<PAGE>
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) January 29, 1998
(November 21, 1997)
MARKWEST HYDROCARBON, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
Delaware 1-11566 84-1352233
(State or other jurisdiction of (Commission File Number) (I.R.S. Employer
incorporation or organization) Identification Number)
</TABLE>
155 Inverness Drive West, Suite 200, Englewood, CO 80112-5004
(Address of principal executive offices)
Registrant's telephone number, including area code: 303-290-8700
- --------------------------------------------------------------------------------
<PAGE>
This Current Report on Form 8-K/A amends the Current Report on Form 8-K filed by
MarkWest Hydrocarbon, Inc. on December 3, 1997 solely to add the financial
statements of the business acquired, West Shore Processing Company, L.L.C., as
required by Item 7(a), the pro forma financial information required by Item 7(b)
and the exhibit(s) required by Item 7(c).
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements of Business Acquired.
<PAGE>
WEST SHORE PROCESSING COMPANY, L.L.C.
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM MAY 6, 1996
TO DECEMBER 31, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Report of Independent Accountants............................................ 1
Consolidated Balance Sheet................................................... 2
Consolidated Statement of Operations......................................... 3
Consolidated Statement of Cash Flows......................................... 4
Consolidated Statement of Changes in Members' Capital........................ 5
Notes to Consolidated Financial Statements................................... 6
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Members of West Shore Processing Company, L.L.C.
In our opinion, the accompanying consolidated balance sheet and related
consolidated statements of operations, of cash flows and of changes in members'
capital present fairly, in all material respects, the financial position of West
Shore Processing Company, L.L.C. at December 31, 1996, and the results of its
operations and its cash flows for the period from May 6, 1996 to December 31,
1996, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Denver, Colorado
April 18, 1997
1
<PAGE>
WEST SHORE PROCESSING COMPANY, L.L.C.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
ASSETS September 30, December 31,
1997 1996
------------- ------------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents..................... $ 600,419 $ 62,224
Trade receivables............................. 808,671 209,976
Receivables from affiliates................... 2,703,267 118,530
Materials and supplies inventory.............. 113,955 113,955
Prepaid expenses and other assets............. 10,256 12,441
------------- ------------
Total current assets................. 4,236,568 517,126
------------- ------------
Construction-in-progress....................... 8,407,794 4,560,554
Property, plant and equipment, at cost, net of
accumulated depreciation of $765,305 and
$342,759, respectively........................ 10,394,918 9,556,790
------------- ------------
Total property, plant and equipment,
net................................. 18,802,712 14,117,344
------------- ------------
Non-current interest receivable................ 360,568 88,791
Long-term notes receivable..................... 9,577,461 7,657,223
------------- ------------
Total assets................................... $32,977,309 $22,380,484
============= ============
LIABILITIES AND MEMBERS' CAPITAL
Current liabilities:
Trade accounts payable........................ $ 86,282 $ 2,005,999
Payable to affiliates......................... 3,235,167 609,464
Accrued liabilities........................... 687,058 122,424
Current portion of notes payable.............. 156,000 156,000
------------- ------------
Total current liabilities............ 4,164,507 2,893,887
------------- ------------
Other non-current liabilities.................. -- 68,750
Notes payable.................................. 69,275 180,791
------------- ------------
Total liabilities.............................. 4,233,782 3,143,428
------------- ------------
Minority interest.............................. 237,376 212,470
------------- ------------
Members' capital............................... 28,506,151 19,024,586
------------- ------------
Total liabilities and members' capital......... $32,977,309 $22,380,484
============= ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE>
WEST SHORE PROCESSING COMPANY, L.L.C.
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Nine Months For the Period from For the Period from
Ended September 30, May 6, 1996 through May 6, 1996 through
1997 December 31, 1996 September 30, 1996
------------------- ------------------- -------------------
(unaudited) (unaudited)
<S> <C> <C> <C>
Revenues:
Processing revenue................................ $ 418,661 $ 305,533 $ 168,947
Processing revenue from affiliate................. 619,597 436,613 343,741
Transportation and compression revenue............ 631,701 581,740 367,778
Transportation and compression revenue from
affiliate..................................... 429,703 206,829 161,926
Sale of natural gas liquids....................... 979,178 -- --
Interest income................................... 274,319 89,297 202
Other income...................................... 28,064 87,801 42,935
------------------- ------------------- -------------------
Total revenue.................................. 3,381,223 1,707,813 1,085,529
------------------- ------------------- -------------------
Costs and expenses:
Cost of goods sold................................ 1,035,668 -- --
Operating expenses................................ 1,963,540 845,371 577,633
General and administrative expenses............... 539,501 502,765 194,254
Depreciation...................................... 422,546 342,759 201,513
Loss on retirement of assets and reduction in
carrying value of assets...................... -- 150,405 --
Interest expense.................................. 33,993 100,237 8,599
------------------- ------------------- -------------------
Total costs and expenses....................... 3,995,248 1,941,537 981,999
------------------- ------------------- -------------------
Net (loss) income before minority interest.......... (614,025) (233,724) 103,530
------------------- ------------------- -------------------
Minority interest................................... 12,000 3,607 (1,425)
------------------- ------------------- -------------------
Net (loss) income................................... $ (602,025) $ (230,117) $ 102,105
=================== =================== ===================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
WEST SHORE PROCESSING COMPANY, L.L.C.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the Period For the Period
For the Nine from May 6, from May 6,
Months Ended 1996, through 1996 through
September 30, December 31, September 30,
1997 1996 1996
------------- -------------- --------------
(unaudited) (unaudited)
<S> <C> <C> <C>
Reconciliation of net income to net
cash provided by operating activities:
Net (loss) income........................... $ (602,025) $ (230,117) $ 102,105
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization............... 422,546 342,759 201,513
Loss on retirement of assets and
reduction in carrying value
of assets.................................. -- 150,405 --
Minority interest in net (loss) income...... (12,000) (3,607) 1,425
------------- -------------- --------------
(191,479) 259,440 305,043
------------- -------------- --------------
Adjustments to working capital:
Increase in trade receivables and
receivables from affiliates............... (3,183,432) (328,506) (572,756)
Increase in materials and
supplies inventory........................ -- (113,955) --
Decrease (increase) in prepaid
expenses and other assets................. 2,185 (12,441) (12,121)
Increase in trade accounts
payable, payable to affiliates and
accrued liabilities....................... 1,270,620 2,737,888 620,885
------------- -------------- --------------
(1,910,627) 2,282,986 36,008
------------- -------------- --------------
Net cash (used by) provided by
operating activities...................... (2,102,106) 2,542,426 341,051
Cash flows from investing activities:
Capital expenditures....................... (5,107,914) (4,546,684) (609,100)
Increase in long-term notes
receivable and non-current interest....... (2,192,015) (7,746,014) (1,243,074)
receivable......................
Other...................................... 36,906 -- 11,029
------------- -------------- --------------
Net cash used in investing activities...... (7,263,023) (12,292,698) (1,841,145)
Cash flows from financing activities:
Capital contributions...................... 10,083,590 9,928,703 1,748,785
Net payments of notes payable and
other non-current liabilities............. (180,266) (116,207) (149,229)
------------- -------------- --------------
Net cash provided by financing
activities................................ 9,903,324 9,812,496 1,599,556
------------- -------------- --------------
Net increase in cash and cash
equivalents............................... 538,195 62,224 99,462
Cash and cash equivalents at beginning
of period.................................... 62,224 -- --
------------- -------------- --------------
Cash and cash equivalents at end of
period....................................... $ 600,419 $ 62,224 $ 99,462
============= ============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
WEST SHORE PROCESSING COMPANY, L.L.C.
CONSOLIDATED STATEMENT OF CHANGES IN MEMBERS' CAPITAL
<TABLE>
<CAPTION>
Contributed Accumulated
Capital Deficit Total
----------- ----------- -----------
<S> <C> <C> <C>
Balance at May 6, 1996 $ -- $ -- $ --
Capital Contributions................. 11,074,785 -- 11,074,785
Net Income............................ -- 102,105 102,105
----------- --------- -----------
Balance at September 30, 1996
(unaudited).......................... $11,074,785 $ 102,105 $11,176,890
=========== ========= ===========
Capital Contributions................. 8,179,918 -- 8,179,918
Net Loss.............................. -- (332,222) (332,222)
----------- --------- -----------
Balance at December 31, 1996.......... $19,254,703 $(230,117) $19,024,586
=========== ========= ===========
Capital Contributions................. 10,083,590 -- 10,083,590
Net Loss.............................. -- (602,025) (602,025)
----------- --------- -----------
Balance at September 30, 1997
(unaudited).......................... $29,338,293 $(832,142) $28,506,151
=========== ========= ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
WEST SHORE PROCESSING COMPANY, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
West Shore Processing Company, L.L.C. ("West Shore" or the "Company") was
established on May 6, 1996 as a venture dedicated to natural gas gathering,
treatment, processing and NGL marketing in Manistee, Mason and Oceana Counties
in Michigan.
On May 6, 1996, Michigan Energy Company LLC ("MEC") conveyed 98% of its
ownership interest in Basin Pipeline, L.L.C. ("Basin") to West Shore, and 1.2%
to MarkWest Michigan LLC, the predecessor to MarkWest Michigan, Inc. ("MWM"), a
wholly-owned subsidiary of MarkWest Hydrocarbon, Inc. The transfer of Basin from
MEC to West Shore was accounted for as a transaction between entities under
common control and, accordingly, the assets and liabilities of Basin continue to
be reflected at MEC's predecessor basis. As of December 31, 1996, West Shore was
47% owned by MWM and 53% owned by MEC. MWM has the right to acquire up to a 60%
ownership interest in West Shore based on its levels of future capital
expenditures.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its 98% owned subsidiary, Basin. All significant intercompany accounts and
transactions have been eliminated in consolidation.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentrations of
credit risk consist primarily of cash. The Company maintains cash in bank
deposit accounts that at times may exceed federally insured limits. To date, the
Company has not incurred a loss relating to these concentrations of credit risk.
The Company derives all of its revenue from three customers.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash and cash equivalents, trade
receivables, accounts payable, other current liabilities and notes payable.
Except for long-term notes receivable and long-term debt, the carrying amounts
of these financial instruments approximate their fair value at December 31, 1996
due to their short maturities. At December 31, 1996, based on rates available
for similar types of long-term notes receivable and long-term debt,
respectively, the fair value of these items was not materially different from
their carrying values.
USE OF ESTIMATES
The preparation of the Company's financial statements in conformity with
generally accepted accounting principles requires the Company's management to
make estimates and assumptions that affect the amounts reported in the
accompanying consolidated financial statements. Actual results could differ from
those estimates.
6
<PAGE>
WEST SHORE PROCESSING COMPANY, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original maturity of
three months or less to be cash equivalents.
MATERIALS AND SUPPLIES INVENTORY
Materials and supplies are valued at the lower of average cost or estimated net
realizable value.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of a natural gas pipeline and gas
gathering and processing equipment which are recorded at cost. Renewals and
betterments that substantially extend the useful life of the assets are
capitalized. Maintenance and repairs are expensed when incurred. Depreciation is
computed using the straight-line method over estimated useful lives ranging from
seven to twenty years. Interest costs for the construction or development of
significant long-term assets are capitalized and amortized over the related
asset's estimated useful life. Gains and losses on retirements are included in
results of operations.
Construction-in-progress consists primarily of a pipeline extension, which is
accounted for at cost.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company follows Statement of Financial Accounting Standards ("SFAS") No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of, which requires that an impairment loss be recognized
when the carrying amount of an asset exceeds the expected future undiscounted
net cash flows.
In 1996, the Company recorded a charge of $136,984 for the write-off of
intangible costs related to an abandoned well extension.
REVENUE RECOGNITION
Revenue for sales or services is recognized at the time the product is delivered
or at the time the service is performed.
INCOME TAXES
As a Limited Liability Company, the tax consequences of the Company's operations
are the responsibility of each member. Accordingly, the accompanying financial
statements do not include a provision for income taxes.
SUPPLEMENTAL CASH FLOW INFORMATION
Interest of $13,431 was paid for the period from May 6, 1996 through December
31, 1996. Interest expense in 1996 is net of $19,010 capitalized in relation to
various construction projects.
MEC made a non-cash capital contribution of approximately $9.8 million, which
consisted of the aggregate amount of debt and accrued interest forgiven.
7
<PAGE>
WEST SHORE PROCESSING COMPANY, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In connection with the Basin Pipeline acquisition in 1996, the Company assumed a
$431,000 note used to finance certain assets previously purchased from the Dow
Chemical Company. As of December 31, 1996, $336,791 was outstanding under this
note. The note, which carries an imputed interest rate of 5%, requires that the
Company make payments of approximately $13,000 a month, until maturity in early
1999.
NOTE 2. LONG-TERM NOTES RECEIVABLE
Notes receivable at December 31, 1996 consists of a note receivable (the "Note")
from Michigan Production Company, LLC ("MPC"). The Note bears an interest rate
of 5.98%, and is for all sums expended by the Company for the construction of
the 31-mile extension to the Basin Pipeline. Upon completion of the pipeline
extension, MPC expects to contribute the fixed assets to the Company as full
payment for the note balance and accrued interest.
NOTE 3. COMMITMENTS AND CONTINGENCIES
The Company leases certain operating equipment under non-cancelable agreements
accounted for as operating leases. The following is a schedule by years of
future minimum lease payments under such operating leases:
<TABLE>
<CAPTION>
At December 31,
1996
---------------
<S> <C>
1997 $ 192,000
1998 192,000
1999 43,899
---------------
Total minimum lease payments $ 427,899
===============
</TABLE>
Total rent expense under operating leases was $91,753 for the period from May 6,
1996 through December 31, 1996.
The Company maintains a capital lease for a two-stage compressor with an asset
balance of $124,333, net of accumulated amortization of $16,421. The following
is a schedule by years of future minimum lease payments under capital leases
together with the present value of the minimum lease payments:
<TABLE>
<CAPTION>
At December 31,
1996
---------------
<S> <C>
1997 $ 33,000
1998 33,000
1999 33,000
2000 2,750
----------------
Total minimum lease payments 101,750
Less: amount representing interest (11,842)
-----------------
Present value of minimum lease payments $ 89,908
=================
</TABLE>
8
<PAGE>
WEST SHORE PROCESSING COMPANY, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company is involved in various litigation and administrative proceedings
arising in the normal course of business. In the opinion of management, any
liabilities that may result from these claims will not, individually or in the
aggregate, have a material adverse effect on the Company's financial position or
results of operations.
NOTE 4. RELATED PARTY TRANSACTIONS
During 1996, the Company received financial support from MWM and MarkWest
Hydrocarbon, Inc. ("Hydrocarbon"), the 100% owner of MWM, so as to permit the
Company to continue its operations during this period. MWM and Hydrocarbon have
indicated that they will continue to provide financial support to the Company
through December 31, 1997.
MWM, Hydrocarbon, and MEC pay for various operating expenses on West Shore's
behalf, for which they are reimbursed their actual cost. As a result of such
transactions, at December 31, 1996, the Company had payables outstanding to MWM
and MEC in the amounts of $279,270 and $330,194, respectively.
A portion of Hydrocarbon's debt was utilized to provide West Shore with
financing for construction-in-progress. Accordingly, Hydrocarbon, through MWM,
allocated $19,010 of its interest expense for the period from May 6, 1996
through December 31, 1996 to West Shore. Such interest was capitalized.
For the period from May 6, 1996 through December 31, 1996, West Shore and its
subsidiary provided processing and transportation and compression services for
MPC, an affiliate of the Company, in the amount of $436,613 and $206,829,
respectively. In addition, the Company is constructing various well extensions
on behalf of MPC for which the Company will be reimbursed its actual cost. At
December 31, 1996, the Company had $118,530 in receivables from MPC as a result
of such transactions.
9
<PAGE>
(b) Pro Forma Financial Information.
MARKWEST HYDROCARBON, INC.
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited pro forma consolidated balance sheet and pro forma
consolidated statement of operations give effect to the acquisition of the
remaining 40 percent of West Shore Processing Company, L.L.C. from Michigan
Energy Company, L.L.C. ("MEC").
The unaudited pro forma consolidated financial statements comprise historical
financial data of the Registrant which have been retroactively adjusted to
reflect the effect of the transaction. The pro forma information assumes that
the transaction was consummated on September 30, 1997 for the pro forma
consolidated balance sheet and on the first day of each period presented for the
pro forma consolidated statements of operations. Such pro forma information
should be read in conjunction with the related historical financial information
and is not necessarily indicative of the results which would actually have
occurred had the transaction been consummated on the dates or for the periods
indicated or which may occur in the future.
<PAGE>
MARKWEST HYDROCARBON, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997
(000S, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MarkWest
Hydrocarbon,
ASSETS Inc. (a) Adjustments Pro Forma
------------ ----------- ---------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ -- $ -- $ --
Receivables......................................... 8,749 (1,825) (b)(c) 6,924
Inventories......................................... 7,419 -- 7,419
Prepaid feedstock................................... 3,098 -- 3,098
Other assets........................................ 498 -- 498
------------ ----------- ---------
Total current assets.......................... 19,764 (1,825) 17,939
Property and equipment:
Gas processing, gathering, storage and marketing
equipment.......................................... 48,027 (551) (d) 47,476
Oil and gas properties and equipment................ 7,205 -- 7,205
Land, buildings and other equipment................. 9,250 -- 9,250
Construction in progress............................ 13,044 1,091 (c) 14,135
------------ ----------- ---------
77,526 540 78,066
Less: accumulated depreciation, depletion and
amortization....................................... (14,619) -- (14,619)
------------ ----------- ---------
Total property and equipment, net............. 62,907 540 63,447
Intangible assets, net of accumulated amortization
of $276 and $315, respectively..................... 500 -- 500
Note receivable and other assets..................... 9,938 -- 9,938
------------ ----------- ---------
Total assets......................................... $ 93,109 $(1,285) $ 91,824
============ =========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable.............................. $ 1,937 $ -- $ 1,937
Accrued liabilities................................. 4,625 -- 4,625
Current portion of long-term debt................... 156 -- 156
------------ ----------- ---------
Total current liabilities..................... 6,718 -- 6,718
Long-term debt....................................... 22,969 7,828 (e) 30,797
Deferred income taxes................................ 5,175 -- 5,175
Minority interest.................................... 9,113 (9,113) (f) --
Stockholders' equity:
Preferred stock, par value $0.01, 5,000,000 shares
authorized, 0 shares issued and outstanding........ -- -- --
Common stock, par value $0.01, 20,000,000 shares
authorized, 8,510,173 shares issued, 8,485,268
shares outstanding................................. 85 -- 85
Additional paid-in capital.......................... 42,582 -- 42,582
Retained earnings................................... 6,792 -- 6,792
Treasury stock...................................... (325) -- (325)
------------ ----------- ---------
Total stockholders' equity....................... 49,134 -- 49,134
------------ ----------- ---------
Total liabilities and stockholders' equity........... $ 93,109 $(1,285) $ 91,824
============ =========== =========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Consolidated Financial Statements.
<PAGE>
MARKWEST HYDROCARBON, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(000s, except per share data)
<TABLE>
<CAPTION>
MarkWest
Hydrocarbon, Inc.
(a) Adjustments Pro Forma
----------------- ----------- ---------
<S> <C> <C> <C>
Revenues:
Gathering, processing and marketing revenue......... $ 54,121 $ -- $ 54,121
Oil and gas revenue................................. 695 -- 695
Interest income..................................... 406 -- 406
Other income........................................ 508 -- 508
----------------- ----------- ---------
Total revenue.............................. 55,730 -- 55,730
----------------- ----------- ---------
Costs and expenses:
Cost of sales....................................... 31,140 -- 31,140
Operating expenses.................................. 7,605 -- 7,605
General and administrative expenses................. 5,467 -- 5,467
Depreciation, depletion and amortization............ 2,408 (21) (g) 2,387
Interest expense, net of capitalized interest....... 726 429 (h) 1,155
----------------- ----------- ---------
Total costs and expenses................... 47,346 408 47,754
----------------- ----------- ---------
Income (loss) before minority interest and income
taxes............................................... 8,384 (408) 7,976
Minority interest in net loss of subsidiary.......... 252 (252) (f) --
----------------- ----------- ---------
Income (loss) before income taxes.................... 8,636 (660) 7,976
Provision (benefit) for income taxes................. 3,186 (251) (i) 2,935
----------------- ----------- ---------
Net income (loss).................................... $ 5,450 $ (409) $ 5,041
================= =========== ========
Earnings per share of common stock................... $ 0.64 $ 0.59
Weighted average number of outstanding shares of
common stock........................................ 8,485 8,485
================= ========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Consolidated Financial Statements.
<PAGE>
MARKWEST HYDROCARBON, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
($000S, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MarkWest
Hydrocarbon,
Inc. (a) Adjustments Pro Forma
------------ ----------- ---------
<S> <C> <C> <C>
Revenues:
Gathering, processing and marketing revenue........ $ 70,405 $ -- $ 70,405
Oil and gas revenue................................. 347 -- 347
Interest income..................................... 192 -- 192
Other income........................................ 1,008 -- 1,008
------------ ----------- ---------
Total revenues............................. 71,952 -- $ 71,952
------------ ----------- ---------
Costs and expenses:
Cost of sales....................................... 40,907 -- 40,907
Operating expenses.................................. 7,048 -- 7,048
General and administrative expenses................. 5,302 -- 5,302
Depreciation, depletion and amortization............ 2,910 (28) (g) 2,882
Interest expense, net of capitalized interest....... 1,090 572 (h) 1,662
------------ ----------- ---------
Total costs and expenses................... 57,257 544 57,801
------------ ----------- ---------
Income (loss) before minority interest, income taxes
and extraordinary item.............................. 14,695 (544) 14,151
Minority interest in net loss of subsidiary.......... 65 (65) (f) --
------------ ----------- ---------
Income (loss) before income taxes and extraordinary
item................................................ 14,760 (609) 14,151
Provision (benefit) for income taxes................. 6,991 (231) (i) 6,760
------------ ----------- ---------
Net income (loss).................................... $ 7,769 $ (378) $ 7,391
============ =========== =========
Earnings per share of common stock................... $ 0.98 $ 0.93
============ =========
Weighted average number of outstanding shares of
common stock....................................... 7,908 7,908
============ =========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Consolidated Financial Statements.
<PAGE>
MARKWEST HYDROCARBON, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(a) Prior to the acquisition, MarkWest Hydrocarbon, Inc. ("MarkWest") owned 60%
of West Shore Processing Company, L.L.C. ("West Shore") through its 100%
owned subsidiary, MarkWest Michigan, Inc. Accordingly, the historical
financial statements of MarkWest include the accounts of West Shore on a
fully consolidated basis.
(b) Represents the collection of approximately $734,000 due to MarkWest
Michigan, Inc. from Michigan Energy Company, L.L.C. ("MEC"), the original
40% owner, at the time of the acquisition.
(c) Represents the transfer of a receivable to construction in progress. The
receivable, which was due from MEC, was related to a construction project
the Company was building on behalf of MEC. As part of the acquisition, the
Company agreed to fund MEC's 40% share of the construction project.
(d) Represents the excess of the fair value of net assets acquired over cost
allocated to reduce the values otherwise assignable to noncurrent assets.
(e) Represents debt incurred to fund the acquisition, less accounts receivable
collected on closing.
(f) Represents the elimination of the 40% minority interest ownership in West
Shore.
(g) Represents the decrease in depreciation expense and accumulated
depreciation, that would have occurred as a result of (d) above, assuming
an estimated useful life of 20 years.
(h) Represents interest expense of $499,000 and $665,000 for the nine months
ending September 30, 1997 and the year ending December 31, 1996,
respectively, at 8.5% on the amount assumed to be borrowed in conjunction
with the acquisition, net of capitalized interest. Interest capitalized for
the same periods was $70,000 and $93,000, respectively. A change of 0.125%
in the assumed interest rate would result in an increase or decrease of
interest expense of approximately $9,800.
(i) Reflects the income tax effects of the pro forma adjustments to income.
See accompanying Notes to Unaudited Pro Forma Consolidated Financial Statements.
<PAGE>
(c) Exhibits
2.1 Purchase and Sale Agreement
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MARKWEST HYDROCARBON, INC.
(Registrant)
Date: January 29, 1998 BY: /s/ Gerald A. Tywoniuk
-------------------------------
Gerald A. Tywoniuk
Chief Financial Officer and
Vice President of Finance
(On Behalf of the Registrant and as
Principal Financial and Accounting
Officer)
<PAGE>
EXHIBIT 2.1
PURCHASE AND SALE AGREEMENT
---------------------------
This PURCHASE AND SALE AGREEMENT is made and entered into the 21st day of
November, 1997, among Michigan Energy Company, L.L.C., a Michigan limited
liability company ("Seller"), and MarkWest Michigan, Inc., a Colorado
corporation ("Buyer").
WHEREAS, MEC owns certain ownership interests (the "Interests") in West
Shore Processing Company, L.L.C., a Michigan limited liability company ("West
Shore"), and Basin Pipeline, L.L.C., a Michigan limited liability company
("Basin");
WHEREAS, Buyer submits this Agreement to Seller as an exercise of Buyer's
right to match the terms specified in that certain Term Sheet tendered by the
entity identified on Exhibit A, hereto, ("Other Company") to Seller; and,
accordingly, upon the execution hereof, Buyer desires to purchase and accept and
Seller desires to sell and convey all of Seller's ownership interests and
membership rights in and to West Shore Processing Company, LLC, and in Basin
Pipeline, L.L.C., on the terms and conditions stated herein.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, the parties hereby agree as follows:
AGREEMENT
---------
1. Agreement to Sell and Purchase and Assumption of Liabilities.
------------------------------------------------------------
a. Subject to the terms and conditions of this Agreement, Seller
agrees to assign and sell to Buyer, and Buyer agrees to purchase and acquire
from Seller on the Closing Date (as hereinafter defined) all of the Interests,
as herein defined. As used herein, "Interests" means with respect to each of
Basin and West Shore, all of Seller's membership interests and rights, sharing
ratios, ownership interests, rights of distribution, voting rights, preferential
purchase rights, rights arising under the respective operating agreements or
other organizing, enabling or organic documents or instruments of Basin and/or
West Shore, or other rights, titles or indicia of ownership of any nature
whatsoever in Basin and West Shore, respectively. Notwithstanding any other
provisions hereof and regardless of when the Closing Date actually occurs, the
effective date of the transfer of the Interests from Seller to Buyer hereunder
shall be 7:00 a.m., Eastern Time, on the first day of the month in which Closing
occurs (the "Effective Date").
b. At Closing, Buyer hereby agrees that Buyer shall assume, as of the
Effective Date, all of Seller's obligations and liabilities of any kind or
nature as a member of West Shore and Basin or otherwise attributable to Seller's
Interests in West Shore or Basin incurred on and after the Effective Date.
2. Consideration. Buyer shall pay the following consideration as
-------------
indicated for the purchase of the Interests:
<PAGE>
a. Buyer shall pay $8,500,000.00 cash to Seller on the Closing Date in
the form of a wire transfer to an account or accounts specified by Seller;
provided, that the amount of such cash payment shall be adjusted as set forth on
Exhibit 2A hereto. Those amounts shall be updated and adjusted as of the
Closing. The parties agree that the updated and adjusted amounts specified on
Exhibit 2A, as of Closing, shall be binding upon the parties hereto as a final
statement of all amounts outstanding between the entities listed on Exhibit 2A
as of the Closing Date, and Seller shall cause Michigan Production Company,
L.L.C. ("MPC") and Manistee Gas Limited Liability Company ("Manistee") to agree
to those amounts to the extent of amounts shown owing by MPC or Manistee or to
MPC or Manistee to or from Buyer and/or West Shore and/or Basin, and Buyer shall
cause West Shore and/or Basin to agree to those amounts to the extent shown
owing by West Shore and/or Basin or to West Shore and/or Basin to or from Buyer
and/or MPC and/or Manistee.
b. Following the Closing Date, Buyer also shall be contingently
obligated to pay to Seller the following indicated amounts if the Average Daily
Throughput Volume (as defined below) exceeds the following specified levels for
any consecutive 150 day period following the Closing Date but only if such
consecutive 150 day period begins prior to December 31, 2012:
<TABLE>
<CAPTION>
Average Daily
Throughput Volume Consideration
(MMCF/Day) to be paid to Seller, at Buyer's option
- ----------------- -----------------------------------------
(i) (ii) (iii)
Cash Shares Shares of
Alternate MarkWest
Common Common
Stock Stock
<S> <C> <C> <C>
45 $1,800,000.00 60,000 66,000
50 $2,700,000.00 90,000 99,000
55 $1,500,000.00 50,000 55,000
</TABLE>
Seller's rights to the foregoing payments shall be one time for each payment
event, and shall be cumulative. Each date when a contingent payment under this
paragraph b. is due, the contingent payments specified above may be made, at the
option of Buyer, in one of the three following forms: (i) cash by wire transfer
to an account or accounts specified by Seller; (ii) shares of the common stock
("Alternate Common Stock") of the entity which previously tendered an offer to
Seller for the Interests, as identified on Exhibit A ("Other Company"), based on
the schedule above; or (iii) shares of the common stock ("MarkWest Common
Stock") of MarkWest Hydrocarbon, Inc., based on the schedule above. If the
shares of MarkWest Common Stock are used to satisfy the contingent payment,
MarkWest Hydrocarbon, Inc. shall, (A) within 45 days after making the payment
begin to register those shares of stock under Section 12 of the United States
Securities and Exchange Act of 1934, as amended (the "1934 Act") by filing a
registration statement with the Securities and Exchange Commission and using its
diligent efforts to cause the registration statement to become effective as soon
a practicable under the circumstances, (B) list the shares for trading on the
NASDAQ National Market, or similar market, and (C) deliver to
<PAGE>
Seller an executed undertaking to take all actions necessary to maintain such
1934 Act registration and such NASDAQ or similar listing for a period of at
least three years from the date of the issuance of the MarkWest Common Stock to
Seller. Should Buyer elect to make any contingent payment provided above in the
form of MarkWest Common Stock, then within 10 business days following receipt of
that MarkWest Common Stock, Seller shall have the right to elect, in writing, to
put that stock to Buyer. Upon the timely election to put the stock to Buyer,
Buyer will determine the price at which it will purchase that stock from Seller
based upon the weighted average closing price of the MarkWest Common Stock for
the 30 trading days immediately preceding Seller's election. Buyer shall
complete the purchase of the MarkWest Common Stock, and make payment therefor,
within 60 days following the date upon which Seller elected to put the stock to
Buyer. Any shares of Alternate Common Stock or MarkWest Common Stock issued or
assigned to Seller hereunder shall be free-trading (following the registration
and listing process specified above with respect to the MarkWest Common Stock)
and shall be validly authorized, duly issued, fully paid, non-assessable and not
subject to any lien, claim, restriction or encumbrance of any kind. In the event
of (a) any common stock split or (b) common stock dividends accumulating more
than 10% of the current issued and outstanding common shares of the relevant
company, the number of shares of that company in any contingent payment will be
adjusted proportionately. In the event of a sale or merger of MarkWest
Hydrocarbon, Inc., or of Other Company, the option of Buyer to deliver common
stock of the sold or merged company will be appropriately adjusted so that the
same economic benefit is delivered to Seller as contemplated hereunder. Seller
agrees that it has conducted all investigations of which it desired with respect
to the stock of Other Company and of MarkWest and is not relying on any
representations, warranties or promises of Buyer, or of any affiliate of Buyer
in agreeing to receive compensation hereunder in the form of shares of stock of
those companies.
For purposes of this Agreement, "Average Daily Throughput Volume" for any
applicable 150 consecutive day period (the "Calculation Period") shall be
determined pursuant to the following formula:
Actual Gross
Throughput Volume / 150
during the Calculation
Period
For purposes of the foregoing formula:
(i) "Actual Gross Throughput Volume" shall be calculated in
accordance with the following formula:
(A + B + C) / 3
<PAGE>
Where,
A. Means the actual volume of Gas in MMCF delivered through
all Receipt Points of Basin less all volumes for which
Basin does not receive revenues for transportation.
B. Means the actual volume of Gas in MMCF delivered through
the West Shore Receipt Point less all volumes for which
West Shore does not receive revenues for treating.
C. Means the actual volume of Gas in MMCF delivered through
the West Shore Receipt Point less all volumes for which
West Shore does not receive revenues or NGLs for
processing.
Notwithstanding the foregoing, the parties agree that for
purposes of calculating Actual Gross Throughput Volume, fuel and
shrink volumes shall not be deducted and the processing of gas
for Shell and the treating of Gas by Shell under current
arrangements between Shell and West Shore, if such volumes do not
provide any revenues to West Shore, shall not be considered.
Buyer agrees not to reduce or restrict the volume of Gas
deliveries to the Basin Facilities or the West Shore Facilities
except for reasons of curtailment by third party pipelines, off-
spec gas deliveries, safety, strikes, lockouts, occurrences
beyond Buyer's reasonable control, force majeure, equipment
breakage or failure, repair or maintenance, construction,
capacity limitations, contractual rights, or orders of
governmental agencies having jurisdiction.
(ii) a "Receipt Point" means the meter run(s) at which Basin
and/or West Shore measure Gas volume for treating, transportation
or processing billing;
(iii) "Basin Facilities" shall mean all gas gathering and
transportation pipelines owned by Basin;
(iv) "West Shore Facilities" shall mean all treating and
processing assets owned by West Shore;
(v) "Gas" shall mean natural gas and other gaseous hydrocarbons
conforming to the specifications of Basin in its transportation
agreements; and
(vi) volume of Gas shall be based on 8/8ths volume from any well
measured at the applicable Receipt Point.
<PAGE>
Average Daily Throughput Volume for any applicable Calculation Period shall be
subject, at Seller's option, to review by an independent third party to
determine whether the Average Daily Throughput Volume for the applicable
Calculation Period, as calculated above, was prudent and sustainable. The
independent third party reviewer shall be initially designated by Buyer in a
written notice to Seller. Such independent third party reviewer designated by
Buyer shall be deemed accepted by Seller unless Seller delivers written notice
of objection to Buyer within five business days of Seller's receipt of the
initial designation notice. If Seller makes a timely objection to Buyer's
designation, then each of Buyer and Seller shall promptly appoint its own
independent reviewer (the "Designated Reviewers") and these two Designated
Reviewers shall together choose another person who alone shall serve as the
independent reviewer for purposes hereof. The Buyer and Seller shall each bear
50% of the fees and expenses of the independent reviewer (with each party
bearing 100% of any fees and expenses of its Designated Reviewer in the event of
a deadlock as described above).
Notwithstanding any other provision hereof, for purposes of calculating "Average
Daily Throughput Volume" as set forth above, assets or properties which are
included within the definitions of the "West Shore Facilities" or the "Basin
Facilities" shall be deemed to continue to be included within such definitions
regardless of any transfer, sale, conveyance or other disposition of those
assets or properties by West Shore or Basin.
Cash payments due or shares of Alternate Common Stock or MarkWest Common Stock
to be issued or assigned under this Section 2(b) shall be paid, assigned or
issued (as applicable) prior to the later of (i) 60 days following the end of
the applicable consecutive 150 day period, or (ii) five business days following
the completion of the required independent review.
c. In addition, following the Closing Date, Buyer also shall be
contingently obligated to make cash payments to Seller if the Average Daily
Throughput Volume exceeds the following specified levels for any consecutive 150
day period following the Closing Date but only if such consecutive 150 day
period begins prior to December 31, 2012:
<TABLE>
<CAPTION>
Average Daily
Throughput Volume Amount of Cash
(MMCF/Day) Payment to Seller
----------------- -----------------
<S> <C>
65 $1,300,000.00
70 $1,700,000.00
75 $1,500,000.00
</TABLE>
Seller's rights to the foregoing payments shall be one time for each payment
event, and shall be cumulative. The foregoing cash payments shall be (i)
subject to the same independent review procedure set forth in Section 2(b)
above, (ii) accomplished by wire transfer to an account or accounts specified by
Seller, and (iii) shall be payable prior to the later of (A) 60 days following
the end of the applicable consecutive 150 day period, or (B) five business days
following the completion of the required independent review.
<PAGE>
d. In addition, following the Closing Date, Buyer shall make the
following contingent cash payments to Seller:
(i) $1,000,000.00, if for any consecutive three year period (not
---
limited to calendar years) following the Closing Date, but only if such
3 year period begins no later than December 31, 2012, the Average Daily
Throughput Volume exceeds 45 MMCF/day with no decline from one calendar
quarter to the next within such three year period; and
(ii) An additional $1,000,000.00, if for any consecutive four year
---
period (not limited to calendar years) following the Closing Date, but
only if such 4 year period begins no later than December 31, 2012, the
Average Daily Throughput Volume exceeds 45 MMCF/day with no decline
from one calendar quarter to the next within such four year period; and
(iii) An additional $1,000,000.00, if for any consecutive five year
---
period (not limited to calendar years) following the Closing Date, but
only if such 5 year period begins no later than December 31, 2012, the
Average Daily Throughput Volume exceeds 45 MMCF/day with no decline
from one calendar quarter to the next within such five year period.
The foregoing cash payments shall be (i) subject to the same independent review
procedures set forth in Section 2(b) above, (ii) accomplished by wire transfer
to an account or accounts specified by Seller, and (iii) payable prior to the
later of (A) 60 days following the end of the applicable period, or (B) five
business days following the completion of the required independent review. For
purposes of calculating Average Daily Throughput Volume in connection with this
Section 2(d), the Calculation Period and the "150" number in the formula set
forth in Section 2(b) above shall be changed to the number of days in the
applicable period (i.e., three years (1,095 days), four years (1,460 days) or
five years (1,825 days).
e. In addition, Buyer agrees as part of the consideration for the
transaction contemplated by the Agreement to assume all funding obligations for
The Claybanks Extension.
f. As used herein, "day" or "days" refers to calendar days unless
expressly stated as "business days", in which event it refers to calendar days
during which national banking associations are open for business in the United
States.
<PAGE>
g. Notwithstanding anything to the contrary, if Buyer intends to make
a capital expenditure in West Shore and/or Basin, the results of which may
invoke a contingent payment hereunder, Buyer shall calculate the anticipated
pre-tax internal rate of return for that portion of that investment applicable
to the Interests acquired hereunder, including the anticipated contingent
payment(s), using prudent and reasonable assumptions. If that determination does
not result in a pre-tax internal rate of return in excess of 18% per annum, then
Buyer shall have the right to calculate the date to which the contingent
payment(s) are required to be deferred in order to achieve a pre-tax internal
rate of return of 18% per annum for the Interests purchased hereunder, with
respect to the capital expenditure and anticipated contingent payment(s)
("Buyer's Deferral Determination"). Upon that determination, Buyer shall have
the right to proceed with the capital expenditure and defer the contingent
payment(s) anticipated therewith to the later of (i) the date determined under
Buyer's calculation of the required deferral date, or (ii) the date upon which
the contingent payment(s) would otherwise be due under the terms hereof. Buyer
shall furnish Seller with Buyer's Deferral Determination, together with
calculations and assumptions used in making that determination and other
information reasonably required by Seller to allow Seller to evaluate Buyer's
basis for the Deferral Determination. Should Seller not object, in writing, to
the method of Buyer's Deferral Determination within 10 business days following
receipt, then Buyer's Deferral Determination shall be binding on the parties. If
Seller objects, in writing, to the methods used in Buyer's Deferral
Determination with that 10 business day period, then the parties will promptly
meet to attempt to negotiate an agreed upon Deferral Determination. If the
parties cannot reach agreement within 10 business days thereafter, then Buyer
may submit the matter of determining the correct Deferral Determination to
binding arbitration to the American Arbitration Association in accordance with
its Commercial Arbitration Rules. All arbitration proceedings will be conducted
in Denver, Colorado, and the evidentiary hearing on the matter will be held
within 30 days following the initiation of the arbitration demand. The Deferral
Determination resulting from the arbitrator's award shall be binding on the
parties.
3. Disclaimer. The Interests are being sold by Seller AS IS, and Seller
----------
hereby expresses or disclaims any and all representations or warranties (other
than those representations and warranties expressly set out in Section 5, on
which Buyer is entitled to fully rely) with respect to the Interests, or with
respect to the assets, liabilities, operations, businesses, and condition,
financial or otherwise, of West Shore or Basin. Specifically as a part of, but
not in limitation of, the foregoing, Buyer acknowledges that (i) Seller's equity
ownership interest in West Shore is limited to the net interest retained by
Seller after giving effect to the equity ownership earned or to be earned by
Buyer, under the Participation, Ownership and Operating Agreement dated May 2,
1996, as amended, between Seller and Buyer, and (ii) Seller's equity ownership
interest in Basin is limited to the net interest retained by Seller after giving
effect to the equity ownership earned or to be earned by West Shore and Buyer
under the Participation, Ownership and Operating Agreement dated May 2, 1996, as
amended, between Seller, West Shore and Buyer. Further, specifically as a part
of, but not in limitation of, the foregoing Buyer acknowledges that (other than
those representations and warranties expressly set out in Section 5, on which
Buyer is entitled to fully rely) Seller has not made, and Seller hereby
disclaims, any representation or warranty, express, implied under common law, by
statute or otherwise, relating to title to the assets of West Shore or Basin,
the condition of any assets or properties of West Shore or Basin (INCLUDING
WITHOUT LIMITATION ANY IMPLIED OR EXPRESS
<PAGE>
WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE), and rights
conferred or liabilities created under contracts, agreements or interests of
West Shore or Basin.
4. Closing. Subject to the terms and conditions contained in this
-------
Agreement, the closing of the transactions contemplated herein shall take place
on November 21, 1997 (the "Closing Date") at the offices of Buyer in Englewood,
Colorado 80112, or on such earlier or later date or at such other place as may
be mutually agreed upon by the parties hereto. Time is of the essence in this
Agreement, and no party shall have any obligation, express or implied to agree
to a later Closing Date unless Closing cannot occur when stated above because
that party is in default of its obligations hereunder. At the closing, the
following shall occur:
a. The Seller shall deliver to the Buyer the following items:
(i) Executed assignments of the Interests from Seller to Buyer in
the form attached hereto as Exhibit 4A.
(ii) An opinion of counsel from Foster, Swift, Collins and Smith,
P.C., counsel for the Seller, in the form attached hereto as Exhibit
4B.
(iii) Such other documents or instruments as may be required under
the terms and provisions of this Agreement.
(iv) Executed and recordable releases of all remaining liens
impacting the Claybanks Unit Wells, the Slocum Well and any other
assets of MPC.
(b) Buyer shall deliver to the Seller the following items:
(i) Wire transfer(s) of immediately available funds per Seller's
instructions in accordance with Section 2(a) above.
(ii) An opinion of counsel from Barry Spector, counsel for Buyer,
in the form of Exhibit 4C.
(iii) An executed Guaranty in the form of Exhibit 4D hereto,
whereby MarkWest Hydrocarbon, Inc. guarantees Buyer's contingent
payment and Claybanks Extension funding obligations to Seller
hereunder.
(iv) Such other documents or instruments as may be required under
the terms and provisions of this Agreement.
The Seller and Buyer agree that they will at any time and from time to time
after the Closing Date, upon the request of the other, do, execute, acknowledge,
and deliver, all such further acts, deeds, assignments, transfers, conveyances,
powers of attorney, and assurances as may be required for the better assigning,
transferring, granting, conveying, assuring, and confirming to the other, of any
or all of the Interests affected herein.
<PAGE>
5. Representations and Warranties of the Seller. As used in this Section
--------------------------------------------
5, "Knowledge" of Seller of or with respect to any matter means that any of the
managers of the Seller or any individual serving the functional equivalent of
any such role has actual awareness or knowledge of such matter, without any
independent inquiry or investigation. Subject to the foregoing, Seller
represents and warrants to Buyer as follows:
a. Seller is a limited liability company duly organized, validly
existing and in good standing under the laws of the State of Michigan and is
duly qualified to do business in all jurisdictions as are necessary to
consummate the transactions contemplated by this Agreement.
b. Seller has the power to enter into this Agreement and to consummate
the transactions contemplated hereby. The making and performance by Seller of
this Agreement and the agreements and other instruments required hereunder to be
executed by the Seller have been, or on the Closing Date will have been, duly
authorized by all necessary action and will not violate any provision of the
organizational documents of Seller or violate any provision of any license,
permit, loan or other type of agreement to which Seller is or will be subject.
Further, the making and performance by Seller of this Agreement and the
agreements and other instruments required hereunder to be executed by Seller
will not cause the creation or imposition of any lien, charge or encumbrance on
any of the Interests or any of the assets of West Shore or Basin.
c. When executed and delivered, each of this Agreement and the
assignments required pursuant to Section 4(a)(i) hereof will constitute legal
and binding obligations of Seller and will be valid and enforceable against
Seller in accordance with the respective terms hereof and thereof, except that
(i) the enforcement of certain rights and remedies created by this Agreement is
subject to bankruptcy, insolvency, reorganization and similar laws of general
application affecting the rights and remedies of parties and (ii) the
enforceability of any particular provision of this Agreement under principles of
equity or the availability of equitable remedies, such as specific performance,
injunctive relief, waiver or other equitable remedies is subject to the
discretion of courts of competent jurisdiction.
d. The Seller has title to the Interests free and clear of any
security interests, mortgages, liens, pledges, charges or encumbrances, or
adverse claims, other than those that will be released on or before the Closing
Date , and Seller has full right, power and authority to transfer the Interests,
and Seller will transfer the Interests to Buyer hereunder, subject to no
security interests, mortgages, liens, pledges, charges or encumbrances, or
adverse claims of any nature other than the lien of current taxes not yet due
and payable. The interest of the Seller being sold hereunder is all of the
Interests, including a 40% membership interest in West Shore under the terms of
the Participation, Ownership and Operating Agreement of West Shore (the "West
Shore Operating Agreement") dated May 2, 1996, as amended, and a 0.8% membership
interest in Basin under the terms of the Participation, Ownership and Operating
Agreement of Basin (the "Basin Operating Agreement") dated May 2, 1996, as
amended.
e. Absence of Certain Changes. Between the date of execution of this
--------------------------
Agreement and the Closing Date, there will not be, without Buyer's prior written
consent:
<PAGE>
(i) A sale, transfer or other disposition of the Interests;
(ii) A mortgage, pledge or grant of a lien or security interest in
any of the Interests; or
(iii) A contract or commitment to do any of the foregoing.
f. Litigation. Except as disclosed on Exhibit 15B, there is no
----------
action, suit or proceeding pending against Seller which could have a material
adverse effect on the value or ownership of the Interests or that could prevent
the consummation of the transaction contemplated by this Agreement.
g. Consents and Preferential Rights. Seller does not require or will
---------------------------------
obtain by Closing the consent or approval of any third party or of any
governmental authority to enter into this Agreement or to consummate the
transactions contemplated by this Agreement. Except for Buyer and its
affiliates, no person, firm or entity has, or claims any rights, of any nature,
to acquire all or any portions of the Interests, including, without limitation,
preferential purchase rights, options, reversionary interests, or other rights
whether vested, contingent or future interests to acquire any portion or all of
the Interests; nor will any such rights exist in any person, firm or entity
following Closing.
h. Bankruptcy. There are no bankruptcy, reorganization or receivership
----------
proceedings pending, being contemplated by, or threatened against Seller, or the
owners of Seller.
i. Ownership of Seller. Energy Acquisition Corp. and Michigan
-------------------
Exploration, Inc., are the sole and exclusive owners of all membership interests
and ownership interests of any nature in Seller, and no other person, firm or
entity owns any interests in Seller, has any voting rights in Seller or is
required to approve or consent to the transactions contemplated herein, nor does
any other person, firm or entity own any preferential purchase rights, options
to acquire, reversionary interests or other interests to acquire ownership or
voting rights of any nature in Seller, whether or not vested, contingent or
future interests.
j. Accuracy of Representations. No representations or warranty by
---------------------------
Seller in this Agreement or any agreement or document delivered by Seller
pursuant to this agreement contains an untrue statement of a material fact or
omits to state a material fact necessary to make the statements contained in any
such representation or warranty, in light of the circumstances under which it
was made, not misleading. There is no fact known to Seller that constitutes or
could constitute an adverse effect on the operation, value or use of the
Interests or any portion of Assets.
6. Representations and Warranties of Buyer. Buyer agrees, represents and
---------------------------------------
warrants to Seller as follows:
<PAGE>
a. Buyer is a corporation duly organized, validly existing and in good
standing under the laws of the State of Colorado and is duly qualified to do
business in all jurisdictions as are necessary to consummate the transactions
contemplated by this Agreement.
b. Buyer has the power to enter into this Agreement and to consummate
the transactions contemplated hereby. The making and performance of this
Agreement and the agreements and other instruments required hereunder to be
executed by Buyer have been, or on the Closing Date will have been, duly
authorized by all necessary action and will not violate any provision of the
organizational documents of Buyer or violate any provision of any license,
permit, loan or other type of agreement to which Buyer is or will be subject.
c. When executed and delivered, this Agreement will constitute a legal
and binding obligation of Buyer and will be valid and enforceable against Buyer
in accordance with the respective terms hereof except that (i) the enforcement
of certain rights and remedies created by this Agreement is subject to
bankruptcy, insolvency, reorganization and similar laws of general application
affecting the rights and remedies of parties and (ii) the enforceability of any
particular provision of this Agreement, under principles of equity or the
availability of equitable remedies, such as specific performance, injunctive
relief, waiver or other equitable remedies is subject to the discretion of
courts of competent jurisdiction.
d. Buyer is acquiring the Interests for its own account for use in its
trade or business, and not with a view toward or for sale in connection with any
distribution thereof, nor with any present intention of making a distribution
thereof within the meaning of the United States Securities Act of 1933, as
amended.
e. To the best of Buyer's knowledge, West Shore and Basin have no
liabilities or obligations of any kind that are not reflected in the respective
financial statements of West Shore and Basin as of September 30, 1997 that have
been provided to Seller, except for liabilities incurred in the ordinary course
of business since September 30, 1997.
7. Pre-Closing Covenants. The parties agree that the following covenants
---------------------
shall be in effect from the period between the execution date hereof and the
Closing Date (or the termination of this Agreement as provided in Section 24
below):
a. Until the Closing Date of this Agreement, the Seller shall not,
without the written consent of Buyer, take any action that would cause any of
the businesses of West Shore or Basin to be operated in any manner other than
the ordinary course of business, recognizing, that Seller is not the manager or
operator of either West Shore or Basin.
b. The Seller shall use its best efforts to preserve the business and
goodwill of West Shore and Basin, recognizing that Seller is not the manager or
operator of either West Shore or Basin.
c. Seller will provide such information to Buyer as is reasonably
required and requested for Buyer to determine the status of title to the
Interests.
<PAGE>
8. Conditions Precedent to Buyer's Performance. The obligation of Buyer
-------------------------------------------
to purchase the Interests under this Agreement is subject to the satisfaction,
at or before the Closing Date, of all the conditions set out below in this
Section 8. Buyer may waive any or all of these conditions in whole or in part
without prior notice.
a. Except as otherwise permitted by this Agreement, all
representations and warranties by Seller in this Agreement shall be true on and
as of the Closing Date as though made at that time.
b. Seller shall have performed, satisfied, and complied with all
covenants, agreements, and conditions required by this Agreement to be performed
or complied with by Seller on or before the Closing Date.
c. Buyer shall have received certificates dated the Closing Date,
signed and verified by Seller, certifying, in such detail as Buyer and its
counsel may reasonably request, that the conditions specified in paragraphs (a)
and (b) of this Section have been fulfilled.
d. The Seller shall provide to Buyer each of the documents described
in Section 4(a).
e. No action, suit, or proceeding before any court or any governmental
body or authority, pertaining to the transaction contemplated by this Agreement
or to its consummation, shall have been instituted or threatened by any third
party on or before the Closing Date.
f. The execution and delivery of this Agreement by Seller, and the
performance of its covenants and obligations under it, shall have been duly
authorized by all necessary action, and Buyer shall have received copies of all
resolutions pertaining to that authorization, certified by a manager of Seller.
g. All necessary agreements and consents of any parties to the
consummation of the transactions contemplated by this Agreement, or otherwise
pertaining to the matters covered by it, shall have been obtained by Seller and
delivered to Buyer.
h. The form and substance of all certificates, instruments, opinions,
and other documents delivered to Buyer under this Agreement shall be
satisfactory in all reasonable respects to Buyer and its counsel.
i. The Interests shall be free and clear of all security interests,
mortgages, liens, claims, charges and encumbrances of any kind, except for the
liens, claims, charges, encumbrances of other members under the Operating
Agreements
j. All necessary action shall have been taken by West Shore and Basin
and their members and managers for Buyer to be a substituted member of West
Shore and Basin with respect to the Interests. No material portion of the
assets or properties of West Shore and/or Basin shall (a) have been damaged
prior to Closing by a casualty loss, or (b) have been taken in condemnation or
if proceedings for such purposes shall be pending.
<PAGE>
k. Seller, MPC and Manistee Gas, L.L.C. shall have agreed in writing
to all amounts due specified on Exhibit 2A, and that payment of those adjusted
amounts to Buyer under Paragraph 2a. are in full satisfaction and discharge of
the amounts stated on Exhibit 2A.
l. At the Closing, Seller shall have furnished Buyer with a letter in
the format of Exhibit 8A from Millennium Energy Fund L.L.C. ("Millennium"), a
subsidiary of Williams Energy Services Company ("WESCO") addressed to Buyer
confirming that it has the right to require and will require MPC to retain up to
$3,000,000 in escrow to fund construction of the Claybanks gathering lines and
central production facilities, necessary to connect Claybanks Unit Wells to the
Claybanks Extension and necessary to produce those wells into the Claybanks
Extension, including, without limitation, all surface and production facilities,
and that it undertakes to release these funds for the sole purpose of
construction of such facilities.
m. Seller shall provide Buyer with a recordable, executed release from
Michigan Gas Fund I and from all other parties holding any liens, mortgages or
encumbrances pertaining to the Interests.
n. At the Closing, Millenium shall deliver to MPC a ratification of
the Processing Agreement (as defined below) in a form acceptable to Buyer.
o. At Closing, MPC shall have executed an Amendment to the Gas
Gathering, Treating and Processing Agreement between MPC and West Shore dated
May 2, 1996 (the "Processing Agreement"), in the form of Exhibit 9A.
p. West Shore Processing Company, MPC and Oceana Exploration Company,
L.C. shall have executed amendments to their respective Gas Gathering, Treating
and Processing Agreement dated May 2, 1996, in which West Shore would reduce the
gas processing proceeds due all producers for Plant Products (as defined in the
Processing Agreement) produced from gas delivered into the Claybanks Extension
by $23,382.44/month for a term of six (6) years from the date of initial
delivery of gas into the Claybanks Extension. Each producer's share of the
reduction shall be determined on a monthly basis by multiplying $23,382.44 by a
fraction, the numerator of which shall be the volume of NGLs produced from gas
delivered into the Claybanks Extension by the producer, and the denominator of
which shall be the total volume of NGLs produced from gas delivered into the
Claybanks Extension by all producers.
9. Conditions Precedent to Seller's Performance. The obligation of Seller
--------------------------------------------
to sell and transfer the Interests under this Agreement is subject to the
satisfaction, at or before the Closing Date, of all the conditions set out below
in this Section 9. Seller may waive any or all of these conditions in whole or
in part without prior notice.
a. Except as otherwise permitted by this Agreement, all
representations and warranties by Buyer in this Agreement shall be true on and
as of the Closing Date as though made at that time.
<PAGE>
b. Buyer shall have performed, satisfied and complied with all
covenants, agreements and conditions required by this Agreement to be performed
or complied with by it on or before the Closing Date.
c. Seller shall have received a certificate, dated the Closing Date,
signed and verified by Buyer, certifying, in such detail as Seller and its
counsel may reasonably request, that the conditions specified in paragraphs (a)
and (b) of this Section have been fulfilled.
d. Buyer shall provide to the Seller each of the documents described
in Section 4(b).
e. No action, suit or proceeding before any court or any governmental
body or authority, pertaining to the transaction contemplated by this Agreement
or to its consummation, shall have been instituted or threatened by any third
party on or before the Closing Date.
f. The execution and delivery of this Agreement by Buyer, and the
performance of its covenants and obligations under it, shall have been duly
authorized by all necessary action, and Seller shall have received copies of
resolutions pertaining to that authorization, certified by an officer of Buyer.
g. The form and substance of all certificates, instruments, opinions,
and other documents delivered to Seller under this Agreement shall be
satisfactory in all reasonable respects to Seller and their counsel.
h. Any required third parties or governmental authorities shall have
given any required approval or consents to the transactions contemplated by this
Agreement on or before the Closing Date.
i. Buyer shall have executed and delivered to West Shore and Basin
written consents to be bound by all of the provisions of the West Shore
Operating Agreement and the Basin Operating Agreement and to become a member of
both West Shore and Basin with respect to the Interests transferred to Buyer
hereunder, and all other necessary action shall have been taken by West Shore
and Basin and their members and managers for Buyer to be a substituted member of
West Shore and Basin with respect to the Interests.
j. At the Closing, West Shore shall have executed an Amendment to the
Processing Agreement in the form of Exhibit 9A hereto.
k. Buyer, West Shore and Basin shall have agreed in writing to all
amounts specified in Exhibit 2A, and that payment of those adjusted amounts are
in full satisfaction and discharge of the amount stated on Exhibit 2A.
10. Impossibility of Performance. If except as otherwise provided herein,
----------------------------
either party shall be prevented from completing the transaction contemplated by
this Agreement for any
<PAGE>
cause beyond its reasonable power and control, the other party may elect to
accept partial performance or, in lieu of any other remedy, elect to terminate
this Agreement.
11. Indemnification, Etc. Buyer shall, on and after the Closing Date, (a)
---------------------
assume and timely pay and perform all duties, obligations and liabilities
relating to the ownership and/or operation of the Interests or any asset or
operations of West Shore or Basin after the Closing Date, and (b) indemnify and
hold Seller, its affiliates and its managers, officers, directors, employees,
attorneys, contractors and agents harmless from and against any and all claims,
actions, causes of actions, liabilities, damages, losses, costs or expenses
("Claims") of any kind or character arising out of or otherwise relating to (i)
the ownership and/or operation of the Interests or any assets or operations of
West Shore or Basin to the extent the same accrued or otherwise arose on or
after the Closing Date, or (ii) any breach of any of Buyer's warranties or
representations contained in Section 6 hereof. Following the Closing Date, the
Seller shall indemnify and hold Buyer, its affiliates and its managers,
officers, directors, employees, attorneys, contractors and agents harmless from
and against any and all Claims of any kind or character arising out of or
otherwise relating to any breach of any of Seller's warranties or
representations contained in Section 5 hereof.
12. Limitation on Seller's Liability.
--------------------------------
a. Buyer must notify the Seller in writing within 1 year after the
date of Closing of any Claim under Section 11. Seller shall have no liability
for any Claim for which it does not receive such a notice during such 1 year
period. Further, Buyer must notify the Seller in writing promptly upon receipt
by Buyer of notice of any matter which could constitute a claim under Section
11, which notice shall include all information regarding the claim which Buyer
has received. Seller shall have no liability for a Claim to the extent Buyer
has failed to so promptly notify Seller and as a result, Seller and their
counsel have insufficient time to defend and contest such matter or to make a
timely response thereto.
b. Notwithstanding any claim arising from this Agreement, including
without limitation, any indemnity claim arising under Section 11 by Buyer
against Seller, Buyer hereby expressly waives, releases and discharges any right
or power to assert any offset, counterclaim or defense of any type whatsoever to
the payment of any consideration under Section 2 hereof, or any other obligation
of Buyer under this Agreement to Seller, and Buyer shall be fully obligated to
timely and fully pay and perform its indebtedness, liabilities and obligations
under this Agreement, and the other agreements of Buyer to Seller
notwithstanding any such offset, counterclaim or defense; provided, that the
foregoing waiver of offset shall not apply to any claim of indemnification by
Buyer relating to a breach of Seller's representations or warranties set forth
in Section 5 of this Agreement. Subject to such proviso, Buyer agrees that all
such indebtedness, liabilities and obligations of Buyer to Seller shall be
absolute and unconditional, and shall not be impaired or modified in any manner
by any claim, event or circumstance arising under this Agreement or otherwise.
13. Other Provisions Regarding Indemnity. Any party entitled to be
------------------------------------
indemnified under Section 11 (an "Indemnified Party") shall have the right to
participate in any proceedings relating to a matter claimed under the
indemnities in Section 11, and to be represented by attorneys of its own
choosing; however, such representation shall be at the Indemnified Party's
<PAGE>
own expense if the Indemnified Party selects different counsel of its own
choosing. If the Indemnified Party does not elect to contest any such claim, the
Indemnified Party shall be bound by the results obtained with respect thereto by
the indemnifying party or parties, including any settlement of such claim.
14. Additional Agreements and Covenants. The parties hereto each hereby
-----------------------------------
agree to the following additional agreements and covenants:
a. At the closing of the transactions contemplated hereby all rights
of way and easements, and options to acquire rights of way and easements, and
grants of rights of way and easements, licenses, road-crossing permits, and
other authorizations held in the name of MPC and/or Seller, and paid for by
Buyer, or its affiliates or any of their predecessors in interest, West Shore
and/or Basin, necessary for or in connection with the route of the Claybanks
Extension, shall be assigned to Basin at no cost to Basin and free and clear of
all liens and encumbrances. For purposes of this Agreement, the term "Claybanks
Extension" shall mean a 10-inch diameter pipeline running from Section 30 in
Elbridge Township to Section 18 of Otto Township (including Section 22 of Ferry
Township), and a 6-inch diameter pipeline continuing to Section 2 of Claybanks
Township, all in Oceana County, Michigan or along such other reasonable
alternative route approved by the Michigan Public Service Commission ("MPSC")
and accepted by Buyer which allows connection of the Claybanks Unit Wells to the
West Shore and Basin Facilities.
b. Within 15 days following the Closing, Buyer shall cause Basin to
file an application (the "Application") with the MPSC for authority to
construct, own and operate the Claybanks Extension as an "Act 9 Pipeline."
Thereafter Buyer shall cause Basin to use reasonable efforts to diligently
pursue that application and to expeditiously respond to all requests from the
MPSC in connection with that application. Upon the Closing, Seller agrees to
thereafter not intervene in the case in which that authorization is sought, and
to withdraw any then pending interventions in that case or in any other
presently pending cases of Basin before the MPSC; and, upon Closing, Seller
agrees to cause MPC to immediately withdraw any interventions filed by MPC in
any presently pending cases of Basin before the MPSC and to not intervene in any
presently pending cases before the MPSC nor to intervene in the case in which
Basin will seek the authorization specified above.
c. Within 30 days following Basin's receipt of authorization from the
MPSC to construct, own and operate the Claybanks Extension as an "Act 9
Pipeline," in form and content reasonably acceptable to Buyer ("MPSC
Authorization"), and its receipt of all applicable permits, Buyer shall exercise
commercially reasonable efforts to order pipe and thereafter shall commence
construction and installation of the Claybanks Extension. It is recognized by
all parties to this Agreement that time is of the essence in getting the
Claybanks Extension in service. To that end, the parties will meet monthly to
discuss the schedule and to cooperate to expedite the schedule. On or before
December 31, 1997, Buyer will have completed a tentative plan and schedule for
the acquisition of valves and materials, and manufacturing of pipe required for
the Claybanks Extension and provide a copy of such tentative plan to Seller.
Upon the earlier of (i) the issuance of the MPSC Authorization, (ii) such time
as Buyer has determined that it is reasonably likely that MPSC Authorization
will be issued, or (iii) at such time as deemed prudent
<PAGE>
by Buyer to timely permit the installation of the Claybanks Extension, Buyer
will commence to acquire the valves and pipe and thereafter diligently use its
commercially reasonable efforts to expedite the delivery of that pipe. Buyer
shall use commercially reasonable efforts to complete the installation and
construction and bring the Claybanks Extension into service within 150 days
following the MPSC Authorization, subject to delays occasioned by force majeure
which shall toll the 150 day period. As used herein, "force majeure" means any
causes or conditions not reasonably within the control of the party affected,
and which by the exercise of reasonable diligence could not be avoided or
overcome. Those causes and conditions shall include, without limiting the
generality of the foregoing, unavoidable delays in obtaining permits and
unavoidable delays in acquiring necessary rights of way, easements, and real
property occasioned by the need to condemn any of the foregoing; delays due to
inclement weather which necessitates extraordinary measures and expense to
construct facilities and/or maintain operations; frost laws; delays caused by
failure to receive equipment in good working condition, material, supplies or
machinery; compliance with acts, orders or regulations of any federal, state, or
local civilian or military authority, or any person acting in proper capacity
therefor, insurrections, wars, rebellion, riots, strikes, lockouts or labor
difficulties (even though those strikes or labor difficulties could be settled
by acceding to the demand of a labor group or others); accidental disruption or
breakdown of equipment, lines, machinery or facilities, provided repairs are
performed expeditiously; and delays in the manufacturing and delivery of pipe
(even though such delays could be overcome through extraordinary measures or
expense). Promptly following the "Decision Date" defined as the earlier of (i)
MPSC denial of Act 9 designation for the Claybanks Extension and Buyer's
decision not to appeal such decision (Buyer's decision not to appeal such MPSC
decision must be made by Buyer within 15 days of such MPSC denial), or (ii) the
failure of Buyer to receive a final, non-appealable order granting the MPSC
Authorization within 18 months following the date upon which Buyer initially
caused the filing for the MPSC Authorization, or (iii) eighteen months and
fifteen days following the Closing, the parties shall meet and discuss
alternative arrangements for the construction and installation of the Claybanks
Extension. Within 30 days after the Decision Date, Buyer shall elect to either
(i) fund and commence the construction and installation of the Claybanks
Extension in a form and manner satisfactory to Buyer which provides for
completion of the Claybanks Extension within 180 days following the Decision
Date, subject to delays occasioned by force majeure as described above, and in a
manner which ensures that the Claybanks Unit Wells will be connected and
produced into the Claybanks Extension, or (ii) assign to MPC all rights of way,
road crossing permits and other applicable permits, licenses and authorizations
in their possession required to build the Claybanks Extension as a producer line
and Buyer agrees to fund all of the costs as incurred to construct and operate
the Claybanks Extension as a producer line. If alternative (ii) is selected by
Buyer, Buyer's obligations are subject to (i) MPC's agreement to assign to Basin
the Claybanks Extension at such time as Basin obtains MPSC Authorization; and
(ii) MPC's and Buyer's entrance into a Construction and Operating Agreement,
Loan Agreement and Promissory Note, in form and substance acceptable to MPC and
Buyer, to have West Shore and/or Basin, on behalf of MPC, build the Claybanks
Extension as a producer pipeline. The agreements shall provide West Shore and/or
Basin with the option to acquire the producer pipeline from MPC in exchange for
cancellation of the Promissory Note, and that MPC will not sell, transfer or
encumber the Producer Pipeline in any manner.
<PAGE>
d. Seller agrees and shall cause MPC to agree, in writing, that it
shall not build, or cause to be built, or participate in the building of the
Claybanks Extension, or any portion thereof, as a "Producer Line" or as any
other type of pipeline other than as provided in Paragraph 14.c. above, and
shall not take any action to cause any duplication of the facilities planned to
be installed and constructed by Basin as the Claybanks Extension, nor shall
Seller or MPC construct or operate any gas treating and processing facility for
the treating and processing of gas dedicated to Basin and/or West Shore other
than facilities for the treating or processing of gas for MPC lease fuel
purposes or to meet gas specifications under the Processing Agreement, which
facilities shall include MPC's proposed Claybanks Central Production Facility
and Gas Plant/Fuel Scrubber facility. The foregoing obligations of MPC shall be
subject to Buyer being in full compliance with the terms of this Agreement,
including, but not limited to, the firm capacity agreements described in
Paragraph 14.g. of this Agreement.
e. MEC shall cause MPC to install and construct all surface and
production facilities necessary to connect its wells, described on Exhibit 14B
("Claybank Unit Wells"), to the Claybanks Extension and necessary to produce
those wells into the Claybanks Extension. MEC will require MPC to cause those
facilities to be installed and operational by the date upon which the Claybanks
Extension has been completed.
f. At the closing of the transactions contemplated by this Agreement,
all rights of way and easements, and options to acquire rights of way and
easements owned by Basin, West Shore, or Buyer, or its affiliates, and which are
necessary for or are in connection with the installation of lateral pipelines to
connect MPC's wells to the Claybanks Extension shall be assigned by Buyer, West
Shore, Basin or any such affiliates, as is applicable, to MPC in exchange for
the $132,500 adjustment to the purchase price hereunder set forth on Exhibit 2A
hereto, which shall be deemed to be all costs and expenses incurred by MarkWest
in obtaining those rights of way and easements.
g. At the Closing of the transactions contemplated by the Agreement,
Buyer shall cause Basin and West Shore to make the following written
confirmations to MPC. Basin shall expressly ratify in favor of MPC a firm
transportation capacity of 20 Mmcf per day (measured at the receipt points into
the facilities of Basin), subject to conditions of force majeure and other
conditions specified in the Gas Gathering, Treating and Processing Agreement
between MPC and West Shore dated May 2, 1996 (the "Processing Agreement"), as
supplemented by that certain Letter Agreement dated May 2, 1996 by and among
Buyer, Seller and MPC (the "Letter Agreement"), and West Shore shall, subject to
conditions of force majeure and other conditions specified in the Processing
Agreement and Letter Agreement, provide or cause to be provided firm treating
capacity to MPC for the portion of that gas redelivered by Basin and remaining
after transportation, and West Shore shall provide or cause to be provide firm
gas processing capacity for the portion of that gas remaining after treating.
h. At the Closing, Buyer agrees and shall cause its affiliates,
including West Shore and Basin, to agree that neither Seller nor its affiliates
(including MPC) shall have any obligation to reimburse Buyer or any of its
affiliates for any of the cost of the Claybanks Extension nor any transportation
surcharge which may be incorporated in the Processing Agreement.
<PAGE>
i. Until the earlier to occur of December 31, 2017, or such time as
Buyer has made all possible contingent payments to Seller under Section 2 of
this Agreement, Buyer shall cause West Shore and Basin to deliver the following
reports and items to Seller: Monthly Receipt Point gas volume summary reports
for each well for which gas is being processed by the Basin and/or West Shore
Facilities, to be delivered for each calendar month within 30 days following the
end of such calendar month.
j. Until the earlier to occur of December 31, 2017, or such time as
Buyer has made all possible contingent payments to Seller under Section 2 of
this Agreement, Buyer shall cause West shore and Basin to afford the following
audit rights to Seller with respect only to the matters specified in i., above:
Seller may, upon written notice to West Shore or Basin, cause an audit to
be performed with respect only to the Receipt Point gas volume reports delivered
under i., above. That audit shall be performed at a time agreed upon by West
Shore or Basin, as applicable, and Seller, (or in the absence of an agreement,
commencing within sixty (60) days after that written notice); provided, however,
that in any event there shall be (i) no audits conducted more frequently than
once each twelve (12) months; (ii) no audit may cover a period greater than
twenty-four (24) consecutive months; (iii) no audit may cover a period that has
been subject to a prior audit,; and (iv) no audit may cover any time periods
more than twenty-four (24) months preceding the date of the notice for the
audit. The costs and expenses incurred by any auditor conducting an audit shall
not be charged to West Shore or Basin (as applicable), but shall be borne and
paid by Seller. After a period of two (2) years all statements and records
which have not been subject to an audit shall be deemed correct.
k. Personnel Matters. From the date of execution, and after Closing,
-----------------
if Closing occurs, Seller agrees, for itself and for its affiliates, that it
will not (and will cause MPC and its other affiliates to not) solicit, directly
or indirectly, any employees of Buyer, or of any affiliates of Buyer, for
employment by Seller or any affiliates of Seller.
l. From the date hereof until Closing, without first obtaining the
consent of Buyer, Seller will not:
(a) waive any right of material value relating to the Interests;
(b) convey, encumber, mortgage, pledge or dispose of any of the
Interests, or grant any rights or options to acquire any
ownership or rights of any nature in the Interests; or
(c) contract or commit itself to do any of the foregoing, or
negotiate or solicit, directly or indirectly, with any other
person, firm or entity to do any of the foregoing.
<PAGE>
15. Dismissal of Actions, Mutual Releases and Arbitration.
-----------------------------------------------------
a. At Closing, Buyer, by its counsel of record in the actions listed
on Exhibit 15A, shall execute and within five business days of the Closing Date,
file motions or notices to dismiss said actions with prejudice, all parties to
bear their own costs and attorneys' fees. Such dismissals shall be filed by
Buyer on its own behalf and, as applicable, on behalf of MarkWest Michigan,
Inc., West Shore and Basin. At Closing, Seller, by its counsel of record in the
actions listed in Exhibit 15B, shall execute and within 5 business days of
Closing, file motions or notices to dismiss said actions with prejudice, all
parties to bear their own costs and attorneys' fees. Such dismissals shall be
filed by Seller on its own behalf, and as applicable, on behalf of MPC, Energy
Acquisition Corp., Michigan Exploration, Inc. and Dwain Immel. Any motion or
notice to dismiss filed pursuant to this section shall not be opposed by the
adverse party or parties in the respective actions, nor shall any party attempt
or purport to preserve any rights or claims as part of any action so dismissed.
No party hereto, by the execution of this Agreement, admits liability with
regard to any claim or allegation made in the actions described in Exhibits 15A
and 15B or covered by this Agreement. The parties to this Agreement expressly
covenant each with the other never to institute or participate as a party in any
suit or action, at law or in equity, against any other by reason of any claim,
demand, action or cause of action released by this Agreement or described in
Exhibits 15A and 15B to this Agreement. This covenant is contractual, and not a
mere recital, and shall survive the closing of this Agreement. The parties
expressly warrant that they have not sold, assigned, granted or transferred to
any other person, corporate or natural, any claim, action, demand or cause of
action encompassed by, or dismissed pursuant to, this Agreement. This Agreement
shall be deemed breached, and a cause of action accrued thereon, immediately
upon breach of the covenant or warranty contained in this section. In any such
action, this Agreement may be pleaded as a defense, or by way of counterclaim or
cross-claim. Unconditionally, immediately and on demand, the party in breach of
this section shall hold and save harmless the other party from and against any
and all actions, causes of action, claims, demands, counterclaims, liabilities,
losses, damages and expenses, including costs and attorneys' fees, that may be
sustained or incurred by reason of any breach of this section.
b. Effective upon the Closing Date, all of the parties hereto on
behalf of themselves, their heirs, executors, personal representatives, assigns,
officers, directors, employees, agents, and anyone acting on behalf of, by, or
through them, release each of the other parties hereto, their heirs, executors,
personal representatives, assigns, officers, managers, directors, employees,
agents, and anyone acting on behalf of, by, or through them, of and from any and
all liability, debts, obligations, claims or demands of any nature or kind
whatsoever (whether known or unknown) accruing at any time up to and including
the Closing Date; provided, that the foregoing release shall not apply to any
liabilities or obligations otherwise provided for under the terms and provisions
of this Agreement and the Exhibits hereto.
16. Brokers. Buyer and the Seller represent and warrant to each other
-------
that all of their negotiations relative to this Agreement and the transactions
contemplated hereby have been carried on directly, without the intervention of
any other person, so as not to give rise to any valid claim against any party
hereto for a finder's fee, brokerage commission or other like payment.
<PAGE>
17. Nature and Survival of Representations. All representations and
--------------------------------------
warranties, made by the parties in this Agreement or pursuant hereto shall be
deemed also to have been made as of the Closing Date (unless they specifically
relate to an earlier date) and shall then be true and correct in all material
respects except insofar as waived or consented to in writing by the party to
whom made, and (except as otherwise specifically indicated herein) shall survive
the Closing Date for a period of 1 year following the Closing Date, at which
time the same shall terminate, except those for which a claim has been asserted
within that 1-year period.
18. Expenses. Except as otherwise expressly provided herein, each of the
--------
parties shall pay all costs and expenses incurred or to be incurred by it in the
negotiation and preparation of this Agreement and in closing and carrying out
the transactions contemplated by this Agreement.
19. Notices. All notices, requests, demands and other communications
-------
hereunder shall be in writing, and shall be delivered by hand, by facsimile, or
by certified or registered mail, postage prepaid. Any such notice shall be
deemed given upon its receipt at the following
addresses or facsimile numbers (provided, that a party may change its address or
facsimile number hereunder by notice to the other parties in accordance with the
terms hereof):
If to Buyer: 155 Inverness Drive West, Suite 200
Englewood, Colorado 80112
Facsimile No. (303) 290-8769
If to Seller: c/o Michigan Energy Company, L.L.C.
1801 Broadway, Suite 1050
Denver, Colorado 80202
Facsimile No. (303) 298-1141
20. Headings. The subject headings of the sections of this Agreement are
--------
included for purposes of convenience only and shall not affect the construction
or interpretation of any of its provisions.
21. Benefits and Assignment. The provisions of this Agreement shall be
-----------------------
binding upon and inure to the benefit of and be enforceable by the parties
hereto and their respective successors and assigns, but may not be assigned by
any of the parties hereto without the consent of the other parties hereto. The
parties agree that there are no intended third party beneficiaries of this
Agreement.
22. Remedies. The parties agree that, in relation to any breach, default
--------
or nonperformance of any representation, warranty, covenant or agreement made or
entered into by any party hereto pursuant to this Agreement or any certificate
or document delivered pursuant hereto, the only relief and remedy available to
the other party hereto with respect to said breach, default, or nonperformance
shall be (i) termination, but only if said termination is expressly permitted
under the provisions of Section 24, and/or, (ii) damages, but only to the extent
properly claimable hereunder and as limited pursuant to this Section 22, (iii)
in the event of a default on the part of Seller, Buyer shall, in addition to the
other remedies specified herein, have the right to have this Agreement
specifically enforced, and/or (iv) in the event of a default on the part of the
<PAGE>
Buyer, Seller shall, in addition to other remedies specified herein, have the
right to have this Agreement specifically enforced. The parties agree that in
any action for damages arising from this agreement, the recovery shall be
limited to actual damages, and each party agrees to waive any right to recovery
for any consequential, incidental, punitive or exemplary damages.
Notwithstanding any breach or default by any of the parties of any of their
respective representations, warranties, covenants, or agreements under this
Agreement, if the purchase and sale contemplated by it is consummated at the
closing contemplated hereby, each of the parties waives any rights that it or
they may have to rescind this Agreement or the transaction consummated pursuant
to it; provided, however, that this waiver shall not affect any other rights or
remedies available to the parties under this Agreement.
23. Costs. If any legal action or other proceeding is brought for the
-----
enforcement of this Agreement, or because of an alleged dispute, breach,
default, or misrepresentation in connection with any of the provisions of this
Agreement, the successful or prevailing party or parties shall be entitled to
recover reasonable attorneys' fees and other costs incurred in that action or
proceeding, in addition to any other relief to which it or they may be entitled.
24. Termination. This Agreement may be terminated at any time prior to
-----------
Closing:
a. By the mutual written agreement of Seller and Buyer; or,
b. By either Seller or Buyer if the consummation of the transactions
contemplated herein would violate any nonappealable final order, decree or
judgment of any governmental entity having appropriate jurisdiction enjoining or
awarding substantial damages in connection with the consummation of the
transactions contemplated herein; or,
c. By Buyer if its Conditions Precedent under Section 8, above have
not been satisfied by Closing, unless waived, in writing by Buyer; or,
d. By Seller if its Conditions Precedent under Section 9, above have
not been satisfied by Closing, unless waived, in writing by Seller; or,
e. By the non-defaulting party if the other party materially defaults
in the due and timely performance of any of its warranties, covenants, or
agreements under this Agreement
Upon the occurrence of any of the events specified in b., through e., above, the
party seeking termination may on or before the Closing Date give notice of
termination of this Agreement, in the manner provided in Section 19; provided,
no party may give notice of termination if that party is then in default of the
timely performance of any of its warranties, covenants, or agreements under this
Agreement. The notice shall specify with particularity the default or defaults,
or other occurrences specified above, on which the notice is based. The
termination shall be effective immediately upon delivery. Following termination,
this Agreement shall become void and of no further force and effect, except for
the provisions of Sections 18 and 25 which will survive such termination;
provided, that except as otherwise specifically provided herein, the foregoing
shall not relieve any party for liability for damages incurred as a result of
any breach hereof (to the extent permitted by Section 22).
<PAGE>
25. Confidentiality and Publicity. Until the Closing, each party hereto
-----------------------------
agrees that it shall keep the terms and provisions of this Agreement and the
negotiations related hereto confidential and that it shall not disclose any
terms, provisions or negotiations to any third party without the prior written
consent of each party hereto, except (i) as such disclosure may be required by
law or the order, rule or regulations of any court or governmental agency or
authority, including, without limitation, the Securities and Exchange
Commission, and (ii) as such disclosure may be reasonably required in connection
with any proposed merger, asset sale, share exchange or any other reorganization
of any party hereto. Until the Closing, all notices to third parties and all
other publicity concerning the transactions contemplated by this Agreement shall
be jointly planned and coordinated by and between Buyer and Seller. Until the
Closing, none of the parties shall act unilaterally in this regard without the
prior written approval of the others; however, this approval shall not be
unreasonably withheld. The parties agree that disclosure of the terms of this
Agreement to Williams Energy Services Company, Millennium and Michigan Gas Fund
I is hereby authorized.
26. Choice of Law. This Agreement shall be construed under and in
-------------
accordance with the laws of the State of Michigan.
27. Entire Agreement. As to the subject matter of this Agreement, there
----------------
are no oral agreements or understandings which limit, expand or otherwise
pertain to these matters. This Agreement is intended to be a full and final
statement of the rights and obligations of the parties hereto and shall
supersede all previous letters of intent or other agreements between the parties
hereto, including without limitation, any term sheets relating to the
transactions contemplated hereby. No supplement, modification, or amendment of
this Agreement shall be binding unless executed in writing by all the parties.
No waiver of any of the provisions of this Agreement shall be deemed, or shall
constitute, a waiver of any other provision, whether or not similar, nor shall
any waiver constitute a continuing waiver. No waiver shall be binding unless
executed in writing by the party making the waiver.
28. Counterparts. This Agreement may be executed simultaneously in one or
------------
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives on the date first above
written.
SELLER:
MICHIGAN ENERGY COMPANY, L.L.C.
By: /s/ Dwain Immel
-----------------------
Name: Dwain Immel
---------------------
Title: Manager
--------------------
<PAGE>
BUYER:
MARKWEST MICHIGAN, INC.
By: /s/ Arthur J. Denney
Name: Arthur J. Denney
Title: Sr. Vice President
<PAGE>
TABLE OF EXHIBITS
Item Exhibit
- ---- -------
Identification of "Other Company" (not included in this filing) A
Adjustments to Initial Cash Payment (not included in this filing) 2A
Form of Assignments 4A
Opinion of Seller's' Counsel 4B
Opinion of Buyer's Counsel 4C
Guaranty 4D
Millennium Letter (not included in this filing) 8A
Amendment to Processing Agreement 9A
Claybanks Unit Wells 14B
Actions to be Dismissed by Buyer 15A
Actions to be Dismissed by Seller 15B
<PAGE>
EXHIBIT 4A
To Purchase and Sale Agreement
by and between
MICHIGAN ENERGY COMPANY, Seller
and
MARKWEST MICHIGAN, INC., Buyer
ASSIGNMENT
KNOW ALL MEN BY THESE PRESENTS:
THIS ASSIGNMENT (referred to hereinafter as "Assignment"), effective as of
November 1, 1997, at 7:00 a.m., Eastern Time ("Effective Time"), from MICHIGAN
ENERGY COMPANY, L.L.C., (referred to hereinafter as "Assignor"), to MARKWEST
MICHIGAN, INC.,, 155 Inverness Drive West, Suite 200, Englewood, Colorado 80112,
(referred to hereinafter as "Assignee").
W I T N E S S E T H:
- - - - - - - - - -
FOR Ten Dollars and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Assignor hereby GRANTS, SELLS,
TRANSFERS, BARGAINS, CONVEYS and ASSIGNS to Assignee the following (collectively
called the "Interests"):
A. All of Assignor's Membership Interests, Ownership Interests and Sharing
Ratios in West Shore Processing Company, LLC (West Shore) and in Basin
Pipeline L.L.C. (Basin), as those terms are described, respectively in that
certain Participation, Ownership and Operating Agreement for West Shore
Processing Company, LLC, dated May 2, 1996, as amended (the "West Shore
Operating Agreement"), including, without limitation, all such Membership
Interests, Ownership Interests and Sharing Ratios now owned by Assignor and
all rights to acquire additional such interests after the date hereof;
specifically including, without limitation, all Membership and Ownership
Interests in West Shore and Basin, including, without limitation not less
than a 40% Ownership Interest in West Shore and Assignor's 0.8% Membership
Interest in Basin;
B. Together with all rights and interests of Assignor in and to the West
Shore Operating Agreement and in and to that certain Second Amended and
Restated Operating Agreement for Basin Pipeline L.L.C., dated May 2, 1996
("Basin Operating Agreement"), now existing or arising after the date
hereof.
<PAGE>
TO HAVE AND TO HOLD the Interests forever subject to the following terms
and conditions:
1. Observance of Laws. This Assignment is subject to all applicable laws,
------------------
ordinances, rules, and regulations affecting the Interests.
2. Successors and Assigns. The terms, covenants, and conditions hereof
----------------------
bind and inure to the benefit of the parties hereto and their respective
successors and assigns.
3. Authority. Assignor represents that (i) it has the full authority to
---------
execute this Assignment, (ii) this Assignment is enforceable in accordance with
its terms.
4. Further Assurances. The parties agree to execute any and all other
------------------
instruments reasonably required to effectuate and consummate the transactions
between them as contemplated by this Assignment.
5. Purchase and Sale Agreement. This Assignment is made in accordance
---------------------------
with and is subject to the terms, covenants and conditions contained in that
certain PURCHASE AND SALE AGREEMENT dated November 21, 1997, by and between
Assignor and Assignee ("Purchase and Sale Agreement"), and the terms, covenants
and conditions contained in the Purchase and Sale Agreement are incorporated
herein by reference as though said terms, covenants and conditions were fully
set forth verbatim herein, which terms and conditions shall expressly survive
the execution and delivery of this Assignment. If there is a conflict between
the provisions of the Purchase and Sale Agreement and this Assignment, the
provisions of the Purchase and Sale Agreement shall control the rights and
obligations of the parties.
6. Assumption of Obligations. Assignee hereby assumes all of the
-------------------------
obligations, liabilities, debts, costs, expenses, liens, encumbrances, demands,
claims, actions, losses and damages of any kind whatsoever arising under or
affecting the Interests after the Effective Time, including without limitation,
all obligations of Assignor, arising after the Effective Time, under the West
Shore Operating Agreement and the Basin Operating Agreement.
7. Warranty Of Title. Assignor warrants and shall defend title to the
-----------------
Interest conveyed to Assignee against every person whomsoever lawfully claiming
the Interests or any part thereof.
EXECUTED this 21st day of November, 1997, but effective for all purposes as
of the Effective Time.
<PAGE>
ASSIGNOR:
MICHIGAN ENERGY COMPANY, L.L.C.
By: /s/ Dwain Immel
--------------------
Title: Manager
ASSIGNEE:
MARKWEST MICHIGAN, INC.
By: /s/ Arthur J. Denney
--------------------
Title: Senior Vice President
THE STATE OF COLORADO )
)
COUNTY OF ARAPAHOE )
The foregoing instrument was acknowledged before me this 21st day of
November, 1997, by Dwain Immel, the Manager of MICHIGAN ENERGY COMPANY, L.L.C.
Witness my Hand and Official Seal.
My Commission expires: 8/31/99
/s/ Linda E. Whatley
----------------------------
Notary Public
THE STATE OF COLORADO )
)
COUNTY OF ARAPAHOE )
The foregoing instrument was acknowledged before me this 21st day of November,
1997, by Arthur J. Denney, the Senior Vice President of MARKWEST MICHIGAN, INC.
Witness my Hand and Official Seal.
My Commission expires: 8/31/99
/s/ Linda E. Whatley
-----------------------------
Notary Public
<PAGE>
EXHIBIT 4B
To Purchase and Sale Agreement
by and between
MICHIGAN ENERGY COMPANY, Seller
and
MARKWEST MICHIGAN, INC., Buyer
OPINION OF COUNSEL
------------------
To: MARKWEST MICHIGAN, INC.
Gentlemen:
This opinion is delivered to you pursuant to that certain Purchase and Sale
Agreement by and between MICHIGAN ENERGY COMPANY, L.L.C. (MEC), a Michigan
limited liability company ("Seller") and MARKWEST MICHIGAN, INC., a Colorado
corporation ("Buyer") dated the 21st day of November, 1997 (the "Agreement").
Capitalized terms not otherwise defined have the same meanings as set forth in
the Agreement.
As counsel for Michigan Energy Company, L.L.C., I have made such legal and
factual examinations as I have deemed necessary and proper in rendering the
opinions herein expressed, and I have examined, among other things, the
materials listed below:
(a) The Articles of Organization and Operating Agreement of MEC as amended;
(b) Advice from the Michigan Secretary of State as to the good standing of MEC
in Michigan:
(c) Certified copies of resolutions adopted by the Managers and/or Members of
MEC in connection with the Agreement and certain related matters; and
(d) An executed copy of the Agreement.
Based upon the foregoing and having regard to the legal considerations which I
deem relevant, it is my opinion that:
1. MEC is a limited liability company duly organized, validly existing and in
good standing under the Laws of the State of Michigan, having all requisite
power and authority to own and
<PAGE>
lease the Interests. MEC is duly licensed or qualified to do business and is
in good standing in all jurisdictions in which the Interests are located;
2. MEC has all requisite power and authority to execute and deliver the
Agreement, to consummate the transactions contemplated therein and to
perform all of the terms and conditions to be performed by it as provided
for in the Agreement. The execution and delivery of the Agreement by MEC,
the performance by MEC of all of the terms and conditions to be performed
by it and the consummation of the transactions contemplated therein have
been duly authorized and approved by all necessary action. The Agreement
has been duly executed and delivered by MEC and constitutes the valid and
binding obligation of MEC, enforceable against it in accordance with its
terms, except as such enforceability may be limited by bankruptcy,
insolvency or other Laws relating to or affecting the enforcement of
creditors' rights and general principles of equity (regardless of whether
such enforceability is considered in a proceeding at law or in equity);
3. The execution and delivery of the Agreement and the consummation of the
transaction contemplated therein will not conflict with or require the
consent of any person or entity under any of the terms, conditions or
provisions of the Articles of Organization and Operating Agreement of MEC;
4. Energy Acquisition Corp. and Michigan Exploration, Inc., are the sole and
exclusive owners of all membership interests and ownership interests of any
nature in MEC, and no other person, firm or entity owns any interests in
MEC, has any voting rights in MEC or is required to approve or consent to
the transactions contemplated by the Agreement; nor does any other person,
firm or entity own any preferential purchase rights, options to acquire,
reversionary interests or other interests to acquire ownership or voting
rights of any nature in Seller, whether or not vested, contingent or
future interests.
5. The execution and delivery of the Agreement and the consummation of the
transaction contemplated therein will not violate any provision of, or
require any filing, consent or approval under any Law applicable to or
binding upon MEC (assuming receipt of all consents and approvals of
governmental entities or tribal authorities customarily obtained subsequent
to the transfers of title), and MEC has Defensible Title to the Interests,
free and clear of liens, encumbrances and adverse claims of every nature,
including, without limitation, preferential purchase rights, rights to
acquire any portion or all of the Interests, whether vested, contingent or
future, or options to acquire, at any time, any portion or all of the
Interests; and
6. All necessary company action has been taken by MEC to authorize the
execution and delivery of the Agreement and the performance by MEC of its
obligations thereunder.
<PAGE>
In rendering this opinion, I have assumed the genuineness of all signatures and
the authenticity of all documents submitted to me as originals and the
conformity with the originals of all documents submitted as certified,
photostatic or otherwise identified as copies. I also have obtained and relied
upon such certificates as to factual matters and other assurances from public
officials and officers of MEC as I considered necessary for the purpose of
rendering this opinion. With respect to the good standing of MEC I have relied
solely on the advice of the Secretary of State of Michigan.
The foregoing opinion is limited to the laws of the State of Michigan and the
federal laws of the United States of America, and I express no opinion as to the
applicability or the effect of the laws of any other jurisdiction.
This opinion is rendered solely for the benefit of the entity to which this
opinion is addressed in connection with the Agreement and the transactions
contemplated thereby, and may not be relied upon for any other purpose, nor may
it be furnished to, used, circulated, quoted or referred to by any other person
or entity without my prior written consent.
Sincerely,
Name: /s/ Foster, Swift, Collins & Smith, P.C.
-----------------------------------------
Counsel For:
Date: November 21, 1997
<PAGE>
EXHIBIT 4C DRAFT
To Purchase and Sale Agreement
by and between
MICHIGAN ENERGY COMPANY, Seller
and
MARKWEST MICHIGAN, INC., Buyer
OPINION OF COUNSEL
To: MICHIGAN ENERGY COMPANY
Gentlemen:
This opinion is delivered to you pursuant to that certain Purchase and Sale
Agreement by and between MICHIGAN ENERGY COMPANY, L.L.C., a Michigan limited
liability company ("Seller"), and MARKWEST MICHIGAN, INC., a Colorado
corporation ("Buyer") dated the 21st day of November, 1997 (the "Agreement").
Capitalized terms not otherwise defined have the same meanings as set forth in
the Agreement.
As counsel for MarkWest Michigan, Inc., and MarkWest Hydrocarbons, Inc., a
Colorado corporation that is the 100% owner (direct or indirect) of Buyer
(herein referred to as "Guarantor"), I have made such legal and factual
examinations as I have deemed necessary and proper in rendering the opinions
herein expressed, and I have examined, among other things, the materials listed
below:
(a) The Articles of Incorporation and Bylaws of Buyer and Guarantor, as
amended;
(b) Advice from the Colorado Secretary of State as to the good standing of
Buyer and Guarantor in Colorado and advice from the Michigan Secretary of
State as to the good standing of Buyer in Michigan;
(c) Certified copies of resolutions adopted by the directors of Buyer and
Guarantor in connection with the Agreement and certain related matters;
(d) An executed copy of the Agreement; and
(e) An executed copy of the Guaranty (the "Guaranty") of even date with the
Agreement executed by Guarantor in favor of Seller guaranteeing all of
Buyer's obligations under the Agreement.
<PAGE>
Based upon the foregoing and having regard to the legal considerations which I
deem relevant, it is my opinion that:
1. Buyer and Guarantor are each corporations duly organized, validly existing
and in good standing under the Laws of the State of Colorado. Buyer is
duly licensed or qualified to do business as a foreign corporation and is
in good standing in Michigan;
2. Buyer has all requisite corporate power and authority to execute and
deliver the Agreement, to consummate the transactions contemplated therein
and to perform all of the terms and conditions to be performed by it as
provided for in the Agreement. The execution and delivery of the Agreement
by Buyer, the performance by Buyer of all of the terms and conditions to be
performed by it and the consummation of the transactions contemplated
therein have been duly authorized and approved by all necessary corporate
action. The Agreement has been duly executed and delivered by Buyer and
constitutes the valid and binding obligation of Buyer, enforceable against
it in accordance with its terms, except as such enforceability may be
limited by bankruptcy, insolvency or other Laws relating to or affecting
the enforcement of creditors' rights and general principles of equity
(regardless of whether such enforceability is considered in a proceeding at
law or in equity);
3. Guarantor has all requisite corporate power and authority to execute and
deliver the Guaranty, to consummate the transactions contemplated therein
and to perform all of the terms and conditions to be performed by it as
provided for in the Guaranty. The execution and delivery of the Guaranty
by Guarantor, the performance by Guarantor of all of the terms and
conditions to be performed by it and the consummation of the transactions
contemplated therein have been duly authorized and approved by all
necessary corporate action. The Guaranty has been duly executed and
delivered by Guarantor and constitutes the valid and binding obligation of
Guarantor, enforceable against it in accordance with its terms, except as
such enforceability may be limited by bankruptcy, insolvency or other Laws
relating to or affecting the enforcement of creditors' rights and general
principles of equity (regardless of whether such enforceability is
considered in a proceeding at law or in equity);
4. The execution and delivery of the Agreement and the consummation of the
transactions contemplated therein will not conflict with or require the
consent of any person or entity under any of the terms, conditions or
provisions of the Articles of Incorporation or Bylaws of Buyer.
5. The execution and delivery of the Guaranty and the consummation of the
transactions contemplated therein will not conflict with or require the
consent of any person or entity
<PAGE>
under any of the terms, conditions or provisions of the Articles of
Incorporation or Bylaws of Guarantor.
6. The execution and delivery of the Agreement and the consummation of the
transaction contemplated therein will not violate any provisions of or
require any filing, consent or approval under any Law applicable to or
binding upon Buyer (assuming receipt of all consents and approvals of
governmental entities or tribal authorities customarily obtained subsequent
to the transfers of title).
7. The execution and delivery of the Guaranty and the consummation of the
transaction contemplated therein will not violate any provisions of or
require any filing, consent or approval under any Law applicable to or
binding upon Guarantor.
In rendering this opinion, I have assumed the genuineness of all signatures and
the authenticity of all documents submitted to me as originals and the
conformity with the originals of all documents submitted as certified,
photostatic or otherwise identified as copies. I also have obtained and relied
upon such certificates as to factual matters and other assurances from public
officials and officers of Buyer and Guarantor as I considered necessary for the
purpose of rendering this opinion. With respect to the good standing of Buyer
and Guarantor I have relied solely on the advice of the Secretary of State of
Colorado and the Secretary of State of Michigan.
The foregoing opinion is limited to the laws of the State of Michigan and the
State of Colorado and the federal laws of the United States of America, and I
express no opinion as to the applicability or the effect of the laws of any
other jurisdiction.
This opinion is rendered solely for the benefit of the entity to which this
opinion is addressed in connection with the Agreement and the Guaranty and the
transactions contemplated thereby, and may not be relied upon for any other
purpose, nor may it be furnished to, used, circulated, quoted or referred to by
any other person or entity without my prior written consent.
Sincerely,
Name: /s/ Barry Spector
------------------------------
Counsel For:________________________
Date: November 21, 1997
<PAGE>
EXHIBIT 4D
GUARANTY
--------
This Guaranty is dated November 21, 1997, from MarkWest Hydrocarbon, Inc.,
a Delaware corporation ("Guarantor"), to Michigan Energy Company, L.L.C., a
Michigan limited liability company ("MEC").
WITNESSETH:
----------
WHEREAS, MarkWest Michigan, Inc., a Colorado corporation ("MarkWest
Michigan"), wholly owned by Guarantor (directly or indirectly), has entered into
a Purchase and Sale Agreement dated November 21, 1997 (said Purchase and Sale
Agreement and Exhibits thereto herein collectively called the "Agreement") with
MEC providing for MEC's sale and MarkWest Michigan's purchase of certain limited
liability company membership interests in West Shore Processing Company, L.L.C.
("West Shore") and Basin Pipeline, L.L.C. ("Basin"), all as more specifically
set forth in the Agreement; and
WHEREAS, Guarantor expects to benefit from the transactions contemplated by
the Agreement; and
WHEREAS, MEC, as a condition to its agreement to enter into the Agreement
and to consummate the transactions contemplated thereby, has required that the
Guarantor guarantee the performance by MarkWest Michigan of its contingent
payment and its Claybanks Extension funding obligations under the terms and
provisions of the Agreement and the documents to be executed pursuant thereto;
NOW, THEREFORE, in consideration of the premises and to induce MEC to enter
into the Agreement, and to consummate the transactions contemplated thereby,
Guarantor hereby covenants and agrees with MEC as follows:
1. Guarantor hereby absolutely and irrevocably guarantees to MEC the
payment of contingent payment obligations of MarkWest Michigan pursuant to
Section 2 of the Agreement and all of MarkWest Michigan's Claybanks Extension
funding obligations under Section 2e. of the Agreement.
<PAGE>
2. This Guaranty is a guarantee of payment and performance and shall not
be construed to be limited to a guarantee of collection. MEC agrees that upon a
failure of MarkWest Michigan to make any payment or to perform any act, or to
refrain from performing any act, required under Section 2 of the Agreement, MEC
shall notify MarkWest Michigan in writing of such matters with a copy to
Guarantor. Guarantor agrees that if MarkWest Michigan has not completely cured
or otherwise satisfied the obligations described in such notice within ten days
after the date of such notice, then immediately upon written demand by MEC,
Guarantor shall pay MEC the full amount of, and do and perform each of, such
obligations, as if such obligations constituted the direct and primary
obligation of Guarantor. MEC shall not be required to exhaust any remedies it
may otherwise have against MarkWest Michigan before proceeding against Guarantor
hereunder. Guarantor shall have the right to assert as defenses to its
obligations hereunder all defenses or setoffs which would have been available to
MarkWest Michigan, Inc., other than those relating to bankruptcy or insolvency
of MarkWest Michigan, Inc.
3. Any notice, demand or request by MEC to Guarantor shall be in writing,
and shall be deemed to have been duly given or made if either delivered
personally to Guarantor or mailed by certified mail or registered mail addressed
to Guarantor at: 155 Inverness Drive West, Suite 200, Englewood, Colorado
80112.
4. This Guaranty and the obligations of Guarantor hereunder shall be
construed in accordance with and governed by the laws of the State of Colorado.
IN WITNESS WHEREOF, Guarantor has executed this Guaranty as of the date
first above written.
MARKWEST HYDROCARBON, INC.
By: /s/ Arthur Denney
--------------------------------
Title: Vice President
-----------------------------
<PAGE>
EXHIBIT 9A
AMENDMENT TO GAS GATHERING, TREATING AND PROCESSING AGREEMENT
THIS AMENDMENT TO GAS GATHERING, TREATING AND PROCESSING AGREEMENT
("AMENDMENT") is made and entered into this 21st day of November, 1997, by and
between MICHIGAN PRODUCTION COMPANY, L.L.C., hereinafter referred to as
"Producer", and WEST SHORE PROCESSING COMPANY, LLC., hereinafter referred to as
"Processor".
RECITALS:
A. Producer and Processor entered into that certain Gas Gathering,
Treating and Processing Agreement dated May 2, 1996 (the "Agreement").
B. The parties desire to amend the Agreement to more clearly provided
procedures for billing and payment obligations contained therein.
NOW THEREFORE, in consideration of the mutual covenants and agreements
contained herein, the parties agree as follows:
1. Article VIII, Statements and Payments, of the Agreement shall be
-----------------------
amended by deleting it in its entirety and replaced by the following revised
Article VIII, Statements and Payment:
----------------------
ARTICLE VIII
STATEMENTS AND PAYMENTS
-----------------------
8.1 Processor shall, on or about the 15th day following each Accounting
Period, submit an invoice to Producer indicating the volume of gas received
during the Accounting Period, together with the amount of fees due hereunder.
Producer shall pay Processor the full invoiced amount by the later of (i) the
25th day of the Accounting Period following the Accounting Period for which the
invoice was submitted, or (ii) ten (10) days following receipt of Processor's
invoice. All payments shall be made in the form of immediately available funds
directed to a bank account designated by Processor on the invoice.
8.2 Processor shall, on or about the 15th day following each Accounting
Period, provide Producer with a statement indicating the total amount of Plant
Products and Pipeline Drip received during the Accounting Period attributable to
Producer's Gas delivered hereunder and the amount due Producer for its share of
such Plant Products and Pipeline Drip. Processor shall make payment for
Producer's share of the net proceeds attributable to Producer's allocated Plant
Products and Pipeline Drip by the later of (i) the 25th day of the Accounting
Period
<PAGE>
following the Accounting Period for which Processor's statement was submitted,
or (ii) ten (10) days following the date of Processor's statement..
8.3 On or before the 30th day following each Accounting Period, Processor
shall furnish Producer with a report indicating the 8/8s Volume of Producer's
Gas in both MMBTUS and MCFs attributable to Producer's Gas, the Plant allocation
of fuel and remaining residue gas, and such other information as Producer deems
necessary to provide in its reasonable discretion. The foregoing report shall
include, but not be limited to, Receipt Point inlet summaries, third party
measurement Receipt Point statements, NGL plant balancing statement, NGL plant
fuel heating value, Shell 23 (or other third party treating plant) and NGL plant
balancing statement, an allocation report, and a West Shore monthly summary.
8.4 The statements rendered pursuant to this Agreement shall be
denominated in U.S. Dollars ($U.S.), and all payments shall be made in $U.S.
8.5 Should Producer fail to pay any undisputed amount of any statement
rendered by Processor when such amount is due, a late payment charge equal to
the rate of 1.5% per month, shall be added to the statement, and Processor in
its sole discretion may after 10 days prior written notice suspend further
receipts of gas without liability to Producer until the undisputed amount is
paid. Additionally, should Producer, at any time, be delinquent in the payment
of its fees under 8.1, above, then Processor, at its option, shall have the
right, in addition to all other rights and remedies of Processor hereunder, at
law or in equity, to set off from amounts due Producer for its share of
allocated Plant Products and Pipeline Drip, all delinquent fees hereunder. The
set off of fees owed by Producer to Processor, hereunder, from the Net Sales
Price for Plant Products and Pipeline Drip attributable to Producer's gas shall
not relieve Producer of any liability to Processor for those fees, and should
the full amount of those fees not be recovered from such set off, then Producer
shall remain fully responsible for those delinquent fees.
8.6 Processor shall not be required to commence receiving Producer's Gas
hereunder or to continue to receive Producer's Gas under this Agreement if
Producer is or has become insolvent and is not paying its invoices hereunder to
Processor, or if Producer, when requested by Processor to demonstrate credit
worthiness, fails to do so pursuant to Processor's reasonable requirements
provided, however, that Processor will receive Producer's Gas hereunder if
- -------- -------
Producer deposits with Processor and maintains, on prepaid account, an amount
equal to amounts which would be due for one month's service of treating and
transportation fees, based on the previous calendar month's volumes and related
treating and transportation fees; or furnishes, within fifteen days (15), good
and sufficient security, as reasonably determined by Processor, of a continuing
nature and in an amount equal to such amounts which would be due. Producer
shall be deemed to be creditworthy if it has made prepaid account deposit each
month over a six consecutive month period, provided, however, that if such
Producer has a late payment in any subsequent month, it is no longer
creditworthy and must again comply with the foregoing.
<PAGE>
8.7 Either party, upon thirty (30) days prior written notice, shall have
the right, at reasonable times during business hours but no more frequently
than once each calendar year, at its expense, to examine the books and records
of the other party to the extent necessary to audit and verify the accuracy of
any statement, charge or computation made under or pursuant to this Agreement.
The scope of such audit shall be limited to the twenty-four (24) month period
prior to the month in which such audit commences; provided, no audit may include
any time period subject to a prior audit hereunder and no audit may occur more
frequently than once each six (6) months. All statements, allocations,
measurements and payments made in any period prior to the twenty-four (24)
months preceding such month shall be conclusively deemed true and correct. The
party conducting the audit shall have six (6) months after commencement of the
audit in which to submit a written claim, with supporting detail, for
adjustments.
3. Article X, Notification, of the Agreement shall be amended by deleting
------------
it in its entirety and replacing it with the following revised Article X,
Notification:
- ------------
ARTICLE X
NOTIFICATION
------------
10.1 Any notice or other communication provided for in this Agreement,
including without limitation the invoices, statements and reports specified in
Article VIII, above, shall be given in writing and shall be considered as duly
delivered when either mail certified, return receipt requested, postage prepaid
by United States mail, by delivery service (with confirmation) or sent via
facsimile transmission (with confirmation), addressed to the party to whom such
notice is given as follows:
Producer: Michigan Production Company, L.L.C.
1801 Broadway, Suite 1050
Denver, Colorado 80202
Ph. (303) 298-0041
Fax. (303) 298-1141
Processor: West Shore Processing Company LLC
155 Inverness Drive West, Suite 200
Englewood, Colorado 80112
ATTN: General Manager
Ph. (303) 290-8700
Fax. (303) 290-8769
Notice shall be effective when received (with confirmation), except notice sent
by mailed shall be presumed received six (6) days after mailing. Either party
may change its address for notice purposes by written notice to that effect.
<PAGE>
4. The Agreement shall be amended by adding the attached Schedule I as the
effective Schedule I to the Agreement.
5. Section 2.2.c., of the Agreement shall be amended by deleting the
definition of "Gathering Facilities" contained therein in its entirety and
replacing it with the following definition of "Gathering Facilities":
Gathering Facilities: Means the facilities required to be installed by
Producer at Producer's expense under 2.2, b., above,
and shall include the Claybanks Area Gathering
System, but shall expressly exclude all flow lines
designed to gather both liquid hydrocarbons
(including oil) and gas or other similar two-phase
flow lines and any related production/separation
facilities.
6. The third sentence of Section 2.2.d. shall be amended by replacing the
reference therein to "gathering pipelines" with the term "Gathering Facilities",
so that after this Amendment, Section 2.2.d. shall read as follows:
2.2.d. Upon the expiration of one (1) year following the first day of the
first month after each well hereunder is connected to the Plant through
Gathering Facilities paid for by Producer, Processor and Producer will
determine, the Reimbursement due, if any, in accordance with paragraph c,
above. the payment of the Reimbursement shall be made within 60 days
following the date upon which the calculation of the Reimbursement is
determined. Upon the payment of a Reimbursement, Producer will convey to
Processor or its designee, the Gathering Facilities Installed by it (and
all related rights of way) during the calendar year for which the
Reimbursement is made, and will be made free and clear of all liens,
encumbrances and adverse claims, other than the Subordinated Liens. In no
event will any Reimbursement calculation include Production Per Well
attributable to any well from which the Producer Well was included in a
prior Reimbursement Calculation.
7. Section 2.8 of the Agreement shall be amended by deleting it in its
entirety and replacing it with the following revised Section 2.8:
2.8 Producer shall deliver gas hereunder to Processor at applicable
Receipt Point(s) at a pressure sufficient to cause that gas to enter
Processor's facilities, as the pressure therein may exist from time to
time, but shall not deliver gas at a pressure exceeding 1380 psig.
Producer agrees to compress its gas prior to delivery hereunder, as
necessary, in order to effect the delivery of that gas to Processor.
<PAGE>
8. Except for the foregoing, all other terms and provisions of the
Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
first above written.
PRODUCER:
MICHIGAN PRODUCTION COMPANY, L.L.C.
By: /s/ Dwain Immel
-------------------------------
Name: Dwain Immel
-----------------------------
Title: Manager
----------------------------
PROCESSOR:
WEST SHORE PROCESSING COMPANY, LLC
By: MarkWest Michigan, Inc., its Manager
By: /s/ Gerry Tywoniuk
-------------------------------
Name: Gerry Tywoniuk
-----------------------------
Title: Vice President, Finance
----------------------------
<PAGE>
EXHIBIT 14B
To Purchase and Sale Agreement
by and between
MICHIGAN ENERGY COMPANY, Seller
and
MARKWEST MICHIGAN, INC., Buyer
CLAYBANKS UNIT WELLS
--------------------
Claybanks 2 Unit
Schultz #2-22
Isley # 1-22
Miller Fox #1-11
Jonsek #5-2A
Dyksta #1-8
<PAGE>
EXHIBIT 15A
-----------
1. MarkWest Michigan, Inc. v. Michigan Energy Company, L.L.C., American
Arbitration Association Case No. 77 180 00004 97 (as amended).
2. MarkWest Michigan, Inc., Basin Pipeline, LLC and West Shore Processing
Company, L.L.C., Case No. 97-CV-4605, District Court, City and County of Denver,
Colorado.
3. MarkWest Michigan, Inc. v. Michigan Production Company, LLC, Case No.
97-5339-CH, Oceana County Circuit Ct., County of Oceana, Michigan.
<PAGE>
EXHIBIT 15B
-----------
1. All counterclaims asserted by MEC in MarkWest Michigan, Inc. v.
Michigan Energy Company, L.L.C., American Arbitration Association Case No. 77
180 00004 97 (as amended);
2. Insofar as it concerns MEC, MPC, Energy Acquisition Corp., Michigan
Exploration, Inc. and Dwain Immel, Domain Energy Ventures Corporation, et al. v.
MarkWest Michigan, Inc., Civil Action No. 97-25629, District Court, Harris
County, Texas.
3. Michigan Production Company, L.L.C. v. West Shore Processing Company,
L.L.C. and MarkWest Michigan, Inc., Case No. 97-5364-C3, Circuit Court, County
of Oceana, Michigan.
<PAGE>
CLOSING CERTIFICATE
(Michigan Energy Company, L.L.C.)
Reference is made to that certain Purchase and Sale Agreement of even date
herewith (the "Purchase and Sale Agreement"), between Michigan Energy Company,
L.L.C. and MarkWest Michigan, Inc. Terms which are defined in the Purchase and
Sale Agreement will have the same meaning when used herein.
Michigan Energy Company, L.L.C. certifies to Buyer that (i) the
representations and warranties made by Michigan Energy Company, L.L.C. in
Section 5 of the Purchase and Sale Agreement are true and correct subject to the
qualifications set forth in the Purchase and Sale Agreement, and (ii) Michigan
Energy Company, L.L.C. has performed, satisfied and complied with all covenants,
agreements and conditions required by the Purchase and Sale Agreement to be
performed or complied with by Michigan Energy Company, L.L.C. on or before the
Closing.
IN WITNESS WHEREOF, this Closing Certificate is executed by the undersigned
as of November 21, 1997.
MICHIGAN ENERGY COMPANY, L.L.C.
BY: /s/ Dwain M. Immel
-------------------------------------
Dwain M. Immel, Manager
<PAGE>
AGREEMENT OF MICHIGAN PRODUCTION COMPANY,L.L.C.,
MANISTEE GAS LIMITED LIABILITY COMPANY, and
MICHIGAN ENERGY COMPANY, L.L.C.
Reference is made to that certain Purchase and Sale Agreement of even date
herewith (the "Purchase and Sale Agreement"), between Michigan Energy Company,
L.L.C. and MarkWest Michigan, Inc. Terms which are defined in the Purchase and
Sale Agreement will have the same meaning when used herein.
The undersigned Seller, Michigan Production Company, L.L.C. ("MPC") and
Manistee Gas Limited Liability Company ("Manistee") hereby each agree to all
amounts due specified on Exhibit 2A of the Purchase and Sale Agreement and that
payments of those adjusted amounts under Paragraph 2a. of the Purchase and Sale
Agreement are in full satisfaction and discharge of the amounts stated on
Exhibit 2A.
IN WITNESS WHEREOF, this Agreement is executed by the undersigned as of
November 21, 1997.
MICHIGAN ENERGY COMPANY, L.L.C.
BY: /s/ Dwain M. Immel
-------------------------------------
Dwain M. Immel, Manager
MICHIGAN PRODUCTION COMPANY, L.L.C.
BY: /s/ Dwain M. Immel
-------------------------------------
Dwain M. Immel, Manager
MANISTEE GAS LIMITED LIABILITY COMPANY
BY: /s/ Dwain M. Immel
-------------------------------------
Dwain M. Immel, Manager
