<PAGE>
================================================================================
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
MARKWEST HYDROCARBON, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
[MARKWEST LOGO
APPEARS HERE]
April 30, 1997
Dear Fellow Stockholder:
This year's Annual Meeting of Stockholders will be held at the Hyatt
Regency Tech Center Hotel, 7800 East Tufts Avenue, Denver, Colorado 80237 on
June 6, 1997 at 10:00 a.m., M.D.T. You are cordially invited to attend. The
matters to be considered at the meeting are described in the attached Proxy
Statement and Notice of Annual Meeting of Stockholders. The Company's Board of
Directors recommends the following actions: (i) the election of management's
two nominees to serve as class I directors, (ii) the approval of a proposal to
amend the Markwest Hydrocarbon, Inc. 1996 Stock Incentive Plan (the "Stock
Incentive Plan") to increase the maximum number of shares of Common Stock
underlying awards that may be granted to an eligible person who is an employee
of Markwest Hydrocarbon, Inc. (the "Company") at the time of grant from 10,000
shares in any one calendar year to 20,000 shares in any one calendar year and to
increase the number of shares of Common Stock authorized for issuance under the
Stock Incentive Plan from 600,000 shares in the aggregate to 850,000 shares in
the aggregate, (iii) the approval of a proposal to amend the Markwest
Hydrocarbon, Inc. 1996 Non-Employee Director Stock Option Plan (the "Non-
Employee Director Plan") to increase the initial grant under the Non-Employee
Director Plan to a newly-appointed, non-employee director of the Company upon
the date on which such person first becomes a director of the Company from
options to purchase 500 shares of Common Stock to options to purchase 1,000
shares of Common Stock and to provide for a retroactive grant, effective as of
the approval of the Non-Employee Director Plan by the Board of Directors on July
31, 1996, of options to purchase 500 shares of Common Stock under the Non-
Employee Director Plan, with an exercise price equal to the initial public
offering price of $10 per share, to each non-employee director of the Company as
of such date, and (iv) the ratification of the selection of Price Waterhouse LLP
as the Company's independent accountants for the fiscal year ending December 31,
1997.
To be certain that your shares are voted at the Annual Meeting, whether
or not you plan to attend in person, you should sign, date and return the
enclosed proxy as soon as possible. Your vote is important.
At the Annual Meeting, I will review the Company's activities during
the past year and its plans for the future. An opportunity will be provided for
questions by the stockholders. I hope you will be able to join us.
Sincerely,
John M. Fox
Chairman of the Board,
President and Chief
Executive Officer
<PAGE>
MARKWEST HYDROCARBON, INC.
NOTICE OF ANNUAL MEETING
OF STOCKHOLDERS
TO BE HELD ON JUNE 6, 1997
TO THE STOCKHOLDERS OF MARKWEST HYDROCARBON, INC.:
Notice is hereby given that the Annual Meeting of Stockholders of
Markwest Hydrocarbon, Inc. (the "Company") will be held at 10:00 a.m., M.D.T.,
on June 6, 1997, at the Hyatt Regency Tech Center Hotel, 7800 East Tufts Avenue,
Denver, Colorado 80237, for the following purposes:
1. To elect two class I directors to hold office for a three-year
term expiring at the Annual Meeting of Stockholders occurring in
2000 or until the election and qualification of their respective
successors.
2. To vote upon a proposal to amend the Markwest Hydrocarbon, Inc.
1996 Stock Incentive Plan (the "Stock Incentive Plan"), to (i)
increase the maximum number of shares of Common Stock underlying
awards that may be granted to an eligible person who is an
employee of the Company at the time of grant from 10,000 shares
in any one calendar year to 20,000 shares in any one calendar
year, and (ii) increase the number of shares of Common Stock
authorized for issuance under the Stock Incentive Plan from
600,000 shares in the aggregate to 850,000 shares in the
aggregate.
3. To vote upon a proposal to amend the Markwest Hydrocarbon, Inc.
1996 Non-Employee Director Stock Option Plan (the "Non-Employee
Director Plan") to (i) increase the initial grant under the Non-
Employee Director Plan to a newly-appointed, non-employee
director of the Company upon the date on which such person first
becomes a director from options to purchase 500 shares of Common
Stock to options to purchase 1,000 shares of Common Stock, and
(ii) provide for a retroactive grant, effective as of the
approval of the Non-Employee Director Plan by the Board of
Directors on July 31, 1996, of options to purchase 500 shares of
Common Stock under the Non-Employee Director Plan, with an
exercise price equal to the initial public offering price of $10
per share, to each non-employee director of the Company as of
such date.
4. To ratify the selection of Price Waterhouse LLP as the Company's
independent accountants for the fiscal year ending December 31,
1997.
5. To transact such other business as may properly come before the
meeting.
The Board of Directors has fixed the close of business on April 14, 1997 as
the record date for the determination of stockholders entitled to notice of and
to vote at the meeting. Only stockholders of record as of the close of business
on such date are entitled to notice of and to vote at the meeting.
We encourage you to take part in the affairs of your Company either in
person or by executing and returning the enclosed proxy.
By Order of the Board of Directors,
Brian T. O'Neill
Secretary
Dated: April 30, 1997
STOCKHOLDERS UNABLE TO ATTEND THIS MEETING ARE URGED TO DATE AND SIGN THE
ENCLOSED PROXY AND TO RETURN IT IN THE ENCLOSED ENVELOPE.
<PAGE>
MARKWEST HYDROCARBON, INC.
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 6, 1997
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of Markwest Hydrocarbon, Inc. (the
"Company") for use at the Annual Meeting of Stockholders of the Company to be
held on June 6, 1997, at 10:00 a.m. at the Hyatt Regency Tech Center Hotel, 7800
East Tufts Avenue, Denver, Colorado 80237, and at any adjournment thereof. A
stockholder giving the enclosed proxy may revoke it at any time before the vote
is cast at the Annual Meeting by delivery to the Secretary of the Company of a
written notice of termination of the proxy's authority or a duly executed proxy
or ballot bearing a later date. Shares represented by a proxy will be voted in
the manner directed by a stockholder. If no direction is made, the proxy will
be voted for the election of the nominees for class I directors named in this
Proxy Statement and for the other proposals set forth in this Proxy Statement.
This Proxy Statement and the accompanying form of proxy are being sent or given
to stockholders beginning on or about May 15, 1997 together with the Company's
1996 Annual Report to Stockholders.
Only stockholders of record at the close of business on April 14, 1997
are entitled to notice of and to vote at the meeting or at any adjournment
thereof. As of such date, there were 8,485,000 shares of Common Stock of the
Company outstanding. Each share is entitled to one vote. Cumulative voting is
not permitted. Shares voted as abstentions on any matter (or a "withhold vote
for" as to a director) will be counted as shares that are present and entitled
to vote for purposes of determining the presence of a quorum at the meeting and
as unvoted, although present and entitled to vote, for purposes of determining
the approval of each matter as to which the stockholder has abstained. If a
broker submits a proxy that indicates the broker does not have discretionary
authority as to certain shares to vote on one or more matters, those shares will
be counted as shares that are present and entitled to vote for purposes of
determining the presence of a quorum at the meeting, but will not be considered
as present and entitled to vote with respect to such matters. The Company's by-
laws provide that the holders of not less than a majority of the shares entitled
to vote at any meeting of stockholders, present in person or represented by
proxy, shall constitute a quorum.
The Board of Directors knows of no matters other than those that are
described in this Proxy Statement that may be brought before the meeting.
However, if any other matters are properly brought before the meeting, persons
named in the enclosed proxy or their substitutes will vote in accordance with
their best judgment on such matters.
All expenses in connection with the solicitation of proxies will be
paid by the Company. In addition to solicitation by mail, officers, directors
and regular employees of the Company who will receive no extra compensation for
their services, may solicit proxies by telephone, facsimile or personal calls.
The Company's principal executive offices are located at 5613 DTC
Parkway, Suite 400, Englewood, Colorado 80111.
<PAGE>
ELECTION OF DIRECTORS
The business and affairs of the Company are managed under the direction
of its Board of Directors, which is comprised of six members. The Board of
Directors is divided into three classes and the members of each class are
elected to serve a three-year term, with the terms of office of each class
ending in successive years.
The term of the class I directors expires at the Annual Meeting to be
held June 6, 1997, and two class I directors will be elected at the Annual
Meeting to hold office until the Annual Meeting to be held in the year 2000 or
until their respective successors are elected and qualified. Arthur J. Denney
and Norman H. Foster are the incumbent class I directors, and Messrs. Denney and
Foster are being nominated for election at the Annual Meeting. The persons
named as proxies in the enclosed form of proxy will vote the proxies received by
them for the election of Messrs. Denney and Foster unless otherwise directed.
Each of Messrs. Denney and Foster has indicated a willingness to serve, but in
case either of them is not a candidate at the Annual Meeting, which is not
presently anticipated, the persons named as proxies in the enclosed form of
proxy may vote for a substitute nominee at their discretion. The terms of the
incumbent class II and class III directors expire at the 1998 and 1999 Annual
Meetings, respectively.
Information regarding the directors of the Company is set forth below:
EXPIRATION
NAME AGE OF TERM
---- --- ----------
Arthur J. Denney 48 1997
Norman H. Foster (1)(2) 62 1997
Brian T. O'Neill 49 1998
Barry W. Spector (2) 45 1998
John M. Fox 57 1999
David R. Whitney (1)(2) 44 1999
------------------
(1) Member of the Compensation Committee of the Board of Directors.
(2) Member of the Audit Committee of the Board of Directors.
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 natural gas liquids ("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.
NORMAN H. FOSTER, PH.D., has been a member of the Board of Directors of
the Company since June 1996. Dr. Foster has more than 34 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.
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
-2-
<PAGE>
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.
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.
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 its 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.
Mr. Fox is also a director of Maverick Tube Company, 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 of approximately 2.4% 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 University of Connecticut.
THE AFFIRMATIVE VOTE OF A MAJORITY OF THE SHARES OF COMMON STOCK
REPRESENTED AT THE MEETING IS REQUIRED FOR THE ELECTION OF MESSRS. DENNEY AND
FOSTER. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF MESSRS.
DENNEY AND FOSTER.
MEETINGS OF THE BOARD OF DIRECTORS AND CERTAIN COMMITTEES
During the fiscal year ended December 31, 1996, the Board of Directors
met two times. All of the directors attended more than 75% of the aggregate of
all meetings of the Board of Directors and meetings of the committees on which
they served. The Board of Directors and its committees also act from time to
time by written consent in lieu of meetings.
The Board of Directors of the Company has standing Audit and
Compensation Committees which have a current membership as indicated above. The
Board of Directors has no standing nominating 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 (the "Stock
Incentive Plan") and the Company's 1996 Incentive Compensation Plan (the
"Incentive Compensation Plan"). During fiscal 1996, the Compensation Committee
held one meeting.
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. During fiscal 1996, the audit committee held one
meeting.
-3-
<PAGE>
EXECUTIVE OFFICERS
NAME AGE POSITION
---- --- --------
John M. Fox 57 President, Chief Executive Officer
Brian T. O'Neill 49 Senior Vice President, Chief
Operating Officer
Arthur J. Denney 48 Vice President of Engineering and
Business Development
Robert F. Garvin 56 Vice President of Exploration
Gerald A. Tywoniuk 35 Vice President of Finance and
Chief Financial Officer
See the biographical information on Messrs. Fox, O'Neill and Denney
under "Election of Directors."
ROBERT F. GARVIN joined the Company in 1995 as Manager, Exploration.
Mr. Garvin has been the Company's Vice President of Exploration since April
1996. From 1988 to 1995, Mr. Garvin was Manager, Exploration, for an affiliate
of the Company. 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.
GERALD A. TYWONIUK was appointed Vice President of Finance and Chief
Financial Officer in April 1997. Mr. Tywoniuk is a Canadian Chartered Accountant
with fifteen years of experience in accounting, planning, information systems,
finance and management. From August 1993 to March 1997, Mr. Tywoniuk was
Controller and Vice President -- Controller of Echo Bay Mines Ltd. ("Echo Bay"),
a gold mining, exploration and development company. From September 1985 to July
1993, he held a variety of corporate and mine site roles with Echo Bay. Prior to
September 1985, Mr. Tywoniuk was employed with two public accounting firms,
including KPMG Peat Marwick. Mr. Tywoniuk holds a bachelor of commerce degree in
accounting and finance from the University of Alberta.
KEY EMPLOYEES
Certain key employees of the Company are as follows:
NAME AGE POSITION
---- --- --------
Katherine S. Holland 44 Manager, NGL and Natural Gas
Supply
Kimberly H. Marle 39 Manager, Information Systems
Faye E. McGuar 46 Controller
Randy S. Nickerson 35 Manager, West Shore and Basin
Pipeline
Joseph D. O'Meara 52 Manager, Appalachian Area
Fred R. Shato 49 General Manager, Marketing
Warren Warner 62 Manager of New Projects
KATHERINE S. HOLLAND joined the Company 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.
-4-
<PAGE>
KIMBERLY H. MARLE has been the Company's Manager, Information Systems,
since March 1995. Ms. Marle joined the Company 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 the Company. 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 the Company in May 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 the Company 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 the Company 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 the Company 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 Acquisition for Certified Oil
Corporation from 1980 to 1989. Mr. Shato holds a bachelors degree in history and
political science from Defiance College.
WARREN WARNER has been the Company's Manager of New Projects since
March 1996. Mr. Warner joined the Company in April 1991 as Vice President of
Operations. Prior to joining the Company, Mr. Warner had approximately 33 years
of experience in project development, construction and operation of pipelines
and plants, contracts, acquisition evaluations and project management. Mr.
Warner holds a bachelors degree in petroleum and natural gas engineering from
Texas A&I University.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires executive officers and directors and persons who beneficially own more
than ten percent (10%) of the Company's Common Stock to file initial reports of
ownership and reports of changes in ownership with the Securities and Exchange
Commission ("SEC"). Executive officers, directors, and greater than ten percent
(10%) beneficial owners are required by SEC regulations to furnish the Company
with copies of all Section 16(a) forms they file.
Based solely on a review of the copies of such forms furnished to the
Company and written representations from the executive officers, directors and
holders of 10% or more of the Company's Common Stock, the Company believes that
all Section 16(a) filing requirements applicable to its executive officers,
directors and 10% beneficial owners were complied with.
-5-
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the cash and noncash compensation for
fiscal years 1994, 1995 and 1996 awarded to or earned by (i) the individual who
served as the Company's Chief Executive Officer ("CEO") in fiscal year 1996; and
(ii) the Company's four most highly compensated executive officers, other than
the CEO, who were serving as executive officers for fiscal year 1996. No other
executive officer had compensation in excess of $100,000 for fiscal year 1996:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
ANNUAL LONG TERM
COMPENSATION COMPENSATION
------------------ ------------
SALARY BONUS OPTIONS
NAME AND PRINCIPAL POSITIONS FISCAL YEAR ($) (1) ($) (2) (#)
- ---------------------------- ----------- -------- -------- ------------
<S> <C> <C> <C> <C>
John M. Fox.......................................... 1996 $148,223 $ 80,113 13,000*
President and CEO.................................. 1995 $140,510 $ 43,350 -
1994 $109,516 $ 36,786 -
Brian T. O'Neill..................................... 1996 $150,834 $ 80,113 13,000*
Senior Vice President and Chief Operating Officer.. 1995 $142,191 $ 43,350 4,580
1994 $117,338 $ 36,786 -
Arthur J. Denney..................................... 1996 $134,075 $ 71,374 13,000*
Vice President of Engineering and Business......... 1995 $127,179 $ 39,235 6,331
Development......................................... 1994 $109,515 $ 34,333 -
Robert F. Garvin..................................... 1996 $ 90,071 $ 47,609 5,008
Vice President of Exploration...................... 1995 $ 82,500 $ 17,242 4,580
1994 - - -
Rita E. Harvey (3)................................... 1996 $ 82,800 $ 39,615 4,000
Director of Finance and Treasurer.................. 1995 $ 71,667 $ 13,219 3,578
1994 $ 42,199 $ 9,092 -
</TABLE>
- ---------------------
* The 3,000 shares in excess of the 10,000 share per year limitation on
grants to individual employees under the Stock Incentive Plan are subject
to stockholder approval of the amendments to the Stock Incentive Plan to be
voted on at the Company's Annual Meeting of stockholders. See "Proposal to
Approve Amendments to the 1996 Stock Incentive Plan." Excludes shares
underlying options issued as replacement options for options to purchase
equity interests in the Company's predecessor.
(1) Includes actual salary paid in each respective fiscal year.
(2) Includes actual bonus paid in each respective fiscal year. In fiscal year
1996, this amount includes bonuses paid for performance in fiscal years
1996 and 1995.
(3) Ms. Harvey resigned as the Company's Director of Finance and Treasurer in
April 1997.
-6-
<PAGE>
OPTION GRANTS IN FISCAL 1996
<TABLE>
<CAPTION>
NUMBER OF SECURITIES PERCENT OF TOTAL OPTIONS EXERCISE
UNDERLYING OPTIONS GRANTED TO EMPLOYEES PRICE EXPIRATION
NAME GRANTED (#) IN FISCAL 1996 ($/SH) DATE
- ---- ------------------ ------------------------ -------- ---------------
<S> <C> <C> <C> <C>
John M. Fox..................... 13,000 9.7% $ 11.00 October 9, 2001
Brian T. O'Neill................ 13,000 9.7 10.00 October 9, 2006
Arthur J. Denney................ 13,000 9.7 10.00 October 9, 2006
Robert F. Garvin................ 4,000 3.0 10.00 October 9, 2006
Robert F. Garvin................ 1,008 .7 7.86 June 2, 2006
Rita E. Harvey.................. 4,000 3.0 10.00 October 9, 2006
</TABLE>
Option Values. The following table summarizes the value of the
options held at the end of fiscal year 1996 by the Named Executive Officers.
None of the Named Executive Officers exercised any options during fiscal year
1996.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT END OF FISCAL 1996 (#) AT END OF FISCAL 1996 ($) (1)
--------------------------------- -----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
John M. Fox........................ 5,724 14,431 $44,702 $ 69,676
Brian T. O'Neill................... 6,640 18,095 $56,506 $114,858
Arthur J. Denney................... 5,390 19,095 $45,852 $123,385
Robert F. Garvin................... 916 8,672 $ 7,795 $ 60,881
Rita E. Harvey..................... 716 6,862 $ 6,093 $ 46,359
</TABLE>
- ------------------
(1) Value based on the difference between the closing price of the Company's
Common Stock as reported by the Nasdaq National Market on December 31, 1996
and the option exercise price per share multiplied by the number of shares
subject to the option.
In addition to annual salary, executive officers and other employees
of the Company also receive compensation pursuant to the Stock Incentive Plan
and the Incentive Compensation Plan.
The Incentive Compensation Plan provides for cash incentive awards to
executives and employees of the Company in varying amounts, and is administered
by the Compensation Committee of the Company's Board of Directors. The Incentive
Compensation Plan was effective as of January 1, 1996. Certain bonus payments
were made under the Incentive Compensation Plan in May 1996. The Incentive
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 the year in question. Profit sharing
payments under the Incentive Compensation Plan are paid annually; incentive
payments under the Incentive Compensation Plan are paid periodically throughout
the year. The purpose of the Incentive 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 fiscal year 1996, the Company made profit sharing payments
under the Incentive Compensation Plan of approximately $299,000 and incentive
compensation payments of approximately $702,000.
-7-
<PAGE>
A summary of the Stock Incentive Plan is provided under the heading
"Proposal to Approve Amendments to the 1996 Stock Incentive Plan."
COMPENSATION OF DIRECTORS
Directors who are employees of the Company receive no compensation, as
such, for services as members of the Board. Effective December 1996, all
directors who are not employees of the Company receive an attendance fee of
$1,500 for each board meeting or committee meeting attended in person by that
director and $500 for each board meeting or committee meeting in which such
director participates by telephone. All directors are reimbursed for out-of-
pocket expenses incurred while attending board and committee meetings. In
addition, pursuant to the Company's 1996 Non-Employee Director Stock Option Plan
(the "Non-Employee Director Plan"), each non-employee director received options
to purchase 500 shares of Common Stock at the time of approval of the Non-
Employee Director Plan by the Board of Directors in July 1996 and is entitled to
receive options to purchase an additional 500 shares of Common Stock on the day
after each annual meeting of the Company's stockholders. At the Company's Annual
Meeting of stockholders, the stockholders will vote on a proposal to amend the
Non-Employee Director Plan to (i) increase the initial grant to newly-appointed,
non-employee directors from options to purchase 500 shares of Common Stock to
options to purchase 1,000 shares of Common Stock, and (ii) provide for a
retroactive grant of options, effective as of the approval of the Non-Employee
Director Plan by the Board of Directors on July 31, 1996, to purchase 500 shares
of Common Stock under the Non-Employee Director Plan, with an exercise price
equal to the initial public offering price of $10 per share, to each non-
employee director of the Company as of such date. See "Proposal to Approve
Amendments to the 1996 Non-Employee Director Stock Option Plan." As currently in
effect, the Non-Employee Director Plan provides for the initial grant of options
to purchase 500 shares of Common Stock to each newly-appointed, non-employee
director upon the date on which such person becomes a director of the Company.
Directors who are also employees of the Company do not receive any additional
stock incentive compensation for serving on the Board of Directors.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors is composed of
two of its three outside directors and is responsible for developing and
approving the Company's executive compensation policies. In addition, the
Compensation Committee determines on an annual basis the compensation to be paid
to the Chief Executive Officer and to each of the other executive officers of
the Company. The Compensation Committee has available to it an outside
compensation consultant and access to independent compensation data for other
companies. The overall objectives of the Company's executive compensation
program are to provide compensation that will attract and retain superior talent
and reward performance.
COMPENSATION PHILOSOPHY
The goals of the compensation program are to align compensation with
business objectives and performance, and to enable the Company to attract,
retain and reward executive officers whose contributions are critical to the
long-term success of the Company. The Company's executive compensation program
provides an overall level of compensation opportunity that is competitive with a
broad group of natural resources companies and a smaller group of energy-related
service companies comparable in size to the Company. Actual compensation levels
may be greater than competitive levels in surveyed companies based upon annual
and long-term Company performance, as well as individual performance. The
Compensation Committee uses its discretion to set executive compensation at
levels warranted in its judgment by the Company's or an individual executive
officer's circumstances.
The Company applies a consistent philosophy to compensation for all
employees, including senior management. This philosophy is based on the premise
that the achievements of the Company result
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from the coordinated efforts of all individuals working toward common
objectives. The Company strives to achieve those objectives through teamwork
that is focused on meeting the expectations of customers and stockholders.
Executive officers are rewarded based upon corporate performance and
individual performance. Corporate performance is evaluated by reviewing the
extent to which strategic and business plan goals are met, including such
factors as profitability, performance relative to competitors and consummation
of strategic acquisitions. Individual performance is evaluated by reviewing
organizational and management development progress against set objectives and
the degree to which teamwork and Company values are fostered.
COMPENSATION VEHICLES
The Company has had a successful history of using a simple total
compensation program that consists of cash- and equity-based compensation. The
components of the Company's compensation program for its executive officers
include (a) base salary, (b) performance-based cash bonuses, and (c) long-term
incentive compensation in the form of stock options and restricted stock awards.
Base Salary
The Chief Executive Officer makes annual recommendations regarding the
base salaries of the executive officers (other than the Chief Executive Officer)
to the Compensation Committee. For fiscal year 1996, base salaries for the
executive officers were intended to be on the average of fixed compensation
levels for comparable management personnel employed by peer companies of a
similar size to the Company. In making base salary recommendations, the Chief
Executive Officer also takes into account individual experience and performance,
and specific issues particular to the Company. The Compensation Committee
generally approves the Chief Executive Officer's recommendations with respect to
base salaries for other executive officers.
Performance-Based Bonuses
Under the Incentive Compensation Plan, bonuses are awarded only if the
Company achieves or exceeds certain corporate performance objectives relating to
net income as determined by the Board of Directors during the last quarter of
the prior year. The size of the fund available for such bonuses increases in
relation to the extent to which such objectives are exceeded. The Committee
allocates the fund among the executive officers and other key management
personnel based on a percentage of the executive's salary ranging from
approximately 0% to 70%, depending on the net income goals as established at the
beginning of the year. If the base performance criteria are met, each officer is
entitled to a base bonus amount equal to that percentage of the officer's base
salary. For fiscal year 1996, bonus payments available to executive officers
under the bonus plan, in addition to base salary, were targeted to be in the top
half of the salary and bonus levels, assuming superior performance, for
comparable management personnel employed by the Company's peer group.
During fiscal year 1996, the Company exceeded its net income goals set
forth in the Incentive Compensation Plan. As a result, executive officers
received bonuses under the plan at a 50% level.
Stock Option Program
Stock options and restricted stock awards are granted to key
management employees under the Stock Incentive Plan, which was approved by the
Company's stockholders in 1996. The objectives of the Stock Incentive Plan are
to align executive and stockholder long-term interests by creating a strong and
direct link between executive pay and stockholder return, and to enable
executives to develop and maintain a significant long-term ownership position in
the Company's Common Stock.
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The Stock Incentive Plan authorizes the Board of Directors or a
committee of outside directors to grant stock options, restricted stock and
other types of awards to key executives and key employees. To date, the only
type of awards granted to executive officers under the Stock Incentive Plan have
been stock options. All stock options outstanding were granted at an option
price at least equal to the fair market value of the Company's Common Stock on
the date of grant, generally have ten year terms and generally become
exercisable in installments over a five year period.
Stock options may be granted upon commencement of employment based on
the recommendation of the Chief Executive Officer. In determining whether to
recommend additional option grants to an executive officer, the Chief Executive
Officer typically considers the individual's performance and any planned change
in functional responsibility. Neither the profitability of the Company nor the
market value of its stock are considered in setting the amount of executive
officer stock option grants. The stock option position of executive officers is
reviewed on an annual basis. The Company's policy is to not grant stock options
annually, but to review each individual's stock option position, at which point
the Compensation Committee may or may not grant additional options in its
discretion. The determination of whether or not additional options will be
granted is based on a number of factors, including Company performance,
individual performance and levels of options granted at the competitive median
for the Company's peer group. Options to purchase an aggregate of 35,008 shares
of Common Stock were granted to four executive officers other than the Chief
Executive Officer in fiscal year 1996.
Savings and Profit-Sharing Plan; Benefits
The Company makes a matching contribution under the Company's 401(k)
Savings and Profit Sharing Plan. In addition, the Company provides medical and
other miscellaneous benefits to executive officers that are generally available
to Company employees. The amount of perquisites did not exceed 10% of total
annual salary and bonus for any executive officer during the fiscal year 1996.
CHIEF EXECUTIVE OFFICER COMPENSATION
Base Salary
The base salary of the Chief Executive Officer is established by and
is subject to adjustment by the Compensation Committee. For fiscal year 1996,
the Chief Executive Officer's base salary was intended to be at approximately
the 50th percentile of the base salaries for chief executive officers of the
Company's peer group. Other factors taken into consideration in the
determination of the Chief Executive Officer's base salary include historical
compensation practices at the Company and the general experience of the
Compensation Committee members in dealing with compensation matters at other
service-related energy companies. In evaluating the performance and setting the
base salary of the Chief Executive Officer, the Compensation Committee has taken
into account the Company's financial performance and Mr. Fox's individual
performance. Mr. Fox's base salary in fiscal year 1996 was $150,834. As a result
of the Company's performance in fiscal year 1996, Mr. Fox received an increase
in his base salary for fiscal year 1997 to $155,359.
Bonuses and Stock Option Awards
Because the Company exceeded its net income goals set forth in the
Incentive Compensation Plan, Mr. Fox received a bonus equal to $75,417 for
fiscal year 1996. During fiscal year 1996, he was granted options to purchase
13,000 shares of Common Stock to provide him with additional incentive to
increase stockholder value through long-term growth of the Company. Mr. Fox has
not been granted any restricted stock under the Stock Incentive Plan to date.
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DEDUCTIBILITY OF EXECUTIVE COMPENSATION
Section 162(m) of the Internal Revenue Code generally disallows a tax
deduction for compensation in excess of $1 million paid to the Company's Chief
Executive Officer and certain other highly-compensated executive officers.
Qualifying "performance-based" compensation will not be subject to the deduction
limit if certain requirements are met. The Company anticipates that incentive-
based compensation paid in excess of $1 million will be deductible under Section
162(m). The Compensation Committee believes, however, that there may be
circumstances in which the Company's interests are best served by providing
compensation that is not fully deductible under Section 162(m), and reserves the
ability to exercise discretion to authorize such compensation.
COMPENSATION COMMITTEE
Norman H. Foster
David R. Whitney
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PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return
on the Company's Common Stock for the period from October 9, 1996 (the date the
Company's Common Stock became publicly traded) through December 31, 1996 with
the cumulative total return on the Nasdaq Composite Index and an index of peer
companies constructed by the Company. Included in the peer group are Aquila Gas
Pipeline Corporation, KN Energy, Inc., Western Gas Resources, Inc., TPC
Corporation, Tejas Gas Corporation and NGC Corporation. Each company in the
peer group is publicly-traded and generates a significant portion of its total
revenue from the gathering, processing and marketing of NGLs.
TOTAL RETURN ANALYSIS
10/9/96 10/31/96 11/29/96 12/31/96
-------- -------- -------- --------
MarkWest Hydrocarbon, Inc $ 100.00 $ 98.81 $ 116.67 $ 147.62
Peer Group $ 100.00 $ 108.66 $ 123.99 $ 130.54
Nasdaq Composite (US) $ 100.00 $ 98.68 $ 104.44 $ 104.34
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding
beneficial ownership of the Company's Common Stock as of March 31, 1997 (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.
BENEFICIAL OWNERSHIP (1)
---------------------------
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT
OWNERSHIP OF CLASS
---------- --------
NAME OF BENEFICIAL OWNER
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MWHC Holding, Inc. (2)................ 3,806,084 44.5%
FMR Corp. (3)......................... 507,000 5.9
Skyline Asset Management, L.P. (4).... 458,800 5.4
John M. Fox (5)....................... 4,071,092 47.9
Brian T. O'Neill (6).................. 494,046 5.8
Arthur J. Denney...................... 67,344 *
David R. Whitney (7).................. 200,375 2.3
Barry W. Spector...................... 5,699 *
Norman H. Foster...................... 0 *
All directors and executive officers
as a group (8 persons) (5)(6)....... 4,848,239 56.5%
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* Represents less than 1% of the outstanding shares.
(1) All percentages have been determined at March 31, 1997 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 March
31, 1997. 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 March 31, 1997 is deemed to be outstanding for the purpose of
computing the percentage ownership of such person or group, but is not
deemed to be outstanding for the purpose of computing the percentage
ownership of any other person or group. At March 31, 1997, a total of
8,485,000 shares of Common Stock were issued and outstanding and options to
acquire a total of 77,860 shares of Common Stock were exercisable within
sixty days.
(2) MWHC Holding, Inc. is an entity controlled by John M. Fox.
(3) Information is based solely on a Schedule 13G filed with the Securities and
Exchange Commission by FMR Corp. ("FMR") with respect to shares held as of
December 31, 1996. The Schedule 13G indicates that Fidelity Management &
Research Company, a registered investment adviser and a wholly-owned
subsidiary of FMR, beneficially owns 266,600 shares and Fidelity Management
Trust Company, a bank and a wholly-
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owned subsidiary of FMR, owns 240,400 shares. According to the Schedule
13G, FMR has sole voting power with respect to 240,400 shares and sole
dispositive power with respect to 507,000 shares.
(4) Information is based solely on a Schedule 13G filed with the Securities and
Exchange Commission by Skyline Asset Management, L.P. ("Skyline"), a
registered investment adviser, with respect to shares held as of December
31, 1996. The Schedule 13G indicates that the shares reported are owned by
clients of Skyline and that Skyline has shared voting power and shared
dispositive power with respect to 458,800 shares.
(5) 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 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.
(6) Includes all shares owned directly by Erin Investments, Inc., an entity
controlled by Mr. O'Neill. As a result of Mr. O'Neill's control of Erin
Investments, Inc., 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 Investments,
Inc. Mr. O'Neill disclaims "beneficial ownership" of these shares within
the meaning of Rule 13d-3 under the Exchange Act.
(7) 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 within the meaning of Rule 13d-3 under the Exchange Act. Mr. Whitney
disclaims "beneficial ownership" of these shares within the meaning of Rule
13d-3 under the Exchange Act.
CERTAIN TRANSACTIONS
REORGANIZATION
The Company's business historically was conducted by MarkWest
Hydrocarbon Partners, Ltd. ("MarkWest Partnership"). Concurrently with the
effectiveness of its initial public offering in October 1996, the Company
acquired from the partners of MarkWest Partnership all of the partnership
interests in MarkWest Partnership in exchange for shares of the Company 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 acquisition of MarkWest
Partnership by the Company, MarkWest Partnership was dissolved and the Company
succeeded to the business, assets and liabilities of MarkWest Partnership. The
Company believes that the transactions contemplated by the Reorganization
Agreement (the "Reorganization") qualified as a tax-free reorganization for
United States federal income tax purposes.
Pursuant to the Reorganization, the partners of MarkWest received an
aggregate of 5,725,000 shares of the Company's Common Stock. Pursuant to the
terms of the Reorganization Agreement, each partner of MarkWest Partnership
received a fully diluted percentage of the Company's Common Stock
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outstanding immediately after consummation of the Reorganization (calculated
prior to the issuance of the shares of Common Stock issued in the Company's
initial public offering) substantially equivalent to such partners' interests in
MarkWest Partnership.
Immediately prior to the consummation of the Reorganization, MarkWest
Partnership had 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 were replaced by options to purchase
shares of the Company's Common Stock issuable pursuant to the Stock Incentive
Plan. Such options are subject to all of the terms and conditions of the Stock
Incentive Plan.
PARTNERSHIP DISTRIBUTIONS
Immediately prior to consummation of the Reorganization, MarkWest
Partnership made cash distributions to its partners equal to $10 million as a
partial distribution of partnership capital. Such distribution was distributed
pro rata to partners of MarkWest Partnership based upon such partners'
percentage interests in the partnership at the time of the distribution.
MarkWest Partnership borrowed the money necessary to make such distribution
under its bank credit facility. As MarkWest Partnership's successor, the Company
became obligated for such indebtedness, which was repaid out of the proceeds of
the Company's initial public offering.
MarkWest Partnership was a partnership for purposes of federal income
taxes. As a result, the net income of MarkWest Partnership was taxed for federal
and state income tax purposes directly to the partners of MarkWest Partnership
rather than to MarkWest Partnership. MarkWest Partnership distributed to its
partners an aggregate of $4.1 million in 1996 for partner income tax
liabilities. MWHC Holding, Inc., a Colorado corporation (the "MarkWest General
Partner"), and Erin Partners, Ltd. received 73% and 15% of such distributions,
respectively, during the 1996 fiscal year. The MarkWest General Partner is
controlled by John M. Fox, President and Chief Executive Officer of the Company.
Erin Partners, Ltd. (which has since been dissolved) was controlled by Brian T.
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. The general partner of MAK-J Energy is a corporation owned and
controlled by John M. 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 year 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 December 31, 1996, MarkWest had invested $4.3
million in E&P Assets owned jointly with MAK-J Energy.
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
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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.
In December 1996, the Company and MAK-J Energy each purchased a 22.5%
interest in a geological prospect (the "Prospect") for oil and gas that had
previously been owned 50% by Methane Resources, LLC ("Methane Resources") and
50% by Norman H. Foster, a director of the Company, for a price of approximately
$54,000 each. Methane Resources and Dr. Foster commenced purchases of the
various properties that constitute the Prospect in December 1995. The aggregate
purchase price paid by Methane Resources and Dr. Foster for the properties that
constitute the Prospect was approximately $84,000. The Company's purchase of an
interest in the Prospect was unanimously approved by the independent and
disinterested directors of the Company. The purchase price paid by the Company
for its interest in the Prospect was negotiated on an arm's length basis and
management believes that the terms of the purchase were as favorable to the
Company as could have been obtained from unaffiliated third parties.
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.
LEGAL FEES PAID TO DIRECTOR
Barry W. Spector, a director of the Company, periodically provides
legal services to the Company. During 1996, the Company paid Mr. Spector legal
fees of approximately $65,000 in return for such services.
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RELATED PARTY INDEBTEDNESS
MarkWest Partnership periodically extended offers to partners and
employees to purchase initial or additional interests in MarkWest Partnership.
Such partners and/or employees provided MarkWest Partnership with promissory
notes as part of the purchase price for such interests. According to the terms
of such promissory notes, interest accrued at 7% and payments were required for
the greater of accrued interest or distributions made by MarkWest Partnership to
partners in excess of the partner's income tax liability. As part of the
Reorganization, the remaining indebtedness under such promissory notes was
replaced by promissory notes owed to the Company. The notes owed to the Company
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. An aggregate of $376,000 principal amount of such notes was
outstanding as of December 31, 1996.
PROPOSAL TO APPROVE AMENDMENTS
TO THE 1996 STOCK INCENTIVE PLAN
On April 3, 1997, the Board of Directors approved amendments to the
Stock Incentive Plan, subject to stockholder approval, to (i) increase the
maximum number of shares of Common Stock underlying awards that may be granted
to an eligible person who is an employee of the Company at the time of grant
from 10,000 shares in any one calendar year to 20,000 shares in any one calendar
year and (ii) increase the number of shares of Common Stock authorized for
issuance under the Stock Incentive Plan from 600,000 shares in the aggregate to
850,000 shares in the aggregate.
The Company continues to recruit key personnel and believes that stock
options or other grants under the Stock Incentive Plan are an important element
in attracting highly skilled and qualified individuals. The Board of Directors
believes that increasing the maximum number of shares of Common Stock that may
be granted to an eligible person in a calendar year and authorizing the issuance
of additional shares of Common Stock under the Stock Incentive Plan would assist
the Company in meeting the competitive demands of attracting and retaining a
productive work force. Therefore, the Board of Directors believes that it is
desirable to amend the Stock Incentive Plan as set forth above. A description of
the Stock Incentive Plan as currently in effect is set forth below.
1996 STOCK INCENTIVE PLAN
The Stock Incentive Plan was adopted in 1996. As currently in effect,
the maximum number of shares authorized to be issued under the Stock Incentive
Plan is 600,000 shares of Common Stock and the maximum number of shares
underlying awards that may be granted to an individual employee in a calendar
year is 10,000 shares of Common Stock. As of December 31, 1996, an aggregate of
approximately 326,251 shares of Common Stock had been reserved for issuance
under the Stock Incentive Plan and options to purchase an aggregate of 273,749
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 ten
years. 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
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as well as to assist in attracting new executive officers and key employees.
Non-employee directors are not eligible to receive grants under the Stock
Incentive Plan.
The Stock Incentive Plan is administered by the Compensation Committee,
which has the sole and complete authority to select the employees (including
executive officers) who will receive options under the Stock Incentive Plan. The
Compensation Committee has the authority to determine the number of stock
options to be granted to eligible individuals, whether the options will be ISOs
or NQSOs and the terms and conditions of the options (which may vary from
grantee to grantee). The Compensation Committee determines the period for which
each stock option may be exercisable, but in no event may a stock option be
exercisable more than three years from the date the option becomes vested. The
number of shares available under the Stock Incentive Plan and the exercise price
of the options granted thereunder are subject to adjustment by the Compensation
Committee to reflect stock splits, stock dividends, recapitalization, mergers,
or other major corporate actions.
The Compensation Committee also has the authority under the Stock
Incentive Plan to grant Stock Appreciation Rights (''SARs'') to employees. SARs
confer on the holder a right to receive, upon exercise, the excess of the Fair
Market Value of one Share on the date of exercise over the grant price of the
SAR as specified by the Committee, which price may not be less than 100% of the
Fair Market Value of one Share on the date of grant of the SAR. The grant price,
term, methods of exercise, dates of exercise, methods of settlement and any
other terms and conditions of any SAR are determined by the Committee.
The Board of Directors may discontinue, amend, or suspend the Stock
Incentive Plan in a manner consistent with the Stock Incentive Plan's
provisions, provided such changes do not violate the federal or state securities
laws.
THE AFFIRMATIVE VOTE OF A MAJORITY OF THE SHARES OF COMMON STOCK
ENTITLED TO VOTE AND PRESENT IN PERSON OR BY PROXY AT THE ANNUAL MEETING WILL BE
NECESSARY FOR APPROVAL OF THE AMENDMENTS TO THE STOCK INCENTIVE PLAN. THE BOARD
OF DIRECTORS RECOMMENDS A VOTE FOR THE ABOVE PROPOSAL TO INCREASE THE MAXIMUM
NUMBER OF SHARES OF COMMON STOCK UNDERLYING AWARDS THAT MAY BE GRANTED TO AN
ELIGIBLE PERSON WHO IS AN EMPLOYEE OF THE COMPANY AT THE TIME OF GRANT UNDER THE
STOCK INCENTIVE PLAN AND THE NUMBER OF SHARES OF THE COMPANY'S COMMON STOCK
WHICH ARE AUTHORIZED FOR ISSUANCE UNDER THE STOCK INCENTIVE PLAN.
PROPOSAL TO APPROVE AMENDMENTS TO
THE 1996 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
On April 3, 1997, the board of Directors approved amendments to the
Non-Employee Director Plan, subject to stockholder approval, to (i) increase
the initial grant under the Non-Employee Director Plan to a newly-appointed,
non-employee director of the Company upon the date on which such person first
becomes a director from options to purchase 500 shares of Common Stock to
options to purchase 1,000 shares of Common Stock, and (ii) provide for a
retroactive grant of options, effective as of the approval of the Non-Employee
Director Plan by the Board of Directors on July 31, 1996, to purchase 500 shares
of Common Stock under the Non-Employee Director Plan, with an exercise price
equal to the initial public offering price of $10 per share, to each non-
employee director of the Company as of such date.
The Board of Directors believes that increasing the size of the initial
grant to newly-appointed, non-employee directors under the Non-Employee Director
Plan would assist the Company in attracting qualified individuals to serve as
directors of the Company, and that retroactively increasing the initial grant to
the original non-employee directors of the Company to equal the initial grant to
be awarded to newly-appointed, non-employee directors would assist the Company
in retaining such individuals. Therefore, the Board of Directors believes that
is desirable to amend the Non-Employee
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<PAGE>
Director Plan as set forth above. A description of the Non-Employee Director
Plan as currently in effect is set forth below.
1996 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
In July 1996, the Company adopted the Non-Employee Director Plan, which
has a five-year term. As currently in effect, the Non-Employee Director Plan
provides for an initial automatic grant of NQSOs to purchase 500 shares of
Common Stock to each newly-appointed, non-employee director of the Company upon
the date on which such person becomes a director of the Company, and an
automatic grant to each non-employee director of the Company of options to
purchase an additional 500 shares of Common Stock on the day after each annual
meeting of the Company's stockholders. In addition, the non-employee directors
of the Company at the time of approval of the Non-Employee Director Plan by the
Board of Directors in July 1996 received a grant of options to purchase 500
shares of Common Stock at such time. The exercise price for each option issued
under the Non-Employee Director Plan 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, in the event of the death of the holder, the holder's estate or
heir shall, in addition, be entitled to exercise any options that would have
vested within six months of the holder's death. 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, in the event of the death of the holder, the holder's
estate or heir shall, in addition, be entitled to exercise any options that
would have vested within six months of the holder's death. The Company has
reserved 20,000 shares of Common Stock for issuance under the Non-Employee
Director Plan.
THE AFFIRMATIVE VOTE OF A MAJORITY OF THE SHARES OF COMMON STOCK
ENTITLED TO VOTE AND PRESENT IN PERSON OR BY PROXY AT THE ANNUAL MEETING WILL BE
NECESSARY FOR APPROVAL OF THE AMENDMENTS TO THE NON-EMPLOYEE DIRECTOR PLAN. THE
BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ABOVE PROPOSAL TO INCREASE THE
INITIAL GRANT TO NEWLY-APPOINTED, NON-EMPLOYEE DIRECTORS UNDER THE NON-EMPLOYEE
DIRECTOR PLAN AND PROVIDE FOR A RETROACTIVE GRANT, EFFECTIVE AS OF THE
CONSUMMATION OF THE COMPANY'S INITIAL PUBLIC OFFERING, TO THE NON-EMPLOYEE
DIRECTORS OF THE COMPANY AS OF SUCH DATE.
RATIFICATION OF INDEPENDENT ACCOUNTANTS
The Board of Directors has appointed Price Waterhouse LLP as the
Company's independent accountants for the year ending December 31, 1997 and
recommends that the stockholders ratify that appointment. Price Waterhouse LLP
has no relationship with the Company other than that arising from its engagement
as independent accountants. Representatives of Price Waterhouse LLP will be
present at the 1997 Annual Meeting. They will have an opportunity to make a
statement if they desire to do so and will be available to respond to
appropriate questions from stockholders. The affirmative vote of a majority of
the outstanding shares of the Company's Common Stock represented at the 1997
Annual Meeting is required to ratify this appointment.
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<PAGE>
PROPOSALS FOR THE NEXT ANNUAL MEETING
Any proposal by a stockholder to be presented at the next annual
meeting must be received at the Company's principal executive offices, 5613 DTC
Parkway, Suite 400, Englewood, Colorado 80111, not later than December 12, 1997.
By Order of the Board of Directors,
Brian T. O'Neill
Secretary
Dated: April 30, 1997
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<PAGE>
Exhibit A
MARKWEST HYDROCARBON, INC.
1996 STOCK INCENTIVE PLAN
(as amended)
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 time to time.
-2-
<PAGE>
(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.
(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
-3-
<PAGE>
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
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
850,000. 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
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<PAGE>
the date of grant of such Award against the aggregate number of Shares available
for granting Awards under the Plan.
(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 an
--------------------------------
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 20,000
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
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<PAGE>
performance-based compensation" within the meaning of Section 162(m) of the
Code.
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
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<PAGE>
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.
(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
-7-
<PAGE>
(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, 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
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<PAGE>
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 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
-9-
<PAGE>
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 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
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<PAGE>
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 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
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<PAGE>
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
employment free from any liability or any claim under the Plan, unless otherwise
expressly provided in the Plan or in any Award Agreement.
(e) Governing Law. The validity, construction and effect of the
-------------
Plan or any Award, and any rules and regulations relating to the Plan or any
Award, shall be determined in accordance with the laws of the State of Colorado.
(f) Severability. If any provision of the Plan or any Award is or
------------
becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction
or would disqualify the Plan or any Award under any law deemed applicable by the
Committee, such provision shall be construed or deemed amended to conform to
applicable laws, or if it cannot be so construed or deemed amended without, in
the determination of the Committee, materially altering the purpose or intent of
the Plan or the Award, such provision shall be stricken as to such jurisdiction
or Award, and the remainder of the Plan or any such Award shall remain in full
force and effect.
(g) No Trust or Fund Created. Neither the Plan nor any Award shall
------------------------
create or be construed to create a trust or separate fund of any kind or a
fiduciary relationship between the Company or any Affiliate and a Participant or
any other Person. To the extent that any Person acquires a right to receive
payments from the Company or any Affiliate pursuant to an Award, such right
shall be no greater than the right of any unsecured general creditor of the
Company or any Affiliate.
(h) No Fractional Shares. No fractional Shares shall be issued or
--------------------
delivered pursuant to the Plan or any Award, and the Committee shall determine
whether cash shall be paid in lieu of any fractional Shares or whether such
fractional Shares or any rights thereto shall be canceled, terminated or
otherwise eliminated.
(i) Headings. Headings are given to the Sections and subsections
--------
of the Plan solely as a convenience to facilitate reference. Such headings shall
not be deemed in any way material or relevant to the construction or
interpretation of the Plan or any provision thereof.
Section 10. Effective Date of the Plan.
--------------------------
The Plan shall be effective as of the Effective Date, subject to
approval by the stockholders of the Company within one year thereafter.
-12-
<PAGE>
Section 11. Term of the Plan.
----------------
Unless the Plan shall have been discontinued or terminated as provided
in Section 7(a), the Plan shall terminate on the tenth anniversary of the
Effective Date. No Award shall be granted after the termination of the Plan.
However, unless otherwise expressly provided in the Plan or in an applicable
Award Agreement, any Award theretofore granted may extend beyond the termination
of the Plan, and the authority of the Committee provided for hereunder with
respect to the Plan and any Awards, and the authority of the Board of Directors
of the Company to amend the Plan, shall extend beyond the termination of the
Plan.
-13-
<PAGE>
Exhibit B
MARKWEST HYDROCARBON, INC.
1996 NONEMPLOYEE DIRECTOR STOCK OPTION PLAN
(as amended)
SECTION 1. PURPOSE OF THE PLAN. The purpose of this MarkWest
-------------------
Hydrocarbon, Inc. 1996 Nonemployee Director Stock Option Plan is to promote
the interests of the Company by enhancing its ability to attract and retain
the services of experienced and knowledgeable independent directors and by
providing additional incentive for these directors to increase their
interest in the Company's long-term success and progress. None of the
options granted hereunder shall be "incentive stock options" within the
meaning of Section 422 of the Code (as hereinafter defined).
SECTION 2. DEFINITIONS. As used herein, the following definitions
-----------
shall apply:
(a) "Board" shall mean the Board of Directors of the Company.
-----
(b) "Code" shall mean the Internal Revenue Code of 1986, as
----
amended.
(c) "Committee" shall mean a committee of two or more persons
---------
appointed by the Board of Directors of the Company.
(d) "Common Stock" shall mean the Common Stock, $.01 par value,
------------
of the Company.
(e) "Company" shall mean MarkWest Hydrocarbon, Inc., a Delaware
-------
corporation.
(f) "Continuous Status as a Director" shall mean the absence of
-------------------------------
any interruption or termination of service as a Director.
(g) "Director" shall mean a member of the Board.
--------
(h) "Employee" shall mean any person, including officers and
--------
Directors, employed by the Company or any parent or Subsidiary of the
Company. The payment of a Director's fee by the Company shall not be
sufficient in and of itself to constitute "employment" by the Company.
(i) "Exchange Act" shall mean the Securities Exchange Act of
------------
1934, as amended.
<PAGE>
(j) "Fair Market Value" the Fair Market Value of a Share shall be
-----------------
determined by the Committee in its discretion; provided, however, that
-------- -------
where there is a public market for the Common Stock, the fair market value
per Share shall be the closing price of the Common Stock in the over-the-
counter market on the date of grant, as reported in The Wall Street Journal
-----------------------
(or, if not so reported, as otherwise reported by the National Association
of Securities Dealers Automated Quotation ("NASDAQ") System or, in the
event the Common Stock is traded on the NASDAQ National Market System or
listed on a stock exchange, the fair market value per Share shall be the
closing price on such system or exchange on the date of grant of the
Option, as reported in The Wall Street Journal).
-----------------------
(k) "Option" shall mean a stock option granted pursuant to the Plan.
------
(l) "Optioned Stock" shall mean the Common Stock subject to an Option.
--------------
(m) "Optionee" shall mean an Outside Director who receives an Option.
--------
(n) "Outside Director" shall mean a Director who is not an Employee.
----------------
(o) "Parent" shall mean a "parent corporation," whether now or
------
hereafter existing, as defined in Section 425(e) of the Code.
(p) "Plan" shall mean this 1996 Nonemployee Director Stock Option Plan.
----
(q) "Shares" shall mean shares of the Common Stock, as adjusted in
------
accordance with Section 10 of the Plan.
(r) "Subsidiary" shall mean a "subsidiary corporation," whether now or
----------
hereafter existing, as defined in Section 425(f) of the Code.
SECTION 3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of
-------------------------
Section 10 of the Plan, the maximum aggregate number of Shares which may be
optioned and sold under the Plan is 20,000 Shares of Common Stock. The Shares
may be authorized but unissued shares of Common Stock or shares of Common Stock
which have been reacquired by the Company. If an Option should expire or become
unexercisable for any reason without having been exercised in full, the
unpurchased Shares which were subject thereto shall, unless the Plan shall have
been terminated, become available for future grant under the Plan. If Shares
which were acquired
-2-
<PAGE>
upon exercise of an Option are subsequently repurchased by the Company, such
Shares shall not in any event be returned to the Plan and shall not become
available for future grant under the Plan.
SECTION 4. ADMINISTRATION OF AND GRANTS OF OPTIONS UNDER THE PLAN.
------------------------------------------------------
(a) Administrator. Except as otherwise required herein, the
-------------
Plan shall be administered by the Committee.
(b) Procedure for Grants. The provisions set forth in this
--------------------
Section 4(b) shall not be amended more than once every six months,
other than to comport with changes in the Code, the Employee Retirement
Income Security Act of 1974, as amended, or the rules thereunder. All
grants of Options hereunder shall be automatic and nondiscretionary and
shall be made strictly in accordance with the following provisions:
(i) No person shall have any discretion to select which
Outside Directors shall be granted Options or to determine the
number of Shares to be covered by Options granted to Outside
Directors; provided, however, that any individual Outside
-------- -------
Director may decline to accept any Option, in whole or in part,
that would otherwise be granted to such Outside Director under
this Plan.
(ii) Norman H. Foster, Barry W. Spector and David R. Whitney
shall each receive an Option to purchase 1,000 Shares on the date
the Plan is approved by the Board of Directors, and such Options
granted pursuant to this section 4(b)(ii) shall become
exercisable in three equal annual installments with the first
one-third installment vesting on the first anniversary of the
date of grant and the two remaining one-third installments
vesting on the second and third anniversary of the date of grant,
respectively.
(iii) Each new Outside Director shall be automatically granted
an Option (an "Initial Grant") to purchase 1,000 Shares upon the
date on which such person first becomes a Director, whether
through election by the shareholders of the Company or
appointment by the Board of Directors to fill a vacancy. Options
granted under this section 4(b)(iii) shall become exercisable in
three equal annual installments with the first one-third
installment vesting on the first anniversary of the date of the
Initial Grant and the two remaining one-third installments
vesting on the second and third anniversary of the Initial Grant,
respectively.
-3-
<PAGE>
(iv) Each Outside Director shall automatically receive, on the
date of each Annual Meeting of Stockholders, beginning with the Annual
Meeting of Stockholders held in 1997, an Option to purchase 500 Shares
of the Company's Common Stock, such Option to become exercisable one
year subsequent to the date of grant; provided, however, that such
-------- -------
Option shall only be granted to Outside Directors who have served
since the date of the last Annual Meeting of Stockholders and will
continue to serve after the date of grant of such Option.
(v) The terms of an Option granted hereunder shall be as
follows:
(A) the term of the Option shall be three years.
(B) the exercise price per Share shall be 100% of the Fair
Market Value per Share on the date of grant of the Option.
(C) to the extent necessary to comply with the applicable
provisions of Rule 16b-3 promulgated under the Exchange Act
("Rule 16b-3"), no Option will be exercisable until a date more
than six months subsequent to the date of the grant of that
Option.
(c) Powers of the Committee. Subject to the provisions and
-----------------------
restrictions of the Plan, the Committee shall have the authority, in its
discretion: (i) to determine, upon review of relevant information and in
accordance with the Plan, the Fair Market Value of the Common Stock; (ii)
to determine the exercise price per share of Options to be granted, which
exercise price shall be determined in accordance with Section 7(a) of the
Plan; (iii) to interpret the Plan; (iv) to prescribe, amend and rescind
rules and regulations relating to the Plan; (v) to authorize any person to
execute on behalf of the Company any instrument required to effectuate the
grant of an Option previously granted hereunder; and (vi) to make all other
determinations deemed necessary or advisable for the administration of the
Plan.
(d) Effect of Committee's Decision. All decisions, determinations
------------------------------
and interpretations of the Committee shall be final and binding on all
Optionees and any other holders of any Options granted under the Plan.
SECTION 5. ELIGIBILITY. Options may be granted only to Outside
-----------
Directors. All Options shall be automatically granted in accordance with the
terms set forth in Section 4(b) hereof. The Plan shall not confer upon any
Optionee any right with respect to continuation of service as a Director or
nomination to serve as a Director,
-4-
<PAGE>
nor shall it interfere in any way with any rights which the Director or the
Company may have to terminate his or her directorship at any time.
SECTION 6. TERM OF PLAN. The Plan shall become effective upon the
------------
earlier of (i) its adoption by the Board or (ii) its approval by the
stockholders of the Company as described in Section 16 of the Plan. The Plan
shall continue in effect for a term of five years unless sooner terminated under
Section 12 of the Plan.
SECTION 7. EXERCISE PRICE AND CONSIDERATION.
--------------------------------
(a) Exercise Price. The per Share exercise price for the Shares to be
--------------
issued pursuant to exercise of an Option shall be 100% of the Fair Market
Value per Share on the date of grant of the Option.
(b) Form of Consideration. Subject to compliance with applicable
---------------------
provisions of Section 16(b) of the Exchange Act, (or other applicable law),
the consideration to be paid for the Shares to be issued upon exercise of
an Option, including the method of payment, shall be determined by the
Committee and may consist entirely of (i) cash, (ii) check, (iii) other
Shares which (X) in the case of Shares acquired upon exercise of an Option,
have been owned by the Optionee for more than six months on the date of
surrender, and (Y) have a Fair Market Value on the date of exercise equal
to the aggregate exercise price of the Shares as to which said Option shall
be exercised, (iv) authorization for the Company to retain from the total
number of Shares as to which the Option is exercised that number of Shares
having a Fair Market Value on the date of exercise equal to the exercise
price for the total number of Shares as to which the Option is exercised,
(v) delivery (including by facsimile) to the Company or its designated
agent of a properly executed irrevocable option exercise notice together
with irrevocable instructions to a broker-dealer to sell a sufficient
portion of the shares and deliver the sale proceeds directly to the Company
to pay for the exercise price, (vi) by delivering an irrevocable
subscription agreement for the Shares which irrevocably obligates the
option holder to take and pay for the Shares not more than twelve months
after the date of delivery of the subscription agreement, (vii) any
combination of the foregoing methods of payment or (viii) such other
consideration and method of payment for the issuance of Shares as may be
permitted under applicable laws. In making any determination as to the type
of consideration to accept, the Committee shall consider whether acceptance
of such consideration may be reasonably expected to benefit the Company.
SECTION 8. EXERCISE OF OPTION.
------------------
-5-
<PAGE>
(a) Procedure for Exercise; Rights as a Stockholder. Any Option
-----------------------------------------------
granted hereunder shall be exercisable at such times as are set forth in
Section 4(b) hereof; provided, however, that no Options shall be
-------- -------
exercisable until stockholder approval of the Plan in accordance with
Section 16 hereof has been obtained. An Option may not be exercised for a
fraction of a Share. An Option shall be deemed to be exercised when written
notice of such exercise has been given to the Company in accordance with
the terms of the Option by the person entitled to exercise the Option and
full payment for the Shares with respect to which the Option is exercised
has been received by the Company. Full payment may consist of any
consideration and method of payment allowable under Section 7(c) of the
Plan. Until the issuance (as evidenced by the appropriate entry on the
books of the Company or of a duly authorized transfer agent of the Company)
of the stock certificate evidencing such Shares, no right to vote or
receive dividends or any other rights as a stockholder shall exist with
respect to the Optioned Stock, notwithstanding the exercise of the Option.
A share certificate for the number of Shares so acquired shall be issued to
the Optionee as soon as practicable after exercise of the Option. No
adjustment will be made for a dividend or other right for which the record
date is prior to the date the stock certificate is issued, except as
provided in Section 10 of the Plan. Exercise of an Option in any manner
shall result in a decrease in the number of Shares which thereafter may be
available, both for purposes of the Plan and for sale under the Option, by
the number of Shares as to which the Option is exercised.
(b) Termination of Status as a Director. If an Outside Director ceases
-----------------------------------
to serve as a Director, such Outside Director may exercise his/her Option
to the extent that he/she was entitled to exercise such Option at the date
of such termination. To the extent that such Outside Director was not
entitled to exercise an Option at the date of such termination, or if such
Outside Director does not exercise such Option (which he/she was entitled
to exercise) within the time specified herein, the Option shall terminate.
(c) Disability of Optionee. Notwithstanding the provisions of Section
----------------------
8(b) above, in the event an Optionee is unable to continue service as a
Director with the Company as a result of such Optionee's total and
permanent disability (as defined in Section 22(e)(3) of the Code), such
Optionee may exercise his/her Option to the extent entitled to exercise
such Option at the date of such termination. To the extent that such
Optionee was not entitled to exercise the Option at the date of such
termination, or if such Optionee does not exercise such Option (which
he/she was entitled to exercise) within the time specified herein, the
Option shall terminate.
(d) Death of Optionee. Notwithstanding the provisions of Section 8(b)
-----------------
above, in the event of the death of an Optionee:
-6-
<PAGE>
(i) during the term of the Option who is at the time of
death a Director of the Company and who has been in Continuous
Status as a Director since the date of grant of the Option, the
Option may be exercised by the Optionee's estate or by a person
who acquired the right to exercise the Option by bequest or
inheritance, but only to the extent of the right to exercise that
would have accrued had the Optionee continued living and remained
in Continuous Status as a Director for six months after the date
of death; or
(ii) within 30 days after the termination of Continuous
Status as a Director, the Option may be exercised by the
Optionee's estate or by a person who acquired the right to
exercise the Option by bequest or inheritance, but only to the
extent of the right to exercise that had accrued at the date of
termination.
SECTION 9. NON-TRANSFERABILITY OF OPTIONS. The Option may not be
------------------------------
sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner
other than by will or by the laws of descent or distribution or pursuant to a
qualified domestic relations order as defined by the Code or Title I of the
Employee Retirement Income Security Act of 1974, as amended, or the rules
thereunder. The Option may be exercised, during the lifetime of the Optionee,
only by the Optionee.
SECTION 10. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION
-------------------------------------------------------
OR MERGER.
- ---------
(a) In the event that the number of outstanding shares of
Common Stock of the Company is changed by a stock dividend, stock
split, reverse stock split, combination, reclassification or similar
change in the capital structure of the Company without consideration,
the number of Shares available under this Plan and the number of
Shares subject to outstanding Options and the exercise price per share
of such Options shall be proportionately adjusted, subject to any
required action by the Board or stockholders of the Company and
compliance with applicable securities laws; provided, however, that no
-------- -------
certificate or scrip representing fractional shares shall be issued
upon exercise of any Option and any resulting fractions of a Share
shall be ignored. Such adjustment shall be made by the Board, whose
determination in that respect shall be final, binding and conclusive.
(b) In the event of a dissolution or liquidation of the Company,
a merger in which the Company is not the surviving corporation, a
transaction or series of related transactions in which 51% of the then
outstanding voting stock is sold or otherwise transferred (including
(i) a public announcement that any person has acquired or has the
right to acquire beneficial ownership
-7-
<PAGE>
of 51% or more of the then outstanding shares of Common Stock (for
this purpose, the terms "person" and "beneficial ownership" shall have
the meanings provided in Section 13(d) of the Exchange Act or related
rules promulgated by the Securities Exchange Commission) and (ii) the
commencement of or public announcement of an intention to make a
tender or exchange offer for 51% or more of the then outstanding
shares of the Common Stock) or the sale of substantially all of the
assets of the Company, any or all outstanding Options shall,
notwithstanding any contrary terms of the written agreement governing
such Option, accelerate and become exercisable in full at least ten
days prior to (and shall expire on) the consummation of such
dissolution, liquidation, merger or sale of stock or sale of assets on
such conditions as the Board shall determine unless the successor
corporation assumes the outstanding Options or substitutes
substantially equivalent options as determined by the Board. The
acceleration of the outstanding Options shall be conditioned on the
actual occurrence of such a dissolution, liquidation, merger or sale
of stock or assets.
SECTION 11. TIME OF GRANTING OPTIONS. The date of grant of an
------------------------
Option shall, for all purposes, be the date determined in accordance with
Section 4(b) hereof. Notice of the determination shall be given to each
Outside Director to whom an Option is so granted within a reasonable time
after the date of such grant.
SECTION 12. AMENDMENT AND TERMINATION OF THE PLAN.
-------------------------------------
(a) Amendment and Termination. The Board may at any time
-------------------------
amend, alter, suspend, or discontinue the Plan, but no amendment,
alteration, suspension, or discontinuance shall be made which would
impair the rights of any Optionee under any grant theretofore made,
without his or her consent. In addition, to the extent necessary and
desirable to comply with Rule 16b-3 (or any other applicable law or
regulation), the Company shall obtain stockholder approval of any Plan
amendment in such a manner and to such a degree as required.
(b) Effect of Amendment or Termination. Any such amendment or
----------------------------------
termination of the Plan shall not affect Options already granted and
such Options shall remain in full force and effect as if this Plan had
not been amended or terminated, unless mutually agreed otherwise
between the Optionee and the Board, which agreement must be in writing
and signed by the Optionee and the Company.
SECTION 13. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be
----------------------------------
issued pursuant to the exercise of an Option unless the exercise of such
Option and the issuance and delivery of such Shares pursuant thereto shall
comply with all relevant provisions of law, including, without limitation,
the Securities Act of 1933,
-8-
<PAGE>
as amended, the Exchange Act, the rules and regulations promulgated
thereunder, state securities laws, and the requirements of any stock
exchange upon which the Shares may then be listed or quoted, and shall be
further subject to the approval of counsel for the Company with respect to
such compliance. As a condition to the exercise of an Option, the Company
may require the person exercising such Option to represent and warrant at
the time of any such exercise that the Shares are being purchased only for
investment and without any present intention to sell or distribute such
Shares, if, in the opinion of counsel for the Company, such a
representation is required by any of the aforementioned relevant provisions
of law. Inability of the Company to obtain authority from any regulatory
body having jurisdiction, which authority is deemed by the Company's
counsel to be necessary to the lawful issuance and sale of any Shares
hereunder, shall relieve the Company of any liability in respect of the
failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.
SECTION 14. RESERVATION OF SHARES. The Company, during the term of
---------------------
this Plan, will at all times reserve and keep available such number of the
Shares available for issuance pursuant to this Plan as shall be sufficient
to satisfy the requirements of the Plan.
SECTION 15. OPTION AGREEMENT. Options shall be evidenced by written
----------------
option agreements in such form as the Board shall approve.
SECTION 16. STOCKHOLDER APPROVAL.
--------------------
(a) The Plan shall be subject to approval by the stockholders of
the Company within 12 months of its adoption by the Board. If such
stockholder approval is obtained at a duly held stockholders' meeting,
it may be obtained by the affirmative vote of the holders of a
majority of the outstanding shares of the Company present or
represented and entitled to vote thereon. If such stockholder approval
is obtained by written consent, it may be obtained by the written
consent of the holders of a majority of the outstanding shares of the
Company.
(b) Any required approval of the stockholders of the Company
shall be solicited substantially in accordance with Section 14(a) of
the Exchange Act and the rules and regulations promulgated thereunder.
SECTION 17. INFORMATION TO OPTIONEES. The Company shall provide to
------------------------
each Optionee, during the period for which such Optionee has one or more
Options outstanding, copies of all annual reports to stockholders, proxy
statements and other information provided to all stockholders of the
Company.
-9-
<PAGE>
PROXY
MARKWEST HYDROCARBON, INC.
5613 DTC PARKWAY, SUITE 400
ENGLEWOOD, COLORADO 80111
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned, having duly received the Notice of Annual Meeting and
Proxy Statement dated April 30, 1997, appoints Brian T. O'Neill and Arthur J.
Denney proxies (each with the power to act alone and with the power of
substitution and revocation), to represent the undersigned and to vote, as
designated below, all shares of Common Stock of Markwest Hydrocarbon, Inc. which
the undersigned is entitled to vote at the Annual Meeting of Stockholders of
Markwest Hydrocarbon, Inc. to be held on June 6, 1997 at the Hyatt Regency Tech
Center Hotel, 7800 East Tufts Avenue, Denver, Colorado 80237 at 10:00 a.m.,
M.D.T., and any adjournment thereof. Each of the matters set forth below has
been proposed by the Company.
1. ELECTION OF CLASS I DIRECTORS
[_] FOR Arthur J. Denney [_] WITHHOLD AUTHORITY to vote for
Arthur J. Denney
[_] FOR Norman H. Foster [_] WITHHOLD AUTHORITY to vote for
Norman H. Foster
2. PROPOSAL TO AMEND THE MARKWEST HYDROCARBON, INC. 1996 STOCK INCENTIVE
PLAN (THE "STOCK INCENTIVE PLAN") TO (i) INCREASE THE MAXIMUM NUMBER
OF SHARES OF COMMON STOCK UNDERLYING AWARDS THAT MAY BE GRANTED TO AN
ELIGIBLE PERSON WHO IS AN EMPLOYEE OF THE COMPANY AT THE TIME OF GRANT
FROM 10,000 SHARES IN ANY ONE CALENDAR YEAR TO 20,000 SHARES IN ANY
ONE CALENDAR YEAR, AND (ii) INCREASE THE NUMBER OF SHARES OF COMMON
STOCK AUTHORIZED FOR ISSUANCE UNDER THE STOCK INCENTIVE PLAN FROM
600,000 SHARES IN THE AGGREGATE TO 850,000 SHARES IN THE AGGREGATE.
[_] FOR [_] AGAINST [_] ABSTAIN
3. PROPOSAL TO AMEND THE MARKWEST HYDROCARBON, INC. 1996 NON-EMPLOYEE
DIRECTOR STOCK OPTION PLAN (THE "NON-EMPLOYEE DIRECTOR PLAN") TO (i)
INCREASE THE INITIAL GRANT UNDER THE NON-EMPLOYEE DIRECTOR PLAN TO A
NEWLY-APPOINTED, NON-EMPLOYEE DIRECTOR OF THE COMPANY UPON THE DATE ON
WHICH SUCH PERSON FIRST BECOMES A DIRECTOR FROM OPTIONS TO PURCHASE
500 SHARES OF COMMON STOCK TO OPTIONS TO PURCHASE 1,000 SHARES OF
COMMON STOCK, AND (ii) PROVIDE FOR A RETROACTIVE GRANT, EFFECTIVE AS
OF THE APPROVAL OF THE NON-EMPLOYEE DIRECTOR PLAN BY THE BOARD OF
DIRECTORS ON JULY 31, 1996, OF OPTIONS TO PURCHASE 500 SHARES OF
COMMON STOCK UNDER THE NON-EMPLOYEE DIRECTOR PLAN, WITH AN EXERCISE
PRICE EQUAL TO THE INITIAL PUBLIC OFFERING PRICE OF $10 PER SHARE, TO
EACH NON-EMPLOYEE DIRECTOR OF THE COMPANY AS OF SUCH DATE.
[_] FOR [_] AGAINST [_] ABSTAIN
4. RATIFICATION OF INDEPENDENT ACCOUNTANTS
[_] FOR the ratification of Price Waterhouse LLP as the Company's
independent accountants for the fiscal year ending December 31,
1997
[_] WITHHOLD AUTHORITY to vote for the ratification of Price
Waterhouse LLP as the Company's independent accountants for the
fiscal year ending December 31, 1997
5. In their discretion, the proxies are authorized to vote upon such
other business as may properly come before the meeting.
This Proxy, when properly executed, will be voted in the manner
directed herein by the undersigned stockholder. If no direction is made, this
Proxy will be voted FOR all of the above items.
PLEASE SIGN, DATE AND MAIL THIS PROXY IN THE ENCLOSED ADDRESSED ENVELOPE, WHICH
REQUIRES NO POSTAGE IF MAILED IN THE U.S.
Please sign exactly as your name appears
hereon. Jointly owned shares will be voted
as directed if one owner signs unless
another owner instructs to the contrary, in
which case the shares will not be voted. If
signing in a representative capacity,
please indicate title and authority.
Date: ______________________________, 1997
__________________________________________
Signature
