from the sale of the Shares sold by the
Company in the manner set forth under the caption "Use of Proceeds" in the
Registration Statement and the Prospectus;
(k) to use its best efforts to cause the Shares to be quoted on the Nasdaq
National Market;
(l) whether or not the transactions contemplated in this Agreement are
consummated or this Agreement otherwise becomes effective or is terminated, to
pay all expenses, fees and taxes (other than (x) any transfer taxes and (y) fees
and disbursements of your counsel except as set forth under Section 5 and
clauses (iii) and (iv) below) in connection with (i) the preparation and filing
of the Registration Statement, each Preliminary Prospectus, the Prospectus and
any amendment or supplement thereto, and the printing and furnishing of copies
of each thereof to you and to dealers (including costs of mailing and shipment),
(ii) the issuance, sale and delivery of the Shares, (iii) the reproduction or
printing of this Agreement and any dealer agreements, and furnishing of copies
of each thereof to you and to dealers (including costs of mailing and shipment),
(iv) the qualification of the Shares for offering and sale under state laws as
aforesaid (including legal fees and filing fees and other disbursements of your
counsel) and the printing and furnishing of copies of any blue sky surveys to
you and to dealers, (v) any listing of the Shares on any securities exchange or
qualification of the Shares for inclusion in the Nasdaq National Market and any
registration
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<PAGE>
thereof under the Exchange Act, (vi) any filing for review of the public
offering of the Shares by the NASD and (viii) the performance of the Company's
other obligations hereunder;
(m) not to sell, contract to sell, grant any option to sell, transfer or
otherwise dispose of, directly or indirectly, any shares of Common Stock or
securities convertible into or exchangeable for Common Stock or warrants or
other rights to purchase Common Stock or permit the registration under the Act
of any shares of Common Stock, except for the registration of the Shares and the
sales to you pursuant to this Agreement for a period commencing on the date
hereof and continuing for 180 days after the date of the Prospectus, without the
prior written consent of Dillon, Read & Co. Inc.; and
(n) to refrain from investing the proceeds from the sale of the Shares in a
manner to cause the Company or any of the Subsidiaries to become an "investment
company" within the meaning of the Investment Company Act of 1940, as amended.
5. Reimbursement of Underwriters' Expenses. If the Firm Shares or the
---------------------------------------
Additional Shares are not delivered for any reason, other than the failure of
the Underwriters to purchase the Firm Shares or the Additional Shares as
provided herein (unless such failure is permitted under the provisions of
Section 6 or Section 7(b) of this Agreement), the Company will reimburse the
Underwriters for all of their out-of-pocket expenses, including the fees and
disbursements of their counsel.
6. Conditions of Underwriters' Obligations. The several obligations of
---------------------------------------
the Underwriters hereunder are subject to the accuracy of the representations
and warranties on the part of the Company on the date hereof and at the time of
purchase (and the several obligations of the Underwriters at any additional time
of purchase are subject to the accuracy of the representations and warranties on
the part of the Company on the date hereof and at the time of purchase and at
such additional time of purchase, as the case may be), the performance by the
Company of its obligations hereunder and to the following conditions:
(a) The Company shall furnish to you at the time of purchase and at such
additional time of purchase, as the case may be, an opinion of Dorsey &
Whitney LLP, counsel for the Company (or such other counsel for the Company
as is reasonably acceptable to Dillon Read & Co. Inc.), addressed to the
Underwriters and dated the time of purchase or such additional time of
purchase, as the case may be, with reproduced copies for each of the other
Underwriters and in form satisfactory to Dillon, Read & Co. Inc., stating
that:
(i) the Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Delaware, with full corporate power and authority (A) to own its
properties and conduct its business as described in the Registration
Statement and the Prospectus and (B) to execute and deliver this
Agreement and to issue, sell and deliver the Shares as herein
contemplated;
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(ii) each of the Wholly Owned Subsidiaries has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of the state in which such Wholly Owned Subsidiary is
incorporated, with full corporate power and authority to own its
properties and to conduct its business as described in the Registration
Statement and the Prospectus;
(iii) each of the Michigan Subsidiaries has been duly organized
and is validly existing as a limited liability company in good standing
under the laws of the state where such Michigan Subsidiary is organized,
with full limited liability company power and authority to own its
properties and to conduct its business as described in the Registration
Statement and the Prospectus;
(iv) each of the Company and each of the Subsidiaries is duly
qualified or licensed to do business by and is in good standing as a
foreign corporation or organization in each jurisdiction in which it
conducts business or owns property and in which the failure,
individually or in the aggregate, to be so licensed or qualified could
have a material adverse effect on the properties, assets, operations,
business or financial condition of the Company and the Subsidiaries
taken as a whole;
(v) all of the issued and outstanding shares of capital stock
or other ownership interest of each Subsidiary have been duly authorized
and validly issued and are fully paid and nonassessable and, except as
set forth in the Prospectus, are owned, directly or indirectly, by the
Company free and clear, to such counsel's knowledge, of any pledge,
lien, encumbrance, security interest, preemptive right or other claim,
and to such counsel's knowledge, there are no rights, warrants, options
or other agreements to acquire or instruments convertible into or
exchangeable for any shares of capital stock or other equity interest of
any Subsidiary, except as set forth in the Prospectus;
(vi) this Agreement has been duly authorized, executed and
delivered by the Company;
(vii) the Shares, when delivered to and paid for by the
Underwriters, will be duly authorized, validly issued, fully paid and
nonassessable, and will be free of any pledge, lien, encumbrance, claim
or preemptive right;
(viii)(a) the Company has an authorized capitalization as set forth
under the heading "Capitalization" in the Registration Statement and the
Prospectus, and (b) the outstanding shares of capital stock of the
Company have been duly authorized and validly issued and are fully paid,
nonassessable and free of statutory and contractual preemptive rights;
13
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(ix) the capital stock of the Company, including the Shares,
conforms in all material respects to the description thereof contained
in the Registration Statement and the Prospectus;
(x) the Registration Statement and the Prospectus (except as to
the financial statements and schedules contained therein as to which
such counsel need express no opinion) comply as to form in all material
respects with the requirements of the Act;
(xi) the Registration Statement has become effective under the
Act and, to such counsel's knowledge, no stop order proceedings with
respect thereto are pending or threatened under the Act;
(xii) no approval, authorization, consent or order of, and no
notice to or filing with any governmental agency or body or any court is
required in connection with the issuance or sale of the Shares as
contemplated hereby other than registration of such Shares under the Act
(except such counsel need express no opinion as to any necessary
qualification under the state securities or blue sky laws of the various
jurisdictions in which the Shares are being offered by the
Underwriters);
(xiii) the execution, delivery and performance of this Agreement
by the Company and the consummation by the Company of the transactions
contemplated hereby do not and will not conflict with, or result in any
breach of, or constitute a default under (nor constitute any event which
with notice, lapse of time or both would constitute a breach of or
default under), the charter, bylaws or other organizational documents of
the Company or any of the Subsidiaries, or any provision of any license,
indenture, lease, mortgage, deed of trust, bank loan or credit agreement
or other agreement or instrument to which the Company or any of the
Subsidiaries is a party or by which the Company or any of the
Subsidiaries or their properties are bound or affected that is attached
as an exhibit to the Registration Statement, or under any law, rule or
regulation of any governmental body of the United States of America or
the State of Colorado or (solely with respect to the General Corporation
Law of the State of Delaware) the State of Delaware (such laws, rules
and regulations are hereinafter collectively referred to as "Applicable
Law") or, to the knowledge of such counsel, any decree, judgment or
order applicable to the Company or any of the Subsidiaries;
(xiv) to such counsel's knowledge, neither the Company nor any of
the Subsidiaries is in breach of or in default under their respective
charter, bylaws or other organizational documents, as the case may be;
(xv) to such counsel's knowledge, the Company and each of the
Subsidiaries has such permits, licenses, franchises and authorizations
of
14
<PAGE>
governmental or regulatory authorities, including without limitation
under any applicable Environmental Laws, as are necessary to own, lease
and operate its respective properties and to conduct its business in the
manner described in the Prospectus;
(xvi) to such counsel's knowledge, all contracts or documents of
a character required to be described in the Registration Statement or
the Prospectus or to be filed as an exhibit to the Registration
Statement have been so described or filed;
(xvii) except as described in the Registration Statement and the
Prospectus, such counsel knows of no pending or overtly threatened
lawsuits or claims against the Company or any of the Subsidiaries that
individually or in the aggregate could result in a judgment, decree or
order having a material adverse effect on the properties, assets,
operations, business or financial condition of the Company and the
Subsidiaries taken as a whole;
(xviii) except as described in the Prospectus, such counsel knows
of no person who has the right, contractual or otherwise, to cause the
Company to issue to it, or register pursuant to the Act, any securities
of the Company in consequence of the issue and sale of the Shares to the
Underwriters hereunder;
(xix) the statements in the Registration Statement and the
Prospectus under the captions "Risk Factors - Government Regulation",
"Risk Factors -Environmental Matters", "Risk Factors - Possible Anti-
Takeover Effects of Provisions of the Certificate of Incorporation and
Bylaws", "Risk Factors -Shares Eligible for Future Sale", "Business -
Government Regulation", "Business- Environmental Matters", "Business -
Legal Proceedings", "Management -Limitation of Liability and
Indemnification Matters", "Description of Capital Stock" and "Shares
Eligible For Future Sale", insofar as they are descriptions of laws,
regulations and rules, of legal and governmental proceedings or of
contracts, agreements, leases and other legal documents, or refer to
statements of law or legal conclusions, have been reviewed by such
counsel and are accurate in all material respects;
(xx) the Reorganization Agreement and the Assignment and
Assumption Agreement have been duly authorized, executed and delivered,
as applicable, by each of the Company, the MarkWest Partnership and the
Partners, and are in full force and effect and constitute a valid and
legally binding obligation of each of the Company, the MarkWest
Partnership and the Partners, as the case may be, enforceable against
each person in accordance with their terms, except as enforcement may be
limited by (A) any bankruptcy, reorganization, insolvency, fraudulent
conveyance or transfer, moratorium or similar laws affecting creditors'
rights generally and (B) general principles of equity (regardless of
whether such is considered in a proceeding at law or in equity);
15
<PAGE>
(xxi) the execution, delivery and performance of the
Reorganization Agreement and the Assignment and Assumption Agreement and
the consummation of the transactions contemplated thereby does not
conflict with, or result in any breach of or constitute a default under
(nor constitute any event which with notice, lapse of time or both would
constitute a breach of, or default under), the charter, bylaws or other
organizational documents of the Company, the MarkWest Partnership, or
any of their respective subsidiaries or under any provision of any
license, indenture, lease, mortgage, deed of trust, bank loan or credit
agreement, material supply agreement or other agreement or instrument to
which the Company, the MarkWest Partnership or any of their respective
subsidiaries is a party or by which any of them or their properties may
be bound or affected that is attached as an exhibit to the Registration
Statement except for any such conflict, breach or default for which the
Company or MarkWest Partnership has received a waiver or consent as of
the date hereof, or under any Applicable Law or, to the knowledge of
such counsel, any decree, judgment or order applicable to the Company,
the MarkWest Partnership or any of their respective subsidiaries;
(xxii) no authorization, approval, consent or order of, and no
notice to or filing with, any governmental agency or body or any court
is required in connection with the consummation of the transactions
effected or contemplated by the Reorganization Agreement or the
Assignment and Assumption Agreement, other than (i) such authorizations,
approvals, consents and orders as have been obtained or such filing as
have been made prior to the date hereof and (ii) such authorizations,
approvals, consents, orders and filings as to which the failure to
obtain or make would not, individually or in the aggregate, have a
material adverse effect on the properties, assets, operations, business
or financial condition of the Company and the Subsidiaries taken as a
whole;
(xxiii) the transactions contemplated by the Reorganization
Agreement and the Assignment and Assumption Agreement have been
consummated and the properties and assets of MarkWest Partnership and
its subsidiaries have been duly and validly assigned and transferred by
the Company and the Subsidiaries;
(xxiv) neither the Company nor any of the Subsidiaries is an
"investment company" or a person "controlled" by an "investment company"
within the meaning of the Investment Company Act of 1940, as amended;
(xxv) the sales of securities by the Company described in Item 15
of the Registration Statement were exempt from the registration
requirements of the Act; and
(xxvi) although such counsel cannot guarantee the accuracy,
completeness or fairness of any of the statements contained in the
Registration Statement or
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Prospectus and such counsel makes no representation that it has
independently verified the accuracy, completeness or fairness of such
statements (except to the extent provided in paragraphs (ix) and (xix)
of this Section 6(a)), in connection with such counsel's representation
of the Company in the preparation of the Registration Statement and
Prospectus, nothing has come to the attention of such counsel that
causes them to believe that the Registration Statement or any amendment
thereto at the time such Registration Statement or amendment became
effective contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading, or that the Prospectus or any
supplement thereto at the date of such Prospectus or such supplement,
and at all times up to and including the time of purchase contained an
untrue statement of a material fact or omitted to state a 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 (it being understood that such counsel need express no
opinion with respect to the financial statements and schedules included
in the Registration Statement or Prospectus).
In rendering the opinions described above, counsel for the Company may
rely, as to matters of fact with respect to the Company, upon representations of
the Company contained in this Agreement and certificates of officers of the
Company provided that copies of such certificates are delivered to the
Underwriters.
(b) You shall have received from Price Waterhouse LLP letters dated,
respectively, the date of this Agreement and the time of purchase and additional
time of purchase, as the case may be, and addressed to the Underwriters (with
reproduced copies for each of the Underwriters) in form and substance
satisfactory to the Managing Underwriters.
(c) You shall have received at the time of purchase and at the
additional time of purchase, as the case may be, opinions from Baker & Botts,
L.L.P. in form and substance satisfactory to you.
(d) No amendment or supplement to the Registration Statement or the
Prospectus shall be filed prior to the time the Registration Statement becomes
effective to which you shall have objected in writing.
(e) The Registration Statement shall become effective at or before 5:00
P.M., New York City time, on the date of this Agreement and, if Rule 430A under
the Act is used, the Prospectus shall have been filed with the Commission
pursuant to Rule 424(b) under the Act at or before 5:00 P.M., New York City
time, on the second full business day after the date of this Agreement;
provided, however, that the Company and you and any group of Underwriters,
including you, who have agreed hereunder to purchase in the aggregate at least
50% of the Firm Shares from time to time may agree in writing or by telephone,
confirmed in writing, on a later date.
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(f) Prior to the time of purchase or the additional time of purchase, as
the case may be: (i) no stop order with respect to the effectiveness of the
Registration Statement shall have been issued under the Act or proceedings
initiated under Section 8(d) or 8(e) of the Act; (ii) the Registration Statement
and all amendments thereto, or modifications thereof, if any, shall not contain
an untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not misleading;
and (iii) the Prospectus and all amendments or supplements thereto, or
modifications thereof, if any, shall not contain an untrue statement of a
material fact or omit to state a 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.
(g) Between the time of execution of this Agreement and the time of
purchase or the additional time of purchase, as the case may be, there has not
been: (i) any material and adverse change, present or prospective, in the
properties, assets, operations, business, business prospects or financial
condition of the Company and the Subsidiaries taken as a whole, other than as
described in the Registration Statement and the Prospectus; (ii) any transaction
that is material to the Company and the Subsidiaries taken as a whole
contemplated or entered into by the Company or any of the Subsidiaries, other
than as described in the Registration Statement and the Prospectus; or (iii) any
obligation, contingent or otherwise, directly or indirectly, incurred by the
Company or any of the Subsidiaries that is material to the Company and the
Subsidiaries taken as a whole, other than as described in the Registration
Statement and the Prospectus.
(h) The Company, at the time of purchase or additional time of purchase,
as the case may be, will deliver to you a certificate of two of its executive
officers to the effect that the representations and warranties of the Company as
set forth in this Agreement are true and correct as of each such date and the
conditions set forth in Section 6(f) and Section 6(g) have been met.
(i) You shall have received a signed letter, dated the date of this
Agreement, from each of the stockholders listed in Schedule B to the effect that
such persons shall not sell, contract to sell, grant any option to sell,
transfer or otherwise dispose of, directly or indirectly, any shares of Common
Stock or securities convertible into or exchangeable for Common Stock or
warrants or other rights to purchase Common Stock for a period of 180 days from
the date of the Prospectus without the prior written consent of Dillon, Read &
Co. Inc.
(j) The Company shall have furnished to you such other documents and
certificates as to the accuracy and completeness of any statement in the
Registration Statement or the Prospectus as of the time of purchase and the
additional time of purchase, as the case may be, as you reasonably may request.
18
<PAGE>
(k) The Company shall have performed its obligations under this
Agreement as are to be performed by the terms hereof at or before the time of
purchase and at or before the additional time of purchase, as the case may be.
(l) The Shares shall have commenced to be quoted on the Nasdaq National
Market.
7. Effective Date of Agreement; Termination.
----------------------------------------
(a) This Agreement shall become effective (i) if Rule 430A under the
Act is not used, when you shall have received notification of the effectiveness
of the Registration Statement, or (ii) if Rule 430A under the Act is used, when
the parties hereto have executed and delivered this Agreement.
(b) The obligations of the several Underwriters hereunder shall be
subject to termination in the absolute discretion of you or any group of
Underwriters (which may include you) which has agreed to purchase in the
aggregate at least 50% of the Firm Shares if, at any time prior to the time of
purchase or, with respect to the purchase of any Additional Shares, the
additional time of purchase, as the case may be, trading in securities on the
New York Stock Exchange shall have been suspended or minimum prices shall have
been established on the New York Stock Exchange or if a banking moratorium shall
have been declared either by the United States or New York State authorities, or
if the United States shall have declared war in accordance with its
constitutional processes or there shall have occurred any material outbreak or
escalation of hostilities or other national or international calamity or crisis
of such magnitude in its effect on, or any material adverse change in, any
financial market which, in each case, in your judgment or in the judgment of
such group of Underwriters, makes it impracticable to market the Shares. If you
or any group of Underwriters elect to terminate this Agreement as provided in
this Section 7(b), the Company and each other Underwriter shall be notified
promptly by letter or telegram.
(c) If any Underwriter shall default in its obligation to take up and
pay for the Firm Shares to be purchased by it hereunder and if the number of
Firm Shares which all Underwriters so defaulting shall have agreed but failed to
take up and pay for does not exceed 10% of the total number of Firm Shares, the
non-defaulting Underwriters shall take up and pay for (in addition to the
aggregate principal amount of Firm Shares they are obligated to purchase
pursuant to Section 1) the number of Firm Shares agreed to be purchased by all
such defaulting Underwriters as hereinafter provided. Such Shares shall be taken
up and paid for by such non-defaulting Underwriter or Underwriters in such
amount or amounts as you may designate with the consent of each Underwriter so
designated or, in the event no such designation is made, such Shares shall be
taken up and paid for by all non-defaulting Underwriters pro rata in proportion
to the aggregate number of Firm Shares set opposite the names of such non-
defaulting Underwriters in Schedule A.
19
<PAGE>
(d) If any Underwriter shall default in its obligation to take up and
pay for the Firm Shares to be purchased by it hereunder and if the number of
Firm Shares which all Underwriters so defaulting shall have agreed but failed to
take up and pay for exceeds 10% of the total number of Firm Shares, and
arrangements satisfactory to you and the Company are not made within 48 hours
after such default, this Agreement will terminate without liability on the part
of any non-defaulting Underwriter.
(e) Without relieving any defaulting Underwriter from its obligations
hereunder, the Company agrees with the non-defaulting Underwriters that it will
not sell any Firm Shares hereunder unless all of the Firm Shares are purchased
by the Underwriters (or by substituted underwriters selected by you with the
approval of the Company or selected by the Company with your approval pursuant
to Section 7(d)). If a new Underwriter or Underwriters are substituted for a
defaulting Underwriter or Underwriters in accordance with Section 7(d), the
Company or you shall have the right to postpone the time of purchase for a
period not exceeding five business days in order that any necessary change in
the Registration Statement and the Prospectus and other documents may be
effected. The term Underwriter as used in this Agreement shall refer to and
include any Underwriter substituted under this Section 7 with like effect as if
such substituted Underwriter had originally been named in Schedule A.
(f) If the purchase of the Shares by the Underwriters, as contemplated
by this Agreement, is not consummated for any reason permitted under this
Agreement or if such purchase is not consummated because the Company shall be
unable to comply with any of the terms of this Agreement, the Company shall not
be under any obligation or liability under this Agreement (except to the extent
provided in Sections 4(l), 5 and 8), and the Underwriters shall be under no
obligation or liability to the Company under this Agreement (except to the
extent provided in Section 8).
8. Indemnity by the Company and the Underwriters.
---------------------------------------------
(a) The Company agrees to indemnify, defend and hold harmless each
Underwriter, each person that controls any Underwriter within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act, and each Underwriter's
agents, employees, officers and directors and the agents, employees, officers
and directors of any such controlling person (collectively, the "Underwriter
indemnified parties") from and against any and all losses, claims, damages,
judgments, liabilities and expenses (including the fees and expenses of counsel
and other expenses in connection with investigating, defending or settling any
such action or claim) which, jointly or severally, any Underwriter indemnified
party may incur as they are incurred (and regardless of whether such Underwriter
indemnified party is a party to the litigation, if any) arising out of or based
upon any untrue statement or alleged untrue statement of a material fact
contained in the registration statement relating to the Shares or the Prospectus
or any Preliminary Prospectus, or arising out of or based upon any omission or
alleged omission to state therein a material fact
20
<PAGE>
required to be stated therein or necessary to make the statements therein not
misleading, except insofar as such losses, claims, damages, judgments,
liabilities or expenses arise out of, or are based upon, any such untrue
statement or omission or alleged untrue statement or omission based upon and in
conformity with information with respect to any Underwriter furnished in writing
by any Underwriter through you to the Company expressly for use therein with
reference to such Underwriter. This indemnity agreement will be in addition to
any liability the Company otherwise may have.
(b) If any action or proceeding (including any governmental or
regulatory investigation or proceeding) shall be brought or asserted against any
Underwriter indemnified party, with respect to which indemnity may be sought
against the Company pursuant to this Section 8, such Underwriter indemnified
party shall promptly notify the Company in writing, and the Company shall assume
the defense thereof, including the employment of counsel reasonably satisfactory
to the Underwriter indemnified party and payment of all fees and expenses;
provided that the omission so to notify the Company shall not relieve it from
any liability that it may have to any Underwriter indemnified party. An
Underwriter indemnified party shall have the right to employ separate counsel in
any such action or proceeding and to assume the defense thereof, but the fees
and expenses of such counsel shall be at the expense of such Underwriter
indemnified party unless (i) the employment of such counsel has been authorized
in writing by the Company, (ii) the Company has failed promptly to assume the
defense and employ counsel satisfactory to the Underwriter indemnified party or
(iii) the named parties to any such action or proceeding (including any
impleaded parties) include both the Underwriter indemnified party and the
Company and such Underwriter indemnified party shall have reasonably concluded
that there may be one or more legal defenses available to it that are different
from or additional to those available to the Company (in which case the Company
shall not have the right to assume the defense of such action on behalf of such
Underwriter indemnified party), in any of which events such fees and expenses
shall be borne by the Company and reimbursed as they are incurred. It is
understood, however, that the Company shall not, in connection with any one such
action or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the fees and expenses of more than one separate firm of attorneys (in
addition to any local counsel) at any time for all such Underwriter indemnified
parties, which firm shall be designated in writing by Dillon, Read & Co. Inc.,
and that all such fees and expenses shall be reimbursed as they are incurred.
The Company shall not be liable for any settlement of any such action effected
without the written consent of the Company (which consent shall not be
unreasonably withheld or delayed), but if settled with the written consent of
the Company, or if there is a final judgment with respect thereto, the Company
agrees to indemnify and hold harmless each Underwriter indemnified party from
and against any loss or liability by reason of such settlement or judgment.
(c) Each Underwriter severally agrees to indemnify and hold harmless
the Company, its directors, its officers who sign the Registration Statement,
and any person that
21
<PAGE>
controls the Company within the meaning of Section 15 of the Act or Section 20
of the Exchange Act (collectively, the "Company indemnified parties") from and
against any and all losses, claims, damages, judgments, liabilities and expenses
(including the fees and expenses of counsel and other expenses in connection
with investigating, defending or settling any such action or claim) which,
jointly or severally, the Company or any such person may incur under the Act or
otherwise, insofar as such loss, claim, damage, judgement, liability or expense
arises out of or is based upon any untrue statement or alleged untrue statement
of a material fact contained in and in conformity with information concerning
such Underwriter furnished in writing by or on behalf of such Underwriter
through you to the Company expressly for use with respect to such Underwriter in
the Registration Statement, any Preliminary Prospectus or the Prospectus. In
case any action shall be brought against any Company indemnified party based on
the Registration Statement, any Preliminary Prospectus or the Prospectus and in
respect of which indemnity may be sought against any Underwriter pursuant to
this Section 8(c), such Underwriter shall have the rights and duties given to
the Company by Section 8(b) (except that if the Company shall have assumed the
defense thereof such Underwriter shall not be required to do so, but may employ
separate counsel therein and participate in the defense thereof, provided that
the fees and expenses of such separate counsel shall be at the expense of such
Underwriter), and the Company indemnified parties shall have the rights and
duties given to the Underwriter indemnified parties by Section 8(b).
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless any Underwriter indemnified
party or any Company indemnified party, then the party required to indemnify
such indemnified party under this Section 8, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, judgments,
liabilities and expenses (i) in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and the Underwriters
on the other hand from the offering of the Shares, or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of the Company on the one
hand and the Underwriters on the other hand in connection with the statements or
omissions which resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. The relative
benefits received by the Company on the one hand and the Underwriters on the
other hand shall be deemed to be in the same proportion as the total proceeds
from the offering (net of underwriting discounts and commissions but before
deducting expenses) received by the Company bear to the total underwriting
discounts and commissions received by the Underwriters, in each case as set
forth in the table on the cover page of the Prospectus. The relative fault of
the Company on the one hand and the Underwriters on the other hand shall be
determined by reference to, among other things, whether the untrue statement or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company or by
the Underwriters, and the parties' relative intent, knowledge, access to
information and
22
<PAGE>
opportunity to correct or prevent such statement or omission. The amount paid or
payable by a party as a result of the losses, claims, damages, judgments,
liabilities and expenses referred to above shall be deemed to include any legal
or other fees or expenses reasonably incurred by such party in connection with
investigating or defending any claim or action.
The Company and the Underwriters agree that it would not be just
and equitable if contribution pursuant to this Section 8(d) were determined by
pro rata allocation or by any other method of allocation (even if the
Underwriters were treated as one entity for such purpose) that does not take
account of the equitable considerations referred to in this Section 8(d).
Notwithstanding the provisions of this Section 8(d), no Underwriter indemnified
party shall be required to contribute any amount in excess of the amount by
which the total price at which the Shares underwritten by such Underwriter
indemnified party and distributed to the public were offered to the public
exceeds the amount of any damages which such Underwriter indemnified party
otherwise has been required to pay by reason of such untrue statement or alleged
untrue statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute pursuant to this
Section 8 are several in proportion to their respective underwriting commitments
and are not joint.
The statements under the caption "Underwriting" in the Prospectus
(to the extent such statements relate to an Underwriter) constitute the only
information furnished to the Company in writing by such Underwriter expressly
for use in the Registration Statement, any Preliminary Prospectus or the
Prospectus.
(e) The indemnity and contribution agreements contained in this Section
8 and the representations, warranties and covenants of the Company contained in
this Agreement shall remain in full force and effect, regardless of any
investigation made by or on behalf of any Underwriter indemnified party or by or
on behalf of any Company indemnified party, and shall survive any termination of
this Agreement or the issuance and delivery of the Shares. Subject to the
provisions of Section 8(b) and Section 8(c), the Company and each Underwriter
agree promptly to notify the other of the commencement of any litigation or
proceeding against it in connection with the issuance and sale of the Shares or
in connection with the Registration Statement or the Prospectus.
9. Notices. Except as otherwise herein provided, all statements,
-------
requests, notices and agreements shall be in writing or by telegram and, if to
the Underwriters, shall be sufficient in all respects if delivered or sent to
Dillon, Read & Co. Inc., 535 Madison Avenue, New York, New York 10022,
Attention: Syndicate Department; and if to the Company, shall be sufficient in
all respects if delivered or sent to the Company at the offices of the Company
at MarkWest Hydrocarbon, Inc., 5613 DTC Parkway, Suite 400, Englewood, CO 80111,
Attention: John M. Fox with a copy to Dorsey & Whitney LLP, 370 17th Street,
Suite 4400, Denver, CO 80202, Attention: George A. Hagerty, Esq.
23
<PAGE>
10. Construction. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
------------
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES
OF CONFLICTS OF LAW. THE SECTION HEADINGS IN THIS AGREEMENT HAVE BEEN INSERTED
AS A MATTER OF CONVENIENCE OF REFERENCE AND ARE NOT A PART OF THIS AGREEMENT.
11. Parties at Interest. The Agreement herein set forth has been and is
-------------------
made solely for the benefit of the Underwriters, the Company, the Underwriter
indemnified parties and the Company indemnified parties, and their respective
successors, assigns, executors and administrators. No other person,
partnership, association or corporation (including a purchaser, as such
purchaser, from any of the Underwriters) shall acquire or have any right under
or by virtue of this Agreement.
12. Counterparts. This Agreement may be signed by the parties in
------------
counterparts which together shall constitute one and the same agreement among
the parties.
24
<PAGE>
If the foregoing correctly sets forth the understanding between the Company
and the Underwriters, please so indicate in the space provided below for such
purpose, whereupon this letter and your acceptance shall constitute a binding
agreement between the Company, and the Underwriters, severally.
Very truly yours,
MARKWEST HYDROCARBON, INC.
By:
--------------------------------
Name:
---------------------------
Title:
--------------------------
Accepted and agreed to as of
the date first above written,
on behalf of themselves,
George K. Baum & Company
and the other several
Underwriters named in
Schedule A
DILLON, READ & CO. INC., as
Managing Underwriter
By:
-------------------------------
Name:
--------------------------
Title:
-------------------------
25
<PAGE>
SCHEDULE A
Number of
Underwriter Firm Shares
- ----------- -----------
Dillon, Read & Co. Inc...............................................
George K. Baum & Company.............................................
---------
Total 2,400,000
=========
26
<PAGE>
SCHEDULE B
STOCKHOLDERS WHO HAVE EXECUTED LOCK-UP AGREEMENTS
27
<PAGE>
SCHEDULE C
SUBSIDIARIES
WHOLLY OWNED SUBSIDIARIES
MICHIGAN SUBSIDIARIES
28
<PAGE>
MARKWEST
NUMBER HYDROCARBON, INC. SHARES
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
20,000,000 SHARES OF COMMON STOCK -- $.01 PAR VALUE
CUSIP
SEE REVERSE
FOR CERTAIN DEFINITIONS
THIS CERTIFIES THAT
Is The Owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF $.01 PAR VALUE COMMON STOCK OF
MARKWEST HYDROCARBON, INC.
transferable only on the books of the Company in person or by duly authorized
attorney upon surrender of this Certificate properly endorsed. This
Certificate is not valid unless countersigned by the Transfer Agent and
Registrar.
IN WITNESS WHEREOF, the said Company has caused this Certificate to be
executed by the facsimile signatures of its duly authorized officers.
Dated:
______________________________ _________________________
Brian T. O'Neill, Secretary John M. Fox, President
COUNTERSIGNED:
American Securities Transfer & Trust, Inc.
P.O. Box 1596
Denver, Colorado 80201
By _____________________________________
Transfer Agent & Registrar Authorized Signature
<PAGE>
MARKWEST HYDROCARBON, INC.
The following abbreviations when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -as tenants in common UNIF GIFT MIN ACT.....Custodian.......
TEN ENT -as tenants by the entireties (Cust) (Minor)
JT TEN -as joint tenants with right under Uniform Gifts to Minors
of survivorship and not as Act............................
tenants in common (State)
Additional abbreviations may also be used though not in the above list.
- --------------------------------------------------------------------------------
For Value Received, __________________________ hereby sell, assign, and
transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
______________________________________
_______________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
_____________________________________________________________________ Shares
of Common Stock represented by the within Certificate, and do hereby irrevocably
constitute and appoint
_________________________________________________________________ attorney-in-
fact to transfer the said stock on the books of the within-named Corporation,
with full power of substitution in the premises.
Dated _____________________________
______________________________________________________
______________________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND
WITH THE NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE
IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR
ANY CHANGE WHATSOEVER.
Signature(s) Guaranteed:
_______________________________________
The signature(s) should be guaranteed by an eligible guarantor institution
(Banks, Stockbrokers, Savings and Loan Associations and Credit Unions with
membership in an approved signature guarantee Medallion Program), pursuant to
S.E.C. rule 17Ad-15.
<PAGE>
DORSEY & WHITNEY LLP
REPUBLIC PLAZA BUILDING, SUITE 4400 EXHIBIT 5.1
370 SEVENTEENTH STREET
DENVER, COLORADO 80202-5644
TELEPHONE: (303) 629-3400
FAX: (303) 629-3450
MarkWest Hydrocarbon, Inc.
5613 DTC Parkway, Suite 400
Englewood, Colorado 80111
Re: Registration Statement on Form S-1
SEC Registration No. 333-09513
Ladies and Gentlemen:
We have acted as counsel to MarkWest Hydrocarbon, Inc., a Delaware
corporation (the "Company"), in connection with a Registration Statement on Form
S-1 (the "Registration Statement") relating to the sale by the Company of up to
2,760,000 shares of common stock of the Company, par value $0.01 per share
(including 360,000 shares to be subject to the Underwriters' over-allotment
option) (the "Common Stock").
We have examined such documents and have reviewed such questions of
law as we have considered necessary and appropriate for the purposes of our
opinions set forth below. In rendering our opinions set forth below, we have
assumed the authenticity of all documents submitted to us as originals, the
genuineness of all signatures and the conformity to authentic originals of all
documents submitted to us as copies. We have also assumed the legal capacity
for all purposes relevant hereto of all natural persons and, with respect to all
parties to agreements or instruments relevant hereto other than the Company,
that such parties had the requisite power and authority (corporate or otherwise)
to execute, deliver and perform such agreements or instruments, that such
agreements or instruments have been duly authorized by all requisite action
(corporate or otherwise), executed and delivered by such parties and that such
agreements or instruments are the valid, binding and enforceable obligations of
such parties. As to questions of fact material to our opinions, we have relied
upon certificates of officers of the Company and of public officials. We have
also assumed that the Common Stock will be priced by the Pricing Committee
established by the authorizing resolutions adopted by the Company's Board of
Directors in accordance with such resolutions and will be issued and sold as
described in the Registration Statement.
Based on the foregoing, we are of the opinion that the shares of
Common Stock to be sold by the Company pursuant to the Registration Statement
<PAGE>
MarkWest Hydrocarbon, Inc.
September 12, 1996
Page 2
have been duly authorized by all requisite corporate action and, upon issuance,
delivery and payment therefor as described in the Registration Statement, will
be validly issued, fully paid and nonassessable.
Our opinions expressed above are limited to the Delaware General
Corporation Law.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement, and to the reference to our firm under the heading
"Legal Matters" in the Prospectus constituting part of the Registration
Statement.
Dated: September 12, 1996
Very truly yours,
/s/ Dorsey & Whitney LLP
<PAGE>
AMENDED AND RESTATED REORGANIZATION AGREEMENT
THIS AMENDED AND RESTATED REORGANIZATION AGREEMENT (the "Agreement")
is effective 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 Partners, L.P. and RIMCO Partners, L.P. II (collectively, "RIMCO
Partners"), 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 Partners shall exercise their 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 Partners acknowledge that the
RIMCO Option shall be exercisable into 200,375 shares of Common Stock (142,667
of which shall be issued to RIMCO Partners, L.P. and 57,708 of which shall be
issued to 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 2,760,000 shares of Common Stock,
representing approximately 32.5% 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:
RIMCO PARTNERS, L.P. II
By: Resources Investors Management Company
Limited Partnership, its general partner
By: RIMCO Associates, Inc., its general partner
By /s/ David R. Whitney
-------------------------------------------
David R. Whitney, Vice President
-20-
<PAGE>
EXHIBIT A
---------
<TABLE>
<CAPTION>
PARTNER NAME PERCENTAGE INTEREST SHARE AMOUNT
------------ ------------------- ------------
<S> <C> <C>
Adkins, William 0.1366% 7,820
Brown, Dan 0.0569% 3,257
Crabtree, Brent A. Trust 1.5013% 85,951
Crabtree, Brian T. Trust 1.5013% 85,951
Crabtree, Carrie L. Trust 1.5013% 85,951
Denney, Arthur 1.0642% 60,925
Erin Investments 10.5094% 601,663
Fox, Marjorie S. 1.5462% 88,519
Garvin, Robert 0.0534% 3,059
Hart, Kathleen 0.0193% 1,103
Harvey, Rita 0.0872% 4,993
Holland, Katherine 0.1689% 9,672
La Rue, Michael 0.3193% 18,280
MarkWest Hydrocarbon, Inc. 66.4819% 3,806,086
Murray, Pat 1.7664% 101,129
Nickel, Henry 0.1077% 6,167
Nickerson, Randy 0.1448% 8,287
O'Meara, Joseph D. 0.1353% 7,743
O'Neill, Brian 3.9055% 223,591
O'Neill, Erin B. Trust 0.1528% 8,746
O'Neill, Kellen L. Trust 0.1528% 8,746
O'Neill, Shannon Eileen 0.1528% 8,746
Reed, Tom 0.9008% 51,571
RIMCO 3.5000% 200,375
Shato, Fred 0.2428% 13,899
Simms, Rick 0.0712% 4,078
Smith, Ron 0.0337% 1,929
Spector, Barry 0.0995% 5,699
The Murray Company 2.5024% 143,261
Vance, Lisbeth Fox 0.9561% 54,736
Warner, Warren 0.2282% 13,067
-------- ---------
Total 100.0000% 5,725,000
======== =========
</TABLE>
<PAGE>
EXHIBIT 10.22
CONTRACT FOR CONSTRUCTION AND LEASE
OF BOLDMAN PLANT
THIS AGREEMENT made this 24th day of December, 1990, between COLUMBIA
GAS TRANSMISSION CORPORATION ("Columbia"), and MARXWEST HYDROCARBON PARTNERS,
LTD. ("MarkWest").
Columbia and MarkWest agree as set forth below:
ARTICLE I. EXTENT OF CONTRACT
MarkWest agrees to furnish the engineering, procurement, fabrication,
construction, commissioning and start-up services set forth herein for the
construction and installation of a natural gas liquids extraction plant ("the
Plant") near Columbia's Boldman compressor facilities, and agrees to furnish
acceptable industry practice business administration and superintendence, and
agrees to complete the Plant in accordance with the terms hereof.
1.1 Definitions:
A. "Plant" means the total equipment, materials, machinery, labor and all
other items and services necessary for the proper design, procurement,
construction, and installation required for the proper operation of a natural
gas liquids extraction facility as more fully described on Exhibit "A" attached
hereto.
B. "Work" means the design, procurement, construction, fabrication,
erection, commissioning, labor and other services required to be performed by
MarkWest for the construction, installation and proper operation of a natural
gas liquids extraction facility.
C. Unless otherwise specifically designated, "Day" means calendar
day; "Month" means calendar month; and "Year" means calendar year.
ARTICLE II. MARKWEST'S RESPONSIBILITIES
2.1 Design. (a) MarkWest shall be responsible for furnishing the design
------
of the Plant. The detailed design shall include, but not be limited to, the
process and facilities described on Exhibit "A".
(b) MarkWest shall submit to Columbia copies of drawings, plans
and specifications for the Plant. Requests for changes by Columbia will be made
within ten (10) working days following receipt by Columbia or earlier if
specifically required to maintain project scheduling and requested by MarkWest
on the
1
<PAGE>
respective documents on which changes are requested. Requests may be subject to
Lease Fee adjustments provided in Article VII.
2.2 Construction and Installation. (a) MarkWest will provide, or cause
-----------------------------
to be provided, all construction supervision, inspection, labor, materials,
tools, construction equipment and subcontracted items necessary for the
completion of the Plant, together with the procurement and/or fabrication of all
equipment and components required for the proper operation of the Plant,
including, but not limited to, that which is specified on Exhibit "A", in
Columbia's NGL Plant Specifications, dated January 11, 1990, and T. H. Russell
Co.'s Technical Proposal, dated June 19, 1990.
(b) MarkWest will give all notices and comply with all laws and
ordinances, legally enacted at the date of execution of this Contract, or
thereafter during the course of the construction and installation.
2.3 Responsibilities for Performance Testing. (a) MarkWest shall notify
----------------------------------------
Columbia when the Plant is ready for the running of a performance test, and
Columbia will commence that test within seven (7) days following that notice,
and will give MarkWest notice of when that test will commence.
(b) Columbia shall have complete responsibility for conducting a
performance test to verify the proper functioning of the Plant, including the
ability of the Plant to accept raw feedstock and perform its specified
functions. Records of the performance test(s) shall be submitted by Columbia
to MarkWest regardless of whether MarkWest attends or does not attend the test.
(c) The plant will be deemed to have satisfactorily completed the
performance test when the plant successfully comes on line from a "cold start",
operates at the guaranteed product recovery efficiencies as specified in T. H.
Russell Co.'s Technical Proposal dated June 19, 1990 and liquid specifications
as set forth in paragraph 4(d) of the Natural Gas Liquids Purchase Agreement
(Boldman Plant) for the available inlet gas conditions for a continuous 16 hour
period, and completes an orderly, automatic shutdown. This performance test
procedure is detailed in Exhibit "D" attached hereto.
2.4 Acceptance. (a) Acceptance of the Plant means and occurs on February
----------
15, 1991, if by that date MarkWest has successfully demonstrated -that the Plant
has satisfactorily completed a performance test(s); and, if not, then upon the
date the Plant satisfactorily completes a performance test. Provided, however,
should the failure to satisfactorily complete a performance test by February 15,
1991 be due to delays of Columbia in providing any of its requirements under
Article III, or be due to any other delays
2
<PAGE>
or circumstances within the control of Columbia, then Acceptance shall be deemed
to have occurred on February 15, 1991.
2.5 Warranties. (a) MarkWest shall assign to Columbia any warranties or
------------
guarantees, including process warranties and guarantees and mechanical
warranties and guaranties it obtains from its General Contractor,
Subcontractors, and Vendors, and shall assist Columbia in Columbia's enforcement
thereof. To the extent any warranties cannot be assigned, MarkWest shall, during
the term hereof, hold and enforce those warranties for the benefit of Columbia.
(b) All warranties and guarantees are conditioned upon proper
operation and maintenance of the Plant.
ARTICLE III. COLUMBIA'S RESPONSIBILITIES
3.1 Columbia shall provide the following items at its sole cost and
expense, except as otherwise expressly provided:
(a) a Plant site reasonably level and accessible by an all weather
road; and, the real property constituting the Plant site shall
remain the property of Columbia;
(b) all requisite permits from governmental authorities having
jurisdiction over the premises as may be necessary to construct
and operate the Plant, including, without limitation, all
necessary air quality permits, and other environmental permitting
requirements;
(c) design, engineer, construct and install, by January 14, 1991, a
power substation capable of taking power for the plant from the
34.5 kv feed and converting to the 4,160 voltage service and 480
voltage service, the actual cost of which shall be reimbursed by
MarkWest to Columbia, and which costs shall be utilized in
adjusting the Base Lease Fee as provided in Article VII, below;
(d) a suitable area for parking, temporary construction facilities
and equipment storage;
(e) all initial process plant charge materials. MarkWest will, by
January 1, 1991, notify Columbia in writing of the specific
materials, types and quantities, required;
(f) block valves to connect the Plant to Columbia's gas pipeline
system; which block valves shall be
3
<PAGE>
located within 600 feet of the Plant inlet and residue
connections;
(g) electrical power for construction;
(h) purchase and furnish to MarkWest, by December 1, 1990, the motor
controls specified on Exhibit "C", the actual cost of which shall
be reimbursed by MarkWest to Columbia, and which costs shall be
utilized in adjusting the Base Lease Fee as provided in Article
VII, below.
3.2 Columbia shall designate a representative who shall be fully
acquainted with the Plant and has authority to approve changes in the scope of
the Plant, to render decisions promptly and to furnish information
expeditiously. All changes in the scope of the Plant from Columbia's Boldman NGL
Plant Specifications, T. H. Russell Co.'s Technical Specifications, and Exhibit
"A" shall be subject to the procedures of Article VII.
3.3 Columbia has furnished or will furnish for the Plant Site all existing
surveys, in Columbia's custody, if any, describing the physical characteristics,
subsurface characteristics, zoning requirements, utility locations, and the
legal description of the Plant Site.
3.4 Columbia shall make available to MarkWest and its General Contractor
and its Subcontractors the use of the Site for purposes required in performing
this Contract.
3.5 The services and information required to be provided by Columbia in
the above paragraphs of this Article III shall be furnished with reasonable
promptness at Columbia's expense.
ARTICLE IV. GENERAL CONTRACTOR
4.1 All portions of the Work that MarkWest does not perform with its own
employees and resources shall be performed by its General Contractor, its
Contractors or by their Subcontractors.
4.2 A Subcontractor means a person or entity who has a direct contract
with MarkWest's Contractor or MarkWest's General Contractor, to perform work in
connection with the Plant. The term Subcontractor does not include any separate
contractor employed by Columbia.
4.3 No direct contractual relationship shall exist between Columbia and
MarkWest's General Contractor, Contractors or Subcontractor for the Work at the
Plant. MarkWest shall be responsible for the management of General Contractor,
Contractors and Subcontractors in the performance of their work.
4
<PAGE>
ARTICLE V: LEASE
5.1 Commencement and Lease. Commencing upon Acceptance, as defined in
----------------------
Article II, above, MarkWest shall lease to Columbia, and Columbia agrees to
accept the premises, and lease from MarkWest the Boldman Plant, in accordance
with the terms of this Contract.
5.2 Operation. During the term of the Lease, Columbia shall have the
---------
exclusive responsibility for the operation of the Plant, and shall be deemed to
have complete custody, control and possession of the Boldman Plant.
5.3 Operating Costs. Columbia shall be responsible for all operating
---------------
costs of the Plant, except those costs to load out the natural gas liquids at
the Plant site loading out station into MarkWest's transportation vehicles, and
Columbia shall be solely responsible for all obligations undertaken by Columbia
in connection with its operation of the Plant. Columbia shall be responsible for
all maintenance expenditures related to the Plant, and shall have the obligation
to maintain the Plant in good repair, and shall maintain it at all times in a
condition at least as good as the condition of the Plant upon Acceptance, except
for normal wear and tear. Columbia shall not be entitled. to any credit against
the amounts it is required to pay MarkWest hereunder for any expenditures it
incurs in operating or maintaining the Plant. MarkWest will be responsible for
the costs of loading out natural gas liquid products.
5.4 Replacements, Modifications or Alterations. Columbia shall not
------------------------------------------
undertake to make any replacements, additions, modifications, or alterations to
the Plant without first obtaining MarkWest's written consent, which consent
shall not be unreasonably withheld. It is understood that without regard to
which party pays for replacements, additions, modifications or alterations of
the Plant, they will, nevertheless, become the property of MarkWest.
Improvements, replacements, additions, modifications, or alterations paid for
by Columbia shall not act to increase the Lease Fee under the provisions of
Article VII, below; and, further, unless reimbursed by MarkWest, those
expenditures shall not be included in calculating the purchase price under the
purchase option contained in Article VIII, below. In the event either party
hereto desires to cause an improvement, replacement, addition, modification, or
alteration to the Plant, it shall notify the other party in writing. Should the
other party elect not to participate in the improvement, replacement, addition,
modification or alteration activity, then the proposed activity will not be
pursued. If both parties agree to the proposed activity then they will mutually
agree on how to implement the proposal.
5.5 Taxes. Columbia shall remain responsible, at all times, for all real
-------
property tax assessed with respect to the Plant site; and shall reimburse
MarkWest for any real property taxes assessed on the Plant; and, upon the
commencement of the Lease, Columbia
5
<PAGE>
shall thereafter reimburse MarkWest for all personal property tax assessed with
respect to the Plant and shall also reimburse MarkWest for any sales taxes
applicable to the Lease Fees. All sales taxes on the Lease Fee will be billed
with the Lease Fee and payable with the Lease Fee, and as to all other
reimbursable taxes, Columbia shall pay MarkWest within 15 days of invoice.
ARTICLE VI: LEASE FEE
6.1 Base Lease Fee. The Base Lease Fee, payable by Columbia to MarkWest,
--------------
during the term of the Lease, shall be Forty Thousand Dollars per month
($40,000.00), payable on the first day of each month in advance.
6.2 Operating Fee. It is understood that the Base Lease Fee, provided
-------------
above, is premised upon monthly production of liquids from the Plant (conforming
to the specifications contained in the Natural Gas Liquids Purchase Agreement
(Boldman Plant)) of 769,230 gallons, regardless of whether or not the Plant is
operated during the applicable month. Should Columbia fail, during any month, to
produce and deliver to MarkWest at the Plant 769,230 gallons, then Columbia
shall pay MarkWest an operating fee equal to 2.6 Cents, multiplied by the
remainder of 769,230 gallons, minus the actual number of gallons produced and
delivered (conforming to the specifications contained in the Natural Gas Liquids
Purchase Agreement (Boldman Plant)) that month. The Operating Fee is in addition
to and not in lieu of any portion of the Base Lease Fee.
6.3 Operating Bonus Fee. In the event Columbia, during any month, produces
-------------------
and delivers liquids (conforming to the specifications contained in the Natural
Gas Liquids Purchase Agreement (Boldman Plant)) at the Plant exceeding 769,230
gallons, then MarkWest shall pay to Columbia an Operating Bonus Fee equal to 2.6
Cents, multiplied by the remainder of the actual gallons of liquids produced and
delivered that month, minus 769,230 gallons.
6.4 Payments and Billings. (a) Columbia shall pay the Base Lease Fee to
---------------------
MarkWest on or before the first business day of each calendar month. Timely
payments requires receipt by MarkWest of the Base Lease Fee by that day; and, in
the event that any Base Lease Fee is not timely paid, it shall accrue interest
at the rate of Twelve Percent (12%) per annum until paid. Payment may be made
via wire transfer, Federal Express, or other manner at Columbia's option.
(b) By the fifteenth (15th) day of each month, MarkWest shall render
to Columbia a statement indicating the amount of liquids produced and delivered
(conforming to the specifications contained in the Natural Gas Liquids Purchase
Agreement (Boldman Plant)) from the Plant during the immediately preceding
month, together with a statement indicating whether an Operating Fee is due
MarkWest from Columbia, or whether an Operating Bonus Fee is due from MarkWest
to Columbia, and the amount thereof. Within
6
<PAGE>
fifteen (15) days following the rendering of that statement, Columbia shall pay
to MarkWest the Operating Fee, or MarkWest shall pay to Columbia the Operating
Bonus Fee, as applicable.
(c) Should Acceptance occur under Section 2.4 prior to the
performance test under Section 2.3, then should the Plant fail to satisfactorily
complete the performance test when conducted, then the parties shall negotiate
reduced fees hereunder based upon the extent to which the performance
specifications were met, to be applicable until the Plant satisfactorily
completes a performance test. Except for the foregoing, or in the event of a
default by MarkWest or a material breach of this Contract, it is understood that
in no event will Columbia be entitled to any abatement or set-off of any Lease
payments due hereunder.
ARTICLE VII: CHANGE ORDERS AND ADJUSTMENTS TO BASE FEE
7.1 Change Orders. This Contract and the Base Fee, specified above, are
-------------
premised upon the construction and installation of the Plant in accordance with
the specifications described on Exhibit "A", attached hereto. Either party
hereto may request changes in the construction and installation of the Plant
from those specifications, and upon the mutual agreement of the parties, those
changes shall be implemented by MarkWest. All changes as agreed upon shall be in
writing, and shall state, with particularity, the nature of the change and the
increase or decrease, as the case may be, in the capital expenditure to be
incurred by MarkWest in constructing the Plant, from the capital expenditures as
represented by the specifications. The parties acknowledge that they have
already executed two certain letters dated July 26, 1990, and December 21, 1990
(attached as Exhibit "E") to act as Change Orders and that the effect of those
Change Orders have been included in the Base Lease Fee under 6.1, above.
7.2 Adjustments to Base Fee. (a) Upon the execution of a Change Order,
-----------------------
the parties agree the Base Fee hereunder shall be adjusted. In the event that
the Change Order requires additional capital expenditures, then the monthly Base
Lease Fee amount shall be increased by an amount equal to 1.9% of the amount of
those additional capital expenditures. Likewise, in the event that the Change
Order results in a reduction of capital expenditures which will be incurred by
MarkWest, versus the capital expenditures represented by the Plant
specifications, then the monthly Base Lease Fee shall be reduced by an amount
equal to 1.9% of the reduction in capital expenditures.
(b) The Base Lease Fee shall not exceed Forty-seven Thousand Dollars
($47,000.00) per month. Accordingly, MarkWest shall not be required to agree to
or implement any Change Orders which, when taken in conjunction with all other
Change Orders, would result in an aggregate increase in capital expenditures of
more than Three Hundred Sixty-eight Thousand Four Hundred Twenty-
7
<PAGE>
one Dollars ($368,421.00) above the capital expenditures represented by the
specifications.
ARTICLE VIII: LEASE TERM AND PURCHASE OPTION
8.1 (a) The term of this Lease shall run for a period of ten
(10) years following the date of Acceptance hereunder.
(b) Upon written notice from Columbia to MarkWest, at least ninety
(90) days prior to the expiration of the 10-year term, specified in (a), above,
the parties agree that they shall meet to negotiate Lease terms and conditions
for an extension of the Lease through April 30, 2003. Those Lease terms and
conditions shall take into account the age and condition of the Plant; provided,
however, in no event shall the renegotiated Lease provisions be less favorable
to Columbia than those in effect prior to the expiration of the 10-year term.
8.2 Purchase Option. (a) During the term of the Lease, or upon the
-----------------
expiration of the Lease, Columbia shall have a right to purchase the Plant from
MarkWest. If the purchase option is to be exercised upon the expiration of the
Lease, then Columbia shall notify MarkWest, in writing, of Columbia's election
to exercise the purchase option, at least sixty (60) days prior to the
termination of the Lease. Following that notification, the parties shall meet to
determine the fair market value of the Plant, which the parties agree shall
equal salvage value of the plant equipment; and, in failing to agree upon that
value, within thirty (30) days following the date of Columbia's notice, then the
parties shall subject the determination of salvage value to an appraiser
mutually acceptable to the parties, with experience in appraising equipment of
the type at the Plant. The appraised value shall be the purchase price upon the
expiration of the Lease, and within ten (10) days following the expiration of
the Lease, Columbia shall deliver the purchase price to MarkWest, and upon
receipt of the purchase price, MarkWest shall execute and deliver to Columbia a
Bill of Sale conveying all of the Plant to Columbia.
(b) Columbia shall have the option, at the end of each year
hereunder, to purchase the Plant from MarkWest. Should Columbia elect to
exercise its option, Columbia shall notify MarkWest of its intention by
providing MarkWest with written notice at least thirty (30) days prior to the
end of that year. The purchase price which the parties agree represents the fair
market value at the Plant at the time of the sale shall be established by the
following schedule; subject only to changes as specified in Paragraph 5.4,
above:
<TABLE>
<CAPTION>
End of Year Price
----------- -----
<S> <C>
1991 $3,920,000
1992 $3,640,000
1993 $3,360,000
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
1994 $3,080,000
1995 $2,800,000
1996 $2,520,000
1997 $2,240,000
1998 $1,960,000
1999 $1,680,000
</TABLE>
Columbia shall have ten (10) days following its notice in which to tender the
purchase price to MarkWest, and upon the tendering of that purchase price,
MarkWest shall execute and deliver to Columbia a Bill of Sale conveying the
Plant to Columbia with an effective date of the last day of the year in which
the notice to purchase was submitted. Upon the execution and delivery of that
Bill of Sale, this Lease shall be deemed terminated and of no further force and
effect, except with respect to any amounts or liabilities which accrued prior to
that date.
(c) The purchase option shall, at MarkWest's option, be deemed exercised
by Columbia in the event of a foreclosure or similar proceedings being commenced
concerning the Plant site.
ARTICLE IX: INSURANCE AND INDEMNITY
9.1 (a) During the construction and installation of the Plant, MarkWest
agrees that it shall obtain and maintain Builder's Risk insurance; and further
agrees that its General Contractor, or other contractors, other than
Subcontractors to the General Contractor or to those contractors, shall
indemnify Columbia in accordance with the "Public Liability Insurance and
Performance and Payment Bonds" provisions attached hereto as Exhibit "B", and
incorporated herein by this reference; and MarkWest additionally agrees to use
its reasonable efforts to have its Contractors' subcontractors, indemnify
Columbia through the same or similar provisions as those contained in Exhibit
"B"; provided, that Columbia has reviewed a current insurance certificate for
T.H. Russell Co. and agrees it is satisfactory.
(b) During the term of this Contract, MarkWest will maintain Workers
Compensation coverage, Automobile Liability coverage and General Liability
coverage in amounts equivalent to those specified on the Insurance Certificate
dated July 16, 1990, previously furnished to Columbia by MarkWest; with the same
or similar endorsements as specified on Exhibit "B", to the extent applicable to
the operations or activities of MArkWest in connection with the Plant.
(c) Columbia shall be responsible for all costs of insurance
necessary to insure the Plant against property damage and for general liability
on and after the commencement of the Lease, which insurance shall be:
(i) All risk property insurance for the replacement cost of the
Boldman Plant and (ii)
9
<PAGE>
Comprehensive general liability for $1,000,000 covering bodily injury
and property damage liability. Such insurance shall be in a form and
with a carrier acceptable to MarkWest, which approval shall not be
unreasonably withheld. These insurance policies shall name MarkWest as
an additional insured party, and Columbia will furnish proof of this
insurance prior to the commencement of the lease.
(d) The foregoing limits shall not act as limitations on the
applicable party's indemnifications provided in this Contract.
9.2 (a) 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.
(b) 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 design, procurement, fabrication, construction, installation and
ownership 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 Columbia, its
10
<PAGE>
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.
(c) Neither party shall be liable hereunder for the indirect or
consequential damages of the other party.
ARTICLE X: ENTRY BY MARKWEST
10.1 MarkWest and its agents shall have the right to enter the Plant at
all reasonable times for the purpose of examining or inspecting the Plant,
following written notice to Columbia. MarkWest shall use reasonable efforts on
any such entry not to unreasonably interrupt or interfere with Columbia's use
and occupancy of the Plant.
ARTICLE XI: DEFAULT
11.1 Default by Columbia. Columbia will be deemed to be in default under
---------------------
this Lease if (a) Columbia fails to make due and punctual payments of amounts
required hereunder, and the failure continues for five (5) days after receipt of
written notice from MarkWest; (b) Columbia abandons the Plant; (c) this Lease or
the Plant, or any part thereof, shall be taken upon execution or by other
process of law directed against Columbia, or shall be taken upon or subject to
any attachment at the instance of any creditor of Columbia, and that attachment
shall not be discharged or disposed of within fifteen (15) days after the levy
thereof; (d) the filing of any petition or the commencement of any case or
proceedings by or against Columbia under any provision or chapter of the Federal
Bankruptcy Act, the Federal Bankruptcy Code or any other federal or state law
relating to insolvency, bankruptcy or reorganization; or (e) Columbia shall fail
to perform any of its other covenants, agreements or terms hereof, and such
nonperformance shall continue for a period of fifteen (15) days following notice
from MarkWest.
11.2 Remedies of Markwest. Upon an Event of Default, as defined above,
--------------------
MarkWest shall have the right, at its election, without demand or notice, to re-
enter and take possession of the Plant, or any part thereof, and to take control
and custody of the Plant, and to do all acts necessary to repossess or otherwise
dispose of the Plant in any manner deemed appropriate by MarkWest. MarkWest
shall, in addition and not in lieu thereof, have any and all other rights and
remedies afforded it by the law.
11
<PAGE>
11.3 Default by MarkWest. MarkWest will be deemed to be in default-
-------------------
under this Lease if (a) MarkWest fails to make due and punctual payments of
amounts required to lendors for all loans associated with ownership of the Plant
and such condition causes transfer of Plant ownership to the lendor(s); (b) this
Lease or the Plant, or any part thereof, shall be taken upon execution or by
other process of law directed against MarkWest; (c) the filing of any petition
or the commencement of any case or proceedings by or against MarkWest under any
provision or chapter of the Federal Bankruptcy Act, the Federal Bankruptcy Code,
or any other Federal or state law relating to insolvency, bankruptcy or
reorganization; or (d) MarkWest shall fail to perform any of its other
covenants, agreements or terms hereof, and such nonperformance shall continue
for a period of fifteen (15) days following notice from Columbia.
11.4 Remedies of Columbia. Upon an Event of Default by MarkWest, as
--------------------
defined above, Columbia shall have any and all rights and remedies afforded it
by the law.
ARTICLE XII: MISCELLANEOUS
12.1 Columbia agrees that it shall operate the Plant at all times, in
accordance with all applicable federal, state, and local laws, rules and
regulations.
12.2 The waiver by either party of any breach of any term, covenant, or
condition herein contained shall no; 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. The payments hereunder shall not be
construed to be a waiver of any breach by Columbia of any term, covenant, or
condition of this Lease.
12.3 Notices. 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
Columbia Gas Transmission Corporation
Box 1273
Charleston, WV 25325
Attention of Assistant General Counsel, Corporate Matters
13.4 Choice of Law. This Lease shall be governed in accordance with the
-------------
laws of the State of West Virginia.
12
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Contract and Lease the
day and year first above written.
COLUMBIA GAS TRANSMISSION CORPORATION
By: /s/ R. Larry Robinson
---------------------------------------
Title: PRESIDENT
------------------------------------
MARKWEST HYDROCARBON PARTNERS, LTD.
By: MarkWest Hydrocarbon, Inc.,
its general partner
By: /s/ John M. Fox
----------------------------------------
Title: PRESIDENT
-------------------------------------
l3
<PAGE>
EXHIBIT "A"
TO
CONTRACT FOR CONSTRUCTION AND LEASE
OF BOLDMAN PLANT
DATED DECEMBER 24, 1990
BETWEEN
MARKWEST HYDROCARBON PARTNERS, LTD,
AND
COLUMBIA GAS TRANSMISSION CORP.
Page 1 of 3
The Boldman NGL Plant as provided by MarkWest to Columbia under the terms of
this lease includes the following equipment in the 70 MMSCFD at 400 psig skid-
mounted external mechanical refrigeration gas processing plant:
1. Electric motor-driven screw compressor refrigeration system including one-
200 Bhp compressor set, one-300 Bhp compressor set, and one-500 Bhp
compressor set.
2. Residue gas measurement to AGA Report No. 3 standards; fuel gas measurement
to billing quality standards.
3. Instrument air system consisting of two air compressors and one air dryer
system.
4. 25'x 50' drop side refrigeration compressor building.
5. Automated main gas block and bypass valves.
6. 1,200 feet of 10" piping for connecting main gas inlet and residue gas to
Columbia's pipeline system.
7. 3,000 feet of 6' chain link fence with barbed wire topping.
8. Six days of startup and training assistance.
9. $50,000 allowance for purchase of spare parts as determined by Columbia.
10. Air assisted smokeless safety flare to accept discharge from pressure
relief devices in the refrigeration system and certain other pressure
relief devices in the process system.
11. Online liquid chromatograph to determine composition and heating value of
the liquid product stream.
12. Six sets of Plant Data Books and Operating Manuals.
13. $15,000 site grading and preparation allowance.
14. Two-60,O00 gallon product storage tanks and associated truck loading
facilities.
15. 40 Bhp electric motor-driven reciprocating compressor to recycle stabilizer
overhead vapors.
<PAGE>
EXHIBIT "A"
TO
CONTRACT FOR CONSTRUCTION AND LEASE
OF BOLDMAN PLANT
DATED DECERBER 24, 1990
BETWEEN
HARKWEST HYDROCARBON PARTNERS, LTD. AND
COLUMBIA GAS TRANSMISSION CORP.
Page 2 of 3
16. Builders Risk Insurance.
17. Liquid product turbine meter with instantaneous display and totalizing
located in the control room.
18. "Absolute" quality inlet Filter/Separator/Coalescer on the Plant main gas
inlet.
19. Heat Medium Oil (HMO) Filter.
20. 100% X-Ray of all gas and liquid hydrocarbon piping 4" nominal pipe size
and larger, excluding the safety flare line.
21. 400 gallon Glycol Storage Tank.
22. 1,000 gallon HD-5 Propane Refrigerant Storage Tank.
23. Instrumentation and other tubing 316 stainless steel with stainless steel
fittings.
24. Instrumentation in addition to T. H. Russell Co. standard displays to
provide the following operating data to be displayed and recorded in the
control room:
(a) HMO and Residue Gas flow.
(b) Glycol circulation flow.
(c) Stabilizer recycle gas pressure.
(d) Chiller process gas outlet temperature.
###
<PAGE>
EXHIBIT "A"
TO
CONTRACT FOR CONSTRUCTION AND LEASE
OF BOLDMAN PLANT
DATED DECEMBER 24, 1990
BETWEEN
MARKWEST HYDROCARBON PARTNERS, LTD. AND
COLUMBIA GAS TRANSMISSION CORP.
Page 3 of 3
The following items will be included in the Plant as Change Orders and have not
been included in the Base Lease Fee of $40,000 per month. The Base Lease Fee
will be increased by a factor of 1.9% of MarkWest's actual direct cost for
.these items in accordance with Article VII of this Contract.
1. Piping from recycle gas compressor discharge to Columbia's Boldman
Compressor Station main gas compressor suction piping.
2. All site work in excess of site work allowance required for installation of
site drainage system.
3. Roads and road improvements.
4. Connection of Plant automatic drain system(s) to Columbia's drain system.
5. Elevating control room and power substation.
6. Sound abatement equipment.
7. Fire proofing materials and installation.
8. Removal of underground obstructions if required.
9. Foundation modifications required if soil bearing is less than 2,000 PSF.
10. Gravel.
11. Cost of any Performance Bond(s) required by Columbia.
12. Cost of any Professional Liability Insurance (Architects and Engineers)
required by Columbia.
13. Power substation and electric motor controls described in Article III of
this Contract.
14. Additional costs incurred due to winter construction.
###
<PAGE>
EXHIBIT "B"
TO
CONTRACT FOR CONSTRUCTION AND LEASE
OF BOLDMAN PLANT
DATED DECEMBER 24, 1990
BETWEEN
MARKWEST HYDROCARBON PARTNERS, LTD. AND
COLUMBIA GAS TRANSMISSION CORP.
Page 1 of 5
PUBLIC LIABILITY INSURANCE AND PERFORMANCE AND PAYMENT BONDS
- ------------------------------------------------------------
CONTRACTOR shall carry and maintain, at its own expense, the kinds of
insurance and the minimum amounts of coverage set forth in the insurance
schedule below to cover all loss and liability for damages on account of bodily
injury, including death resulting therefrom, and injury to or destruction of
property caused by or arising from any and all operations carried on or any and
all work performed under this Agreement.
Subcontractors. If any of the work to be performed under the terms of this
--------------
Agreement is awarded to a subcontractor by CONTRACTOR, the subcontractor shall
meet the same insurance requirements as those applicable to CONTRACTOR itself.
Insurance Endorsements or Certifications. CONTRACTOR 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 CONTRACTOR under article
hereof; and
<PAGE>
EXHIBIT "B"
TO
CONTRACT FOR CONSTRUCTION AND LEASE
OF BOLDMAN PLANT
DATED DECEMBER 24, 1990
BETWEEN
MARKWEST HYDROCARBON PARTNERS, LTD. AND
COLUMBIA GAS TRANSMISSION CORP.
Page 2 of 5
(2) Unless expressly waived in writing by COLUMBIA, all insurance policies
carried by CONTRACTOR to comply with this article shall contain an
endorsement or certification naming COLUMBIA as an additional insured under
the insurance contract.
(3) If the form of insurance contract held by CONTRACTOR prohibits an
additional insured from being indemnified by CONTRACTOR, CONTRACTOR shall
obtain an endorsement excluding such provision.
Coverage in CONTRACTOR's insurance policies shall be as specified in this
--------
clause unless modified in writing and signed by both CONTRACTOR and
COLUMBIA.
(1) Workers Compensation
--------------------
Statutory coverage, including occupational disease if and as required in a
separate act.
(a) "Borrowed Servant" endorsement providing that a worker's compensation
claim brought against COLUMBIA by CONTRACTOR's employee will be
treated as a claim against CONTRACTOR.
Employer's Liability Coverage B $1,000,000
(b) All states endorsement and stop gap coverage.
<PAGE>
EXHIBIT "B"
TO
CONTRACT FOR CONSTRUCTION AND LEASE
OF BOLDMAN PLANT
DATED DECEMBER 24, 1990
BETWEEN
MARKWEST HYDROCARBON PARTNERS, LTD. AND
COLUMBIA GAS TRANSMISSION CORP.
Page 3 of 5
<TABLE>
<CAPTION>
<S> <C>
(2) Comprehensive General Combined Single Limit
--------------------- ---------------------
Liability Insurance
-------------------
Insurance including Premises & Bodily Injury: $1,000,000
Operations, Owner's Protective each occurrence
for COLUMBIA, Contractor's Pro-
tective for CONTRACTOR, Contractual, Property Damage: $1,000,000
Completed Operations, Broadform aggregate
Property Damage and, if applicable,
Products Liability.
Personal Injury Combined Single Limit
--------------- ---------------------
S1,000,000 each occurrence
$1,O00,O00 aggregate
</TABLE>
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 CONTRACTOR for any and all necessary or required blasting and explosion
hazards, including coverage for underground and collapse. Fellow Employee
and Contractual Liability exclusions are to be deleted.
<TABLE>
<CAPTION>
<S> <C>
(3) Automobile Liability Insurance Combined Single Limit
------------------------------ ---------------------
Including specially permitted Bodily Injury: $1,000,000
hazardous waste transportation Property Damage: $1,000,000
vehicles and all other owned, aggregate
non-owned and hired vehicles.
</TABLE>
CONTRACTOR shall also comply with all applicable No-Fault Laws.
(4) Umbrella Liability Insurance
----------------------------
Umbrella liability coverage in the amount of $5,000,000. This coverage
shall be in excess of the primary coverage required in all other sections
of this article.
<PAGE>
EXHIBIT "B"
TO
CONTRACT FOR CONSTRUCTION AND LEASE
OF BOLDMAN PLANT
DATED DECEMBER 24, 1990
BETWEEN
MARKWEST HYDROCARBON PARTNERS, LTD. AND
COLUMBIA GAS TRANSMISSION CORP.
Page 4 of 5
(5) Performance and Payment Bonds
-----------------------------
CONTRACTOR shall obtain a performance Bond and a Payment Bond, if required
by COLUMBIA, in the amount and in accordance with the terms and conditions
prescribed by COLUMBIA. The cost of such bond(s) is not included in the
CONTRACTOR's price, and shall be reimbursed by COLUMBIA at CONTRACTOR's
actual cost of bond(s). COLUMBIA shall, however, have the right to approve
the writing and terms of any such bond(s) and the right to obtain such
bond(s) directly.
(6) COLUMBIA's Right to Cancel
--------------------------
In the event of CONTRACTOR's failure to furnish such copies or carry out,
any of the provisions of this article, COLUMBIA shall, in addition to any
right to recover damages or to obtain other relief, have the right to
cancel and terminate the antecedent Agreements.
CONTRACTOR'S INDEMNIFICATION OF COLUMBIA
CONTRACTOR 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 CONTRACTOR and of any subcontractor of CONTRACTOR, 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 CONTRACTOR or its agents, employees or
subcontractors in connection with the performance of this Contract, or
caused by or arising out of or claimed to have been caused by or to have
arisen out of the concurrent negligence of COLUMBIA, its agents and
employees, in connection with the performance of this Contract, 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 COLUMBIA, its agents and employees; and CONTRACTOR
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 CONTRACTOR 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 CONTRACTOR,
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.
<PAGE>
EXHIBIT "B"
TO
CONTRACT FOR CONSTRUCTION AND LEASE
OF BOLDMAN PLANT
DATED DECEMBER 24, 1990
BETWEEN
MARKWEST HYDROCARBON PARTNERS, LTD. AND
COLUMBIA GAS TRANSMISSION CORP.
Page 5 of 5
To the extent permitted by law, CONTRACTOR expressly waives the benefit, for
itself and all 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
employers employees.
<PAGE>
EXHIBIT "C"
TO
CONTRACT FOR CONSTRUCTION AND LEASE
OF BOLDMAN PLANT
DATED DECERBER 24, 1990
BETWEEN
HARKWEST HYDROCARBON PARTNERS, LTD. AND
COLUMBIA GAS TRANSMISSION CORP.
Page 1 of 1
1. 480 VAC, NEMA 1 Allen-Bradley Motor Control Center.
2. 25 KVA XFRM, 30 CKT Lighting Panel to 60 in Item 1., above.
3. NEMA 1 Switchgear line up for 4160 VAC Compressor Motors.
4. Power Factor Correction Capacitors for Item 3., above.
5. Motor Controls for two (2) Product Pumps, one (1) Flare Blower and one (1)
Flare Knockout Pump.
<PAGE>
EXHIBIT "D"
TO
CONTRACT FOR CONSTRUCTION AND LEASE
OF BOLDMAN PLANT
DATED DECEMBER 24, 1990
BETWEEN
MARKWEST HYDROCARBON PARTNERS, LTD. AND
COLUMBIA GAS TRANSMISSION CORP.
Page 1 of 8
PURPOSE: The purpose and intent of conducting a Plant Performance Test or Tests
is to demonstrate the Plant is capable of performing the intended hydrocarbon
removal at the guaranteed product removal efficiencies and product quality
specifications while consuming power and fuel at the design levels and
successfully operating in the automatic or unattended mode.
The Plant will be deemed to have satisfactorily completed the performance test
when the Plant successfully comes on line from a "cold start", operates at the
guaranteed product recovery efficiencies as specified in T. H. Russell Co.'s
Technical Proposal dated June 19, 1990 attached hereto and liquid specifications
as set forth in Paragraph 4(d) of the Natural Gas Liquids Purchase Agreement
(Boldman Plant) for the design inlet gas conditions (including gas composition,
flowing gas pressure and flowing gas temperature) for a continuous 16 hour
period, and completes an orderly, automatic shutdown.
If the inlet gas conditions are deemed by Columbia and MarkWest to be different
from the design basis analysis then "adjusted" guaranteed product recovery
efficiencies will be developed as described in paragraph (h). The Plant will be
deemed to have satisfactorily completed the performance test when the Plant
successfully comes on line from a "cold start", operates at the "adjusted"
guaranteed product recovery efficiencies and liquid specifications as set forth
in Paragraph 4(d) of the Natural Gas Liquids Purchase Agreement (Boldman Plant)
for the actual inlet gas conditions (including gas
<PAGE>
EXHIBIT "D"
TO
CONTRACT FOR CONSTRUCTION AND LEASE
OF BOLDNAN PLANT
DATED DECEMBER 24, L990
BETWEEN
MARKWEST HYDROCARBON PARTNERS, LTD. AND
COLUMBIA GAS TRANSMISSION CORP.
Page 2 of 8
composition, flowing gas pressure and flowing gas temperature) for a continuous
16 hour period, and completes an orderly, automatic shutdown.
Columbia will designate a Performance Test Representative who will be on site as
a witness during all testing. Columbia's Representative will have the authority
to modify this procedure as necessary and accept the Test results on behalf of
Columbia.
PROCEDURE: It is recognized that due to a myriad of factors beyond the control
of Columbia and MarkWest the design process gas volume of 70 MMSCFD at 400 psig
may not be available at the time of the Performance Test(s).
Columbia will use its best efforts to deliver up to 70 MMSCFD at 400 psig
through the Plant during the Performance Test(s). The product recovery
efficiencies guaranteed at the design point will be applicable to all test gas
volumetric rates between 17.5 and 70 MMSCFD at 400 psig. The expected design
liquid product rate in gallons per day will be calculated as
(Design Gas Volume)
(Actual Liquid Product Volume) x ...................
(Actual Gas Volume)
The expected design liquid product rate must meet or exceed the design liquid
product rate.
<PAGE>
EXHIBIT "D"
TO
CONTRACT FOR CONSTRUCTION AND LEASE
OF BOLDMAN PLANT
DATED DECEHBER 24, 1990
BETWEEN
MARKWEST HYDROCARBON PARTNERS, LTD. AND
COLUMBIA GAS TRANSMISSION CORP.
Page 3 of 8
The Performance Test(s) will not be commenced until all initial charge materials
have been loaded into the Plant and all systems have been checked individually
and declared ready for service by MarkWest, its General Contractor or
Subcontractors, and Columbia. This includes but is not limited to the
refrigeration system, HMO and glycol injection systems, incinerator and safety
flare systems, Plant control system and all other systems.
The Performance Test(s) procedure will be as follows, modified as necessary at
site to accomplish the intended purpose:
(a) The Plant, after charging and checking of individual systems, will be
completely shut down and process gas bypassed around the Plant using
Columbia's block and bypass valves.
(b) The automated Plant block valves will be set with the Plant outlet valve
partially closed to simulate a blockage in the Plant process gas system.
Columbia's bypass valve will then be closed and the process gas diverted to
the Plant. The partially closed outlet valve will be manually adjusted to
verify that the automatic bypass valve functions at the preset Plant
differential pressure.
(c) Individual systems such as the HMO and glycol injection systems will be
started according to the manufacturers Operating Manual. The process
<PAGE>
EXHIBIT "D"
TO
CONTRACT FOR CONSTRUCTION AND LEASE
OF BOLDMAN PLANT
DATED DECEMBER 24, 1990
BETWEEN
MARKWEST HYDROCARBON PARTNERS, LTD. AND
COLUMBIA GAS TRANSMISSION CORP.
Page 4 of 8
gas flowrate will be varied using Columbia's bypass and block valves or the
Plant bypass valve and the glycol injection system monitored to assure the
injection rate adjusts to the process gas flowrate.
(d) Once process gas is flowing through the Plant and all individual systems
have been started except the refrigeration system, samples of the inlet and
---------------------------------
residue gas streams will be taken by Columbia. These and all other gas
samples will be analyzed using the same Columbia procedures used to
determine the design basis analyses dated December 4, 1989. These special
sampling and analytical techniques provide for accurate determination of C1
through C10 fractions.
(e) The refrigeration and all other systems not previously started will now be
started according to the manufactures Operating Manual. Liquid product
chromatographic results will be recorded once each hour beginning as soon
as the first data is available. This data will be recorded to show product
composition changes during the startup phase. The Plant will operate until
all pressures, temperatures, levels and flows in all vessels are
stabilized. The plant will now be completely shutdown. Sufficient time will
be allowed for all systems to cool or warm to a point where restarting the
Plant is considered a "cold start" The plant will now be restarted using
the automatic controls. If the plant does not successfully start in the
automatic mode any problems
<PAGE>
EXHIBIT "D"
TO
CONTRACT FOR CONSTRUCTION AND LEASE
OF BOLDMAN PLANT
DATED DECEMBER 24, 1990
BETWEEN
MARKWEST HYDROCARBON PARTNERS, LTD. AND
COLUMBIA GAS TRANSMISSION CORP.
Page 5 of 8
will be corrected and the Plant restarted.
(f) Once the operation is stabilized the inlet and residue process gas streams
will be sampled. The Plant must continue to operate for a continuous 16-
hour or more period without abnormal operator intervention. The inlet and
residue process gas streams and the liquid product stream will be sampled
at the beginning of the 16-hour period and 8 hours into the 16-hour period
and at the end of the 16-hour period. Data including but not limited to the
operating pressures, temperatures, flows, totalized volumes, power and fuel
consumption will be recorded at the beginning of the 16-hour period and
each hour thereafter and at the end of the 16-hour period. This data will
be used to compare actual power and fuel requirements to the design power
and fuel requirements. All Plant operation must be normal without upset
during the 16-hour period. If upsets occur that require abnormal operator
intervention during the 16-hour period, the 16-hour period and associated
sampling and data requirements must be restarted.
(g) Once the 16-hour period is successfully completed the Plant will be
automatically shut down. The shutdown will be completed to the point where
the automated Plant inlet and residue gas valves are closed and process gas
bypasses the Plant. Any abnormal occurrences during the shutdown wilt
require the Plant to be restarted and the shutdown
<PAGE>
EXHIBIT "D"
TO
CONTRACT FOR CONSTRUCTION AND LEASE
OF BOLDMAN PLANT
DATED DECEMBER 24, 1990
BETWEEN
MARKWEST HYDROCARBON PARTNERS, LTD. AND
COLUMBIA GAS TRANSMISSION CORP.
Page 6 of 8
attempted again until it is completed normally. A successful Plant shutdown
completes the site portion of the Performance Test(s).
(h) The analytical results necessary to verify the actual product recovery
efficiencies will be completed by Columbia within five working days after
site testing is completed. The product recovery for each component shall be
equal to a fraction, the numerator of which shall be the liquid product
produced during the test period and the denominator of which will be the
sum of the liquid product produced during the test period and the liquid
contained in the residue gas during the test period.
If the inlet gas composition is deemed by Columbia and MarkWest to be
substantially equivalent to the design basis analyses dated December 4,
1989, and if the Performance Test(s) results show the guaranteed product
recovery efficiencies and product quality specifications are attained, the
Performance Testing will be deemed complete and the Plant will be deemed
Accepted by Columbia.
If the inlet gas composition is deemed substantially equivalent and the
Test results show the guaranteed product recovery efficiencies or the
product quality specifications are not attained, the Plant will not be
Accepted by Columbia. At that time MarkWest and Columbia will meet and
<PAGE>
EXHIBIT "D"
TO
CONTRACT FOR CONSTRUCTION AND LEASE OF BOLDMAN PLANT
DATED DECEMBER 24, L990
BETWEEN
MARKWEST HYDROCARBON PARTNERS, LTD. AND
COLUMBIA GAS TRANSMISSION CORP.
Page 7 of 8
mutually agree what will be done to achieve a successful Performance Test
and Acceptance.
If the inlet gas composition is deemed by Columbia and MarkWest to be
different from the design basis analyses then MarkWest will, with the
review and mutual agreement of Columbia, use the original simulation and
Plant design methods to establish the adjusted guaranteed product recovery
efficiencies for the actual inlet gas composition. The adjusted guaranteed
product recovery efficiencies will be compared with the Performance Test(s)
results and if the Performance Test(s) results show the adjusted guaranteed
product recovery efficiencies and product quality specifications are
attained the Performance Testing will be deemed complete and the Plant will
be deemed Accepted by Columbia.
If the inlet gas composition is different from the design basis and the
Test results show the adjusted guaranteed product recovery efficiencies or
the product quality specifications are not attained, the Plant will not be
Accepted by Columbia. At that time MarkWest and Columbia will meet and
mutually agree what will be done to achieve a successful Performance Test
and Acceptance.
<PAGE>
EXHIBIT "D"
TO
CONTRACT FOR CONSTRUCTION AND LEASE
OF BOLDBAN PLANT
DATED DECEMBER 24, L990
BETWEEN
MARKWEST HYDROCARBON PARTNERS, LTD. AND
COLUMBIA GAS TRANSMISSION CORP.
Page 8 of 8
Successful completion of the Performance Test(s) and Acceptance by Columbia
will likely occur prior to the completion of all installation work required
of MarkWest or its General Contractor or Subcontractors. Acceptance of the
Plant through the Performance Test(s) does not in any way relieve MarkWest
of its responsibility to complete these remaining installation items in a
timely fashion.
###
<PAGE>
EXHIBIT "E"
TO
CONTRACT FOR CONSTRUCTION AND LEASE
OF BOLDMAN PLANT
DATED DECEMBER 24, 1990
BETWEEN
MARKWEST HYDROCARBON PARTNERS, LTD. AND
COLUMBIA GAS TRANSMISSION CORPORATION
The following attached comprise Exhibit "E":
1) Letter to Mr. Howard Murphy, Columbia Gas Transmission Corporation, from
Mr. Patrick Murray, MarkWest Hydrocarbon Partners, Ltd., dated July 26,
1990, regarding Boldman Plant Project Adders/Deducts.
2) Letter to Mr. Patrick Murray, MarkWest Hydrocarbon Partners, Ltd., from Mr.
Howard Murphy, Columbia Gas Transmission Corp., dated December 21, 1990,
regarding Boldman Plant Project Adders/Deducts.
*
<PAGE>
COLUMBIA GAS
- ------------
Transmission
December 21, 1990
MARKWEST HYDROCARBON PARTNERS, LTD.
5613 DTC Parkway, Suite 400
Englewood, CO 80111
Attention: Patrick W. Murray
Vice President
Finance and Business Development
Reference: Boldman NGL Plant Adders/<Deducts>
Dear Pat,
As we discussed via phone on December 20, the following list identifies the
current items and associated capital cost (or current estimate) we have agreed
to add or deduct from the Boldman NGL Plant project since the Change Order
letter dated July 26, 1990.
<TABLE>
<CAPTION>
CURRENT ITEM, APPROVAL STATUS ADD OR <DEDUCT>
----------------------------- ---------------
<S> <C>
Net deducts through July 26, 1990......................... <91,099>
ADD Various Instrume6tation (approved 8/3/90)............. 31,675
DEDUCT 1,000 gal. Drain Tank (approved 7/10/90)........... <2,000>
DEDUCT 480V Motor Control Center (approved 8/6/90)........ <13,200>
DEDUCT Lighting Panel (approved 8/6/90)................... <3,960>
DEDUCT 4160V Switch Gear (approved 8/6/90)................ <40,439>
DEDUCT Power Factor Capacitors (approved 8/6/90).......... <2,200>
ADD Glycol Still Incinerator (approved 9/11/90)........... 17,328
ADD Uninterruptible Power Supply (approved 10/15/90)...... 7,695
ADD Heat Trace & Insulate Recycle Compressor Oil
Lines and Oil Sump Heater (approved 8/28/90).......... 940
ADD Four (4) Drains to Skid Edge (approved date unknown).. 1,840
ADD Winter Construction Premium for Concrete Foundation
Work (approved 10/31/90)............................... 17,752
ADD 160' of Conduit & Wire due to increased spacing
between Control Building and Plant (amount subject
to further review)..................................... 41,280
DEDUCT Conduit Rack Installed by Columbia (amount
subject to further review)............................. <24,500>
ADD to place Glycol Reconcentrator on individual
skid (amount subject to further review)................ 6,460
</TABLE>
Columbia Gas Transmission Corporation, Post Office Box 1273, Charleston, West
Virginia 25325-1273
<PAGE>
Letter to MarkWest Hydrocarbon Partners, Ltd.
December 21, 1990
Page 2
<TABLE>
<CAPTION>
CURRENT ITEM, APPROVAL STATUS ADD OR DEDUCT
---------------
<S> <C>
ADD Fireproofing Storage Tank Saddles
(approved 11/27/90) 3,700
ADD Additional Piping to Relocate Refrigerant
Storage Tank (approved 12/11/90) 2,390
ADD Flash Tank system on glycol skid
(amount subject to further review) 9,370
ADD Concrete finishing (approved 11/27/90) 2,493
ADD Enclosed 6'x8' Building for chromatograph
(amount subject to further review) 9,000
ADD Contractor costs related to welding
(approved 12/10/90) 25,000
DEDUCT For 15% (vs. 100%) X-Ray of safety flare
supply line (approved 12/10/90) <1,900>
NET DEDUCT -- <2,375>
</TABLE>
As we discussed, some of the items above may be adjusted somewhat on further
review, and the above list does not include all of the adders and deducts for
the project. As additional items are identified and negotiated we will update
the lease fee.
Please indicate your agreement and approval of the above items in the space
below and return a signed copy to me.
Sincerely,
Howard G. Murphy, Jr.
Project Manager - Boldman NGL Plant
Accepted and agreed to this
28th day of December, 1990.
MarkWest Hydrocarbon Partners, Ltd.
By:_________________________________
<PAGE>
MarkWest Hydrocarbon Partners. Ltd.
5613 DTC Parkway. Suite 400
Englewood. CO 80111
Ph. # (303) 290-8700
FAX: (303) 290-8769
July 26, 1990
Mr. Howard Murphy
Columbia Gas Transmission Corporation
PO Box 1273
Charleston, WV 25325-1273
RE: Boldman Plant Project Adders/Deducts
Dear Howard:
As discussed on Thursday, July 26, 1990, the following list identifies the
current items we have agreed to either add or deduct from the Boldman Plant
Project.
<TABLE>
<CAPTION>
ADD <DEDUCT>
-------------
<S> <C>
Screw Compressors $ <75,000>
4160 Volt Motors 31,000
Robert Shaw Vibration Switch 2,530
(Ball Bearings)
Stator Windings RTD 3,571
85 DBA 3,500
Motor Control Center 1000' 8,900
Refrigerant Discharge Scrubber <4,900>
(Process Skid)
Cellar Piping (Compressor Building) <33,000>
Propane Filter <7,700>
Motor Control Center Building and
Heat Pump <20,000>
-----------
NET DEDUCT $ <91,099>
</TABLE>
Based on a net deduct of $91,099 the lease fee would be reduced by $1,731
per month. Please indicate your approval of these items in the space below
and return the signed copy to me. The above list does not include all Adders and
Deducts for the Boldman Project. As additional items are identified I will send
confirmations to you.
<PAGE>
Mr. Howard Murphy
July 26, 1990
Page 2
If you have any questions concerning this matter, please contact me.
Sincerely,
Patrick W. Murray
Vice President Finance
MarkWest Hydrocarbon, Inc.
General Partner
Accepted and agreed to this
6/th/ day of August, 1990.
COLUMBIA GAS TRANSMISSION CORPORATION
By:__________________________________
<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 HYDROCARRBON 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 judqment, 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 5.2617
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 65,869
Propane 90 90,830
Iso-butane 98,917
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 a
part hereof, subject to physical capability, or any other
4
<PAGE>
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 Columbia 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 Contract for the preceding month. MarkWest shall
6
<PAGE>
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 maybe 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.
COLUMBIA GAS TRANSMISSION CORPORATION
By: /s/ R. Larry Robinson
--------------------------------------
Title: President
------------------------------------
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.
RECEIPT POINTS
--------------
<TABLE>
<CAPTION>
FROM AT COUNTY AND STATE
- ---- -- ----------------
(COMMON NAME)
-----------
<S> <C> <C>
Panhandle Eastern Pipeline Co. Maumee Lucas Co., OH
Pipeline Co.
Tennessee Gas Broad Run Kanawha Co., WV
Pipeline Co. Unionville Beaver Co., PA
Texas Eastern Lebanon Warren Co., OH
Transmission Corp. Hooker Fairfield Co., OH
Eagle Chester Co., PA
Pennsburg, Exc. Bucks Co., PA
Texas Gas Lebanon Warren Co., OH
Transmission Corp.
Transcontinental Dranesville Fairfax Co., VA
Gas Pipeline Corp. Rockville Montgomery Co., MD
Downingtown 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>
EHIBIT 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 heroin 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>
(2) Comprehensive General Combined Single Limit
--------------------- ----------------------
Liability Insurance
---------------------
Including Pollution Bodily Injury and
Liability (limited to Property Damage:
Sudden & Accidental $1,000,000
Occurrences only) Each occurrence
Premises & Operations (Excluding automobile)
Owners and MarkWest's Annual Aggregate:
Protective for Columbia, $1,000,000
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.)
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.
(3) 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, Uy
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__________________________________________
Its_________________________________________
MARKWEST HYDROCARBON PARTNERS., LTD.
By MarkWest Hydrocarbon, Inc.
Its General Partner
By__________________________________________
Its_________________________________________
<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
650,000. 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
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<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
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<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
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<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.
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<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.
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<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 5,602 5,602 5,602 5,688 5,714 5,714 5,785
Proforma net income
per common share $0.98 $0.60 $0.06 $0.65 $0.86 $0.46 $0.49
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 (Amendment No. 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 reference to us under the heading "Experts" in such Prospectus.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Denver, Colorado
September 13, 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.
/s/ BDO Seidman, LLP
BDO Seidman, LLP
Denver, Colorado
September 12, 1996
