-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CxAb1yfYQOeNnm3NUz3Z0HNyS3ITCAtzFa71zpI4paDK41Cv5ImTSFoHS+pDjnYR yW9G0Ejo6JL50Az0vcLYaw== 0000950109-96-004834.txt : 19960805 0000950109-96-004834.hdr.sgml : 19960805 ACCESSION NUMBER: 0000950109-96-004834 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 32 FILED AS OF DATE: 19960802 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MARKWEST HYDROCARBON INC CENTRAL INDEX KEY: 0001019756 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1 SEC ACT: 1933 Act SEC FILE NUMBER: 333-09513 FILM NUMBER: 96603396 BUSINESS ADDRESS: STREET 1: 5613 DTC PARKWAY STREET 2: SUITE 400 CITY: ENGLEWOOD STATE: CO ZIP: 80111 BUSINESS PHONE: 3032908700 MAIL ADDRESS: STREET 1: 5613 DTC PARKWAY STREET 2: SUITE 400 CITY: ENGLEWOOD STATE: CO ZIP: 80111 S-1 1 FORM S-1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 2, 1996 REGISTRATION NO. 333- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 ---------------- FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ---------------- MARKWEST HYDROCARBON, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 3970 84-1352233 (STATE OR JURISDICTION (PRIMARY STANDARD (I.R.S. EMPLOYER OF INDUSTRIAL IDENTIFICATION NO.) INCORPORATION OR CLASSIFICATION CODE ORGANIZATION) NUMBER) 5613 DTC PARKWAY, SUITE 400 ENGLEWOOD, COLORADO 80111 (303) 290-8700 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ---------------- BRIAN T. O'NEILL SENIOR VICE PRESIDENT AND CHIEF OPERATING OFFICER MARKWEST HYDROCARBON, INC. 5613 DTC PARKWAY, SUITE 400 ENGLEWOOD, COLORADO 80111 (303) 290-8700 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) ---------------- COPIES OF COMMUNICATIONS TO: GEORGE A. HAGERTY, ESQ. KERRY C. L. NORTH, ESQ. KEVIN A. CUDNEY, ESQ. BAKER & BOTTS, L.L.P. DORSEY & WHITNEY LLP 2001 ROSS AVENUE, SUITE 800 REPUBLIC PLAZA BLDG., SUITE 4400 DALLAS, TEXAS 75201-2980 370 SEVENTEENTH STREET (214) 953-6500 DENVER, COLORADO 80202 (303) 629-3400 ---------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT. ---------------- If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. [_] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [_] CALCULATION OF REGISTRATION FEE - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
PROPOSED PROPOSED MAXIMUM MAXIMUM TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE (2) REGISTRATION FEE - ------------------------------------------------------------------------------------------------ Common Stock, $.01 par value................. 2,875,000 shares $13.00 $37,375,000 $12,888
- ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- (1) Includes 375,000 shares of Common Stock that may be purchased by the Underwriters from the Registrant to cover over-allotments, if any. (2) Estimated solely for the purpose of calculating the registration fee. ---------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- MARKWEST HYDROCARBON, INC. FORM S-1 REGISTRATION STATEMENT CROSS-REFERENCE SHEET
REGISTRATION STATEMENT ITEMS AND HEADING LOCATION IN PROSPECTUS ---------------------- ---------------------- 1. Forepart of the Registration Statement and Outside Front Cover Page of Prospectus....... Outside Front Cover Page 2. Inside Front and Outside Back Cover Pages of Prospectus...... Inside Front Cover Page; Outside Back Cover Page 3. Summary Information, Risk Factors and Ratio of Earnings Prospectus Summary; The Company; Risk to Fixed Charges............... Factors 4. Use of Proceeds................ Use of Proceeds 5. Determination of Offering Underwriting; Risk Factors Price.......................... 6. Dilution....................... Risk Factors; Dilution 7. Selling Security Holders....... Not Applicable 8. Plan of Distribution........... Outside Front Cover Page; Underwriting 9. Description of Securities to be Description of Capital Stock Registered..................... 10. Interests of Named Experts and Not Applicable Counsel........................ 11. Information with Respect to the Registrant a.Description of Business....... Prospectus Summary; The Company; Risk Factors; Management's Discussion and Analysis of Financial Condition and Results of Operations; Business; Certain Transactions; note 1 to Notes to Financial Statements. Descriptionbof.Property......... Business--Facilities c.Legal Proceedings............. Business--Legal Proceedings d. Market Price and Dividends of Equity Securities............ Outside Front Cover Page; Dividend Policy; Description of Capital Stock; Certain Transactions e.Financial Statements.......... Financial Statements f.Selected Financial Data....... Prospectus Summary; Selected Consolidated Financial Information g.Supplementary Financial Not Applicable Information..................... h. Management's Discussion and Analysis of Financial Condition and Results of Management's Discussion and Analysis of Operations................... Financial Condition and Results of Operations i. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure................... Not Applicable j.Directors and Executive Management; Principal Stockholders Officers........................ k.Executive Compensation........ Management l. Security Ownership of Certain Beneficial Owners and Management................... Principal Stockholders m. Certain Relationships and Related Transactions......... Management; Certain Transactions 12. Disclosure of Commission Position on Indemnification for Securities Act Liabilities..... Not Applicable
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A + +REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE + +SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY + +OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT + +BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR + +THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE + +SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE + +UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF + +ANY STATE. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION, DATED AUGUST 2, 1996 2,500,000 SHARES [LOGO OF MARKWEST APPEARS HERE] MARKWEST HYDROCARBON, INC. COMMON STOCK The 2,500,000 shares of Common Stock, par value $0.01 per share (the "Common Stock"), offered hereby are being offered by MarkWest Hydrocarbon, Inc. (the "Company"). Prior to this offering there has been no public market for the Common Stock. It is currently estimated that the initial public offering price will be between $11.00 and $13.00 per share. See "Underwriting" for the factors considered in determining the initial public offering price. Application will be made to list the Common Stock on the Nasdaq National Market under the symbol "MWHX." FOR A DISCUSSION OF CERTAIN RISKS OF AN INVESTMENT IN THE SHARES OF COMMON STOCK OFFERED HEREBY, SEE "RISK FACTORS" ON PAGES 10-16. ----------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. -----------
UNDERWRITING PRICE TO DISCOUNTS AND PROCEEDS TO PUBLIC COMMISSIONS* COMPANY+ Per Share................................... $ $ $ Total++..................................... $ $ $
- ----- * The Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended. See "Underwriting." + Before deducting expenses of the offering payable by the Company estimated to be $585,000. ++The Company has granted the Underwriters a 30-day option to purchase up to 375,000 additional shares of Common Stock on the same terms per share solely to cover over-allotments, if any. If such option is exercised in full, the total price to public will be $ , the total underwriting discounts and commissions will be $ and the total proceeds to Company will be $ . See "Underwriting." ----------- The Common Stock is being offered by the Underwriters as set forth under "Underwriting" herein. It is expected that the delivery of certificates therefor will be made at the offices of Dillon, Read & Co. Inc., New York, New York, on or about , 1996, against payment therefor. The Underwriters include: DILLON, READ & CO. INC. GEORGE K. BAUM & COMPANY The date of this Prospectus is , 1996. At the top center of the inside front cover page is the MarkWest logo and centered below that is the phrase "Operating Facilities." The center of the page contains an outlined sketch of five contiguous states including Michigan, Ohio, West Virginia, Kentucky and Tennessee. These states are positioned and connected as they would be on a map of the United States. The location of several of MarkWest's operating facilities are indicated with a circled star within the states described above. Six pictures are included on the page, with one line from each circled star indicated on the map to each picture. A narrative description is written directly beneath each picture. The following pictures and narrative descriptions appear on the page: Michigan Production Facility (top left of page); West Memphis Terminal (middle left of page); Boldman NGL Extraction Plant (bottom left of page); Compressor at Kenova Extraction Plan (top right of page); Siloam Fractionation Plant (middle right of page); and Church Hill Rail Facility (bottom right of page). [GRAPHICS] ---------------- IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. PROSPECTUS SUMMARY The following summary should be read in conjunction with, and is qualified in its entirety by, the more detailed information and financial statements and notes thereto appearing elsewhere in this Prospectus. Unless otherwise indicated, all information in this Prospectus assumes the Underwriters' over- allotment option is not exercised. As used in this Prospectus, the terms "Company" and "MarkWest" refer, unless the context requires otherwise, to the Company, its subsidiaries, joint venture entities managed by the Company or its subsidiaries, or their interests therein, and include the business activities of MarkWest Hydrocarbon Partners, Ltd. See "Reorganization." THE COMPANY MarkWest Hydrocarbon, Inc. ("MarkWest" or the "Company") is engaged in natural gas processing and related services. The Company, which has grown substantially since its founding in 1988, is the largest processor of natural gas in Appalachia and recently established a venture to provide natural gas processing services in western Michigan. The independent gas processing industry has grown rapidly in the last 10 years, and the Company believes there will be substantial opportunities to grow its gas processing operations within these existing core regions and in new markets. The Company provides compression, gathering, treatment, and natural gas liquid ("NGL") extraction services to natural gas producers and pipeline companies and fractionates NGLs into marketable products for sale to third parties. The Company also purchases, stores and markets natural gas and NGLs and has begun to conduct strategic exploration for new natural gas sources for its processing activities. In the twelve months ended December 31, 1995, MarkWest produced approximately 92 million gallons of NGLs and marketed approximately 127 million gallons of NGLs. The Company's processing and marketing operations are concentrated in two core areas which are significant gas producing basins: the southern Appalachian region of eastern Kentucky, southern West Virginia, and southern Ohio (the "Appalachian Core Area"), and western Michigan (the "Michigan Core Area"). At the Company's processing plants, natural gas is treated to remove contaminants, and NGLs are extracted and fractionated into propane, normal butane, isobutane and natural gasoline. The Company then markets the fractionated NGLs to refiners, petrochemical companies, gasoline blenders, multistate and independent propane dealers, and propane resellers. In addition to processing and NGL marketing, the Company engages in terminalling and storage of NGLs in a number of NGL storage complexes in the central and eastern United States, and operates propane terminals in Arkansas and Tennessee. During 1996, the Company has taken several key steps intended to expand its operations. In January 1996, the Company commissioned a new natural gas liquids extraction plant in Wayne County, West Virginia, which replaced a 1958 vintage extraction facility owned and operated by Columbia Gas Transmission Company ("Columbia Gas"). Because the Company owns and operates this new facility, the Company will generate increased revenue, and fee revenues related to processing operations will represent a greater proportion of total revenues. In addition, the Company believes this new facility will generate greater NGL recovery from natural gas, reduce downtime for maintenance, and significantly decrease fuel costs compared to the replaced facility. In May 1996, the Company established West Shore Processing Company, LLC ("West Shore"), a venture in western Michigan, which the Company will develop as its Michigan Core Area. West Shore has exclusive gathering, treatment and processing agreements with companies owned by Tenneco Ventures Corporation ("Tenneco") and ENCAP Investments LLC ("ENCAP") covering the natural gas production from all wells and leases owned by it within western Michigan. West Shore also is negotiating agreements with several exploration and production companies that would result in additional dedication of natural gas production to the gathering, treatment and processing facilities of West Shore. The natural gas streams to be dedicated to West Shore will primarily be produced from an extension of the Northern Niagaran 3 Reef trend in western Michigan. To date, over 2.5 trillion cubic feet of natural gas have been produced from the Northern Niagaran Reef trend. Upon completion of the first two phases of development, West Shore's processing operations are expected to have 30 million cubic feet per day (MMcf/D) of capacity provided by Shell Offshore, Inc. ("Shell"), and approximately 25 MMcf/D of dedicated production from currently drilled and proven wells. With a current pipeline capacity of 35 MMcf/D and deliverabilities of individual wells commonly exceeding 5 MMcf/D, the Company expects that demand at West Shore will exceed capacity. The Company also has entered into an agreement with Callon Exploration Company ("Callon") to conduct exploration activity in the Michigan Core Area. See "--Recent developments." INDUSTRY OVERVIEW Natural gas processing and related services represent a major segment of the oil and gas industry, providing the necessary service of converting natural gas into marketable energy products. When natural gas is produced at the wellhead, it must be gathered, and in some cases compressed or pressurized, for transportation via pipelines (described as gathering services) to gas processing plants. The processing plants remove water vapor, solids and other contaminants, such as hydrogen sulfide or carbon dioxide in the natural gas stream that would interfere with pipeline transportation or marketing of the gas to consumers and also extract the NGLs from the natural gas (described as treatment and extraction services, respectively). The NGLs are then subjected to various processes that cause the NGLs to separate, or fractionate, into marketable products such as propane, normal butane, isobutane and natural gasoline (described as fractionation services). Over the past 10 years, independent gas processing has experienced significant growth. In 1995, independent natural gas processing companies accounted for 319,000 barrels per day of NGL production, or approximately 23% of total U.S. NGL production by the 20 largest U.S. natural gas producers, compared to less than 4% of such producers' NGL production in 1985. The increase in the independent gas processing industry has resulted in part from the divestiture by major energy companies and interstate pipeline companies of their gas gathering and processing assets and the decision by many such companies to outsource their gas processing needs. An important factor expected to contribute to the continuing growth of independent processing companies is the upward trend of gas consumption and production in the United States. Natural gas consumption in the United States has increased from 16.7 trillion cubic feet (Tcf) per year in 1986 to 21.9 Tcf per year in 1995, and is forecast to increase to 24.0 Tcf per year by the year 2000. The number of natural gas rigs in service also has recently increased. From June 1995 to June 1996, the number of natural gas rigs in service rose from 340 to 464. This natural gas rig count is the highest in over four years, and, as a percentage of total oil and gas rigs in service, the highest in the last decade. Many newly discovered gas wells and gas fields will require access to gathering and processing infrastructure, providing significant opportunities for growth-oriented independent gas processing companies such as MarkWest. STRATEGY The Company's primary objective is to achieve sustainable growth in cash flow and earnings by increasing the volume of natural gas that it gathers and processes and the volume of NGLs that it produces and markets. To achieve this objective, the Company employs a number of related strategies. Geographic Core Areas. The Company emphasizes opportunities for investment in geographic core areas where there is significant potential to achieve a position as the area's dominant natural gas processor. The Company believes that growth in core areas can be achieved by developing processing facilities both in areas where a large energy or pipeline company requires processing services and in areas where there is significant potential for natural gas production but not significant processing capacity. 4 Long-Term Strategic Relationships. The Company seeks strategic relationships with the dominant pipelines and gas producers in each area in which the Company operates. In the Appalachian Core Area, MarkWest owns three processing plants that process natural gas or NGLs dedicated by Columbia Gas. In its Michigan Core Area, the Company has entered into gas supply and processing relationships with Shell and Michigan Production Company, LLC ("MPC"), a company jointly owned by Tenneco and ENCAP. NGL Marketing. The Company strives to maximize the downstream value of its gas and liquid products by marketing directly to distributors and resellers. Particularly in the area of NGL marketing, the Company minimizes the use of third party brokers and instead supports a direct marketing staff focused on refiners, petrochemical companies, gasoline blenders, and multistate and independent propane dealers. Additionally, the Company uses its own truck and tank car fleet, as well as its own terminals and storage facilities, to provide supply reliability to its customers. All of these efforts have allowed the Company to maintain pricing of its NGL products at a premium to Gulf Coast spot prices. Cost-Efficient Operations. The Company seeks a competitive advantage by utilizing in-house processing and operating expertise to provide lower-cost service. To provide competitive processing services, the Company emphasizes facility design, project management and operating expertise that permits efficient installation and operation of its facilities. The Company has in- house engineering personnel who oversee the design and construction of the Company's processing plants and equipment. Acquisitions. The Company believes that there are significant opportunities to make strategic acquisitions of gathering and processing assets because of the divestiture by major energy companies and interstate pipeline companies of their gas gathering and processing assets. The Company pursues acquisitions that can add to existing core area investments or can lead to new core area investments. Exploration as a Tool to Enhance Gas Processing. The Company maintains a strategic gas exploration effort that is designed to permit the Company to gain access to additional natural gas supplies within its existing core areas and to gain foothold positions in production regions that the Company might develop as new core processing areas. RECENT DEVELOPMENTS In May 1996, the Company entered into arrangements for the establishment of West Shore, a company jointly owned with Michigan Energy Company, LLC ("MEC"). At the present time, the assets of West Shore consist of a 31-mile sour gas pipeline that is situated in Manistee and Mason Counties, Michigan (the "Basin Pipeline"), and a number of processing contracts. West Shore will be dedicated to natural gas gathering, treatment and processing and NGL marketing in western Michigan. MarkWest is the operator of West Shore. The Company has entered into agreements to construct approximately 50 miles of pipeline to provide access to processing services to existing shut-in wells owned by MPC and providing it the right to construct a new 50 million cubic feet per day plant to extract NGLs. In addition, the Company expects either to construct a new treatment plant or to expand Shell's existing plant capacity to treat the sour gas predominant in the Michigan Core Area. The activities contemplated by such agreements, together with the further development of West Shore and the Basin Pipeline, are referred to herein as the "Michigan Project." Substantially all of the natural gas produced from the western region of the Michigan Core Area is sour. While several successful large wells have been developed in the region, the natural gas producers have lacked adequate gathering and processing facilities for sour gas, and development of the trend has been inhibited as a result. With the additional capacity to be provided by West Shore's sour gas pipeline 5 and processing and treatment facilities, the Company expects further development in western Michigan which will create demand for West Shore's gathering and processing services. See "Business--Natural Gas Processing and Related Services--Michigan Core Area." REORGANIZATION The Company was incorporated as a Delaware corporation in 1996 to act as the successor to the business of MarkWest Hydrocarbon Partners, Ltd. ("MarkWest Partnership"), a Colorado limited partnership formed in 1988. Upon effectiveness of the Offering, the Company will succeed to the business, assets and liabilities of MarkWest Partnership. See "Reorganization" and "Certain Transactions." The description of the Company and its business included in this Prospectus assumes the consummation of the reorganization transactions. The Company's principal executive offices are located at 5613 DTC Parkway, Suite 400, Englewood, Colorado 80111. Its telephone number is (303) 290-8700. THE OFFERING Common Stock offered by the Company.... 2,500,000 shares Common Stock to be Outstanding after the Offering (1)...................... 7,500,000 shares Use of Proceeds........................ Repayment of indebtedness (including indebtedness incurred to make distributions to partners of MarkWest Partnership) and capital expenditures in the Michigan Core Area. See "Use of Proceeds" and "Certain Transactions-- Partnership Distributions." Proposed Nasdaq National Market Symbol................................ MWHX
- -------- (1) Excludes (i) 147,715 shares issuable upon exercise of stock options outstanding as of the effective date of the Offering with a weighted average exercise price of $8.13 per share under the Company's 1996 Stock Incentive Option Plan; (ii) 452,285 shares reserved for future issuance under the 1996 Stock Incentive Plan; and (iii) 20,000 shares reserved for future issuance under the Company's 1996 Non-Employee Director Stock Option Plan. 6 SUMMARY CONSOLIDATED FINANCIAL INFORMATION AND OTHER DATA (IN THOUSANDS, EXCEPT PER SHARE DATA)
Six months Year ended December 31, ended June 30, ------------------------- ---------------- 1993 1994 1995 1995 1996 ------- ------- ------- ------- ------- (unaudited) Statement of Operations Data: Revenues: Plant revenue.................... $34,212 $33,056 $33,823 $17,225 $18,045 Terminal and marketing revenue... 19,756 13,666 13,172 5,200 9,831 Oil and gas and other revenue.... 1,783 1,830 1,075 501 744 Gain on sale of oil and gas properties (1).................. -- 4,275 -- -- -- ------- ------- ------- ------- ------- Total revenues............... 55,751 52,827 48,070 22,926 28,620 Costs and expenses: Plant feedstock purchases........ 23,155 21,582 17,308 8,608 8,538 Terminal and marketing purchases....................... 18,845 11,497 11,937 4,829 8,683 Operating expenses............... 6,504 4,393 4,706 2,005 2,979 General and administrative expenses........................ 3,747 3,654 4,189 2,064 2,140 Depreciation, depletion and amortization.................... 1,565 1,942 1,754 852 1,326 Reduction in carrying value of assets (2)...................... -- 2,950 -- -- -- ------- ------- ------- ------- ------- Total costs and expenses..... 53,816 46,018 39,894 18,358 23,666 Operating income.................. 1,935 6,809 8,176 4,568 4,954 Interest expense, net of interest income........................... (1,395) (1,689) (352) (300) (466) ------- ------- ------- ------- ------- Net income before extraordinary item............................. 540 5,120 7,824 4,268 4,488 Extraordinary loss on extinguishment of debt........... -- -- (1,750) -- -- ------- ------- ------- ------- ------- Net income (3).................... $ 540 $ 5,120 $ 6,074 $ 4,268 $ 4,488 ======= ======= ======= ======= ======= Pro Forma Information (unaudited): Historical income before income taxes extraordinary item and cumulative effect of change in accounting principle............. $ 540 $ 5,120 $ 7,824 $ 4,268 $ 4,488 Pro forma provision for income taxes............................ 228 1,424 2,937 1,667 1,670 ------- ------- ------- ------- ------- Pro forma net income (3).......... $ 312 $ 3,696 $ 4,887 $ 2,601 $ 2,818 ======= ======= ======= ======= ======= Pro forma net income, as adjusted (4).............................. $ 5,204 $ 3,138 ======= ======= Pro Forma per Common Share: Pro forma net income.............. $ .06 $ .74 $ .98 $ .52 $ .56 ======= ======= ======= ======= ======= Pro forma weighted average common shares outstanding (5)........... 4,878 4,964 4,990 4,990 5,041 ======= ======= ======= ======= ======= Pro forma net income, as adjusted......................... $ .90 $ .49 ======= ======= Pro forma weighted average shares outstanding, as adjusted (5)..... 5,771 6,431 ======= ======= Other Data: NGL production: (gallons)......... 93,502 99,735 92,239 49,826 43,094 EBITDA (6)........................ $ 3,500 $ 7,426 $ 9,930 $ 5,420 $ 6,280 Capital expenditures.............. $ 6,941 $ 1,442 $12,426 $ 5,297 $ 2,522
June 30, 1996 ---------------------------------- Pro Forma As Actual Pro Forma (7) Adjusted (8) ------- ------------- ------------ (unaudited) Balance Sheet Data: Cash and cash equivalents.................. $ 666 $ 896 $ 5,763 Working capital............................ 5,144 5,374 10,340 Total assets............................... 43,991 44,221 49,088 Total debt................................. 12,350 22,350 -- Total partners' capital/stockholders' equity.................................... 26,464 13,488 40,804
7 - -------- (1) Represents the gain on the sale of a significant portion of the Company's oil and gas producing assets for proceeds of approximately $10.1 million. (2) Represents a $2.2 million write-down to estimated realizable value of an isomerization unit that was shut down, a $347,000 charge relating to a catalyst used in the isomerization process and a $361,000 charge for the write-down of non-productive equipment related to various business development projects. (3) Net income for all periods presented includes no income tax effects because the Company operated as a partnership (non-taxable entity) during these periods. Pro forma net income is presented for purposes of comparability assuming the Company was a taxable entity for all periods presented. (4) Pro forma net income, as adjusted, reflects pro forma net income adjusted for the reduction in interest expense resulting from the application of $12.4 million of estimated proceeds of this Offering to repay indebtedness outstanding prior to the Partnership Distribution (as defined herein). See "Use of Proceeds" and the Unaudited Pro Forma Condensed Consolidated Financial Statements included elsewhere in this Prospectus. (5) See the Unaudited Pro Forma Condensed Consolidated Financial Statements included elsewhere in this Prospectus. (6) EBITDA represents earnings before interest income, interest expense, income taxes, depreciation, depletion and amortization, gain on sale of oil and gas properties, reduction in carrying value of assets and extraordinary items. EBITDA is not intended to represent cash flows for the period, nor has it been presented as an alternative to operating income as an indicator of operating performance. It should not be considered in isolation or as a substitute for measures of performance prepared in accordance with generally accepted accounting principles. See the Company's Consolidated Statements of Cash Flows in the Consolidated Financial Statements included elsewhere in this Prospectus. EBITDA is included in this Prospectus because it is a basis upon which the Company assesses its financial performance. (7) Gives effect to the Reorganization, the accrual of $3.2 million of deferred income tax liabilities and the Partnership Distribution (as hereinafter defined). See "Reorganization" and the Unaudited Pro Forma Condensed Consolidated Financial Statements included elsewhere in this Prospectus. (8) Further adjusted to reflect the sale of 2,500,000 shares of Common Stock offered hereby and the application of the estimated net proceeds from the Offering. See "Use of Proceeds." 8 CERTAIN DEFINITIONS The definitions set forth below apply to the terms used in this Prospectus. "NGLs" means natural gas liquids. "Treatment" refers to the removal of water vapor, solids and other contaminants, such as hydrogen sulfide or carbon dioxide, contained in the natural gas stream that would interfere with pipeline transportation or marketing of the gas to consumers. "Extraction" means removing liquid and liquefiable hydrocarbons from natural gas. "Fractionation" is the process by which the NGL stream is subjected to controlled temperatures, causing the NGLs to separate, or fractionate, into the separate NGL products ethane, propane, butane, isobutane and natural gasoline. "Processing" includes treatment, extraction and fractionation. "Processing contracts" are those supply contracts dedicated to Company facilities whereby title to the gas and marketing rights for such gas may remain with the gas producer. The term "dedicated reserves" means natural gas reserves subject to long-term contracts providing for the dedication to the Company's facilities for purchase or processing of all gas produced from all formations on designated properties for periods typically ranging from 10 to 20 years. The terms "Tcf" means trillion cubic feet of natural gas, "Bcf" means billion cubic feet of natural gas, "MMcf" means million cubic feet of natural gas and "Mcf" means thousand cubic feet of natural gas. The terms "MGal/D" or "MGal per day" mean thousand gallons per day and "MMcf/D" or "MMcf per day" mean million cubic feet per day. "EPA" means the Environmental Protection Agency and "FERC" means the Federal Energy Regulatory Commission. The term "sour gas" means natural gas which contains sulfur compounds in excess of a specified amount. 9 RISK FACTORS In addition to the other information contained in this Prospectus, the following factors should be considered carefully in evaluating the Company and its business before purchasing any of the shares of Common Stock offered hereby. COMMODITY PRICE RISKS The Company's products, including NGLs, natural gas and related by-products, are commodities. As such, their prices are often subject to material changes in response to relatively minor changes in supply and demand, general economic conditions and other market conditions over which the Company has no control. Other conditions affecting the Company's business include the availability and prices of competing commodities and of alternative energy and feedstock sources (primarily oil), government regulation, industry-wide inventory levels, the seasons, the weather and the impact of energy conservation efforts. The Company's principal NGL product is propane, sales of which accounted for approximately 69% of the Company's total revenues during 1995 and approximately 74% of the Company's total revenues during the six months ended June 30, 1996. Propane sold to the Company's customers is used primarily for home heating, and therefore the demand tends to be seasonal, increasing sharply in the winter months. Demand for, and prices of, propane also depend, to a large extent, upon the severity of the weather in the Company's operating areas during the winter months. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--General," "--Seasonality" and "Business--Industry Overview." Under the Company's keep-whole contracts, which accounted for approximately 70% of the Company's total revenues during 1995 and approximately 58% of the Company's total revenues during the six months ended June 1996, a principal cost of processing gas is the reimbursement to the natural gas producers for the energy (measured in BTUs) extracted from the natural gas stream in the form of NGLs and consumed as fuel during processing, less the amount of energy the Company is contractually entitled to retain. Profitability under such contracts is largely influenced by the margin between NGL sales prices and the cost of such reimbursement (which cost is directly related to the price of natural gas), and may be negatively affected by increases in natural gas prices. A contraction of the margin between the two prices may result in a reduction in the Company's operating margin. A prolonged contraction of such margin could have a material adverse effect on the financial condition and results of operations of the Company. See "Business--Natural Gas Processing and Related Services--Gas Processing Contracts and Natural Gas Supply." AVAILABILITY OF NATURAL GAS SUPPLY Natural gas is the source of the Company's NGLs. To maintain throughput in its NGL extraction and fractionation systems, the Company must continually contract to process additional natural gas provided from new or existing sources. Future natural gas supplies available for processing at the Company's plants will be affected by a number of factors that are not within the Company's control, including partial or complete shut downs of major pipelines supplying the Company's processing plants, the depletion rate of gas reserves currently connected and the extent of exploration for, production and development of, and demand for natural gas in the areas in which the Company operates. Over 95% of the natural gas processed by the Company is dedicated under contracts with remaining terms of one year or more. However, long-term contracts do not protect the Company from shut-ins or supply curtailments by gas suppliers or from depletion of gas reserves. Although the Company has historically been successful in contracting for new gas supplies and in renewing gas supply contracts as they have expired, there can be no assurance that the Company will in the future be successful in renewing or increasing its access to natural gas supply or the throughput of its processing facilities. See "Business--Natural Gas Processing and Related Services." 10 DEPENDENCE ON MAJOR PIPELINES In recent years, all of the Company's gas volume has been delivered through the Columbia Gas pipeline gathering systems. Columbia Gas has, from time to time, sold portions of its transmission and gathering systems. The Company has been informed by Columbia Gas that it intends to engage in negotiations with third parties regarding the possible sale of all or a portion of the gathering systems that provide throughput to the Company's plants. If Columbia Gas were to sell such systems or change its policies significantly with respect to gas transported for producers, other sources of natural gas might have to be obtained. There can be no assurance that adequate alternative sources of natural gas will be available or that such sources will be available at prices that are as favorable to the Company as existing arrangements. See "Business-- Natural Gas Processing and Related Services." CERTAIN RISKS OF NGL AND NATURAL GAS MARKETING The profitability of the NGL and natural gas marketing operations of the Company depends in large part on the ability of the Company's management to assess and respond to changing market conditions in negotiating natural gas purchase and/or processing agreements and NGL and natural gas sales agreements. The inability of management to respond appropriately to changing market conditions could have a negative effect on the Company's profitability. The duration of the Company's natural gas processing contracts range from one- time spot purchase and processing agreements to 15 years. Under certain longer-term agreements, the Company is obligated to purchase or sell specified quantities of natural gas at prices related to the market price. Although the Company attempts to match its long-term purchase obligations with long-term sales obligations, it is still subject to price risk, particularly where the index or market for determining the purchase price under a purchase contract is different from the index or market for determining the sales price under the corresponding sales contract. Because longer-term purchase contracts may permit some variation in the amount the producer is obligated to deliver or a purchaser is obligated to purchase, matched contracts may result in an imbalance of the natural gas volumes the Company is obligated to purchase and sell. See "Business--Gas Processing Contracts and Natural Gas Supply." CERTAIN RISKS OF OIL AND GAS EXPLORATION AND PRODUCTION ACTIVITIES To date, the Company has conducted only limited exploration and production activities for new natural gas sources as a supporting function for its processing services. However, the Company expects to make significant investments in exploration and production activities in the Michigan Core Area and elsewhere. Exploration and production activities are subject to many risks, including the risk that no commercially productive reservoirs will be encountered. There can be no assurance that the Company's natural gas exploration efforts will be productive or that the Company will recover all or any portion of its investment in such activities. Drilling for natural gas may involve unprofitable efforts, not only from dry wells, but also from wells that are productive but do not produce sufficient net revenues to return a profit after drilling, operating and other costs. The cost of drilling, completing and operating wells is often uncertain. The Company's drilling operations may be curtailed, delayed or canceled as a result of numerous factors, many of which are beyond the Company's control, including a substantial or extended decline in the price for oil and natural gas, title problems, weather conditions, compliance with governmental requirements and shortages or delays in the delivery of equipment and services. See "Business-- Exploration and Production." RISKS RELATING TO THE MICHIGAN PROJECT In May 1996, the Company entered into a number of agreements providing for the development of gathering, treatment and processing facilities in the Michigan Core Area. See "Business--Natural Gas Processing and Related Services--Michigan Core Area." There can be no assurance that the projects proposed by the Company in Michigan can be completed in the time frame projected or within the current budget or that upon completion the Company will be able to successfully integrate the newly developed 11 assets into the Company's business. In addition, certain of the assets acquired in the Michigan Core Area have a history of losses. There can be no assurance that the Company will be able to operate its Michigan Core Area assets in a profitable manner or recover all or any portion of its investment in the Michigan Core Area. GENERAL BUSINESS RISKS The Company and its affiliates are subject to all of the risks generally associated with the gathering, processing, transportation and storage of natural gas and NGLs, including damage to its own and third-party pipelines, storage facilities, related equipment and surrounding properties caused by weather and other acts of God, construction and farm equipment, automobiles, fires and explosions, as well as leakage of natural gas and spills of NGLs. The Company's exploration and production operations are subject to hazards and risks inherent in drilling for and production of oil and natural gas, such as fires, natural disasters, explosions, encountering formations with abnormal pressures, blowouts, cratering, pipeline ruptures and spills, any of which could result in the loss of hydrocarbons, environmental pollution, personal injury claims and other damage to the property of the Company and others. The Company's operations in the Michigan Core Area are subject to additional risks resulting from the processing and treatment of sour gas, including an increased risk of property damage, bodily injury or death from the highly toxic nature of sour gas. The Company's operating storage facilities incorporate certain primary and backup equipment which, in the event of mechanical failure, might take some time to replace, and the operation of such storage facility could be materially impaired. The Company does not fully insure against such risks. See "Business--Operational Risks and Insurance." POTENTIAL VARIABILITY IN QUARTERLY OPERATING RESULTS The Company's quarterly revenues and operating results have varied significantly in the past and are likely to vary substantially from quarter to quarter in the future. Quarterly revenues and operating results may fluctuate as a result of changes in availability of and prices for natural gas and changes in demand for gas and NGLs because of weather and variability in demand for NGLs used as feedstocks in the petrochemical, refining and other industries. Approximately 69% of the Company's total revenues during 1995 and approximately 74% of the Company's total revenues during the six months ended June 1996 resulted from the sale of propane. The strongest demand for propane and the highest propane sales margins generally occur during the winter heating season. As a result, the Company recognizes the greatest proportion of its operating income during the first and fourth quarters of the year. Operating results may also vary based upon the prices of natural gas purchased by the Company. Because of the foregoing factors, the Company's operating results for any particular quarterly period may not be indicative of results for future periods and there can be no assurance that the Company will be able to achieve or maintain profitability on a quarterly or annual basis in the future. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Results of Operations." DEPENDENCE ON CERTAIN CUSTOMERS Sales to Ashland Petroleum Company and Ashland Chemical Company (collectively, "Ashland") and Ferrellgas, L.P. ("Ferrellgas") accounted for 14% and 8%, respectively, of the Company's revenues during the first six months of 1996 and 18% and 7%, respectively, of the Company's revenues during 1995. The existing contracts with Ashland expire in August 1996. Negotiations for renewal of these contracts have begun, but there can be no assurance that these contracts will be renewed or, if renewed, that the terms of the new contracts will be as favorable to the Company as its existing contracts. The existing contracts with Ferrellgas expire April 30, 1997. To the extent that Ashland, Ferrellgas and other customers may reduce volumes under existing contracts, the Company would be adversely affected unless it were able to make comparably profitable arrangements with other customers. See "Business--Sales and Marketing." 12 GOVERNMENT REGULATION Many aspects of the gathering, processing, marketing and transportation of gas and NGLs by the Company are subject to federal, state and local laws and regulations that can have a significant effect upon its operations. For example, construction and operation of the Company's facilities require governmental permits and approvals. Changes to federal laws and regulations applicable to interstate transportation of gas implemented primarily during the last five years have encouraged competition in nationwide markets for natural gas sales and have fundamentally changed the business and regulatory environment in which the Company markets and sells natural gas. Many of these regulatory changes have been promulgated by the FERC. FERC regulation is still evolving and is subject to future modifications by the FERC and the courts. The Company cannot predict the final requirements of the FERC initiatives or their effect on the availability or cost of transportation services to the Company or natural gas supplies associated with such transportation services. See "Business--Government Regulation." The Company's Kenova extraction plant was built to replace an older plant owned by Columbia Gas. Columbia Gas has initiated proceedings with FERC seeking abandonment approval for the replaced plant. The Company believes that its gas processing plants are exempt from FERC jurisdiction, and has specifically requested a ruling from FERC confirming that the new Kenova extraction plant is exempt from FERC jurisdiction. There can be no assurance, however, that FERC will confirm such exemption. See "Business--Government Regulation." ENVIRONMENTAL MATTERS Certain aspects of the Company's activities are subject to laws and regulations designed to protect the environment. The cost of compliance with such environmental laws that affect the Company can be substantial and could have a materially adverse effect on the Company's financial condition. Additionally, these laws could impose liability for remediation costs or result in civil or criminal penalties for non-compliance. Environmental laws frequently impose "strict liability" on property owners, facility operators and certain other persons, which means that in some situations the Company could be liable for cleanup costs resulting from improper conduct or conditions caused by previous property owners, operators, lessees or other persons not associated with the Company. Blowouts, ruptures or spills occurring in connection with the Company's exploration and production activities, as well as accident or breakage in any of the Company's natural gas gathering, processing or related facilities, or at the Company's NGL storage facilities, could subject the Company to liability for substantial cleanup costs for resulting spills, leaks, emissions or other damage to the environment or other property. See "Business--Environmental Matters." COMPETITION The Company's competitors in its respective lines of business include major integrated oil and gas companies, affiliates of major interstate and intrastate pipeline companies and national and local natural gas gatherers, NGL brokers and distributors of varying size, financial resources and experience. Many of these competitors, particularly those affiliated with major integrated oil and gas and interstate and intrastate pipeline companies, have financial resources substantially greater than those of the Company and control supplies of natural gas and NGLs substantially greater than those available to the Company. In addition, producers of natural gas and NGLs have the ability to sell directly to customers in competition with the Company and in periods of ample supply may do so at prices below the prices in the Company's natural gas and NGLs sales contracts. Certain regulatory actions of the FERC have also increased competition in natural gas and NGL marketing. See "Business--Competition" and "--Government Regulation." DEPENDENCE ON KEY PERSONNEL The Company is highly dependent on a limited number of key management personnel, particularly John M. Fox, its Chief Executive Officer, Brian T. O'Neill, its Chief Operating Officer and Arthur Denney, its Vice President of Engineering and Business Development. The Company's future success will also depend, in part, on its ability to attract and retain highly qualified personnel. There can be no assurance 13 that the Company will be successful in hiring or retaining qualified personnel. The loss of key personnel to death, disability or termination, or the inability to hire and retain qualified personnel, could have a material adverse effect on the Company's business, financial condition and results of operations. The Company has key-person life insurance on Messrs. Fox and O'Neill. See "Management." RISKS PERTAINING TO ACQUISITIONS An important element of the Company's business strategy has been, and continues to be, to expand through acquisitions. The Company's future growth is partially dependent upon its ability to identify suitable acquisitions and effectively integrate acquired assets with the Company's operations. There can be no assurance that suitable assets will be available for acquisition by the Company, that such assets will be available on terms acceptable to the Company or that competition for such assets will not render such acquisitions economically infeasible. In addition, there can be no assurance that financing will be available to fund future acquisitions, or, if available, that the cost of such funds will be available on terms favorable to the Company. In connection with certain acquisitions, the Company may also be required to assume certain liabilities, including environmental liabilities, known or unknown, in connection with future acquisitions. See "--Environmental Matters." NO PRIOR PUBLIC MARKET; DETERMINATION OF OFFERING PRICE; POSSIBLE VOLATILITY OF STOCK PRICE Prior to this Offering, there has been no public market for the Company's Common Stock and there can be no assurance that an active trading market for the Common Stock will develop or be sustained after this Offering. In the event that the Company's Common Stock is thinly traded, stockholders may not be able to sell a significant amount of Common Stock at the price quoted or at all. The initial public offering price for the Common Stock will be determined by negotiation between the Company and the Managing Underwriters based on several factors and may bear no relationship to the market price of the Common Stock subsequent to this Offering. Following this Offering, the market price for the Common Stock may be highly volatile depending on various factors, including the general economy, stock market conditions, announcements by the Company, its suppliers or competitors and fluctuations in the Company's operating results. In addition, the stock market historically has experienced volatility which has affected the market price of securities of many companies and which has sometimes been unrelated to the operating performance of such companies. The trading price of the Common Stock could also be subject to significant fluctuations in response to variations in quarterly results of operations, changes in earnings estimates by analysts, governmental regulatory action, general trends in the industry and overall market conditions, and other factors. See "Underwriting." CONTROL BY SIGNIFICANT STOCKHOLDERS After giving effect to the Offering, John M. Fox, the Company's Chief Executive Officer, and Brian T. O'Neill, the Company's Chief Operating Officer, (collectively, the "Significant Stockholders"), will control approximately 57% of the outstanding Common Stock (54% if the Underwriters' over-allotment option is exercised in full). If they decide to vote together, these stockholders would be able to elect all of the Company's directors, control the management and policies of the Company and determine the outcome of any matter submitted to a vote of the Company's stockholders. Provisions of the Company's Certificate of Incorporation also strengthen the control of the Significant Stockholders over the Company and may act to reduce the likelihood of a successful attempt to take over the Company or acquire a substantial amount of Common Stock without their consent. See "Principal Stockholders" and "Description of Capital Stock." CONFLICTS OF INTEREST Currently, the Company and MAK-J Energy Partners, Ltd. ("MAK-J Energy"), an entity controlled by John M. Fox, the President and Chief Executive Officer of the Company, own 49% and 51% 14 undivided interests, respectively, in certain oil and gas properties that the Company operates pursuant to joint venture agreements governing such properties. See "Business--Exploration and Production" and "Certain Transactions--Investments with Affiliate." Pursuant to the agreements, the Company provides certain management and administrative services related to the properties for which MAK-J Energy pays the Company a monthly fee. While the amount of the monthly fee will in the future be subject to renegotiation and approval by the Company's independent directors, the monthly fee for fiscal 1996 was not negotiated on an arm's length basis. Moreover, conflicts of interest may arise regarding such oil and gas activities, including decisions regarding expenses and capital expenditures and the timing of the development and exploitation of the properties. Mr. Fox has agreed that as long as he is an officer or director of the Company and for two years thereafter, he will not, directly or indirectly, participate in any future oil and gas exploration or production activities with the Company except and to the extent that the Company's independent and disinterested directors deem it advisable and in the best interests of the Company to include one or more additional participants, which participants may include entities controlled by Mr. Fox. Additionally, Mr. Fox has agreed that as long as he is an officer or director of the Company and for two years thereafter, he will not, directly or indirectly participate in any future oil and gas exploration or production activity that may be in competition with exploration or production activities of the Company except and to the extent that Mr. Fox has first offered the Company the opportunity to participate in that activity and the Company's independent and disinterested directors deem it advisable and in the best interests of the Company not to participate in that activity. The terms of any future transactions between the Company and its directors, officers, principal stockholders or other affiliates, or the decision to participate or not participate in transactions offered by the Company's directors, officers, principal stockholders or other affiliates will be approved by a majority of the Company's independent and disinterested directors. The Company's Board of Directors will use such procedures in evaluating their terms as are appropriate considering the fiduciary duties of the Board of Directors under Delaware law. In any such review the Board may use outside experts or consultants including independent legal counsel, secure appraisals or other market comparisons, refer to generally available statistics or prices or take such other actions as are appropriate under the circumstances. Although such procedures are intended to ensure that transactions with affiliates will be on an arm's length basis, no assurance can be given that such procedures will produce such result. POSSIBLE ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND BYLAWS The Certificate of Incorporation and Bylaws of the Company include certain provisions that may be deemed to have anti-takeover effects and may delay, defer, or prevent a takeover attempt that a stockholder of the Company might consider to be in the best interest of the Company or its stockholders. These provisions authorize 5,000,000 shares of preferred stock that may be issued from time to time by the Board of Directors of the Company with such powers, rights, preferences and limitations as may be designated by the Board of Directors. The Company's Bylaws provide that directors are elected in three classes for a three-year term for each class. This provision limits the ability of a controlling stockholder to change the composition of the Board of Directors for at least two years. The Company also is subject to Section 203 of the Delaware General Corporation Law ("Section 203") regulating corporate takeovers. Section 203 prevents Delaware corporations from engaging, under certain circumstances, in a business combination with any "interested stockholder" for three years after the date such stockholder became an "interested stockholder." See "Description of Capital Stock--Change of Control Provisions." DILUTION Purchasers of Common Stock in the Offering will experience immediate and substantial dilution in the net tangible book value per share of Common Stock from the initial public offering price. See "Dilution." 15 SHARES ELIGIBLE FOR FUTURE SALE The availability for sale of certain shares of Common Stock held by existing stockholders of the Company after this Offering could adversely affect the market price of the Common Stock. Prior to the Offering, the Company will have outstanding 5,000,000 shares of its Common Stock. In addition, the Company will have 147,715 shares reserved for issuance upon the exercise of options granted under the Company's 1996 Stock Incentive Plan, 452,285 shares reserved for future issuance under the 1996 Stock Incentive Plan and 20,000 shares reserved for future issuance under the Company's 1996 Non-Employee Director Stock Option Plan. Of the 7,500,000 shares of Common Stock to be outstanding following this Offering, the 2,500,000 shares being offered by the Company hereby will be freely tradeable without restrictions or additional registration under the Securities Act of 1933, as amended (the "Securities Act"). The remaining 5,000,000 shares were issued and sold by the Company in private transactions in reliance upon exemptions from registration under the Securities Act. Of these shares, except as limited by lock-up agreements, up to 4,817,762 shares will be eligible for resale pursuant to Rule 144 under the Securities Act ("Rule 144"). In connection with this Offering, all executive officers and directors and certain other stockholders of the Company have agreed not to offer, sell or otherwise dispose of a total of 4,789,967 shares held by them for a period of 180 days after the effective date of this Offering, without the prior written consent of Dillon, Read & Co. Inc. As many as all of the shares subject to this lockup agreement would otherwise be available for resale upon the effective date of the Offering under Rule 144. Sales of a substantial amount of the currently outstanding shares of Common Stock in the public market may adversely affect the market price of the Common Stock and the ability of the Company to raise additional capital by occurring at a time when it would be beneficial for the Company to sell securities. See "Description of Capital Stock," "Shares Eligible for Future Sale" and "Underwriting." 16 REORGANIZATION The Company was incorporated in June 1996 to act as the successor to MarkWest Partnership. MarkWest Partnership was formed in 1988 and has conducted the business of the Company since such date. Concurrently with the effectiveness of the Offering, the Company will acquire from the current partners of MarkWest Partnership all of the partnership interests in MarkWest Partnership pursuant to a reorganization agreement entered into among the Company, MarkWest Partnership, and each of the partners of MarkWest Partnership (the "Reorganization Agreement"). Immediately following the Company's acquisition of the MarkWest Partnership interests, MarkWest Partnership will be dissolved and the Company will succeed to the business, assets and liabilities of MarkWest Partnership. The Reorganization Agreement also contemplates that 182,238 shares of Common Stock will be issued upon exercise of certain options held by non-affiliates of MarkWest Partnership. The transactions contemplated by the Reorganization Agreement (referred to in this Prospectus as the "Reorganization") will be deemed a tax-free reorganization for United States federal income tax purposes. Under the terms of the Reorganization Agreement, the consideration paid by the Company to acquire the partnership interests from the partners of MarkWest will consist of an aggregate of 5,000,000 shares of the Company's Common Stock. The Reorganization Agreement provides that each partner will receive shares representing a fully diluted percentage of the Company's Common Stock to be outstanding immediately after consummation of the Reorganization (calculated prior to the issuance of the Shares in the Offering) identical to the partner's respective ownership interest in MarkWest Partnership. The partnership interests in MarkWest Partnership exchanged in the Reorganization for shares of the Company's Common Stock were originally purchased from MarkWest Partnership for an equivalent average price per share of Common Stock equal to $2.61. See "Dilution." MarkWest Partnership currently has outstanding options issued to employees that grant such employees the right to purchase partnership interests representing approximately 3% of the fully diluted aggregate partnership interests in MarkWest Partnership. As part of the Reorganization, such employee options to purchase MarkWest Partnership interests will be replaced by options to purchase shares of the Company's Common Stock granted pursuant to the Company's 1996 Stock Incentive Plan. These options are exercisable at a per share price equal to the total consideration that would have been paid by a given individual to acquire all of the interest in MarkWest Partnership that such individual was entitled to acquire, divided by the total number of options received by such individual as part of the Reorganization. See "Management--Compensation Plans--1996 Stock Incentive Plan." Immediately prior to consummation of the Reorganization, MarkWest Partnership intends to make distributions of $10.0 million to its partners as a partial return of capital (the "Partnership Distribution"). In addition, the Partnership expects to make a distribution to cover income taxes estimated to be $416,000 prior to consummation of the Reorganization. See "Certain Transactions--Partnership Distributions." MarkWest Partnership intends to borrow the funds necessary to make the Partnership Distribution under MarkWest Partnership's bank credit facility. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources--Financing Facilities." The Company intends to repay substantially all of such borrowings with the net proceeds of this Offering. See "Use of Proceeds." 17 USE OF PROCEEDS The net proceeds to the Company from the sale of the 2,500,000 shares of Common Stock offered hereby, at an assumed initial public offering price of $12.00 per share, after deduction of the underwriting discounts and commissions and offering expenses payable by the Company, are estimated to be approximately $27.3 million ($31.5 million if the Underwriters' over-allotment option is exercised in full). The Company will use approximately $22.4 million of such proceeds to repay outstanding long-term indebtedness of the Company under its bank credit facility. As of June 30, 1996, $12.4 million was outstanding under this credit facility at an average interest rate of approximately 7.6% and with quarterly installment payments beginning September 30, 1998 up to the maturity date of June 30, 2002. The majority of such indebtedness was incurred to fund the construction of the Company's Kenova natural gas processing plant in Wayne County, West Virginia. See "Business--Natural Gas Processing and Related Services--Appalachian Core Area--NGL Extraction--Kenova Plant."Approximately $22.4 million is expected to be outstanding as of the effective date of the Offering at an average interest rate of approximately 7.6%. Of such indebtedness, $10.0 million will have been incurred as a result of the Partnership Distribution prior to the effective date of the Offering. See "Reorganization" and "Certain Transactions--Partnership Distributions." The Company intends to use the remaining net proceeds of the Offering for a portion of the capital expenditures to be made in conjunction with the Company's Michigan Project. Such expenditures are expected to be made over a 12-month period. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources--Capital Investment Program." "Business--Natural Gas Processing and Related Services-- Michigan Core Area." Pending such uses, the net proceeds of this Offering will be invested in short-term, interest-bearing investments, including government obligations and other money market instruments. DIVIDEND POLICY The Company has never paid any cash dividends on its stock and anticipates that, for the foreseeable future, it will continue to retain any earnings for use in the operation of its business. Payment of cash dividends in the future will depend upon the Company's earnings, financial condition, any contractual restrictions, restrictions imposed by applicable law, capital requirements and other factors deemed relevant by the Company's Board of Directors. The Company's predecessor, MarkWest Partnership, has made partnership distributions from time to time. See "Certain Transactions--Partnership Distributions." 18 DILUTION The pro forma net tangible book value of the Company as of June 30, 1996, after giving effect to the Reorganization and the Partnership Distribution, was approximately $13.0 million or $2.61 per share of Common Stock. Net tangible book value per share represents the amount of total tangible assets of the Company less total liabilities, divided by the number of shares of Common Stock issued and outstanding. After giving effect to the sale of the 2,500,000 shares of Common Stock offered by the Company hereby at an assumed initial public offering price of $12.00 per share and the application of the estimated net proceeds therefrom as described under "Use of Proceeds," the pro forma net tangible book value of the Company as of June 30, 1996 would have been $40.4 million, or $5.38 per share. This represents an immediate increase in net tangible book value of $2.77 per share to existing stockholders and an immediate dilution of $6.62 per share to new investors. The following table illustrates this per share dilution: Assumed initial public offering price........................ $12.00 Pro forma net tangible book value before the Offering...... $ 2.61 Increase in pro forma net tangible book value attributable to new investors.......................................... 2.77 Pro forma net tangible book value after the Offering......... 5.38 ------ Dilution to new investors.................................... $ 6.62 ======
The following table summarizes, on a pro forma basis as of June 30, 1996, the differences in the total consideration paid and the average price per share paid by the Company's existing stockholders and by purchasers of the shares offered hereby:
Shares Purchased Total Consideration Average ----------------- ------------------- Price Number Percent Amount Percent Per Share --------- ------- ----------- ------- ---------- Existing stockholders......... 5,000,000 67% $13,473,000 31% $ 2.69 New investors................. 2,500,000 33% 30,000,000 69% 12.00 --------- --- ----------- --- Total....................... 7,500,000 100% $43,473,000 100% $ 5.80 ========= === =========== ===
The computations in the tables above exclude: (i) 147,715 shares of Common Stock issuable upon exercise of stock options to be outstanding on the effective date of the Offering with a weighted average exercise price of $8.13 per share under the Company's 1996 Stock Incentive Plan; (ii) 452,285 shares of Common Stock reserved for future issuance under the 1996 Stock Incentive Plan; and (iii) 20,000 shares reserved for future issuance under the Company's 1996 Non-Employee Director Stock Option Plan. To the extent such options are exercised, there will be further dilution to new investors. See "Management" and Note 2 of Notes to Consolidated Financial Statements. 19 CAPITALIZATION The following table sets forth the capitalization of the Company as of June 30, 1996 (i) on an actual basis; (ii) on a pro forma basis after giving effect to the consummation of the Reorganization, the Partnership Distribution and the accrual of $3.2 million of deferred income taxes resulting from conversion of partnership to C corporation status; and (iii) such pro forma capitalization, as adjusted, to reflect the sale of the 2,500,000 shares of Common Stock offered hereby at an assumed public offering price of $12.00 per share and the application of the estimated net proceeds therefrom. See "Reorganization," "Use of Proceeds," "Certain Transactions--Partnership Distributions" and the Unaudited Pro Forma Condensed Consolidated Financial Statements included herein. This table should be read in conjunction with the Consolidated Financial Statements and the notes thereto included elsewhere in this Prospectus.
June 30, 1996 ------------------------------ Pro Forma Actual Pro Forma As Adjusted ------- --------- ----------- (in thousands) Long-term debt: Working capital line of credit................ $ 3,850 $ 3,850 $ -- Revolver loan................................. 8,500 18,500 -- ------- ------- ------- Total long-term debt........................ 12,350 22,350 -- Partners' capital/stockholders' equity: Partners' capital............................. 27,056 -- -- Preferred stock, $.01 par value 5,000,000 shares authorized; 0 shares issued and outstanding.................................. -- -- -- Common stock, $.01 par value 20,000,000 shares authorized; 5,000,000 shares issued and outstanding; 7,500,000 shares issued and outstanding pro forma as adjusted (1)........ -- 50 75 Additional paid-in capital.................... -- 13,835 41,126 Notes receivable (2).......................... (592) (397) (397) ------- ------- ------- Total stockholders' equity.................. 26,464 13,488 40,804 ------- ------- ------- Total capitalization...................... $38,814 $35,838 $40,804 ======= ======= =======
- -------- (1) Excludes (i) 147,715 shares to be issuable upon exercise of stock options outstanding as of the effective date of the Offering with a weighted average exercise price of $8.13 per share under the Company's 1996 Stock Incentive Option Plan; (ii) 452,285 shares reserved for future issuance under the 1996 Stock Incentive Plan; and (iii) 20,000 shares reserved for future issuance under the Company's 1996 Non-Employee Director Stock Option Plan. (2) Represents promissory notes from officers and employees of the Company for the purchase of interests in MarkWest Partnership that have been assigned to the Company. Upon receipt of their pro rata share of the Partnership Distribution, stockholders with outstanding promissory notes are required to remit a portion of their pro rata share of the Partnership Distribution to the Company to be applied toward their outstanding balance. See "Certain Transactions--Related Party Indebtedness." 20 SELECTED CONSOLIDATED FINANCIAL AND OTHER INFORMATION The selected consolidated statement of operations and balance sheet data set forth below for the years ended December 31, 1993, 1994 and 1995 and as of December 31, 1994 and 1995 are derived from, and are qualified by reference to, audited consolidated financial statements of the Company included elsewhere in this Prospectus. The selected consolidated statement of operations and balance sheet data set forth below for the years ended December 31, 1991 and 1992 and as of December 31, 1991, 1992 and 1993 have been derived from audited financial statements not included in this Prospectus. The selected consolidated statement of operations and balance sheet data set forth below as of and for the six months ended June 30, 1995 and 1996 are derived from unaudited consolidated financial statements of the Company. Such unaudited consolidated financial statements, in the opinion of management, have been prepared on the same basis as the audited consolidated financial statements and include all significant adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of the results of the interim periods. The results of operations for interim periods are not necessarily indicative of the results of operations for the entire year. The selected consolidated financial information set forth below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Company's Consolidated Financial Statements and related notes thereto included elsewhere in this Prospectus.
Six months Year ended December 31, ended June 30, ------------------------------------------- ---------------- 1991 1992 1993 1994 1995 1995 1996 ------- ------- ------- ------- ------- ------- ------- (In thousands, except share data) (unaudited) Statement of Operations Data: Revenues: Plant revenue.......... $38,048 $33,803 $34,212 $33,056 $33,823 $17,225 $18,045 Terminal and marketing revenue............... 21,944 47,340 19,756 13,666 13,172 5,200 9,831 Oil and gas and other revenue............... 445 737 1,783 1,830 1,075 501 744 Gain on sale of oil and gas properties (1).... -- -- -- 4,275 -- -- -- ------- ------- ------- ------- ------- ------- ------- Total.................. 60,437 81,880 55,751 52,827 48,070 22,926 28,620 Costs and Expenses: Plant feedstock purchases............. 18,483 18,330 23,155 21,582 17,308 8,608 8,538 Terminal and marketing purchases............. 21,266 44,596 18,845 11,497 11,937 4,829 8,683 Operating expenses..... 5,099 5,194 6,504 4,393 4,706 2,005 2,979 General and administrative expenses.............. 4,403 4,500 3,747 3,654 4,189 2,064 2,140 Depreciation, depletion and amortization...... 1,415 1,477 1,565 1,942 1,754 852 1,326 Reduction in carrying value of assets (2)... -- 310 -- 2,950 -- -- -- ------- ------- ------- ------- ------- ------- ------- Total.................. 50,666 74,407 53,816 46,018 39,894 18,358 23,666 Operating income........ 9,771 7,473 1,935 6,809 8,176 4,568 4,954 Interest expense, net of interest income........ (949) (2,024) (1,395) (1,689) (352) (300) (466) ------- ------- ------- ------- ------- ------- ------- Net income before extraordinary item and cumulative effect of change in accounting principle.............. 8,822 5,449 540 5,120 7,824 4,268 4,488 Extraordinary loss on extinguishment of debt................... -- -- -- -- (1,750) -- -- Cumulative effect of change in accounting for depreciation....... -- 877 -- -- -- -- -- ------- ------- ------- ------- ------- ------- ------- Net income (3).......... $ 8,822 $ 6,326 $ 540 $ 5,120 $ 6,074 $ 4,268 $ 4,488 ======= ======= ======= ======= ======= ======= ======= Pro Forma Information (unaudited): Historical income before income taxes, extraordinary item and cumulative effect of change in accounting principle $ 8,822 $ 5,449 $ 540 $ 5,120 $ 7,824 $ 4,268 $ 4,488 Pro forma provision for income taxes........... 3,336 2,060 228 1,424 2,937 1,667 1,670 ------- ------- ------- ------- ------- ------- ------- Pro forma net income (3).................... $ 5,486 $ 3,389 $ 312 $ 3,696 $ 4,887 $ 2,601 $ 2,818 ======= ======= ======= ======= ======= ======= ======= Pro forma net income, as adjusted (4)........... $ 5,204 $ 3,138 ======= ======= Pro Forma per Common Share: Pro forma net income.... $ 1.12 $ .69 $ .06 $ .74 $ .98 $ .52 $ .56 ======= ======= ======= ======= ======= ======= ======= Pro forma weighted average common shares outstanding (5)........ 4,878 4,878 4,878 4,964 4,990 4,990 5,041 ======= ======= ======= ======= ======= ======= ======= Pro forma net income, as adjusted............... $ .90 $ .49 ======= ======= Pro forma weighted average common shares outstanding as adjusted (5).................... 5,771 6,431 ======= =======
21
Six Months Year Ended December 31, ended June 30, --------------------------------------- -------------- 1991 1992 1993 1994 1995 1995 1996 ------- ------- ------- ------- ------- ------- ------ (In thousands, except share data) Other Data: NGL production (gallons)............. 87,722 88,616 93,502 99,735 92,239 49,826 43,094 EBITDA (6)............. $11,186 $ 9,260 $ 3,500 $ 7,426 $ 9,930 $ 5,420 $6,280 Capital expenditures... $ 5,775 $ 5,695 $ 6,941 $ 1,442 $12,426 $ 5,297 $2,522
As of December 31, As of June 30, 1996 ---------------------------------- ----------------------------- Pro Pro Forma As 1991 1992 1993 1994 1995 Actual Forma (7) Adjusted (8) ------ ------ ------ ------ ------ ------ --------- ------------ (unaudited) Balance Sheet Data: Cash and cash equivalents........... $2,956 $6,307 $1,292 $5,468 $ 761 $ 666 $ 896 $5,763 Working capital........ 6,890 6,253 2,715 10,634 10,369 5,144 5,374 10,340 Total assets........... 32,684 41,092 40,668 35,913 46,896 43,991 44,221 49,088 Total debt............. 9,164 11,750 16,486 9,887 17,500 12,350 22,350 -- Total partners' capital/stockholders' equity................ 16,975 19,614 17,350 22,183 25,161 26,464 13,488 40,804
- -------- (1) Represents the gain on the sale of a significant portion of the Company's oil and gas producing assets for proceeds of approximately $10.2 million. (2) Represents a $2.2 million write-down to estimated realizable value of an isomerization unit that was shut down, a $347,000 charge relating to a catalyst used in the isomerization process and a $361,000 charge for the write-down of non-productive equipment related to various business development projects. (3) Net income for all periods presented includes no income tax effects because the Company operated as a partnership (non-taxable entity) during these periods. Pro forma net income is presented for purposes of comparability assuming the Company was a taxable entity for all periods presented. (4) Pro forma net income, as adjusted, reflects pro forma net income adjusted for the reduction in interest expense resulting from the application of $12.4 million of estimated proceeds of this Offering to repay indebtedness outstanding prior to the Partnership Distribution (as hereinafter defined). See "Use of Proceeds" and the Unaudited Pro Forma Condensed Consolidated Financial Statements included elsewhere in this Prospectus. (5) See the Unaudited Pro Forma Condensed Consolidated Financial Statements included elsewhere in this Prospectus. (6) EBITDA represents earnings before interest income, interest expense, income taxes, depreciation, depletion and amortization and gain on sale of oil and gas properties, reduction in carrying value of assets and extraordinary items. EBITDA is not intended to represent cash flows for the period, nor has it been presented as an alternative to operating income as an indicator of operating performance. It should not be considered in isolation or as a substitute for measures of performance prepared in accordance with generally accepted accounting principles. See the Company's Consolidated Statements of Cash Flows in the Consolidated Financial Statements included elsewhere in this Prospectus. EBITDA is included in this Prospectus because it is a basis upon which the Company assesses its financial performance. (7) Gives effect to the Reorganization, the accrual of $3.2 million of deferred income tax liabilities and the Partnership Distribution. See "Reorganization" and the Unaudited Pro Forma Condensed Consolidated Financial Statements included elsewhere in this Prospectus. (8) Further adjusted to reflect the sale of 2,500,000 shares of Common Stock offered hereby and the application of the estimated net proceeds from the Offering. See "Use of Proceeds." 22 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion is intended to provide an analysis of the Company's financial condition and results of operations, and should be read in conjunction with the Company's Consolidated Financial Statements included elsewhere in this Prospectus and "Selected Consolidated Financial and Other Data." GENERAL MarkWest provides compression, gathering, treatment, processing and NGL extraction services to natural gas producers and pipeline companies and fractionates NGLs into marketable products for sale to third parties. The Company also purchases, stores and markets natural gas and NGLs and has begun to conduct strategic exploration for new natural gas sources for its processing and fractionation activities. The majority of the Company's operating income is derived from gas processing and NGL fractionation. NGL prices and the volume of liquids extracted, fractionated, and sold are the primary determinants of revenues. Prices of NGLs typically do not vary directly with natural gas prices, but more closely follow the prices of crude oil. The majority of the Company's NGL production is purchased under keep-whole contracts. Keep-whole contracts accounted for approximately 70% of the Company's total revenues during 1995 and approximately 58% of the Company's total revenues during the six months ended June 1996. In keep-whole contracts, the Company's principal cost is the reimbursement to the natural gas producers for the energy extracted from the natural gas stream and consumed as fuel during processing. Profitability under such contracts is largely influenced by the margin between NGL sales prices and the cost of such reimbursement, which is directly related to the Company's cost for natural gas. In the event there is a contraction of the margin between the two prices, the Company's profitability will decrease. See "Risk Factors--Commodity Price Risks." The Company intends to emphasize fee-based processing in the future to reduce the fluctuations in margins inherent in processing natural gas under keep-whole arrangements. In 1995, the Company began construction of a new NGL extraction facility in Kenova, West Virginia, which became operational in January 1996. This facility provides services to Columbia Gas and other gas producers in the Appalachian Core Area. Services provided by the Kenova plant are based on a fee for volumes processed. The fee contracts related to the Kenova plant are expected to help offset margin fluctuations in the keep-whole contracts related to the Siloam fractionation plant. See "Business--Gas Processing Contracts and Natural Gas Supply--Fee Contracts." In recent years, a substantial majority of the gas received by the Company's processing plants was received from major pipelines owned by third parties. From time to time, such pipeline transmission systems have been partially shut down for maintenance or repairs for up to four months. Partial or complete shut downs of pipelines supplying the Company's processing plants could have a material impact on the volumes of natural gas processed and on the volumes of NGLs fractionated and sold, and correspondingly on the revenues realized by the Company. See "Risk Factors--Availability of Natural Gas Supply" and "-- Dependence on Major Pipelines." In addition to sales of NGLs processed by the Company, the Company generates income from the purchase and resale of NGLs as part of its terminal and marketing activities. The Company previously engaged in third party trading and brokerage activities, which significantly increased revenue. Because of minimal gross margins and significant operating costs related to the brokerage and trading business, the Company discontinued brokerage and trading in mid- 1993. The Company continues to provide marketing activities in support of its company-owned facilities and production and, with the acquisition of its Church Hill facility in 1995, the Company currently operates two propane terminals. 23 The Company plans to increase its investment in its new Michigan Core Area and the Company's results of operations in the future should be increasingly impacted by the operations in the Michigan Core Area. The Company's assets in the Michigan Core Area presently consist of the Basin Pipeline and a number of processing contracts. In May 1996, the Company entered into several related agreements providing for the further development of gathering, treatment and processing facilities in western Michigan. The Company also plans to invest in exploration and production activities in the Michigan Core Area and has agreed to purchase a 17.5% working interest in the drilling program of Callon Exploration Company. See "Business--Natural Gas Processing and Related Services--Michigan Core Area." The operation of certain assets acquired in the Michigan Core Area prior to their purchase by the Company was not profitable. The Company's fiscal 1995 pro forma net income, giving effect to the inclusion of Basin Pipeline with the Company, would have been lower by $354,000. See the Unaudited Pro Forma Condensed Consolidated Financial Statements included elsewhere in this Prospectus. While the Company has entered into agreements that the Company believes will increase the profitability of Basin Pipeline, there can be no assurance that such operations will be profitable in the future or that the Company's planned expansion efforts will be successful. See "Risk Factors--Risks Relating to the Michigan Project." The Company also plans to increase its investment in exploration and production activities for new natural gas sources as a supporting function for its processing services. Exploration and production activities are subject to many risks, including the risk that no commercially productive reservoirs will be encountered. There can be no assurance that its natural gas exploration efforts will be productive or that the Company will recover all or a portion of its investment in such activities. See "Risk Factors--Certain Risks of Oil and Gas Exploration and Production Activities." All statements other than statements of historical fact contained in this Prospectus, including statements concerning the Company's financial position and liquidity, results of operations, prospects for development of the Appalachian Core Area and the Michigan Core Area, prospects for development of exploration and production assets and other matters are forward looking statements. Although the Company believes that the expectations reflected in such forward looking statements are reasonable, no assurance can be given that such expectations will prove correct. Factors that could cause the Company's results to differ materially from the results discussed in such forward looking statements include the risks described under "Risk Factors," such as commodity price risks, risks involved in future supplies of natural gas, dependence on major pipelines, general business risks in NGL marketing and exploration and production activities, dependence on certain customers, intense competition, regulatory and other risks in the natural gas processing and related services industry. All forward looking statements in this Prospectus are expressly qualified in their entirety by the cautionary statements in this paragraph. SEASONALITY The Company's results of operations fluctuate from quarter to quarter, due in large part to the impact of seasonal factors on the prices and sales volumes of NGLs and natural gas. The Company's principal NGL product, propane, is used primarily as home heating fuel in the Company's marketing areas. Sales volume and prices of propane usually increase during the winter season and decrease during the summer season. However, demand for, and prices of, propane also depend, to a large extent, upon the severity of the weather in the Company's operating areas during the winter months. To meet the needs of the marketplace, the Company seasonally stores product to meet anticipated winter demand and also increase its third party purchases to meet wintertime needs. As a result, the Company recognizes the greatest proportion of its operating income during the first and fourth quarters of the year. See "Risk Factors-- Potential Variability in Quarterly Operating Results." RESULTS OF OPERATIONS Six Months Ended June 30, 1996 Compared to Six Months Ended June 30, 1995 Revenues. Plant revenue increased to $18.0 million from $17.2 million for the six months ended June 30, 1996 as compared to the six months ended June 30, 1995, an increase of $820,000 or 5%. The revenue increase resulted principally from $1.6 million in additional revenue generated by the new Kenova 24 processing plant during its first six months of operations, offset by a decrease in volumes fractionated at the Siloam plant and NGLs sold to third parties, and by higher selling prices per gallon for butanes and natural gasoline. The volume decrease at the fractionation plant at Siloam, which receives approximately 70% of its raw NGL mix from the Kenova plant, was due principally to normal start-up delays in the transition from an older processing facility at Kenova to the Company's new plant in the first quarter of 1996. Terminal and marketing revenue increased to $9.8 million from $5.2 million for the six months ended June 30, 1996 as compared to the six months ended June 30, 1995, an increase of $4.6 million, or 88%. Revenue from the West Memphis terminal accounted for $3.3 million of the increase and the new terminal in Church Hill, Tennessee, which became operational in the fall of 1995, accounted for $1.3 million of the increase. The increase in revenues from the West Memphis terminal was due principally to colder temperatures during January and February 1996 in the geographic areas served by this terminal, resulting in an increased demand for propane. Oil and gas and other revenue increased to $744,000 from $501,000 for the six months ended June 30, 1996 as compared to the six months ended June 30, 1995, an increase of $243,000, or 49%. This increase was due principally to a full year of production from the Company's current complement of oil and gas properties, which began producing in the fourth quarter of 1995. Other revenue consists of income received from the leasing of Company-owned railcars to third parties. Costs and expenses. Terminal and marketing purchases increased to $8.7 million from $4.8 million for the six months ended June 30, 1996 as compared to the six months ended June 30, 1995, an increase of $3.9 million, or 81%. Increased product costs resulted from increased propane sales. Operating expenses increased to $3.0 million from $2.0 million for the six months ended June 30, 1996 as compared to the six months ended June 30, 1995, an increase of $1.0 million, or 49%. The increase was due principally to new operations at both the Kenova and Church Hill facilities, which commenced operations in the first quarter of 1996 and the fourth quarter of 1995, respectively. Depreciation and amortization increased to $1.3 million from $852,000 for the six months ended June 30, 1996 as compared to the six months ended June 30, 1995, an increase of $501,000 or 59%. The increase was due principally to depreciation attributable to the Company's new Kenova plant. Net interest expense. Net interest expense increased to $466,000 from $300,000 for the six months ended June 30, 1996 as compared to the six months ended June 30, 1995, an increase of $166,000 or 55%. This increase resulted principally from an increase in outstanding long-term debt to $12.4 million at June 30, 1996, from $3.8 million at June 30, 1995, in order to finance the Kenova plant. Year Ended December 31, 1995 Compared to Year Ended December 31, 1994 Revenues. Plant revenue increased to $33.8 million from $33.1 million for 1995 as compared to 1994, an increase of $767,000, or 2%. This increase resulted principally from an increase in average sales price of NGLs, offset by a decrease in NGL volumes sold. Terminal and marketing revenue decreased to $13.2 million from $13.7 million for 1995 as compared to 1994, a decrease of $494,000 or 4%. This decrease principally resulted from the expiration of the remaining third-party brokerage sales in 1994, a decrease in volumes sold and a decrease in the average selling price per gallon of propane. Oil and gas and other revenue decreased to $1.1 million from $1.8 million in 1995 as compared to 1994, a decrease of $755,000 or 41%. The decrease resulted principally from the Company's sale in 1994 of substantially all of its San Juan Basin coalbed methane properties and associated gathering systems. Gain on sale of oil and gas properties of $4.3 million in 1994 was due to the sale of a majority of the Company's oil and gas producing assets for approximately $10.2 million. 25 Costs and expenses. Plant feedstock purchases decreased to $17.3 million from $21.6 million for 1995 as compared to 1994, a decrease of $4.3 million or 20%. This decrease resulted from the acquisition of feedstock quantities during off-peak periods, when prices typically are lower, rather than at spot prices during peak season. Terminal and marketing purchases increased to $11.9 million from $11.5 million for 1995 as compared to 1994, an increase of $440,000 or 4%. This increase was due principally to an increase in the average price per gallon of propane. Operating expenses increased to $4.7 million from $4.4 million for 1995 as compared to 1994, an increase of $313,000 or 7%. The increase was attributable to the construction and start up of the Kenova gas processing facility. General and administrative expenses increased to $4.2 million from $3.7 million for 1995 as compared to 1994, an increase of $535,000 or 15%. The increase was attributable to administrative support activities related to the Michigan Project and the new Kenova and Church Hill facilities. Depreciation and amortization decreased to $1.7 million from $1.9 million for 1995 as compared to 1994, a decrease of $188,000 or 10%. This decrease resulted principally from lower plant carrying values due to reductions made in 1994. Reduction in carrying value of assets of $3.0 million in 1994 was due to a one-time charge reflecting the shutdown of the isomerization unit at the Siloam plant and a charge for the write-down of other non-productive equipment. Net interest expense. Net interest expense decreased to $352,000 from $1.7 million for 1995 as compared to 1994, a decrease of $1.3 million or 79%. The decrease resulted principally from lower average borrowing levels as well as the capitalization of approximately $300,000 of interest in connection with the construction of the Kenova gas processing plant. Year Ended December 31, 1994 Compared to Year Ended December 31, 1993 Revenues. Plant revenues decreased to $33.1 million from $34.2 million for 1994 as compared to 1993, a decrease of $1.1 million or 3%. This decrease resulted principally from a decrease in average sales prices of NGLs, offset by an increase in volumes sold. Terminal and marketing revenue decreased to $13.7 million from $19.8 million for 1994 as compared to 1993, a decrease of $6.1 million or 31%. This decrease resulted principally from the Company's discontinuation of its third-party brokerage operations. Costs and expenses. Plant feedstock purchases decreased to $21.6 million from $23.2 million for 1994 as compared to 1993, a decrease of $1.6 million or 7%. This decrease was attributable to the Company's initiation in 1994 of the practice of acquiring feedstock quantities at off-peak periods, when prices are typically lower. Terminal and marketing purchases decreased to $11.5 million from $18.8 million for 1994 as compared to 1993, a decrease of $7.3 million or 39%. This decrease resulted principally from the Company's discontinuation of its third party brokerage operations. Operating expenses decreased to $4.4 million from $6.5 million for 1994 as compared to 1993, a decrease of $2.1 million or 32%. This decrease resulted from a cost containment policy implemented in 26 fiscal 1994. The aggregate reduction in operating expenses consisted primarily of reduced transportation expense related to third-party brokerage operations, lower operating expenses related to the shutdown of the Siloam isomerization plant during 1994, and reduced repair and maintenance expense. Depreciation and amortization increased to $1.9 million from $1.6 million for 1994 as compared to 1993, an increase of $377,000 or 24%. The increase was primarily due to the acquisition of certain assets, including a new computer system, with shorter depreciable lives. Net interest expense. Net interest expense increased to $1.7 million from $1.4 million for 1994 as compared to 1993, an increase of $294,000 or 21%. The increase resulted from higher average borrowing levels and higher average interest rates. LIQUIDITY AND CAPITAL RESOURCES The Company's sources of liquidity and capital resources historically have been net cash provided by operating activities, proceeds from issuance of long-term debt and, in 1994, the proceeds from the sale of certain oil and gas properties. The Company's principal uses of cash have been to fund operations and acquisitions. The Company believes that the net proceeds from this Offering, together with its current credit facilities and cash flows generated by its operations, will be sufficient to meet its anticipated cash needs for working capital and capital expenditures for the foreseeable future. Thereafter, if cash generated from operations is insufficient to satisfy the Company's liquidity requirements, the Company may seek to sell additional equity or debt securities, obtain additional credit facilities or adjust the level of its operating and capital expenditures. The sale of additional equity securities could result in additional dilution to the Company's stockholders. Financing Facilities Revolver Loan. The Company currently has a financing agreement with Norwest Bank Denver, N.A. as agent, First American National Bank of Nashville, Tennessee and N M Rothschild and Sons Limited (collectively, the "Lenders"). The agreement is structured as a revolving facility, with a maximum borrowing base of $40.0 million as of June 30, 1996. Interest rates are based on either the agent bank's prime rate plus 1/4% or the London Interbank Offered Rate (LIBOR) plus 2%. The repayment period begins on September 30, 1998, continuing for 16 equal quarterly installments until June 30, 2002. Outstanding borrowings at June 30, 1996 were $8.5 million. Upon application of the net proceeds of the Offering, no amounts will be outstanding under this facility. This facility is secured by substantially all of the Company's assets. Working Capital Loan. The Company has a working capital line of credit with a maximum borrowing base of $7.5 million as of June 30, 1996. Interest rates are based on prime plus 1/4%, with maturity on July 1, 1998. Outstanding borrowings at June 30, 1996 were $3.9 million. Upon application of the net proceeds of the Offering, no amounts will be outstanding under this facility. The working capital loan is secured by the Company's inventory, receivables and cash. Capital Investment Program During 1996, the Company expects to make approximately $10.0 million in capital investments. The Company expects to invest approximately $4.0 million in the Company's subsidiary, MW Michigan, Inc. ("MW Michigan"), for activities in the Michigan Core Area. Through MW Michigan, the Company is committed to make certain capital contributions to West Shore, a venture dedicated to natural gas gathering, treatment, processing and NGL marketing in western Michigan. The Company has committed to fund up to $1.2 million of West Shore's construction of a two-mile gathering pipeline and up to $10.0 million for a 30-mile extension of the Basin Pipeline. In addition, the Company has committed to fund 27 60% of the costs in excess of such amounts if necessary to complete these projects. See "Business--Natural Gas Processing and Related Services--Michigan Core Area." The Company also expects to invest approximately $5.0 million in the Company's exploration and production subsidiary, MarkWest Resources, Inc. ("MarkWest Resources"). For the six months ended June 30, 1996, the Company made capital expenditures totalling $2.5 million, including $629,000 for MW Michigan and $1.4 million for MarkWest Resources. As of June 30, 1996, the Company had expended $12.2 million and $200,000 in connection with the construction and related costs for development of the Kenova plant and the Church Hill terminal and storage facility, respectively. The Company expects to expend an additional $280,000 to expand the Church Hill facility in 1996. During 1994, the Company expended $1.4 million for the expansion and upgrade of existing facilities. RISK MANAGEMENT ACTIVITIES The Company's policy is to utilize risk management tools primarily to reduce commodity price risk for its natural gas shrink replacement purchases. This effectively allows the Company to fix a portion of its margin because gains or losses in the physical market are offset by corresponding losses or gains in the financial instruments market. The Company maintains a three-person committee that oversees all hedging activity of the Company. This committee reports monthly to management regarding recommended hedging transactions and positions. Gains and losses related to qualifying hedges, as defined by SFAS No. 80, "Accounting for Futures Contracts", of firm commitments or anticipated transactions are recognized in plant revenue and feedstock purchases upon execution of the hedged physical transaction. As of December 31, 1994 and 1995, and as of June 30, 1996, the Company did not hold any material notional quantities of natural gas, NGL, or crude oil futures, swaps or options. TERMINATION OF PARTNERSHIP TAX STATUS The Company's immediate predecessor, MarkWest Partnership, will remain a partnership until its reorganization immediately prior to consummation of the Offering. As such, MarkWest partnership was not subject to federal and most state income tax and its income was taxed directly to its respective partners. The financial data set forth in this Prospectus reflect pro forma income tax provisions as if the Company had been taxed as a Subchapter C corporation under the Internal Revenue Code during the relevant periods. Pro forma income taxes giving effect to termination of MarkWest Partnership's tax status were calculated using an effective income tax rate of approximately 42.3%, 27.8%, 37.5% and 37.2% in 1993, 1994, 1995 and for the first six months of 1996, respectively. See Note 10 of Notes to Consolidated Financial Statements. 28 BUSINESS GENERAL The Company is engaged in natural gas processing and related services. The Company, which has grown substantially since its founding in 1988, is the largest processor of natural gas in Appalachia and recently established a venture to provide natural gas processing services in western Michigan. The independent gas processing industry has grown rapidly in the last 10 years, and the Company believes there will be substantial opportunities to grow its gas processing operations within these existing core regions and in new markets. The Company provides compression, gathering, treatment, and NGL extraction services to natural gas producers and pipeline companies and fractionates NGLs into marketable products for sale to third parties. The Company also purchases, stores and markets natural gas and NGLs and has begun to conduct strategic exploration for new natural gas sources for its processing activities. In the twelve months ended December 31, 1995, MarkWest produced approximately 92 million gallons of NGLs and marketed approximately 127 million gallons of NGLs. The Company's processing and marketing operations are concentrated in two core areas which are significant gas producing basins: the southern Appalachian region of eastern Kentucky, southern West Virginia, and southern Ohio (the Appalachian Core Area), and western Michigan (the Michigan Core Area). At the Company's processing plants, natural gas is treated to remove contaminants, and NGLs are extracted and fractionated into propane, normal butane, isobutane and natural gasoline. The Company then markets the fractionated NGLs to refiners, petrochemical companies, gasoline blenders, multistate and independent propane dealers, and propane resellers. In addition to processing and NGL marketing, the Company engages in terminalling and storage of NGLs in a number of NGL storage complexes in the central and eastern United States, and operates propane terminals in Arkansas and Tennessee. During 1996, the Company has taken several key steps intended to expand its operations. In January 1996, the Company commissioned a new natural gas liquids extraction plant in Wayne County, West Virginia. See "--Natural Gas Processing and Related Services--Appalachian Core Area--NGL Extraction--Kenova Plant." In May 1996, the Company established West Shore, a venture in western Michigan, which the Company will develop as the Michigan Core Area. The Company has identified opportunities, and has entered into agreements, to expand its gas gathering operations and to commence gas processing operations in the Michigan Core Area in the near future. See "--Natural Gas Processing and Related Services--Michigan Core Area." INDUSTRY OVERVIEW Natural gas processing and related services represent a major segment of the oil and gas industry, providing the necessary service of converting natural gas into marketable energy products. When natural gas is produced at the wellhead, it must be gathered, and in some cases compressed or pressurized, for transportation via pipelines (described as gathering services) to gas processing plants. The processing plants remove water vapor, solids and other contaminants, such as hydrogen sulfide or carbon dioxide in the natural gas stream that would interfere with pipeline transportation or marketing of the gas to consumers and also extract the NGLs from the natural gas (described as treatment and extraction services, respectively). The NGLs are then subjected to various processes that cause the NGLs to separate, or fractionate, into marketable products such as propane, normal butane, isobutane and natural gasoline (described as fractionation services). Over the past 10 years, independent gas processing has experienced significant growth. In 1995, independent natural gas processing companies accounted for 319,000 barrels per day of NGL production, or approximately 23% of total U.S. NGL production by the 20 largest U.S. natural gas producers, compared to less than 4% of such producers' NGL production in 1985. The increase in the independent gas processing industry has resulted in part from the divestiture by major energy companies and interstate pipeline companies of their gas gathering and processing assets and the decision by many such companies to outsource their gas processing needs. 29 An important factor expected to contribute to the continuing growth of independent processing companies is the upward trend of gas consumption and production in the United States. Natural gas consumption in the United States has increased from 16.7 trillion cubic feet (Tcf) per year in 1986 to 21.9 Tcf per year in 1995, and is forecast to increase to 24.0 Tcf per year by the year 2000. The number of natural gas rigs in service also has recently increased. From June 1995 to June 1996, the number of natural gas rigs in service rose from 340 to 464. This natural gas rig count is the highest in over four years, and as a percentage of total oil and gas rigs in service, the highest in the last decade. Many newly discovered gas wells and gas fields will require access to gathering and processing infrastructure, providing significant opportunities for growth-oriented independent gas processing companies such as MarkWest. STRATEGY The Company's primary objective is to achieve sustainable growth in cash flow and earnings by increasing the volume of natural gas that it gathers and processes and the volume of NGLs that it produces and markets. To achieve this objective, the Company employs a number of related strategies. Geographic Core Areas. The Company emphasizes opportunities for investment in geographic core areas where there is significant potential to achieve a position as the area's dominant natural gas processor. The Company believes that growth in core areas can be achieved by developing processing facilities both in areas where a large energy or pipeline company requires processing services and in areas where there is significant potential for natural gas production but not significant processing capacity. Long-Term Strategic Relationships. The Company seeks strategic relationships with the dominant pipelines and gas producers in each area in which the Company operates. In the Appalachian Core Area, MarkWest owns three processing plants that process natural gas or NGLs dedicated by Columbia Gas. In its Michigan Core Area, the Company has entered into gas supply and processing relationships with Shell and MPC, a company jointly owned by Tenneco and ENCAP. NGL Marketing. The Company strives to maximize the downstream value of its gas and liquid products by marketing directly to distributors and resellers. Particularly in the area of NGL marketing, the Company minimizes the use of third party brokers and instead supports a direct marketing staff focused on refiners, petrochemical companies, gasoline blenders, and multistate and independent propane dealers. Additionally, the Company uses its own truck and tank car fleet, as well as its own terminals and storage facilities, to provide supply reliability to its customers. All of these efforts have allowed the Company to maintain pricing of its NGL products at a premium to Gulf Coast spot prices. Cost-Efficient Operations. The Company seeks a competitive advantage by utilizing in-house processing and operating expertise to provide lower-cost service. To provide competitive processing services, the Company emphasizes facility design, project management and operating expertise that permits efficient installation and operation of its facilities. The Company has in- house engineering personnel who oversee the design and construction of the Company's processing plants and equipment. Acquisitions. The Company believes that there are significant opportunities to make strategic acquisitions of gathering and processing assets because of the divestiture by major energy companies and interstate pipeline companies of their gas gathering and processing assets. The Company pursues acquisitions that can add to existing core area investments or can lead to new core area investments. Exploration as a Tool to Enhance Gas Processing. The Company maintains a strategic gas exploration effort that is designed to permit the Company to gain access to additional natural gas supplies within its existing core areas and to gain foothold positions in production regions that the Company might develop as new core processing areas. 30 NATURAL GAS PROCESSING AND RELATED SERVICES The Company's processing operations are located in its Appalachian Core Area consisting of eastern Kentucky, southern West Virginia, and southern Ohio, and its Michigan Core Area consisting of the area of western Michigan north of Grand Rapids and south of Traverse City. The Company's operations in Appalachia date from the Company's founding in 1988. At present, the Company is the largest processor of natural gas in Appalachia based on the volume of natural gas processed at its owned facilities, including those it leases to third parties. The Company began development of the Michigan Core Area in June 1996. APPALACHIAN CORE AREA The Company's operations in Appalachia consist of two extraction facilities, a fractionation plant, an NGL pipeline, rail terminals and related processing assets. Since 1988, when the Company purchased its Siloam fractionation plant (see "--Fractionation"), the volume of natural gas processed by the Company in the Appalachian Core Area has grown to approximately 170 MMcf/D, and the Company's NGL production has grown to approximately 275 MGal/D. [GRAPHIC: 43 X 33 1/2 PICA MAP OF APPALACHIAN CORE AREA] The Company believes that this region has favorable supply and demand characteristics. The Appalachian Core Area is geographically situated between the TET pipeline to the north and the Dixie pipeline to the south. In addition to Appalachia, the TET pipeline serves the upper midwestern and eastern United States, and the Dixie pipeline serves the 31 southeast. Because the areas directly served by these two pipelines are experiencing significant population growth, the demand for NGL products exceeds the capacity of these two lines. The demand for propane from the TET and Dixie pipelines is such that the pipelines allocate supply to purchasers during peak wintertime periods, thereby limiting the available supply to Appalachia. There are few sources of propane to the Appalachian Core Area other than the Company's facilities, the TET and Dixie pipelines, and propane shipped by rail cars from other producing areas. In addition, the Appalachian mountain range limits access to the Dixie pipeline by distributors in the Appalachian Core Area. These factors enable producers in Appalachia (principally MarkWest, Ashland and CNG Transmission Corporation) to price their products (particularly propane) at a premium to Gulf Coast spot prices during times of supply shortages from other sources, especially during winter high demand periods. The underground storage caverns at Siloam allow the Company to defer sales of NGLs to the winter months when peak demand periods often lead to higher product prices and provide local consumers with needed wintertime supplies. The Company also believes that there are significant growth opportunities in this region both from the improvement of gas processing efficiencies for existing gas production in the area and the Company's capacity to process natural gas streams from areas in the region that are not currently processed. For example, in 1994 in Kentucky, Ohio, Pennsylvania, Virginia and West Virginia, only 473 MMcf/D of natural gas was processed out of a total production of over 1,400 MMcf/D. While not all of this natural gas is available to the Company or is economically feasible to process, the Company believes there is significant opportunity to capture an increasing portion of this unprocessed supply. NGL EXTRACTION. The Company currently owns two NGL extraction plants in Appalachia, one which it operates and one which it leases to Columbia Gas. Extraction plants remove NGLs, as well as water vapor, solids and other contaminants, such as hydrogen sulfide or carbon dioxide, contained in the natural gas stream. The Company provides NGL extraction services under a fee- based arrangement. Kenova Plant. The Company began construction of its Kenova natural gas liquids extraction plant, located in Wayne County, West Virginia, in 1995. The Kenova plant was commissioned in January 1996 and replaced a 1958 extraction facility owned and operated by Columbia Gas. Because the Company owns and operates this new facility, the Company will generate increased revenue, and fee revenues related to processing operations will represent a greater proportion of total revenues. In addition, the Company believes that this new facility will generate greater NGL recovery from natural gas, reduce downtime for maintenance, and significantly reduce fuel costs compared to the replaced facility. Construction and related costs for development of the Kenova plant were approximately $12.2 million. The Kenova plant was constructed under an agreement with Columbia Gas and is situated on a main gathering line of Columbia Gas. The Kenova plant produces revenue for the Company by charging fees to process natural gas production. To date, substantially all of Kenova's processing throughput has been obtained from Columbia Gas. See "--Gas Processing Contracts and Natural Gas Supply." The Company estimates that average natural gas throughput at the Kenova plant in 1996 will be 115 MMcf/D. NGL production at the Kenova plant in 1996 is estimated to be 70 million gallons. The Kenova plant is a turbo expander plant that both processes natural gas into pipeline quality gas and extracts NGLs from the natural gas stream. The Kenova plant refrigerates natural gas down to -105 degrees Fahrenheit and separates the natural gas from the NGLs formed at the low temperatures. The Kenova plant's design allows for relatively fuel-efficient, low-pollution extraction of a high volume of NGLs from the natural gas. The plant has a processing capacity of 120 MMcf/D, and also has over 6,500 horsepower of inlet compression capability. See "--Facilities." Substantially all of the Kenova plant's extracted NGLs are transported via the Company's 38.5 mile high pressure pipeline to its Siloam fractionation facility located in South Shore, Kentucky, for separation into marketable NGL products. Boldman Plant. The Company constructed the Boldman natural gas liquids extraction plant, located in Pike County, Kentucky, in 1991. Construction and related costs for development of the Boldman plant were approximately $4.0 million. 32 The Boldman plant is a refrigeration plant that extracts NGLs by refrigerating natural gas down to -20 degrees Fahrenheit. The plant has a processing capacity of 70 MMcf/D and includes two 60,000 gallon product storage tanks and truck loading facilities. The Boldman plant is currently leased to, and operated by, Columbia Gas. Under such lease, the Company receives a monthly rental fee ranging from $40,000 to $47,000. Columbia Gas also has an option to purchase the Boldman plant at set prices during the term and upon expiration of the lease. See "--Facilities." Columbia Gas has dedicated all NGLs recovered at the Boldman plant to the Company's Siloam facility for fractionation under a contract which runs through December 31, 2003. This production is transported via tanker trucks from the Boldman plant to the Siloam plant for processing. Natural gas throughput at the Boldman plant in 1995 averaged 55 MMcf/D. NGL Pipeline. The Company owns a 38.5 mile, high pressure steel pipeline that connects its Kenova processing plant to the Company's Siloam fractionation facility. The pipeline currently delivers approximately 70 million gallons per year to the Siloam facility from the Kenova processing plant. Because this pipeline was originally designed to handle a high pressure ethane-rich stream, it has the capacity to handle almost twice as much product if it becomes available. FRACTIONATION. The Company's fractionation services in the Appalachian Core Area are performed at its Siloam fractionation plant located in South Shore, Kentucky. At this facility, extracted NGLs are subjected to various processes that cause the natural gas to separate, or fractionate, into separate NGL products, including propane, isobutane, normal butane and natural gasoline. The Siloam facility is one of only two fractionation plants in the Appalachian Core Area producing over 6,500 barrels, or 275,000 gallons, per day of NGLs. Substantially all of the Company's fractionation services in its Appalachian Core Area are provided under keep-whole contracts with Columbia Gas. See "-- Gas Processing Contracts and Natural Gas Supply--Keep-Whole Contracts." The Company acquired the Siloam plant in April 1988 from Columbia Gas for $3.5 million. During 1989, the Company began an approximately $11 million expansion program at the Siloam plant that included the construction of an isomerization unit that has the capacity to convert up to 2,000 barrels per day of normal butane into isobutane. Because of attractive normal butane prices, the Company does not currently operate the isomerization unit. The expansion program also included the construction of additional storage facilities, improvements to existing electrical and control systems and the addition of loading facilities. The expansion was fully operational in early 1991. The Siloam plant, situated on approximately 290 Company-owned acres, has a gross design capacity of 8,500 barrels per day, or over 140 million gallons per year. The Siloam plant also has over 14 million gallons of on-site product storage, including an 8.4 million gallon propane underground storage cavern, a 3.1 million gallon butane underground storage cavern, and approximately 3 million gallons of above-ground storage tanks. The Siloam plant is served by the following modern loading and unloading facilities: four automated truck loading docks for propane/butane; two automated truck unloading docks for mixed feedstock; one automated bottom loading dock for natural gasoline; truck scales; a rail siding capable of holding over 20 railcars and simultaneously loading or unloading eight cars; and barge facilities for the loading of natural gasoline and butanes. Approximately 79% of the fractionation throughput at the Siloam plant comes from the production of the Company's Kenova and Boldman plants. The Company also makes purchases of NGLs from third-party processors and of additional production from Columbia Gas. The Company's most significant purchase contract for NGLs is with Columbia Gas. In addition to the approximately 9 MMGal per year of Columbia Gas NGL production from the Boldman plant, Columbia Gas dedicates approximately 17.0 MMGal per year from its Cobb, West Virginia extraction plant. Pursuant to the Columbia Gas purchase agreements, the Company is committed to purchase substantially all of the NGLs produced at Columbia Gas' own processing plants, as well as those produced by the Company for Columbia Gas. Under these contracts, the Company is required to compensate Columbia Gas for the BTU energy equivalent of NGLs and fuel removed from the natural gas as a result of processing. The terms of these contracts runs through December 31, 2003, except for the contract at the Kenova plant which runs through 2010, and provide for automatic two-year extensions thereafter, unless either party gives notice to terminate the contract at least one year in advance of an expiration date. In 1995, the Company's cost for purchases under these contracts were $17.0 million, and such purchases represented 98% of all NGLs fractionated by the Company. 33 MICHIGAN CORE AREA The Company was attracted to the Michigan Core Area because of the potential for providing gathering and processing services in the area. Substantially all of the natural gas in the Michigan Core Area is sour and, therefore, has limited outlets for processing. Through West Shore, the Company expects to be able to gather and process this sour gas. As a result of availability of large shut-in sour gas wells and the expected increase in drilling by producers who previously had no outlet for sour gas production in the area, the Company entered into several related agreements in May 1996 providing for the development of gathering, treatment and processing facilities in western Michigan. The Michigan Project is conducted through West Shore, a venture dedicated to natural gas gathering, treatment, processing and NGL marketing in Manistee, Mason and Oceana Counties in Michigan. MW Michigan has the contractual right to acquire a 60% interest in West Shore. See "--Development Agreements." [GRAPHIC: MAP OF MICHIGAN CORE AREA] The most significant assets of West Shore currently include the Basin Pipeline, a 31-mile sour gas pipeline which is situated in Manistee and Mason Counties, rights to obtain a sour gas treatment plant located in Manistee County, Michigan, and various agreements that dedicate natural gas production to West Shore for processing. Until completion of the second phase of the Michigan Project, West Shore's revenues will be derived from fees generated by gathering of natural gas on the Basin Pipeline and by treatment of sour gas. Following completion of the second phase, revenues will be derived from fees generated by gathering, treatment and extraction and fractionation of NGLs. 34 The Michigan Project is in its first phase of development, which includes construction of a two-mile pipeline from one of West Shore's main gathering locations to a treatment plant owned and operated by Shell in Manistee County. The purpose of this pipeline is to deliver sour gas to Shell for treatment. The first phase also includes the construction of a 30-mile pipeline that will connect the Slocum natural gas well owned by MPC in Oceana County to the Basin Pipeline. Pending approval by the Michigan Public Service Commission of this pipeline as part of the Basin Pipeline, MPC will own, and West Shore will operate for MPC, this connecting pipeline. The Slocum well has estimated reserves of approximately 13 Bcf, and estimated initial well deliverabilities of approximately 8 MMcf/D. The Company currently expects to complete the first phase of the Michigan Project in the first quarter of 1997. The first phase of the Michigan Project is budgeted to cost $10.4 million, of which the Company's share is $9.5 million. The second phase of the Michigan Project includes construction of a two-mile residue return line from the Shell treatment plant to the natural gas transmission line of Michigan Consolidated Gas Company ("MichCon") and construction of approximately 18 miles of pipeline to connect natural gas wells in southern Oceana County, including the Claybanks wells owned by MPC with estimated reserves of approximately 7.5 Bcf and estimated initial well deliverabilities of approximately 8 MMcf/D, to the Basin Pipeline. The second phase will also include the construction of an NGL extraction and fractionation facility at the site of the Shell treatment plant. The facility will be owned by West Shore and operated by Shell. The Company currently expects that the second phase of the Michigan Project will be completed by the end of the fourth quarter of 1997. The second phase of the Michigan Project is expected to cost over $10 million, although the budget for such project is not yet finalized. Upon completion of the first two phases of development, West Shore's processing operations are expected to have 30 MMcf/D of capacity provided by Shell and approximately 25 MMcf/D of dedicated production from currently drilled and proven wells. With a current pipeline capacity of 35 MMcf/D and deliverabilities of individual wells commonly exceeding 5 MMcf/D, the Company expects that demand at West Shore could exceed capacity. As a result, the Company is already planning to expand West Shore to increase capacity in the second phase of the Michigan Project. There can be no assurance, however, that demand for West Shore's services will reach the levels anticipated by the Company. Availability of Natural Gas Supply. West Shore has an exclusive gathering, treatment and processing agreement with MPC covering the natural gas production from all wells and leases presently owned by MPC within Manistee, Mason and Oceana Counties, Michigan. West Shore also is negotiating an agreement with Callon that may result in the dedication of its natural gas production to the pipeline, treatment and processing facilities of West Shore. The Company believes that the expansion of the Basin Pipeline southward will provide an outlet for sour gas production in the area and may stimulate new drilling activity in the area. Both MPC and Callon are considering initiating drilling programs in the area, to begin in late 1996 or early 1997. Production from the MPC program has been dedicated to the Basin Pipeline, and West Shore is negotiating with Callon for dedication of its production to the Basin Pipeline. MarkWest Resources has agreed to purchase a 17.5% working interest in the Callon drilling program. MarkWest also has had discussions with other exploration companies that are evaluating possible exploration and production activities in the corridor to be serviced by the expanded Basin Pipeline. MarkWest currently is evaluating various drilling programs and expects to participate actively in drilling wells in the area. The natural gas streams to be dedicated to West Shore under these agreements will primarily be produced from an extension of the Northern Niagaran Reef trend in western Michigan. To date, over 2.5 trillion cubic feet of natural gas has been produced from the Northern Niagaran Reef trend. Substantially all of the natural gas produced from the western region of this trend, however, is sour. While several successful large wells were developed in the region, the natural gas producers lacked adequate gathering and treatment facilities for sour gas, and development of the trend stopped in northern Manistee County. With the sour gas pipeline, treatment and processing facilities and capacity to be provided by 35 West Shore, the Company believes there could be increased development in the region. In addition, the Company believes that improvements in seismic technology may increase exploration and production efforts, as well as drilling sucess rates. Development Agreements. West Shore was formed in May 1996 and is governed by an operating agreement between MW Michigan, Inc. and MEC, which is owned by Tenneco and ENCAP. Pursuant to the West Shore operating agreement, MEC contributed various gathering and processing assets, including gas purchase and processing contracts, valued by MEC and the Company at $11.2 million. The most significant assets contributed by MEC include its ownership interest in the Basin Pipeline, which is now held by West Shore's Basin Pipeline LLC subsidiary, rights to obtain a sour gas treatment plant located in Manistee County, Michigan, and various agreements that dedicate natural gas production to West Shore for processing. The acquisition of construction and operating permits in Michigan historically has been very difficult, particularly for sour gas. The assets contributed by MEC to West Shore included two key permits: a certificate of approval from the State of Michigan to transport sour natural gas via the Basin Pipeline and a permit to construct an additional treatment plant in Oceana County. In addition to acting as the operator under the West Shore operating agreement, the Company has committed to fund up to $1.2 million of West Shore's construction of a two-mile gathering pipeline and up to $10.0 million for a 30-mile extension of the Basin Pipeline. In addition, the Company has committed to fund 60% of the costs in excess of such amounts if necessary to complete these projects. The Company also intends to construct and install processing and fractionating facilities to capitalize on the shut-in supply of natural gas streams in the area. If the Company proceeds with this project, the Company would pay 100% of such costs up to $5.6 million, and fund 60% of the costs in excess of such amount if necessary to complete this project. The Company's ownership interest in West Shore is based upon the proportionate amount of capital funded to West Shore by the Company relative to the overall capital of West Shore, up to a maximum ownership interest of 60%. When the first two phases of the Michigan Project are complete, and assuming the Company has contributed capital of at least $16.8 million, the Company will own a 60% interest in West Shore. If the Company has not funded at least $16.8 million to West Shore prior to July 1, 1997, the Company has the right to make capital contributions to West Shore in the amount of the difference to obtain a 60% ownership interest. As of June 30, 1996, the Company had contributed $629,000 to, and had a 5.3% interest in, West Shore. Historically, Basin Pipeline's operations have not been profitable. Although there can be no assurance that West Shore or Basin Pipeline will achieve profitability, the Company believes that, with the capital contributions committed by the Company, operational efficiencies will improve and the throughput volume of the Basin Pipeline will increase as a result of the connection of the Slocum, the Claybanks and additional natural gas wells to the pipeline. Shell Treatment and Processing Agreement. In addition to the establishment of West Shore, the Michigan Project includes a number of related agreements. To provide treatment for natural gas dedicated to West Shore, West Shore has entered into a gas treatment and processing agreement with Shell. Currently, the agreement provides West Shore with 30 MMcf/D of gas treatment capacity at Shell's facility in Manistee County, Michigan. The agreement also permits West Shore to cause the expansion of Shell's treatment facilities. In addition, the agreement grants West Shore the right to construct and install an NGL processing plant at the site of Shell's treatment plant. Following completion of the new processing plant, Shell will act as contract operator for West Shore. 36 GAS PROCESSING CONTRACTS AND NATURAL GAS SUPPLY The Company historically has processed natural gas under two types of arrangements: keep-whole and fee-based processing. An increasing portion of the Company's revenue is derived from fees charged for processing third-party natural gas production. The Company intends to emphasize fee-based processing in the future to reduce the fluctuations in margins inherent in processing natural gas under keep-whole arrangements. Keep-Whole Contracts. Under keep-whole contracts, the principal cost is the reimbursement to the natural gas producers for the BTUs extracted from the gas stream in the form of liquids or consumed as fuel during processing. In such cases, the Company creates operating margins by maximizing the value of the NGLs extracted from the natural gas stream and minimizing the cost of replacement of BTUs. While the Company maintains programs to minimize the cost to deliver the replacement of fuel and shrinkage to the natural gas supplier, the Company's margins under keep-whole contracts can be negatively affected by either decreases in NGL prices or increases in prices of replacement natural gas. Keep-whole contracts accounted for approximately 70% of the Company's total revenues during 1995, and approximately 58% of the Company's total revenues during the six months ended June 30, 1996. See "Risk Factors-- Commodity Price Risks." Fee Contracts. The Company has entered into a fee-based contract with Columbia Gas, which expires December 31, 2010, pursuant to which Columbia Gas has agreed to use its best efforts to deliver a minimum of 115 MMcf/D of natural gas to the Company's Kenova processing plant, and the Company has agreed to process all natural gas made available by Columbia Gas to the Company at the Kenova plant. In 1995, deliveries by Columbia Gas to the Kenova plant under this contract represented approximately 70% of all throughput processed by the Company. Under the agreement, Columbia Gas pays the Company a fee per MMbtu of processed natural gas. The terms of the contract provide for automatic two-year extensions after 2010, unless either party gives notice to terminate the contract at least one year in advance of an expiration date. In its Michigan Core Area, West Shore has entered into a fee-based contract with MPC, which expires December 2016, pursuant to which MPC has agreed to use its best efforts to deliver all of its natural gas to West Shore's pipeline and treating facilities. Under the agreement, MPC pays West Shore a fee per MMbtu of transported and treated natural gas. Approximately 5% of the Company's total revenues during the six months ended June 30, 1996 resulted from fee- based contracts. Percent-of-Proceeds Contracts. Under percent-of-proceeds contracts, the Company retains a portion of NGLs and/or natural gas as compensation for the processing services provided. Operating revenues earned by the Company under percent-of-proceeds contracts increase proportionately with the price of NGLs and natural gas sold. While historically the Company has not entered into percent-of-proceeds contracts, recently the Company offered to process natural gas for certain suppliers in the Appalachian Core Area under percent-of- proceeds arrangements. The Company and Columbia Gas are in the process of negotiating fee and/or percent-of-proceeds arrangements whereby the Company will process natural gas directly for third-party shippers who utilize Columbia Gas' pipeline and distribution system. In addition, part of the fee structure for transporting and treating natural gas in the Michigan Core Area includes retaining a portion of extracted NGLs. SALES AND MARKETING The Company attempts to maximize the value of its NGL output by marketing to distributors, resellers, blenders, refiners and petrochemical companies. The Company minimizes the use of third party brokers and instead supports a direct marketing staff focused on multistate and independent dealers. Additionally, the Company uses its own truck and tank car fleet, as well as its own terminals and storage facilities, to enhance supply reliability to its customers. All of these efforts have allowed the Company to maintain premium pricing of its NGL products compared to Gulf Coast spot prices. 37 Substantially all of the Company's revenue is derived from sales of NGLs, particularly propane. Revenues from NGLs represented 93%, 98% and 92% of total revenues, excluding gains on sale of property, in each of 1994, 1995 and in the first six months of 1996, respectively. The Company markets and sells NGLs to numerous customers, including refiners, petrochemical companies, gasoline blenders, multistate and independent propane distributors and propane resellers. The majority of the Company's sales of NGLs are based on spot prices at the time the NGLs are sold. Spot market prices are based upon prices and volumes negotiated for short terms, typically 30 days. Marketing Assets. The Company maintains various terminalling, storage and transportation assets designed to facilitate NGL sales and to take advantage of seasonal variations in NGL prices. In early 1992, the Company acquired a seven-acre propane terminal and storage facility in West Memphis, Arkansas for approximately $4.5 million. The West Memphis terminal is located at the terminus of an 80-mile intrastate pipeline from McCrae Junction, Arkansas. The McCrae Junction terminal is connected to the large interstate TEPPCO pipeline that originates in Mt. Belvieu, Texas. At the West Memphis terminal, the Company maintains 45 pressurized storage tanks which have a storage capacity of just over 2.5 million gallons of NGLs. The terminal has a key stop automated loading facility with two loading docks for propane, operating 24 hours per day, seven days per week. The West Memphis terminal is capable of serving railcar and trucking transportation. An adjoining Union Pacific rail siding holds up to 17 railcars and has six loading/unloading stations. The terminal is located approximately 1/4 mile from the Mississippi River and is secured by a long term lease held by the Company. The West Memphis terminal is supplied by product from three sources: the TEPPCO pipeline, the Union Pacific railroad siding, and truck unloading. The facility also has the capability to terminal other NGLs (butanes) during non- peak demand periods for propane, and has dehydration facilities to ensure minimal water contamination. During 1995, throughput at the West Memphis terminal was approximately 30.0 million gallons. The Company's profit margin on such throughput results from transportation, storage and handling services to customers, which include approximately 45 area propane dealers. The Company also leases and operates a propane terminal in Church Hill, Tennessee, which principally receives product by rail and redelivers the product to dealers and resellers by truck. The Church Hill terminal was commissioned in the fall of 1995. The Company has agreed to maintain not less than 60,000 gallons of propane in storage at the terminal during the period from September 15 through March 15 of each year for use by Hawkins County Utility Co. ("Hawkins"). Hawkins uses the facility for a retail propane operation and a standby natural gas peak shaving plant, which mixes air with propane to generate marketable natural gas. The Church Hill terminal has 240,000 gallons of pressurized storage, an automated truck loading station and a rail siding that can hold four cars and has two unloading stations. Given the relatively strong demand for NGL products, the Company expects to make further investment in storage and loading/unloading assets of as much as $280,000 in the last quarter of 1996. To reach transportation and sales delivery points, the Company operates a fleet of approximately 80 pressurized railcars. The Company owns 70 of the railcars and leases the balance of the railcars under term leases. The Company also owns seven pressurized truck transport trailers, which are principally used in either the movement of mixed NGL feedstock to the Siloam fractionator or the sale of propane in the Appalachian Core Area. The Company anticipates increasing its owned railcar fleet in 1996 and 1997 and has budgeted a total of $753,000 for such purpose. The Company maintains a marketing staff of six persons in Columbus, Ohio; West Memphis, Arkansas; and Denver, Colorado. 38 Sales Contracts. The Company has two significant contracts for sales of NGLs. The Company entered into a contract, which expires August 31, 1996, with Ashland pursuant to which Ashland has agreed to purchase all of the normal butane produced by the Company during each calendar year the contract is in effect. In 1995, butanes represented approximately 24% of all NGLs produced by the Company. The contract also provides for Ashland to purchase a portion of the Company's isobutane production. In 1995, Ashland purchased approximately 21 million gallons of butanes out of a total of 92 million gallons of NGLs produced at the Siloam plant. Sales prices for product sold to Ashland are based upon monthly average spot market prices. In 1995, sales to Ashland represented 18% of the Company's revenues. The Company expects that its contract with Ashland will be renewed prior to the expiration of its current term in August 1996, although there can be no assurance that such renewal will occur or will occur on terms similar to the current contract. The Company also has significant sales contracts with Ferrellgas pursuant to which Ferrellgas has agreed to purchase approximately 12 million gallons of the Company's annual propane production from its Siloam plant. The contract expires in April 1997. The Company has had its contract with Ferrellgas renewed each year since 1989. As such, the Company expects its contract with Ferrellgas to be renewed subsequent to April 1997, although there can be no assurance that such renewal will occur or will occur on terms similar to the current contract. Sales prices for propane sold to Ferrellgas are based upon monthly average market prices. In 1995, sales to Ferrellgas represented 7% of the Company's revenues. EXPLORATION AND PRODUCTION The Company maintains a strategic gas exploration effort intended to permit the Company to gain a foothold position in production areas that have strong potential to create demand for its processing services. The Company, through its MarkWest Resources subsidiary, currently owns interests in several exploration and production assets. Such assets include the following: . A 49% undivided interest in two separate exploration and production projects in La Plata County, Colorado, situated on the Fruitland Formation coal seam. One project currently contains three coal seam wells that each produce approximately 300 Mcf/D of natural gas. Together with its joint venture partner, MarkWest Resources plans to commence a 12 well drilling program in the West Tiffany area of the San Juan basin in September 1996. It is estimated that full development of these two projects will cost the Company approximately $3.2 million through the end of 1997. . A 5.4% working interest in a 66 well drilling program operated by Conley Smith, Denver, Colorado. The majority of these well sites are in Oklahoma, Nevada, Kansas and Texas. MarkWest believes it may have a future opportunity to provide its processing expertise to Conley Smith in the areas with successful drilling sites. There can be no assurance, however, that Conley Smith will use the Company's processing services. . A 25% working interest in a 31,000 acre project to be developed in the Piceance Basin of Colorado. The project includes both the exploration for natural gas in an area known as Sulfur Gulch and the purchase of acreage and a number of existing wells. While there can be no assurance that these projects will generate substantial natural gas volumes, MarkWest believes that this area could generate increased demand for processing services. . A 17.5% working interest in the drilling program of Callon in the Michigan Core Area. Callon intends to conduct a 25 square mile three- dimensional seismic survey in the area, and thereafter acquire acreage and conduct drilling activities. See "--Natural Gas Processing and Related Services--Michigan Core Area." In an attempt to mitigate certain of the risks involved in such activities, the Company has conducted its exploration and production activities with third parties. To date, the Company's exploration and production efforts have been conducted jointly with MAK-J Energy, a partnership whose general partner is a corporation owned and controlled by John Fox, President and Chief Executive Officer of the Company. See "Certain Transactions--Investments with Affiliate." In the future, any activities involving MAK-J Energy are required by the Company's bylaws to be approved by a majority of the Company's independent and disinterested directors. See "Certain Transactions-- Investments with Affiliate." 39 FACILITIES The following table provides information concerning the Company's principal gas processing plants and gathering facilities.
Year Acquired Gas NGL Production or Placed Throughput Throughput Throughput into Service Capacity (MMcf/D)(1) (MGal/Year)(1) ------------- ------------ ----------- -------------- Processing Plants Siloam Fractionation Plant, South Shore, KY......... 1988 360 MGal/D N/A 100,000 Boldman Extraction Plant, Pike County, KY......... 1991 70.0 MMcf/D 55.0 9,300 Kenova Extraction Plant, Wayne County, WV........ 1996 120.0 MMcf/D 115.0 70,000 Pipelines 38.5-mile Kenova--Siloam NGL pipeline, Wayne County, WV to South Shore, KY......... 1988 350 MGal/D N/A 70,000 31-mile sour gas pipe- line Manistee County, MI(2).. 1996 35.0 MMcf/D 9.0 N/A
Year Acquired or Placed Storage Annual Sales into Service Capacity (MGal/Year)(1) ------------- ----------- -------------- Terminal and Storage Siloam Fractionation Storage South Shore, KY........................ 1988 14,000 MGal 100,000 Terminal and Storage West Memphis, AR....................... 1992 2,500 MGal 33,000 Terminal and Storage Church Hill, TN........................ 1995 240 MGal 5,000
- -------- (1) Estimated for 1996. (2) Owned through West Shore Processing Company, LLC. See "--Natural Gas Processing and Related Services--Michigan Core Area." Kenova Plant. The Company's Kenova, West Virginia processing plant was developed pursuant to certain agreements with Columbia Gas. Pursuant to purchase and related agreements entered into between the Company and Columbia Gas in March 1995, the Company has agreed to purchase approximately six acres of land and facilities constituting Columbia Gas' former natural gas processing plant located in Kenova, West Virginia, for $500,000. Under the agreements, Columbia Gas has agreed to indemnify the Company for all environmental liabilities and costs identified by the environmental assessment of the Kenova properties, provided that, upon completion of the remediation identified in the remediation plan, the Company has agreed to pay Columbia Gas an additional $600,000 as a contribution for performing the remediation. The Kenova plant currently is the subject of certain FERC abandonment proceedings. See "--Government Regulation." Boldman Plant. The Company's Boldman, Kentucky processing plant was constructed pursuant to an agreement with Columbia Gas. The contract provided that the Company would design and construct an NGL extraction plant on Columbia Gas property. The Company invested approximately $4.0 million 40 in constructing the facility. Under the Company's agreement with Columbia Gas, the Company has leased the facility to Columbia Gas for a ten year term ending February 2001. The lease has a base monthly rental fee of $40,000 and an operating fee measured by monthly production of liquids at the plant, which typically results in a monthly rental ranging from $40,000 to $47,000. The lease also contains a bonus fee arrangement pursuant to which the Company has agreed to pay fees to Columbia Gas if NGL production at the plant exceeds certain specified levels. The term is subject to an additional two-year extension upon notice from Columbia Gas to the Company, subject to negotiation of acceptable lease terms. Columbia Gas has the option, at the end of 1996, 1997, 1998 and 1999, to purchase the Boldman plant from the Company for a price equal to a specified premium above the book value of the plant on the date of purchase. In addition, Columbia Gas has the option to purchase the plant at the salvage value of the plant upon expiration of the lease term. While the Company does not expect that Columbia Gas will exercise its repurchase option, and anticipates that it will negotiate an agreement with Columbia Gas by which the Company will operate the plant on Columbia Gas' property after expiration of the lease term, there can be no assurance that such results will be achieved. Executive Offices. MarkWest occupies approximately 12,000 square feet of space at its executive offices in Denver, Colorado under a lease expiring in March 1997. While the Company will require additional office space as its business expands, the Company believes that its existing facilities are adequate to meet its needs for the immediate future, and that additional facilities will be available on commercially reasonable terms as needed. OPERATIONAL RISKS AND INSURANCE The Company's operations are subject to the usual hazards incident to the exploration for and production, transmission, processing and storage of natural gas and NGLs, such as explosions, product spills, leaks, emissions and fires. These hazards can cause personal injury and loss of life, severe damage to and destruction of property and equipment, and pollution or other environmental damage, and may result in curtailment or suspension of operations at the affected facility. In addition, the Company's operations in the Michigan Core Area are subject to additional risks resulting from the processing and treatment of sour gas, including an increased risk of property damage, bodily injury or death from the highly toxic nature of sour gas. See "Risk Factors--General Business Risks." The Company maintains general public liability, property and business interruption insurance in amounts that it considers to be adequate for such risks. Such insurance is subject to deductibles that the Company considers reasonable and not excessive. Consistent with insurance coverage generally available to the NGL industry, the Company's insurance policies do not provide coverage for losses or liabilities related to pollution or other environmental damage, except for sudden and accidental occurrences. The occurrence of a significant event not fully insured or indemnified against, and/or the failure of a party to meet its indemnification obligations, could materially and adversely affect the Company's operations and financial condition. Moreover, no assurance can be given that the Company will be able to maintain adequate insurance in the future at rates it considers reasonable. COMPETITION The Company faces intense competition in obtaining natural gas supplies for its gathering and processing operations, in obtaining processed NGLs for fractionation, and in marketing its products and services. The Company's principal competitors include major integrated oil and gas companies such as Ashland and Amoco Oil Co., major interstate pipeline companies such as CNG Transmission Corporation, NGL processing companies such as Natural Gas Clearinghouse, and national and local gas gatherers, brokers, marketers and distributors of varying sizes, financial resources and experience. Many of the Company's competitors, such as major oil and gas and pipeline companies, have capital resources and control supplies of natural gas substantially greater than those of the Company. Smaller local distributors may enjoy a marketing advantage in their immediate service areas. 41 The Company competes against other companies in its gas processing business both for supplies of natural gas and for customers to which it sells its products. Competition for natural gas supplies is based primarily on location of gas gathering facilities and gas processing plants, operating efficiency and reliability and ability to obtain a satisfactory price for products recovered. Competition for customers is based primarily on price, delivery capabilities, and maintenance of quality customer relationships. The Company's fractionation business competes against other fractionation facilities that serve local markets. Competitive factors affecting the Company's fractionation business include proximity to industry marketing centers and efficiency and reliability of service. In marketing its products and services, the Company has numerous competitors, including interstate pipelines and their marketing affiliates, major producers, and local and national gatherers, brokers, and marketers of widely varying sizes, financial resources and experience. Marketing competition is primarily based upon reliability, transportation, flexibility and price. GOVERNMENT REGULATION Certain of the Company's pipeline activities and facilities are involved in the intrastate or interstate transportation of natural gas and NGLs, and are subject to state and/or federal regulation. Historically, the transportation and sale for resale of natural gas in interstate commerce have been regulated pursuant to the Natural Gas Act of 1938 ("NGA"), the Natural Gas Policy Act of 1978 ("NGPA"), and the regulations promulgated thereunder by the Federal Energy Regulatory Commission ("FERC"). In the past, the federal government regulated the prices at which oil and gas could be sold, as well as certain terms of service. However, the deregulation of natural gas sales pricing began under terms of the NGPA and was completed in January 1993 pursuant to the Natural Gas Wellhead Decontrol Act of 1989 (the "Decontrol Act"). Thus, all sales by the Company of NGLs and natural gas currently can be made at uncontrolled market prices. There can be no assurance, however, that Congress will not reenact price controls in the future which could apply to, or substantially effect, these sales activities. FERC's jurisdiction over the interstate transportation of natural gas was not removed or limited by the NGPA or the Decontrol Act. FERC also retains jurisdiction over the interstate transportation of liquid hydrocarbons, such as NGLs and product streams derived therefrom. The processing of natural gas for the removal of liquids currently is not viewed by the FERC as an activity subject to its jurisdiction. If a processing plant's primary function is extraction of NGLs and not natural gas transportation, the FERC has traditionally maintained that the plant is not a facility for transportation or sale for resale of natural gas in interstate commerce and therefore is not subject to jurisdiction under the Natural Gas Act. Although the FERC has not been requested to and has made no specific declaration as to the jurisdictional status of the Company's gas processing operations or facilities, the Company believes that because its gas processing plants are primarily involved in removing NGLs, their processing activities are exempt from FERC jurisdiction. Notwithstanding the foregoing, Columbia Gas is seeking abandonment approval of the processing plant that was replaced by the Company's Kenova extraction plant. The previous Columbia Gas processing plant was considered by FERC to be transportation-related and was included in Columbia Gas' certificated facilities. See "--Natural Gas Processing and Related Services--Appalachian Core Area--NGL Extraction" and "--Facilities." Certain third party producers have filed for intervention in the abandonment proceeding seeking to clarify commitments regarding dedication of production and a determination regarding processing fees. Because of this prior regulatory classification when owned by Columbia Gas, the Company has specifically requested a ruling from FERC confirming that the new Kenova extraction plant is exempt from FERC jurisdiction. While there can be no assurance that FERC will issue such a ruling, the Company believes, based upon opinions of legal counsel to the Company, that such a ruling will be forthcoming. As part of the Michigan Project, the Company will own and operate pipeline gathering facilities in conjunction with its processing plants. Under the NGA, facilities which have as their "primary function" the performance of gathering activities and are not owned by interstate gas pipeline companies are wholly exempt from FERC jurisdiction. Interstate transmission facilities, on the other hand, are subject to FERC jurisdiction. The FERC distinguishes between these two types of activities on a fact-specific basis, which may make it difficult to state with certainty the status of the Company's pipeline gathering facilities. 42 Although the FERC has not been requested to or issued any order or opinion declaring the Company's facilities as gathering rather than transmission facilities, based on opinion of legal counsel, management believes these systems are NGA-exempt gathering facilities. In addition, state and local regulatory authorities oversee intrastate gathering and other natural gas pipeline operations. For example, the Basin Pipeline, part of the Company's Michigan Project, is regulated by the Michigan Public Service Commission and local authorization is required for the connection of certain gas wells to the Basin Pipeline. See "--Natural Gas Processing and Related Services--Michigan Core Area." Because the Company's NGL pipeline facilities do not transport liquids in continuous flow in interstate commerce, they are not subject to FERC regulation under the Interstate Commerce Act. However, the design, construction, operation, and maintenance of the Company's NGL and natural gas pipeline facilities are subject to the safety regulations established by the Secretary of the Department of Transportation pursuant to the Natural Gas Pipeline Safety Act of 1968, as amended ("1968 Act"), or by state agency regulations which meet or exceed the requirements of the 1968 Act. The Company's natural gas exploration and production operations are subject to various types of regulation at the federal, state and local levels. Such regulation includes requiring permits for the drilling of wells, meeting bonding requirements in order to drill or operate wells and regulating the location of wells, the methods of drilling and casing wells, the surface use and restoration of properties upon which wells are drilled, the plugging and abandoning of wells and the disposal of fluids used in connection with such operations. Production operations are also subject to various conservation laws and regulations. These typically include the regulation of the size of drilling and spacing or proration units and the density of wells which may be drilled therein and the unitization or pooling of oil and gas properties. Whether the state has forced pooling, or integration of smaller tracts to form a tract large enough to conduct drilling operations, or relies only on voluntary pooling can affect the ease with which a property can be developed. State conservation laws also typically establish maximum rates of production of natural gas, generally prohibit the venting or flaring of gas and impose certain requirements regarding the ratability of production and the handling of nonhydrocarbon gases, such as carbon dioxide and hydrogen sulfide. The effect of these regulations may limit the amount of oil and gas available to the Company or which the Company can produce from its wells. They also substantially affect the cost and profitability of conducting natural gas exploration and production activities. Inasmuch as such laws and regulations are frequently expanded, amended or reinterpreted, the Company is unable to predict the future cost or impact of complying with these production-related regulations. Commencing in April 1992, the FERC issued a series of orders, generally referred to collectively as Order No. 636, which, among other things, require interstate pipelines such as Columbia Gas to "restructure" to provide transportation services separate or "unbundled" from the interstate pipelines sales of gas. Order No. 636 also requires interstate pipelines to provide open-access transportation on a basis that is equal for all shippers and all supplies of natural gas. This order was implemented through pipeline-by- pipeline restructuring proceedings. In many instances, the result has been to substantially reduce or bring to an end interstate pipelines' traditional role as wholesalers of natural gas in favor of providing only storage and transportation services. On July 16, 1996, the United States Court of Appeals for the District of Columbia Circuit upheld the validity of most of the provisions and features of Order No. 636. However, in many instances, appeals remain outstanding in the individual pipeline restructuring proceedings, so the Company cannot predict the final outcome of these proceedings. Order No. 636 is intended to foster increased competition within all phases of the natural gas industry. It remains unclear what impact, if any, increased competition within the natural gas industry under Order No. 636 will have on the Company or its various lines of business. Additionally, the FERC has issued a number of other orders which are intended to supplement various facets of its open access program, all of which will continue to affect how and by whom natural gas production and associated NGL's will be transported and sold in the marketplace. In its current form, FERC's open access initiatives could provide the Company with additional access to gas supplies and markets, and could assist the Company and its customers by mandating more fairly applied service rates, terms and conditions. On the other hand, it 43 could also subject the Company and entities with which it does business to more restrictive pipeline imbalance tolerances, more complex operations and greater monetary penalties for violation of the pipelines tolerances and other tariff provisions. The Company does not believe, however, that it will be affected by any action taken with respect to Order No. 636 materially differently than any other producers, gatherers, processors or marketers with which it competes. ENVIRONMENTAL MATTERS The Company is subject to environmental risks normally incident to the operation and construction of gathering lines, pipelines, plants and other facilities for gathering, processing, treatment, storing and transporting natural gas and other products including, but not limited to, uncontrollable flows of natural gas, fluids and other substances into the environment, explosions, fires, pollution, and other environmental and safety risks. The following is a discussion of certain environmental and safety concerns related to the Company. It is not intended to constitute a complete discussion of the various federal, state and local statutes, rules, regulations, or orders to which the Company's operations may be subject. For example, the Company, without regard to fault, could incur liability under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended (also known as the "Superfund" law), or state counterparts, in connection with the disposal or other releases of hazardous substances, including sour gas, and for natural resource damages. Further, the recent trend in environmental legislation and regulations is toward stricter standards, and this will likely continue in the future. The Company's activities in connection with the operation and construction of gathering lines, pipelines, plants, injection wells, storage caverns, and other facilities for gathering, processing, treatment, storing, and transporting natural gas and other products are subject to environmental and safety regulation by federal and state authorities, including, without limitation, the state environmental agencies and the federal Environmental Protection Agency ("EPA"), which can increase the costs of designing, installing and operating such facilities. In most instances, the regulatory requirements relate to the discharge of substances into the environment and include measures to control water and air pollution. Environmental laws and regulations may require the acquisition of a permit or other authorization before certain activities may be conducted by the Company. These laws also include fines and penalties for non-compliance. Further, these laws and regulations may limit or prohibit activities on certain lands lying within wilderness areas, wetlands, areas providing habitat for certain species or other protected areas. The Company is also subject to other federal, state, and local laws covering the handling, storage or discharge of materials used by the Company, or otherwise relating to protection of the environment, safety and health. EMPLOYEES As of July 1, 1996, the Company had 84 employees, including eight employees dedicated to the Michigan Project. The Company anticipates hiring additional employees in connection with the development of the Michigan Project. Eighteen employees at the Company's Siloam fractionation facility in South Shore, Kentucky are represented by the Oil, Chemical and Atomic Workers International Union, Local 3-372 (Siloam Sub-Local). The Company recently negotiated a new collective bargaining agreement with this Union that is effective May 1, 1996 and expires on April 30, 2000. The agreement covers only hourly, non-supervisory employees. The Company considers labor relations to be satisfactory at this time. LEGAL PROCEEDINGS From time to time the Company has been involved in certain legal proceedings that have arisen in the ordinary course of business, none of which has had a material adverse effect on the Company's financial position or results of operations. The Company currently is not a party to any litigation and is not aware of any threatened litigation. 44 MANAGEMENT EXECUTIVE OFFICERS AND DIRECTORS The executive officers and directors of the Company are as follows:
Name Age Position - ---- --- -------- John M. Fox................ 56 President, Chief Executive Officer and Director Brian T. O'Neill........... 48 Senior Vice President, Chief Operating Officer and Director Arthur J. Denney........... 47 Vice President of Engineering and Business Development and Director Robert F. Garvin........... 56 Vice President of Exploration Rita E. Harvey............. 40 Director of Finance and Treasurer Norman H. Foster (1)(2).... 61 Director Barry W. Spector (2)....... 44 Director David R. Whitney (1)(2).... 44 Director
KEY EMPLOYEES Certain key employees of the Company are as follows:
Name Age Position - ---- --- -------- Katherine S. Holland................. 43 Manager, NGL and Natural Gas Supply Michael R. La Rue.................... 37 Manager, Project Development Kimberly H. Marle.................... 38 Manager , Information Systems Faye E. McGuar....................... 45 Controller Randy S. Nickerson................... 35 Manager, West Shore and Basin Pipeline Joseph D. O'Meara.................... 52 Manager, Appalachian Area Fred R. Shato........................ 48 General Manager, Marketing
- -------- (1) Member of the Compensation Committee of the Board of Directors. (2) Member of the Audit Committee of the Board of Directors. EXECUTIVE OFFICERS AND DIRECTORS JOHN M. FOX has been the Company's President, Chief Executive Officer and a member of the Board of Directors since its inception in April 1988. Mr. Fox was a founder of Western Gas Resources, Inc., a company listed on the New York Stock Exchange, and was Executive Vice President and Chief Operating Officer from 1972 to 1986. Mr. Fox holds a bachelors degree in engineering from the United States Air Force Academy and an MBA from the University of Denver. BRIAN T. O'NEILL has been the Company's Senior Vice President, Chief Operating Officer and a member of the Board of Directors since its inception in April 1988. Mr. O'Neill has approximately 20 years of experience in NGL and natural gas marketing, and served as a Marketing Manager for Western Gas Resources, Inc., specializing in gas acquisition and sales, new business development and NGL marketing, from 1982 to 1987. Mr. O'Neill holds a bachelors degree in advertising and psychology from 45 the University of Florida and a masters degree in international marketing and finance from the American Graduate School of International Management. ARTHUR J. DENNEY has been the Company's Vice President of Engineering and Business Development since January 1990 and a member of the Board of Directors since June 1996. Mr. Denney has over 22 years of experience in gas gathering, gas processing and the NGL business. From 1987 to 1990, Mr. Denney served as Manager of Business Development for Lair Petroleum, Inc. From 1974 to 1987, Mr. Denney was employed by Enron Gas Processing Co. in a variety of positions, including seven years as its Rocky Mountain Regional Manager for business development. Mr. Denney holds a bachelors degree in mechanical engineering and an MBA from the University of Nebraska. ROBERT F. GARVIN joined MarkWest in 1988 as Manager, Exploration. Mr. Garvin has been the Company's Vice President of Exploration since April 1996. Mr. Garvin has more than 29 years of oil and gas industry experience. During his career, Mr. Garvin has been employed as a geologist by Phillips Petroleum Company, Duncan Oil Properties, Excel Energy Corporation, Ecological Engineering Systems and has been a self-employed geologist. Mr. Garvin holds a bachelors degree in geology from Westminster College and a masters degree in geology from the University of Utah. RITA E. HARVEY has been the Company's Director of Finance and Treasurer since November 1995. From April 1994 through October 1995, Ms. Harvey served as the Company's controller. Ms. Harvey is a certified public accountant with over fifteen years of experience in accounting, budgeting, finance and management. From July 1991 through March 1994, Ms. Harvey specialized in the extractive industries as a member of the Audit and Business Advisory Services Group of Price Waterhouse LLP. Ms. Harvey is currently in her third year as a member of the Authority Finance Committee of the Denver Health and Hospitals Board of Directors. Ms. Harvey holds a bachelors degree in accounting from Metropolitan State College and is currently pursuing a masters degree in finance at the University of Colorado at Denver. NORMAN H. FOSTER has been a member of the Board of Directors of the Company since June 1996. Dr. Foster has more than 33 years of experience in oil and natural gas exploration, both domestic and international. Dr. Foster has been an independent geologist since 1979, and has held positions with Sinclair Oil Corporation, Trend Exploration Limited and Filon Exploration Corporation. In 1995, he co-founded Voyager Exploration, Inc., a private exploration and production company for which he serves as President. Dr. Foster holds a bachelors degree in general science and a masters degree in geology from the University of Iowa and a Ph.D. in geology from the University of Kansas. BARRY W. SPECTOR has been a member of the Board of Directors of the Company since September 1995. Mr. Spector has practiced law as a sole practitioner since 1979. Mr. Spector's practice emphasizes oil and gas law with a particular emphasis in natural gas contracts, interstate and intrastate regulation and marketing. Mr. Spector holds a bachelors degree in biology and a J.D. from the University of Denver. Mr. Spector is also a director of Chaparral Resources, Inc., a publicly-held company. DAVID R. WHITNEY has been a member of the Board of Directors of the Company since April, 1988. Since 1985, Mr. Whitney has been a Managing Director of Resource Investors Management Company Limited Partnership ("RIMCO"), a full service investment management company specializing in the energy industry and the holder, after the Reorganization, of 3.5% of the Company's shares of Common Stock. Mr. Whitney holds a bachelors degree in economics from the University of Colorado and an MBA from the Univesity of Connecticut. KEY EMPLOYEES KATHERINE S. HOLLAND joined MarkWest in 1988. She has been the Company's Manager, NGL and Natural Gas Supply, since late 1993. Prior to that, she served as the Company's Manager, Railcar Fleet and Distribution. Ms. Holland has approximately 13 years' combined experience in the oil and gas industry 46 and the NGL and natural gas segment of the oil and gas industry. From 1983 to 1988, Ms. Holland was employed by Sherwood Exploration Company, an oil and gas exploration and production company. Ms. Holland holds a bachelors degree in art history from the University of Colorado. MICHAEL R. LA RUE joined MarkWest in 1991 as Controller. In 1993, Mr. La Rue became Manager, Project Development for the Company, with primary responsibility for business development in the Appalachian Core Area. From 1983 to 1991, Mr. LaRue was employed by Price Waterhouse as an accountant specializing in tax consulting for the extractive industry. Mr. La Rue holds a bachelors degree in accounting from Oklahoma State University. KIMBERLY H. MARLE has been the Company's Manager, Information Systems, since March 1995. Ms. Marle joined MarkWest in December 1993 as an information systems consultant developing applications for the Company's accounting systems. Ms. Marle has an extensive background in oil and gas computerization, having worked for Forest Oil Corporation for four years prior to joining MarkWest. Ms. Marle holds a bachelors degree in business from the University of Memphis and is currently pursuing a masters degree in information systems at the University of Denver. FAYE E. MCGUAR joined MarkWest in 1996 as Controller. Ms. McGuar is a certified public accountant with over 15 years of experience in accounting, budgeting, treasury and finance. From 1994 to 1996, Ms. McGuar was employed by the Southern Pacific Railroad as Budget Director, and from 1982 to 1988, she was employed by the Anschutz Corporation, serving as its controller from 1987 to 1988. Ms. McGuar holds a bachelors degree in finance from the University of Utah. RANDY S. NICKERSON joined MarkWest in 1995 as Manager, New Projects, and now serves as Manager, West Shore Processing and Basin Pipeline. From 1984 to 1990, he was a project manager and a project engineer for Chevron USA, and from 1991 to 1995, he was a project engineer and Regional Engineering Manager for Western Gas Resources, Inc. Mr. Nickerson holds a bachelors degree in chemical engineering from Colorado State University. JOSEPH D. O'MEARA joined MarkWest in 1992 as Manager, Siloam Plant. In 1995, Mr. O'Meara was promoted to Manager, Appalachian Area. Prior to joining MarkWest, Mr. O'Meara was employed for 26 years by Cities Service/Occidental Petroleum, during which time he held a number of operational, supervisory and management positions. FRED R. SHATO joined MarkWest in 1989 as Manager, Marketing. In 1992, Mr. Shato became the Company's General Manager, Marketing. Mr. Shato has 20 years of experience in gasoline and NGL acquisition, trading and marketing, and served as Manager of Trading and Product Acquisitioin for Certified Oil Corporation from 1980 to 1989. Mr. Shato holds a bachelors degree in history and political science from Defiance College. BOARD OF DIRECTORS The Company's By-Laws provide for a classified board of directors. The two class I directors, Messrs. Denney and Foster, have been elected for an initial term expiring at the 1997 annual meeting. The two class II directors, Messrs. O'Neill and Spector, have been elected for an initial term expiring at the 1998 annual meeting. The two class III directors, Messrs. Fox and Whitney, have been elected for an initial term expiring at the 1999 annual meeting. All subsequent elections will be for successive three-year terms. No director is selected or serves pursuant to any special arrangement or contract. Officers serve at the discretion of the Board and are elected annually. There are no family relationships between the directors or executive officers of the Company. The Board of Directors has a Compensation Committee and an Audit Committee. The Compensation Committee makes recommendations to the Board concerning salaries and incentive compensation for the 47 Company's officers and employees and administers the Company's 1996 Stock Incentive Plan, as amended (the "Stock Incentive Plan"). The Audit Committee aids management in the establishment and supervision of the Company's financial controls, evaluates the scope of the annual audit, reviews audit results, consults with management and the Company's independent auditors prior to the presentation of financial statements to stockholders and, as appropriate, initiates inquiries into aspects of the Company's financial affairs. Prior to this offering, directors have not received any compensation from the Company for serving on the Board of Directors. All directors are reimbursed for out-of-pocket expenses incurred while attending board and committee meetings. LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS The Company is incorporated in Delaware in part to take advantage of certain provisions in the Delaware General Corporation Law (the "Delaware Code") relating to limitations on liability of corporate officers and directors. The Company's Certificate of Incorporation limits the liability of directors to the fullest extent permitted by the Delaware Code. Under current Delaware law, a director's liability to a company or its stockholders may not be limited with respect to (i) any breach of his duty of loyalty to the company or its stockholders, (ii) acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) unlawful payments or dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the Delaware Code or (iv) transactions from which the director derived an improper personal benefit. The Company's Bylaws provide that the Company shall indemnify its officers and directors and may indemnify its employees and other agents to the fullest extent permitted under the Delaware Code. At present, there is no pending litigation or proceeding involving any director, officer, employee or agent of the Company where indemnification would be required or permitted. The Company is not aware of any overtly threatened litigation or proceeding that might result in a claim for indemnification. EXECUTIVE COMPENSATION The following table sets forth the cash and noncash compensation for the fiscal year ended December 31, 1995, awarded to or earned by (i) the individual who served as the Company's Chief Executive Officer ("CEO") in fiscal 1995; and (ii) each other executive officer of the Company whose salary and bonus in fiscal 1995 exceeded $100,000 ((i) and (ii), collectively, the "Named Executive Officers"). No other officer had compensation in excess of $100,000 for fiscal year 1995: SUMMARY COMPENSATION TABLE
Annual Long Term Compensation Compensation ---------------- ------------ Salary Bonus Options Name and Principal Positions Fiscal Year ($) ($) (#) - ---------------------------- ----------- -------- ------- ------------ John M. Fox........................... 1995 $140,510 $43,350 -- President and CEO.................... 1994 $109,516 $36,786 -- 1993 $127,400 $ 2,997 -- Brian T. O'Neill...................... 1995 $142,191 $43,350 800 Senior Vice President and Chief Operating Officer................... 1994 $117,338 $36,786 -- 1993 $133,025 $ 2,997 -- Arthur J. Denney...................... 1995 $127,179 $39,235 1,106 Vice President of Engineering and Business 1994 $109,515 $34,333 -- Development.......................... 1993 $117,875 $ 2,664 --
48 OPTION GRANTS The following table sets forth information concerning stock options granted to the Named Executive Officers during the fiscal year ended December 31, 1995, pursuant to the predecessor to the Company's Stock Incentive Plan. No stock appreciation rights ("SARs") have been granted to these individuals to date. OPTION GRANTS IN LAST FISCAL YEAR
Number of Securities Percent of Total Underlying Options Granted Exercise or Options to Employees in Base Price Expiration Name Granted (#) Fiscal Year ($/Sh) Date - ---- ----------- ---------------- ----------- -------------- John M. Fox............. -- -- -- -- Brian T. O'Neill........ 800 1.45% $8.00 August 1, 2001 Arthur J. Denney........ 1,106 2.00% $8.00 August 1, 2001
FISCAL YEAR-END OPTION VALUES The following table sets forth certain information with respect to stock options held by each of the Company's Named Executive Officers. There have been no option exercises by the Named Executive Officers since the formation of the Company. FISCAL YEAR-END OPTION VALUES
Number of Securities Underlying Unexercised Value of Unexercised Options at Fiscal Year- In-the-Money Options at End (#) Fiscal Year-End ($)(1) ------------------------- ------------------------- Name Exercisable Unexercisable Exercisable Unexercisable - ---- ----------- ------------- ----------- ------------- John M. Fox................. 5,000 1,250 $20,000 $ 5,000 Brian T. O'Neill............ 5,800 4,450 23,200 17,800 Arthur J. Denney............ 4,706 5,324 18,824 21,296
- -------- (1) There was no public trading market for the Common Stock as of December 31, 1995. Accordingly, these values have been calculated on the basis of an assumed initial public offering of $12.00 per share, less the applicable option exercise price. COMPENSATION PLANS 1996 Stock Incentive Plan. The Company's Stock Incentive Plan was adopted in 1996. The maximum number of shares authorized to be issued under the Stock Incentive Plan is 600,000 shares of Common Stock. As of July 15, 1996, an aggregate of approximately 452,285 shares of Common Stock had been reserved for issuance under the Stock Incentive Plan and options to purchase an aggregate of 147,715 shares of Common Stock were outstanding under the Stock Incentive Plan. Outstanding options granted under the Stock Incentive Plan generally vest and become exercisable at a rate of 20% per annum beginning on the first anniversary after the date of grant. Generally, the term of each outstanding option is the later to occur of three years after vesting or three years after the closing of the Offering. The exercise price for options granted under the Stock Incentive Plan is at least equal to 100% of the fair market value of the Common Stock of the Company on the date of grant. The Stock Incentive Plan permits the granting of stock options, including incentive stock options ("ISOs") as defined under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), and non-qualified stock options ("NQSOs") which do not qualify as ISOs. The purpose of the Stock Incentive Plan is to reward and provide incentives for executive officers and key employees of the Company by providing them with an opportunity to acquire 49 an equity interest in the Company, thereby increasing their personal interest in its continued success and progress. The purpose of the Stock Incentive Plan is also to retain the services of executive officers and key employees as well as to assist in attracting new executive officers and key employees. Non- employee directors are not eligible to receive grants under the Stock Incentive Plan. The Stock Incentive Plan is administered by the Compensation Committee, which has the sole and complete authority to select the employees (including executive officers) who will receive options under the Stock Incentive Plan. The Compensation Committee has the authority to determine the number of stock options to be granted to eligible individuals, whether the options will be ISOs or NQSOs and the terms and conditions of the options (which may vary from grantee to grantee). The Compensation Committee determines the period for which each stock option may be exercisable, but in no event may a stock option be exercisable more than three years from the date the option becomes vested. The number of shares available under the Stock Incentive Plan and the exercise price of the options granted thereunder are subject to adjustment by the Compensation Committee to reflect stock splits, stock dividends, recapitalization, mergers, or other major corporate actions. The Compensation Committee also has the authority under the Stock Incentive Plan to grant Stock Appreciation Rights ("SARs") to employees. SARs confer on the holder a right to receive, upon exercise, the excess of the Fair Market Value of one Share on the date of exercise over the grant price of the SAR as specified by the Committee, which price may not be less than 100% of the Fair Market Value of one Share on the date of grant of the SAR. The grant price, term, methods of exercise, dates of exercise, methods of settlement and any other terms and conditions of any SAR are determined by the Committee. The Board of Directors may discontinue, amend, or suspend the Stock Incentive Plan in a manner consistent with the Stock Incentive Plan's provisions, provided such changes do not violate the federal or state securities laws. In conjunction with the Reorganization, the Company will issue options to purchase shares of Common Stock pursuant to the Stock Incentive Plan to employees of MarkWest Partnership who currently hold outstanding options to purchase partnership interests representing approximately 3% of the fully diluted aggregate partnership interests in MarkWest Partnership. The aggregate number of shares subject to such options is equal to (i) the percentage interests of MarkWest Partnership into which the MarkWest Partnership options were exercisable, multiplied by (ii) the fully diluted percentage of the Company's Common Stock to be outstanding immediately after consummation of the Reorganization (calculated prior to the issuance of the Shares in the Offering). The exercise price per share for such options varies from $6.35 to $7.14, and has been obtained by multiplying (i) the aggregate consideration to have been paid pursuant to a MarkWest Partnership option, divided by (ii) the number of shares of the Company's Common Stock into which the new option issued pursuant to the Stock Incentive Plan is exercisable. 1996 Incentive Compensation Plan. The Company's 1996 Incentive Compensation Plan (the "Compensation Plan") provides for cash incentive awards to executives and employees of the Company in varying amounts, and is administered by the Company's Compensation Committee. The Compensation Plan was effective as of January 1, 1996. Certain bonus payments were made under the Compensation Plan in May 1996. The Compensation Plan lists five tiers for determining eligibility: Tier One includes all executive level employees; Tier Two includes all management level employees; Tier Three includes all mid-level exempt employees; Tier Four includes all lower-level exempt employees; and Tier Five includes certain non-exempt employees. An incentive award is based upon the financial performance of the Company compared to corporate goals for 1996. Profit sharing payments under the Compensation Plan are paid annually; incentive payments under the Compensation Plan are paid periodically throughout the year. The purpose of the Compensation Plan is to reward and provide incentives for executives and employees of the Company by providing them with an opportunity to acquire cash rewards, thereby increasing their personal interest in the Company's continued success and progress. 50 During the fiscal years ended December 31, 1993, 1994 and 1995, the Company made profit sharing payments under the Compensation Plan of approximately $95,000, $213,000 and $211,000, respectively, and incentive compensation payments of approximately $50,000, $315,000 and $401,000, respectively. 1996 Non-Employee Director Stock Option Plan. In July 1996, the Company adopted the 1996 Non-Employee Director Stock Option Plan (the "Director Stock Option Plan"), which has a five-year term. The Director Stock Option Plan provides for an automatic grant of NQSOs to purchase 500 shares of Common Stock to non-employee directors upon completion of the Offering, and an automatic grant of an option to purchase an additional 500 shares of Common Stock on the day after each subsequent annual meeting of the Company's stockholders. The option price is equal to the fair market value of the Common Stock on the date of grant. Initial option grants vest and become exercisable as to one-third of the shares covered by the option on each annual anniversary of the date of grant if the holder remains a director on such date, provided that such options may become fully exercisable upon a director's resignation from the Board of Directors or death of the holder. Annual option grants vest and become exercisable as to 100% of the shares covered by the option on the six-month anniversary of the date of grant if the holder remains a director on such date, provided that such options may become fully exercisable upon a director's resignation from the Board of Directors or death of the holder. The Company has reserved 20,000 shares of Common Stock for issuance under the Director Stock Option Plan. Upon completion of the Offering, Messrs. Foster, Spector and Whitney will each receive options to acquire 500 shares of Common Stock at the price of the shares offered to the public in the Offering. CERTAIN TRANSACTIONS REORGANIZATION The Company's business historically has been conducted by MarkWest Partnership. Concurrently with the effectiveness of the Offering, the Company will acquire from the current partners of MarkWest Partnership all of the partnership interests in MarkWest Partnership in exchange for shares of the Company pursuant to the Reorganization Agreement. Immediately following the acquisition of MarkWest Partnership, MarkWest Partnership will be dissolved and the Company will succeed to the business, assets and liabilities of MarkWest Partnership. The Company believes that the transactions contemplated by the Reorganization will qualify as a tax-free reorganization for United States federal income tax purposes. Pursuant to the Reorganization, the partners of MarkWest will receive an aggregate of 5,000,000 shares of the Company's Common Stock. The terms of the Reorganization Agreement provide that the partners will receive a fully diluted percentage of the Company's Common Stock to be outstanding immediately after consummation of the Reorganization (calculated prior to the issuance of the Shares in the Offering) substantially equivalent to the partners' interests in MarkWest Partnership. See "Reorganization." MarkWest Partnership currently has outstanding options issued to current and former employees that granted such employees the right to purchase partnership interests representing approximately 3% of the fully diluted aggregate partnership interests in MarkWest Partnership. As part of the Reorganization, such employee options to purchase MarkWest Partnership interests will be replaced by options to purchase shares of the Company's Common Stock issuable pursuant to the Company's Stock Incentive Plan. Such options will be subject to all of the terms and conditions of the Stock Incentive Plan. See "Management--Compensation Plans--1996 Stock Incentive Plan." PARTNERSHIP DISTRIBUTIONS Immediately prior to consummation of the Reorganization, MarkWest Partnership intends to make cash distributions to its partners equal to $10.0 million as a partial distribution of partnership capital. Such distribution will be distributed pro rata to partners of MarkWest based upon such partners' percentage 51 interests in the partnership at the time of the distribution. MarkWest Partnership intends to borrow the money necessary to make such distribution under MarkWest Partnership's credit facility with the Lenders. As MarkWest Partnership's successor, the Company will become obligated for such borrowing. See "Management's Discussion and Analysis of Financial Condition--Liquidity and Capital Resources--Credit Facilities." The Company intends to repay substantially all of the indebtedness owed to Norwest Bank Denver, N.A. under the Company's credit facility with the Lenders from the net proceeds of this Offering. See "Use of Proceeds." MarkWest Partnership is and has been a partnership for purposes of federal income taxes. As a result, the net income of MarkWest Partnership was taxed for federal and state income tax purposes directly to the partners of MarkWest Partnership rather than to MarkWest Partnership. MarkWest Partnership distributed to its partners an aggregate of $995,000, $320,000 and $4.2 million during the 1993, 1994 and 1995 fiscal years to cover income taxes and an aggregate of $2.1 million during the 1993 fiscal year as a distribution of partnership net earnings. No distributions of partnership net earnings were made during fiscal years 1994 and 1995. The Partnership has distributed an aggregate of $3.2 million to date in 1996 for partner income tax liabilities through June 1996, and expects to make an additional such distribution of approximately $416,000 prior to consummation of the Reorganization. MWHC Holding, Inc., a Colorado corporation (the "MarkWest General Partner"), received 70%, 69% and 69% of such distributions during the 1993, 1994 and 1995 fiscal years, respectively, and Erin Partners, Ltd., a Colorado limited partnership ("Erin Partners"), received 11% of such distributions during each of the 1993, 1994 and 1995 fiscal years. The MarkWest General Partner is controlled by John Fox, President and Chief Executive Officer of the Company. Erin Partners is controlled by Brian O'Neill, Senior Vice President and Chief Operating Officer of the Company. See "Principal Stockholders." INVESTMENTS WITH AFFILIATE The Company, through its MarkWest Resources subsidiary, holds a 49% undivided interest in several exploration and production assets ("E&P Assets") owned jointly with MAK-J Energy, which owns a 51% undivided interest in such properties. See "Business--Exploration and Production." The general partner of MAK-J Energy is a corporation owned and controlled by John Fox, President and Chief Executive Officer of the Company. The properties are held pursuant to joint venture agreements entered into between MarkWest Resources and MAK-J Energy. MarkWest Resources is the operator under such agreements. As the operator, MarkWest Resources is obligated to provide certain engineering, administrative and accounting services to the joint ventures. The joint venture agreements provide for a monthly fee payable to MarkWest Resources for all such expenses. While the amount of the monthly fee will in the future be subject to review by the Company's independent directors, the monthly fee for fiscal 1996 was not negotiated on an arm's length basis. Moreover, conflicts of interest may arise regarding such oil and gas activities, including decisions regarding expenses and capital expenditures and the timing of the development and exploitation of the properties. As of June 30, 1996, MarkWest had invested $3.3 million in E&P Assets owned jointly with MAK-J Energy. See "Risk Factors--Conflicts of Interest." The E&P Assets were originally developed by MarkWest Coalseam Development Company LLC ("Coalseam LLC"), a natural gas development venture, and MW Gathering LLC ("Gathering LLC"), a natural gas gathering venture. Coalseam LLC and Gathering LLC originally were owned 51% by MAK-J Energy and 49% by the Company. In connection with the Reorganization, in June 1996 Coalseam LLC and Gathering LLC were merged, the Company transferred its interest in the combined company to MarkWest Resources, and the combined company dissolved and distributed its properties to MarkWest Resources and MAK-J Energy in proportion to their respective interests. Mr. Fox has agreed that as long as he is an officer or director of the Company and for two years thereafter, he will not, directly or indirectly, participate in any future oil and gas exploration or production activities with the Company except and to the extent that the Company's independent and disinterested 52 directors deem it advisable and in the best interests of the Company to include one or more additional participants, which participants may include entities controlled by Mr. Fox. Additionally, Mr. Fox has agreed that as long as he is an officer or director of the Company and for two years thereafter, he will not, directly or indirectly participate in any future oil and gas exploration or production activity that may be in competition with exploration or production activities of the Company except and to the extent that Mr. Fox has first offered the Company the opportunity to participate in that activity and the Company's independent and disinterested directors deem it advisable and in the best interests of the Company not to participate in that activity. The terms of any future transactions between the Company and its directors, officers, principal stockholders or other affiliates, or the decision to participate or not participate in transactions offered by the Company's directors, officers, principal stockholders or other affiliates will be approved by a majority of the Company's independent and disinterested directors. The Company's Board of Directors will use such procedures in evaluating their terms as are appropriate considering the fiduciary duties of the Board of Directors under Delaware law. In any such review the Board may use outside experts or consultants including independent legal counsel, secure appraisals or other market comparisons, refer to generally available statistics or prices or take such other actions as are appropriate under the circumstances. Although such procedures are intended to ensure that transactions with affiliates will be on an arm's length basis, no assurance can be given that such procedures will produce such result. RELATED PARTY INDEBTEDNESS MarkWest Partnership periodically extended offers to partners and employees to purchase initial or additional interests in MarkWest Partnership. The partners and/or employees have provided MarkWest Partnership with promissory notes as part of the purchase price for such interests. According to the terms of the promissory notes, interest accrues at 7% and payments are required for the greater of accrued interest or distributions made by MarkWest Partnership to partners in excess of the partner's income tax liability. An aggregate of $592,000 principal amount of such notes are outstanding as of June 30, 1996. A minimum of 50% of each individual's pro rata share of the Partnership Distribution expected to be made prior to the effective date of the Offering will be applied, in the case of distributions made to partners who issued promissory notes to MarkWest Partnership, to outstanding amounts owed under such promissory notes. Assuming application of such distribution to outstanding amounts owed under the promissory notes, an aggregate of $397,000 principal amount of such notes will be outstanding subsequent to such distribution. As part of the Reorganization, such remaining promissory notes will be replaced by promissory notes owed to the Company. These new notes will accrue interest at 7%, payable annually, and require full payment of principal and outstanding interest on the third anniversary of the effective date of the Reorganization. 53 PRINCIPAL STOCKHOLDERS The following table sets forth certain information regarding beneficial ownership of the Company's Common Stock as of July 15, 1996, (i) by each person (or group of affiliated persons) who is known by the Company to own beneficially more than five percent (5%) of the Company's Common Stock, (ii) by each of the Named Executive Officers, (iii) by each of the Company's directors, and (iv) by all directors and executive officers as a group. The Company believes that the persons and entities named in the table have sole voting and investment power with respect to all shares of Common Stock shown as beneficially owned by them, subject to community property laws, where applicable.
Beneficial Ownership (1) ------------------------------------ Percentage Number of shares Beneficially Beneficially Owned Owned (2) ------------------ ----------------- BEFORE AFTER NAME AND ADDRESS OF BENEFICIAL OWNER (3) OFFERING OFFERING - ---------------------------------------- -------- -------- MWHC Holding, Inc. (4)................... 3,327,248 66.5% 44.4% Erin Partners, Ltd. (5).................. 525,968 10.5 7.0 John M. Fox (6).......................... 3,552,668 71.1 47.4 Brian T. O'Neill (7)..................... 721,429 14.4 9.6 Arthur J. Denney......................... 53,258 1.2 * David R. Whitney (8)..................... 175,000 3.5 2.3 Barry W. Spector......................... 4,979 * * Norman H. Foster......................... 0 * * All directors and executive officers as a group (8 persons) (6)(7)................ 4,514,374 90.3% 60.2%
- -------- * Represents less than 1% of the outstanding shares (1) All percentages have been determined at July 15, 1996 in accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). For purposes of this table, a person or group of persons is deemed to have "beneficial ownership" of any shares of Common Stock that such person or group has the right to acquire within sixty days after July 15, 1996. For purposes of computing the percentage of outstanding shares of Common Stock held by each person or group of persons named above, any security which such person or group has the right to acquire within sixty days after July 15, 1996 is deemed to be outstanding, but is not deemed to be outstanding for the purpose of computing the percentage ownership of any other person. At July 15, 1996, a total of 5,000,000 shares of Common Stock were issued and outstanding, options to acquire a total of 16,931 shares of Common Stock were exercisable within sixty days and 16,931 shares are exercisable at the consummation of the Offering pursuant to the Stock Incentive Plan. The applicable percentage of "beneficial ownership" after this Offering is based upon 7,500,000 shares of Common Stock outstanding, which includes all of the numbers discussed above. (2) Assumes no exercise of the Underwriters' over-allotment option. (3) Unless otherwise indicated, the address for each listed stockholder is c/o MarkWest Hydrocarbon, Inc., 5613 DTC Parkway, Suite 400, Englewood, Colorado 80111. (4) MWHC Holding, Inc. is an entity controlled by John M. Fox. (5) Erin Investments, Inc., an entity controlled by Brian T. O'Neill, is the general partner of Erin Partners, Ltd. (6) Includes an aggregate of 225,420 shares held in the Brent A. Crabtree Trust, the Brian T. Crabtree Trust and the Carrie L. Crabtree Trust (the "Crabtree Trusts"), for which Mr. Fox is the Trustee. Also includes all shares owned directly by MWHC Holding, Inc., an entity controlled by Mr. Fox. As a result of Mr Fox's control of MWHC Holding, Inc., Mr. Fox may be deemed to have an indirect 54 pecuniary interest (within the meaning of Rule 16a-1 under the Exchange Act), in an indeterminate portion of the shares beneficially owned by MWHC Holding, Inc. Mr. Fox disclaims "beneficial ownership" of these shares within the meaning of Rule 13d-3 under the Exchange Act, and also disclaims beneficial ownership of the shares held in the Crabtree Trusts. (7) Includes all shares owned directly by Erin Partners, Ltd., the general partner of which is Erin Investments, Inc., an entity controlled by Mr. O'Neill. As a result of Mr. O'Neill's control of Erin Investments, Inc. and his indirect control of Erin Partners, Ltd., Mr. O'Neill may be deemed to have an indirect pecuniary interest (within the meaning of Rule 16a-1 under the Exchange Act), in an indeterminate portion of the shares beneficially owned by Erin Partners, Ltd. Mr. O'Neill disclaims "beneficial ownership" of these shares within the meaning of Rule 13d-3 under the Exchange Act. (8) All of the shares indicated as owned by Mr. Whitney are owned by certain limited partnerships whose general partner is RIMCO, and are included because Mr. Whitney is a Managing Director of RIMCO. As such, Mr. Whitney may be deemed to have an indirect pecuniary interest (within the meaning of Rule 16a- 1 under the Exchange Act), in an indeterminate portion of the shares beneficially owned by RIMCO. Mr. Whitney disclaims "beneficial ownership" of these shares within the meaning of Rule 13d-3 under the Exchange Act. 55 DESCRIPTION OF CAPITAL STOCK Upon the closing of this Offering, the authorized capital stock of the Company will consist of twenty million (20,000,000) shares of Common Stock, $0.01 par value, and five million (5,000,000) shares of Preferred Stock, $0.01 par value, for a total of twenty-five million (25,000,000) shares of capital stock. COMMON STOCK Upon consummation of the Reorganization, there will be 5,000,000 shares of Common Stock outstanding held of record by approximately 30 stockholders. The holders of Common Stock are entitled to one vote per share on all matters to be voted on by the stockholders. Subject to preferences that may be applicable to outstanding shares of Preferred Stock, if any, the holders of Common Stock are entitled to receive ratably such dividends as may be declared from time to time by the Board of Directors out of funds legally available therefor. In the event of the liquidation, dissolution or winding up of the Company, the holders of Common Stock are entitled to share ratably in all assets remaining after payment of liabilities, subject to prior liquidation rights of Preferred Stock, if any, then outstanding. The Common Stock has no preemptive conversion rights or other subscription rights. There are no redemption or sinking funds provisions applicable to the Common Stock. All outstanding shares of Common Stock are fully paid and non-assessable, and the shares of Common Stock to be outstanding upon completion of this offering will be fully paid and non- assessable. PREFERRED STOCK After the closing of the Offering, the Company will be authorized to issue 5,000,000 shares of undesignated Preferred Stock. The Board of Directors will have the authority to issue the undesignated Preferred Stock in one or more series and to fix the rights, preferences, privileges and restrictions granted to or imposed upon any wholly unissued series of undesignated Preferred Stock and to fix the number of shares constituting any series in the designations of such series, without any further vote or action by the stockholders. The Board of Directors, without stockholder approval, can issue Preferred Stock with voting and conversion rights which could adversely affect the voting power of the holders of Common Stock. The issuance of Preferred Stock may have the effect of delaying, deferring or preventing a change in control of the Company. The Company has no present plan to issue Preferred Stock. CHANGE OF CONTROL PROVISIONS Certain provisions of the Company's Certificate of Incorporation and Bylaws may have the effect of preventing, discouraging or delaying a change in the control of the Company and may maintain the incumbency of the Board of Directors and management. The authorization of undesignated Preferred Stock makes it possible for the Board of Directors to issue Preferred Stock with voting or other rights or preferences that could impede the success of any attempt to change control of the Company. In addition, the Company's Bylaws limit the ability of stockholders of the Company to raise matters at a meeting of stockholders without giving advance notice. The Bylaws also classify the Company's Board of Directors into three classes, each class serving a three- year term. Without the vote of 80% of the Company's capital stock, directors may not be removed without cause by the stockholders. These provisions have the effect of delaying a stockholder's ability to replace a majority of the Board of Directors. The Company is subject to the provisions of Section 203 of the Delaware General Corporation Law ("Section 203") regulating corporate takeovers. Section 203 prevents certain Delaware corporations, including those whose securities are listed on the Nasdaq National Market, from engaging, under certain circumstances, in a "business combination" (which includes a merger or sale of more than 10% of the corporation's assets) with any "interested stockholder" (a stockholder who acquired 15% or more of the corporation's outstanding voting stock without the prior approval of the corporation's Board of Directors) 56 for three years following the date that such stockholder became an "interested stockholder." A Delaware corporation may "opt out" of Section 203 with an express provision in its original certificate of incorporation or an express provision in its certificate of incorporation or bylaws resulting from a stockholders' amendment approved by at least a majority of the outstanding voting shares. The Company has not "opted out" of the provisions of Section 203. REGISTRATION RIGHTS Under the terms of the Reorganization Agreement, 181 days after the closing of this Offering, holders of approximately 891,274 shares of Common Stock (the "Registrable Securities") will be entitled to certain rights with respect to the registration of such shares of Common Stock under the Securities Act. Specifically, certain beneficial owners of interests in MarkWest Partnership (including certain limited partnerships whose general partner is RIMCO) who will receive shares of Common Stock as part of the Reorganization and who are not officers, directors or employees of the Company, and who are not the beneficial holders of ten percent or more of the outstanding shares of Common Stock either at the time immediately following the Reorganization or at the time of a request for registration of shares of Common Stock, shall be entitled to such registration rights. Under the Reorganization Agreement, if the Company proposes to register any of its Common Stock under the Securities Act, such holders of Registrable Securities are entitled to notice of such registration and to include their Registrable Securities therein. The Company may, in certain circumstances, defer such registration. TRANSFER AGENT AND REGISTRAR The Transfer Agent and Registrar for the Common Stock is American Securities Transfer Inc. LISTING The Company has applied to list its Common Stock on the Nasdaq National Market under the trading symbol "MWHX." 57 SHARES ELIGIBLE FOR FUTURE SALE Prior to this Offering, there has not been any public market for the Common Stock. Sale of a substantial number of shares of Common Stock into the public market following the Offering could adversely affect prevailing market prices for the Common Stock. Following this Offering, the Company will have outstanding an aggregate of 7,500,000 shares of Common Stock, assuming no exercise of the Underwriters' over-allotment option. In addition to the 2,500,000 shares of Common Stock offered hereby, as of the effective date of the Offering, there will be 5,000,000 shares of Common Stock outstanding, all of which are Restricted Shares under the Securities Act. All executive officers, directors and certain other stockholders and optionees of the Company have agreed they will not sell 4,789,967 shares of Common Stock held by them without the prior consent of Dillon, Read & Co. Inc. for a period of 180 days from the date of this Prospectus (the "180-day Lockup Period"). Following the 180-day Lockup Period, up to 4,817,762 Restricted Shares will become eligible for sale in the public market pursuant to Rule 144 subject to the volume and other restrictions pursuant to such Rule. The Underwriters may, in their sole discretion and at any time without notice, release all or any portion of the securities subject to lock-up agreements. In general, under Rule 144 as currently in effect, a person (or persons whose shares are aggregated), who has beneficially owned shares for at least two years (including the holding period of any prior owner except an affiliate) is entitled to sell in "broker's transactions" or to market makers, within any three-month period, a number of shares that does not exceed the greater of (i) one percent of the then outstanding shares of Common Stock, or (ii) generally, the average weekly trading volume in the Common Stock during the four calendar weeks preceding the sale. Sales under Rule 144 are also subject to the filing of a Form 144 with respect to such sale and certain other limitations and restrictions. Under Rule 144(k), a person who is not deemed to have been an affiliate of the Company at any time during the ninety (90) days preceding a sale, and who has beneficially owned the shares proposed to be sold for at least three years, would be entitled to sell such shares without having to comply with the manner of sale, volume limitation or notice filing provisions described above. The Company is unable to estimate the number of shares that will be sold under Rule 144, as this will depend on the market price for the Common Stock of the Company, the personal circumstances of the sellers and other factors. Prior to this Offering, there has been no public market for the Common Stock, and there can be no assurance that a significant public market for the Common Stock will develop or be sustained after the Offering. Any future sale of substantial amounts of the Common Stock in the open market may adversely affect the market price of the Common Stock offered hereby. The Company intends to file a registration statement on Form S-8 under the Securities Act to register up to 600,000 shares of Common Stock reserved for issuance under its Stock Incentive Plan, thus permitting the resale of such shares by nonaffiliates in the public market without restriction under the Securities Act, subject to vesting restrictions with the Company or the lock- up agreements described above. Upon the completion of this Offering, there will be a total of approximately 147,715 shares subject to options which are expected to be the subject matter of such registration statement. 58 UNDERWRITING The names of the Underwriters of the shares of Common Stock offered hereby and the aggregate number of shares which each has severally agreed to purchase from the Company, subject to the terms and conditions specified in the Underwriting Agreement, are as follows:
Number of Underwriter Shares ----------- --------- Dillon, Read & Co. Inc............................................ George K. Baum & Company.......................................... --------- Total........................................................... 2,500,000 =========
The Managing Underwriters are Dillon, Read & Co. Inc. and George K. Baum & Company. The Underwriters are committed to purchase all of the shares of Common Stock offered hereby, if any are so purchased. The Underwriting Agreement contains certain provisions whereby, if any Underwriter defaults in its obligation to purchase such shares, and the aggregate obligations of the Underwriters so defaulting do not exceed ten percent of the shares of Common Stock offered hereby, some or all of the remaining Underwriters must assume such obligations. The Underwriters propose to offer the shares of Common Stock directly to the public initially at the offering price per share set forth on the cover page of this Prospectus and to certain dealers at such price less a concession not in excess of $ per share. The Underwriters may allow, and such dealers may re-allow, concessions not in excess of $ per share to certain other dealers. The offering of the shares of Common Stock is made for delivery when, as and if accepted by the Underwriters and subject to prior sale and withdrawal, cancellation or modification of this offer without notice. The Underwriters reserve the right to reject any order for the purchase of the shares. After the public offering of the shares of Common Stock, the public offering price and the concessions may be changed by the Managing Underwriters. The Company has granted to the Underwriters an option for 30 days from the date of this Prospectus, to purchase up to 375,000 additional shares of Common Stock, at the initial public offering price less the underwriting discount set forth on the cover page of this Prospectus. The Underwriters may exercise such option only to cover over-allotments of the shares of Common Stock offered hereby. To the extent the Underwriters exercise this option, each Underwriter will be obligated, subject to certain conditions, to purchase the number of additional shares of Common Stock proportionate to such Underwriter's initial commitment. The Company has agreed to indemnify the Underwriters against certain liabilities under the Securities Act, or to contribute to payments the Underwriters may be required to make in respect thereof. The Company, certain pre-Offering stockholders, and all directors and executive officers of the Company have agreed, subject to certain exceptions, that they will not offer, sell, contract to sell, transfer or otherwise encumber or dispose of any shares of Common Stock or securities convertible into or exchangeable for Common Stock, or exercise demand registration rights, for a period of 180 days from the date of this Prospectus, without the written consent of Dillon, Read & Co. Inc. 59 Prior to the Offering, there has been no public market for the Common Stock. Consequently, the initial public offering price for the Common Stock will be determined by negotiation among the Company and the Managing Underwriters. Factors to be considered in determining the initial public offering price will be prevailing market conditions, the state of the Company's development, recent financial results of the Company, the future prospects of the Company and its industry, market valuations of securities of companies engaged in activities deemed by the Managing Underwriters to be similar to those of the Company and other factors deemed relevant. The Underwriters do not intend to confirm sales to accounts over which they exercise discretionary authority. LEGAL MATTERS The validity of the issuance of shares of Common Stock offered hereby will be passed upon for the Company by Dorsey & Whitney LLP, Denver, Colorado. Certain legal matters in connection with this Offering will be passed upon for the Underwriters by Baker & Botts, L.L.P., Dallas, Texas. EXPERTS The financial statements of MarkWest Hydrocarbon, Inc. as of June 30, 1996 and of MarkWest Hydrocarbon Partners, Ltd. as of December 31, 1994 and 1995, and for each of the three years in the period ended December 31, 1995 included in this Prospectus have been so included in reliance on the reports of Price Waterhouse LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. The financial statements of Basin Pipeline L.L.C. as of December 31, 1995, and the related statements of operations and accumulated deficit and cash flows for the year then ended have been audited by BDO Seidman, LLP, independent certified public accountants and are included in this Prospectus upon the authority of said firm as experts in auditing and accounting. ADDITIONAL INFORMATION The Company has filed with the Securities and Exchange Commission (the "Commission") a Registration Statement on Form S-1 with respect to the shares of Common Stock offered hereby, of which this Prospectus forms a part. In accordance with the rules of the Commission, this Prospectus omits certain information contained in the Registration Statement. For further information with respect to the Company and the securities offered hereby, reference is made to the Registration Statement and the exhibits and schedules filed therewith. Statements contained in this Prospectus concerning the provisions of such documents are necessarily summaries of such documents and each such statement is qualified in its entirety by reference to the copy of the applicable document filed with the Commission as an exhibit to the Registration Statement. Copies of the Registration Statement and the exhibits and schedules thereto may be inspected, without charge, at the offices of the Commission, or obtained at prescribed rates from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. The Company intends to furnish to its stockholders annual reports containing audited financial statements certified by its independent auditors and quarterly reports for the first three quarters of each fiscal year containing unaudited financial information. 60 MARKWEST HYDROCARBON, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- MarkWest Hydrocarbon, Inc. Balance Sheet as of June 30, 1996 Report of Independent Accountants........................................ F-2 Balance Sheet............................................................ F-3 Notes to Balance Sheet .................................................. F-4 MarkWest Hydrocarbon Partners, Ltd. Consolidated Financial Statements as of December 31, 1994 and 1995 and June 30, 1996 (unaudited), and for each of the three years in the period ended December 31, 1995 and for the six months ended June 30, 1995 and 1996 (unaudited) Report of Independent Accountants........................................ F-5 Consolidated Balance Sheet............................................... F-6 Consolidated Statement of Operations..................................... F-7 Consolidated Statement of Changes in Partners' Capital................... F-8 Consolidated Statement of Cash Flows..................................... F-9 Notes to Consolidated Financial Statements............................... F-10 Basin Pipeline, L.L.C. Financial Statements as of December 31, 1995 and June 30, 1996 (unaudited), for the year ended December 31, 1995 and for the six months ended June 30, 1995 and 1996 (unaudited) Report of Independent Certified Public Accountants....................... F-18 Balance Sheet............................................................ F-19 Statement of Operations and Accumulated Deficit.......................... F-20 Statement of Cash Flows.................................................. F-21 Summary of Accounting Policies........................................... F-22 Notes to Financial Statements............................................ F-23 MarkWest Hydrocarbon, Inc. Unaudited Pro Forma Condensed Consolidated Financial Statements Introduction............................................................. F-25 Unaudited Pro Forma Condensed Consolidated Balance Sheet as of June 30, 1996.................................................................... F-26 Unaudited Pro Forma Condensed Consolidated Statement of Operations for the year ended December 31, 1995........................................ F-27 Unaudited Pro Forma Condensed Consolidated Statement of Operations for the six months ended June 30, 1996...................................... F-28 Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements.............................................................. F-29
F-1 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors of MarkWest Hydrocarbon, Inc. In our opinion, the accompanying balance sheet presents fairly, in all material respects, the financial position of MarkWest Hydrocarbon, Inc. at June 30, 1996, in conformity with generally accepted accounting principles. This financial statement is the responsibility of the management of MarkWest Hydrocarbon, Inc.; our responsibility is to express an opinion on this financial statement based on our audit. We conducted our audit of this statement in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statement is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statement, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for the opinion expressed above. Price Waterhouse LLP Denver, Colorado August 2, 1996 F-2 MARKWEST HYDROCARBON, INC. BALANCE SHEET ($000S)
June 30, 1996 -------- ASSETS Cash.................................................................. $ 1 ---- Total current assets.................................................. 1 ---- Deferred offering costs............................................... 100 ---- Total assets.......................................................... $101 ==== LIABILITIES AND STOCKHOLDERS' EQUITY Accrued offering costs................................................ $100 ---- Stockholders' equity: Preferred stock, $.01 par value; 5,000,000 shares authorized, no shares issued or outstanding....................................... -- Common stock, $.01 par value; 20,000,000 shares authorized, 100 shares issued and outstanding...................................... -- Additional paid-in capital.......................................... 1 ---- Total stockholders' equity............................................ 1 ---- Total liabilities and stockholders' equity............................ $101 ====
The accompanying notes are an integral part of this financial statement. F-3 MARKWEST HYDROCARBON, INC. NOTES TO BALANCE SHEET NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION MarkWest Hydrocarbon, Inc. (the "Company") was incorporated in June 1996 to act as the successor to MarkWest Hydrocarbon Partners, Ltd. ("MWHP"). On the effective date of the registration statement for the Company, MWHP will be reorganized from a limited partnership into a corporation ("the Reorganization"). The existing general and limited partners of MWHP will exchange 100% of the Partnership interests in MWHP for 5,000,000 shares of common stock of the Company. This transaction represents a reorganization of entities under common control and will be accounted for at historical cost. INCOME TAXES Following the Reorganization, income taxes will be determined using the asset and liability approach in accordance with Statement of Financial Accounting Standards ("SFAS") No. 109, Accounting for Income Taxes. This method gives consideration to the future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. Provisions of the Internal Revenue Code provide that any future tax liabilities resulting from the operation of the Company will be obligations of the Company. Accordingly, the cumulative effect of deferred taxes related to temporary differences that originated when the Company was a general partnership and that will reverse subsequent to the reorganization will be accounted for on the balance sheet on the date of the reorganization. In accordance with SFAS 109, the Company will establish the appropriate deferred taxes with a corresponding charge to the statement of operations. NOTE 2. EMPLOYEE BENEFIT PLANS The Company has adopted, subject to approval by stockholders, the 1996 Stock Incentive Plan (the "Plan"). By the terms of the Plan, 600,000 shares have been authorized for issuance of awards to officers and employees. The awards may include incentive stock options ("ISOs") as defined under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), and non-qualified stock options which do not qualify as ISOs, stock appreciation rights, restricted stock and restricted stock units, performance awards, dividend equivalents or other stock-based awards. Stock options will be granted at an exercise price of not less than fair market value at the date of grant, vest over a five-year period from the date of grant, and are exercisable for a period of three years from the date the options become vested. In conjunction with the Reorganization, the Company will exchange options to purchase shares of common stock for outstanding options to purchase partnership interests of MarkWest Hydrocarbon Partners, Ltd. currently held by employees. The Company accounts for its stock-based awards in accordance with the provisions of APB 25 and will make the disclosures required by SFAS No. 123, Accounting for Stock-Based Compensation. F-4 REPORT OF INDEPENDENT ACCOUNTANTS To the Partners of MarkWest Hydrocarbon Partners, Ltd. In our opinion, the accompanying consolidated balance sheet and related consolidated statements of operations, of cash flows and of changes in partners' capital present fairly, in all material respects, the financial position of MarkWest Hydrocarbon Partners, Ltd. and its subsidiaries at December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the management of MarkWest Hydrocarbon Partners, Ltd.; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. Price Waterhouse LLP Denver, Colorado August 2, 1996 F-5 MARKWEST HYDROCARBON PARTNERS, LTD. CONSOLIDATED BALANCE SHEET ($000S)
Pro Forma December 31, June 30, Capitalization --------------- 1996 (Note 10) 1994 1995 (unaudited) (unaudited) ------- ------- ----------- -------------- ASSETS Current assets: Cash and cash equivalents......... $ 5,468 $ 761 $ 666 Accounts receivable............... 4,180 8,909 3,588 Product inventory................. 2,669 2,718 3,287 Materials and supplies inventory.. 142 112 264 Prepaid expenses and other assets........................... 304 375 359 Prepaid feedstock................. 1,714 1,729 2,157 ------- ------- ------- Total current assets............ 14,477 14,604 10,321 Property, plant and equipment, at cost, net of accumulated depreciation, depletion and amortization of $7,913, $9,568 and $10,810, respectively.............. 21,194 31,947 32,598 Intangible assets, net of accumulated amortization of $71, $152 and $233, respectively........ 141 320 443 Investment in West Shore Processing......................... -- -- 629 Other assets........................ 101 25 -- ------- ------- ------- Total assets........................ $35,913 $46,896 $43,991 ======= ======= ======= LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Trade accounts payable............ $ 1,924 $ 3,283 $ 4,430 Accrued liabilities............... 275 404 418 Interest payable.................. 431 147 99 Accrued bonus and profit sharing.. 213 401 230 Current portion of long-term debt............................. 1,000 -- -- ------- ------- ------- Total current liabilities....... 3,843 4,235 5,177 Long-term debt...................... 9,887 17,500 12,350 22,350 ------- ------- ------- ------ Total liabilities............... 13,730 21,735 17,527 Commitments and contingencies (Note 5)................................. -- -- -- Partners' capital................... 22,183 25,161 26,464 16,464 ------- ------- ------- ------ Total liabilities and partners' capital............................ $35,913 $46,896 $43,991 ======= ======= =======
The accompanying notes are an integral part of these financial statements. F-6 MARKWEST HYDROCARBON PARTNERS, LTD. CONSOLIDATED STATEMENT OF OPERATIONS ($000S)
Six Months Ended Year Ended December 31, June 30, ------------------------- ------------------ 1993 1994 1995 1995 1996 ------- ------- ------- -------- -------- (unaudited) Revenues: Plant revenue................ $34,212 $33,056 $33,823 $ 17,225 $ 18,045 Terminal and marketing revenue..................... 19,756 13,666 13,172 5,200 9,831 Oil and gas and other revenue..................... 1,783 1,830 1,075 501 744 Gain on sales of oil and gas properties.................. -- 4,275 -- -- -- ------- ------- ------- -------- -------- Total revenue................ 55,751 52,827 48,070 22,926 28,620 ------- ------- ------- -------- -------- Costs and Expenses: Plant feedstock purchases.... 23,155 21,582 17,308 8,608 8,538 Terminal and marketing purchases................... 18,845 11,497 11,937 4,829 8,683 Operating expenses........... 6,504 4,393 4,706 2,005 2,979 General and administrative expenses.................... 3,747 3,654 4,189 2,064 2,140 Depreciation, depletion and amortization................ 1,565 1,942 1,754 852 1,326 Reduction in carrying value of assets................... -- 2,950 -- -- -- ------- ------- ------- -------- -------- Total costs and expenses..... 53,816 46,018 39,894 18,358 23,666 ------- ------- ------- -------- -------- Earnings from operations....... 1,935 6,809 8,176 4,568 4,954 Other income (expense): Interest expense............. (1,515) (1,825) (508) (402) (509) Interest income.............. 120 136 156 102 43 ------- ------- ------- -------- -------- Total other income (expense)................... (1,395) (1,689) (352) (300) (466) ------- ------- ------- -------- -------- Income before extraordinary item.......................... 540 5,120 7,824 4,268 4,488 Extraordinary loss on extinguishment of debt........ (1,750) ------- ------- ------- -------- -------- Net income..................... $ 540 $ 5,120 $ 6,074 $ 4,268 $ 4,488 ======= ======= ======= ======== ======== Pro forma information (unaudited) (Note 10): Historical income before extraordinary item.......... $ 540 $ 5,120 $ 7,824 $ 4,268 $ 4,488 Pro forma provision for income taxes................ 228 1,424 2,937 1,667 1,670 ------- ------- ------- -------- -------- Pro forma net income......... $ 312 $ 3,696 $ 4,887 $ 2,601 $ 2,818 ======= ======= ======= ======== ========
The accompanying notes are an integral part of these financial statements. F-7 MARKWEST HYDROCARBON PARTNERS, LTD. CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL (UNAUDITED AS TO THE SIX MONTHS ENDED JUNE 30, 1996) ($000S) Balance, December 31, 1992............................................. $19,614 Net income............................................................. 540 Payments on notes receivable from partners............................. 236 Distributions.......................................................... (3,040) ------- Balance, December 31, 1993............................................. 17,350 Net income............................................................. 5,120 Purchase of partnership interests financed by notes receivable......... 422 Notes receivable from partners......................................... (422) Contributions.......................................................... 33 Distributions.......................................................... (320) ------- Balance, December 31, 1994............................................. 22,183 Net income............................................................. 6,074 Purchase of partnership interests financed by notes receivable......... 11 Notes receivable from partners......................................... (11) Contributions.......................................................... 4 Distributions.......................................................... (4,150) Option granted in conjunction with extinguishment of debt.............. 1,050 ------- Balance, December 31, 1995............................................. 25,161 Net income for the six months ended June 30, 1996...................... 4,488 Contributions.......................................................... 34 Distributions.......................................................... (3,219) ------- Balance, June 30, 1996................................................. $26,464 =======
The accompanying notes are an integral part of these financial statements. F-8 MARKWEST HYDROCARBON PARTNERS, LTD. CONSOLIDATED STATEMENT OF CASH FLOWS ($000S)
Six Months Ended Year ended December 31, June 30, ------------------------- ------------------ 1993 1994 1995 1995 1996 ------- ------- ------- -------- -------- (unaudited) Cash Flows From Operating Activities: Net income..................... $ 540 $ 5,120 $ 6,074 $ 4,268 $ 4,488 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization.................. 1,565 1,942 1,754 852 1,326 Option granted in conjunction with extinguishment of debt... -- -- 1,050 -- -- Gain on sale of assets......... -- (4,275) -- -- -- Reduction in carrying value of assets........................ -- 2,950 -- -- -- ------- ------- ------- -------- ------- Net cash provided by operating activities before changes in certain components of working capital....................... 2,105 5,737 8,878 5,120 5,814 Changes in certain components of working capital............ 112 (4,743) (3,442) 5,551 5,131 ------- ------- ------- -------- ------- Net cash flow from operating activities.................... 2,217 994 5,436 10,671 10,945 ------- ------- ------- -------- ------- Cash Flows From Investing Activities: Capital expenditures........... (6,941) (1,442) (12,426) (5,297) (2,522) Proceeds from sale of assets... -- 10,166 -- -- -- Decrease (increase) in intangible and other assets... 24 344 (184) 85 (183) ------- ------- ------- -------- ------- Net cash provided by (used in) investing activities.......... (6,917) 9,068 (12,610) (5,212) (2,705) ------- ------- ------- -------- ------- Cash Flows From Financing Activities: Proceeds from issuance of long- term debt..................... 23,513 7,201 17,500 3,750 3,500 Repayments of long-term debt... (21,024) (12,800) (10,887) (10,887) (8,650) Partners' distributions........ (3,040) (320) (4,150) (3,381) (3,219) Other.......................... 236 33 4 4 34 ------- ------- ------- -------- ------- Net cash provided by (used in) financing activities.......... (315) (5,886) 2,467 (10,514) (8,335) ------- ------- ------- -------- ------- Net increase (decrease) in cash and cash equivalents.......... (5,015) 4,176 (4,707) (5,055) (95) Cash and cash equivalents at beginning of period............. 6,307 1,292 5,468 5,468 761 ------- ------- ------- -------- ------- Cash and cash equivalents at end of period....................... $ 1,292 $ 5,468 $ 761 $ 413 $ 666 ======= ======= ======= ======== =======
The accompanying notes are an integral part of these financial statements. F-9 MARKWEST HYDROCARBON PARTNERS, LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION MarkWest Hydrocarbon Partners, Ltd. (the "Partnership") is a Colorado limited partnership formed on March 28, 1988. MWHC Holding, Inc. ("Holding") is the general partner. The Partnership operates under a limited partnership agreement (the "Agreement") which provides that net income or loss, certain defined capital events and cash distributions (all as defined in the Agreement) are generally allocated in accordance with the partners' respective ownership percentages. The Company provides compression, gathering, treatment, processing and natural gas liquids extraction services to natural gas producers and pipeline companies and fractionates natural gas liquids into marketable products for sale to third parties. The Partnership also purchases, stores and markets natural gas and natural gas liquids and has begun to conduct strategic exploration for new natural gas sources for its processing and fractionation activities. ACCOUNTING POLICIES The interim consolidated financial statements and related notes thereto presented herein are unaudited, but reflect, in the opinion of management, all adjustments (which include only normal recurring adjustments) necessary for fair presentation of the results for such periods. Footnote disclosures as of June 30, 1996 and for the six months ended June 30, 1995 and 1996 are presented only where significant. The significant accounting policies followed by the Partnership and its subsidiaries are presented herein to assist the reader in evaluating the financial information contained herein. The Partnership's accounting policies are in accordance with generally accepted accounting principles. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Partnership and its wholly-owned subsidiaries, MarkWest Resources, Inc. ("Resources") and MarkWest Michigan, LLC. All material intercompany transactions have been eliminated in consolidation. Prior to July 1, 1996, the Partnership owned 49% of MarkWest Coalseam Development Company LLC (formerly MarkWest Coalseam Joint Venture) ("Coalseam"), a natural gas development venture, and MW Gathering LLC ("Gathering"), a natural gas gathering venture. Effective July 1, 1996, Gathering was merged into Coalseam. Simultaneously, the Partnership formed Resources, and Coalseam distributed 49% of its assets to Resources and 51% to MAK-J Energy Partners, Ltd. (formerly MarkWest Energy Partners, Ltd.) ("Energy"), a partnership whose general partner is a corporation owned and controlled by the President of MarkWest Hydrocarbon Partners, Ltd. The consolidated financial statements reflect Resources' 49% proportionate share of the underlying oil and gas assets, liabilities, revenues and expenses. WEST SHORE PROCESSING ACQUISITION (UNAUDITED) Effective May 6, 1996, the Partnership acquired the right to earn up to a 60% interest for $16.8 million in a newly formed venture, West Shore Processing, LLC ("West Shore"). The most significant asset of West Shore is Basin Pipeline, LLC, which was contributed by the Partnership's venture partner, Michigan Energy Company, LLC. The West Shore agreement is structured so that the Partnership's ownership interest increases as capital expenditures for the benefit of West Shore are made by the Partnership. As of June 30, 1996, the Partnership has recorded a net investment in West Shore of $629,000 representing a 5.3% ownership interest. The Partnership is omitted to make capital expenditures of approximately $10.0 million through early 1997 in conjunction with the first phase of the agreement. F-10 MARKWEST HYDROCARBON PARTNERS, LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) CASH AND CASH EQUIVALENTS The Partnership considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Cash and cash equivalents comprise the following (in $000s):
December 31, -------------- June 30, 1994 1995 1996 ------- ----------------- (Unaudited) Cash and overnight investments........................ $ 1,665 $ 761 $666 Restricted cash....................................... 3,803 -- -- ------- ----- ---- $ 5,468 $ 761 $666 ======= ===== ====
Excess cash is used to pay down the revolver facility. Accordingly, investments are limited to overnight investments of end-of-day cash balances. Restricted cash was comprised of funds received from the sale of oil and gas properties which were held in escrow pending the consummation of a transaction structured to qualify as a like-kind exchange of property for tax purposes, within the meaning of Section 1031 of the Internal Revenue Code of 1986. Such transaction was consummated in 1995. INVENTORY Product inventory consists primarily of finished goods (propane, butane, isobutane and natural gasoline) and is valued at the lower of cost, using the first-in, first-out method, or market. Market value of the Partnership's inventory was $3,618,000, $3,807,000 and $3,975,000 (unaudited) at December 31, 1994 and 1995 and June 30, 1996, respectively. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment is recorded at cost. Expenditures which extend the useful lives of assets are capitalized. Repairs, maintenance and renewals which do not extend the useful lives of the assets are expensed as incurred. The components of property, plant and equipment and the respective useful lives and depreciation, depletion and amortization methods (straight line (SL) or units of production (UOP)) are as follows (in $000s):
December 31, ---------------- June 30, Useful DD&A 1994 1995 1996 lives method ------- ------- ----------- ---------- ------ (Unaudited) Land.......................... $ 730 $ 730 $ 830 -- -- Plant facilities.............. 21,604 31,699 32,319 20 years SL Buildings..................... 264 308 491 40 years SL Furniture, leasehold improvements and other....... 5,770 6,895 6,476 3-10 years SL Oil and gas properties........ 739 1,883 3,292 -- UOP ------- ------- ------- 29,107 41,515 43,408 Accumulated depreciation, depletion and amortization... (7,913) (9,568) (10,810) ------- ------- ------- $21,194 $31,947 $32,598 ======= ======= =======
F-11 MARKWEST HYDROCARBON PARTNERS, LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Oil and gas properties consist of leasehold costs, producing and non- producing gas wells and equipment, and pipelines. The Partnership uses the full cost method of accounting for oil and gas properties. Accordingly, all costs associated with acquisition, exploration and development of oil and gas reserves are capitalized to the full cost pool. These capitalized costs, including estimated future costs to develop the reserves and estimated abandonment costs, net of salvage, are amortized on a units-of-production basis using estimates of proved reserves. Investments in unproved properties and major development projects are not amortized until proved reserves associated with the projects can be determined or until impairment occurs. If the results of an assessment of such properties indicate that the properties are impaired, the amount of impairment is added to the capitalized cost base to be amortized. As of December 31, 1995 and June 30, 1996, approximately $862,000 and $2,271,000 (unaudited) of investments in unproved properties were excluded from amortization, respectively. The capitalized costs included in the full cost pool are subject to a "ceiling test," which limits such costs to the aggregate of the estimated present value, using a 10 percent discount rate, of the future net revenues from proved reserves, based on current economics and operating conditions. Impairment under the ceiling test of $116,000 was recognized in 1994 and is included in depreciation, depletion and amortization in the accompanying consolidated statement of operations. No impairment existed as of December 31, 1995 and June 30, 1996. Sales of proved and unproved properties are accounted for as adjustments of capitalized costs with no gain or loss recognized, unless such adjustments would significantly alter the relationship between capitalized costs and proved reserves of oil and gas, in which case the gain or loss is recognized in the consolidated statement of operations. INTANGIBLE ASSETS Deferred financing costs and a non-compete agreement with a former officer and director are included in intangible assets. Both are amortized using the straight-line method over the terms of the associated agreements. INCOME TAXES No provision for income taxes is necessary in the financial statements of the Partnership because, as a partnership, it is not subject to income tax and the tax effects of its activities accrue to the respective partners. HEDGED TRANSACTIONS The Partnership limits its exposure to propane and natural gas price fluctuations related to future production with futures contracts. These contracts are accounted for as hedges in accordance with the provisions of Statement of Financial Accounting Standards ("SFAS") No. 80, Accounting for Futures Contracts. Gains and losses on such hedge contracts are deferred and included as a component of plant revenues and feedstock purchases when the hedged production is sold. As of December 31, 1994 and 1995, and as of June 30, 1996, the Partnership did not hold any material notional quantities of natural gas, NGL, or crude oil futures, swaps or options. FAIR VALUE OF FINANCIAL INSTRUMENTS The Partnership's financial instruments consist of cash and cash equivalents, receivables, trade accounts payable, accrued and other current liabilities, and long-term debt. Except for long-term debt, the carrying amounts of financial instruments approximate fair value due to their short maturities. At December 31, 1995 and June 30, 1996, based on rates available for similar types of debt, the fair value of long-term debt was not materially different from its carrying amount. F-12 MARKWEST HYDROCARBON PARTNERS, LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. NOTE 2. DEBT REVOLVER LOAN On November 20, 1992, the Partnership entered into a financing agreement (the "Facility") with Norwest Bank Denver, N.A. ("Norwest") and First American National Bank ("FANB") of Nashville, Tennessee. The Facility is structured as a revolver, and the borrowing base is redetermined semi-annually. As of December 31, 1995 and June 30, 1996, maximum borrowing bases of $25 million and $40 million, respectively, were available to the Partnership, $10 million and $31.5 million, respectively, of which were unutilized. On September 8, 1995, the Facility was further amended to add N M Rothschild and Sons Limited ("Rothschild") as a lender, revise the interest rate for base rate loans, institute the option of a LIBOR (London Interbank Offered Rate) interest rate, and extend the revolver commitment period and maturity dates. Interest on a base rate loan is currently calculated at prime plus .25% if the Partnership's total debt is less than or equal to 40% of total capitalization. If debt exceeds 40% of capitalization, the rate increases to prime plus .50%. At December 31, 1995 and June 30, 1996, $3 million and $2.5 million were outstanding under a base rate loan bearing interest at 9.00% and 8.50%, respectively. The LIBOR option allows the Partnership to lock in a portion of the revolver balance for a period of one, two, three or six months. Interest on a LIBOR loan is calculated at LIBOR plus 2% if the Partnership's total debt is less than or equal to 40% of total capitalization. If debt exceeds 40% of capitalization, the rate increases to LIBOR plus 2.25%. At December 31, 1995 and June 30, 1996, $12 million and $6 million were outstanding under a 90-day LIBOR and 30-day LIBOR commitment bearing interest at 8.125% and 7.50%, maturing February 16, 1996 and July 12, 1996, respectively. On May 31, 1996, the Facility was amended to increase the maximum borrowing base to $40 million and extend the repayment period to June 30, 2002, with 16 equal quarterly installments commencing September 30, 1998. This debt is secured by a first mortgage on the Partnership's property, plant, equipment and contracts, excluding railcars and truck trailers. The Facility restricts certain activities and requires the maintenance of certain financial ratios and other conditions. WORKING CAPITAL LINE OF CREDIT On November 20, 1992, the Partnership entered into a working capital line of credit agreement with Norwest/FANB in the amount of $5 million. The borrowing base, as defined in the credit agreement, is redetermined monthly. On September 8, 1995, the agreement was amended to add Rothschild as a lender, revise the interest rate, increase the maximum borrowing base to $7.5 million, and extend the working capital commitment period and maturity date. The extended due date on the working capital note is June 30, 1997. At December 31, 1995 and June 30, 1996, the full amount of the borrowing base was available under the working capital line. The interest rate is the same as discussed above for base F-13 MARKWEST HYDROCARBON PARTNERS, LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) rate loans. No LIBOR option is available for the working capital line. At December 31, 1995 and June 30, 1996, $2.5 million and $3.85 million (unaudited) were outstanding under base rate loans bearing interest at 9.00% and 8.5%, respectively. On May 31, 1996, the commitment period was extended to June 30, 1998. The agreement is secured by the Partnership's inventory, receivables and cash. Scheduled debt maturities under the terms of each facility are as follows (in $000s):
December 31, 1995 June 30, 1996 ---------------------------- ---------------------------- (Unaudited) Revolver loan Line of credit Revolver loan Line of credit ------------- -------------- ------------- -------------- 1996................. $ -- $ -- $ -- $ -- 1997................. 1,875 2,500 -- -- 1998................. 3,750 -- 1,062 3,850 1999................. 3,750 -- 2,125 -- 2000 and thereafter.. 5,625 -- 5,313 -- ------- ------ ------ ------ Total................ $15,000 $2,500 $8,500 $3,850 ======= ====== ====== ======
SILOAM NOTE On December 15, 1989, the Partnership entered into a note agreement in conjunction with the purchase of the Siloam plant and the isomerization expansion. The note agreement allowed for the prepayment of principal to no less than $500,000. In November 1992, the Partnership exercised its prepayment rights relative to this agreement by paying $9.2 million of the then- outstanding balance. The remaining $500,000 principal balance accrued interest at 12%. Under the terms of the note, additional interest was payable annually based on certain operating results of the fractionation plant and proceeds from asset dispositions. Such additional interest expense was $405,000 and $422,000 for 1993 and 1994, respectively. During 1995, the Partnership reached an agreement with the noteholder to fully retire the note. Accordingly, the Partnership paid the remaining balance of $500,000 as well as $700,000 of additional interest. In addition, the Partnership granted to the noteholder an option to acquire 3.5% of the Partnership for $35,000. Based on management's best estimate of the fair value of the Partnership, the option was valued at $1,050,000 which, together with the $700,000 of additional interest, is reflected in the consolidated statement of operations as an extraordinary loss due to the early extinguishment of debt. NOTE 3. RELATED PARTY AND PARTNERS' CAPITAL TRANSACTIONS The Partnership made contributions of $95,000, $213,000, and $211,000 to a profit-sharing plan maintained by the general partner for the years ended December 31, 1993, 1994 and 1995, and accrued a liability of $113,000 for estimated contributions for the six months ended June 30, 1996. The plan is discretionary, with annual contributions determined by the general partner's board of directors. The Partnership periodically extends offers to partners and employees to purchase initial or additional interests in the Partnership. The partners and/or employees have provided the Partnership with promissory notes as part of the purchase price. According to the terms of the notes, interest accrues at 7% and payments are required for the greater of accrued interest or excess distributions. Notes dated December 31, 1990, January 1, 1994, October 1, 1994, and January 1, 1995 in the amounts of $80,000, $313,000, $109,000, and $11,000, respectively, have been reflected as reductions of partners' capital at December 31, 1995. During 1992, the management of the Partnership granted limited partnership options to certain employees. The options are exercisable at a fixed price and subject to certain conditions and restrictions. The options vest ratably over 5 years and are non-transferable. In 1993 and 1995, management granted F-14 MARKWEST HYDROCARBON PARTNERS, LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) additional limited partnership interest options with a fixed exercise price of $40 per .0001% interest. In addition, the previously issued options were amended to reduce the option price from $50 to $40, which was estimated to be the fair value at that date. The Partnership's employees perform certain administrative functions on behalf of Holding, Energy, Coalseam and Gathering. At December 31, 1995 and June 30, 1996, no material amounts were due to or receivable from Holding, Energy, Coalseam or Gathering for miscellaneous administrative expenses. The Partnership allocated $324,000 and $180,000 (unaudited) of administrative expenses to Holding, Energy, Coalseam and Gathering for the year ended December 31, 1995 and the six months ended June 30, 1996, respectively. No material amounts of administratives expenses were allocated to Holding, Energy, Coalseam and Gathering for the years ended December 31, 1993 and 1994. NOTE 4. REDUCTION IN CARRYING VALUE OF ASSETS In 1994, the Partnership shut down the Siloam plant isomerization unit when it was unable to find satisfactory markets for its isobutane. Accordingly, the Partnership recorded a $2,242,000 charge to write down the unit to its estimated realizable value. In addition, a catalyst used in the isomerization process was sold, resulting in a $347,000 loss in 1994. The Partnership also recorded a charge of $361,000 in 1994 for the write-down of non-productive equipment related to various business development projects. NOTE 5. COMMITMENTS AND CONTINGENCIES Rental expense was $160,000, $166,000, $195,000 and $102,000 (unaudited) for the years ended December 31, 1993, 1994 and 1995 and for the six months ended June 30, 1996, respectively. Future minimum lease payments under all operating leases are as follows (in $000s):
December 31, 1995 June 30, 1996 --------------------------------------------- --------------------------------------------- (Unaudited) Railcar leases Other leases Total obligations Railcar leases Other leases Total obligations -------------- ------------ ----------------- -------------- ------------ ----------------- 1996.................... $107 $176 $283 $22 $100 $122 1997.................... -- 51 51 -- 51 51 1998.................... -- 6 6 -- 6 6 1999.................... -- 5 5 -- 5 5 2000.................... -- 5 5 -- 5 5 ---- ---- ---- --- ---- ---- Total................... $107 $243 $350 $22 $167 $189 ==== ==== ==== === ==== ====
The Partnership leases railcars to ensure efficient movement of natural gas liquids to fulfill sales obligations. The Partnership has obtained commitments for railcar subleases to receive payments of $221,000 and $81,000 during 1996 and 1997, respectively. NOTE 6. ACCOUNTS RECEIVABLE During the fourth quarter of 1995, the Partnership made several short-term advances totaling $3,174,000 as part of an agreement with a partner to develop a joint project. These advances were included in accounts receivable at December 31, 1995. In accordance with the terms of the agreement, the Partnership was reimbursed for the full amount of the advances at the closing date of May 6, 1996. At December 31, 1995 and June 30, 1996, trade receivables totaled $5,596,000 and $2,468,000 (unaudited) respectively, and receivables from employees and officers were $74,000 and $80,000 (unaudited) respectively. No allowance for doubtful accounts is considered necessary based on favorable historical experience. F-15 MARKWEST HYDROCARBON PARTNERS, LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 7. SIGNIFICANT CUSTOMERS For the years ended December 31, 1993 and 1995 and the six months ended June 30, 1996, sales to one customer accounted for approximately 16%, 18% and 14% (unaudited) of total revenues, respectively. During 1994, no sales to any one customer accounted for more than 10% of total revenue. Management believes the loss of these customers would not adversely impact operations, as alternative markets are available. NOTE 8. SUPPLEMENTAL CASH FLOW INFORMATION Interest of $1,408,000, $1,805,000, $792,000, $545,000 (unaudited) and $557,000 (unaudited) was paid for the years ended December 31, 1993, 1994 and 1995 and for the six-month periods ended June 30, 1995 and 1996, respectively. Interest paid in 1995 is net of $301,000 capitalized in relation to construction projects. The following comprise changes in certain components of working capital ($000s):
Six Months Ended Year ended December 31, June 30, --------------------------- ----------------- 1993 1994 1995 1995 1996 ------- -------- -------- -------- -------- (Unaudited) (Increase) decrease in accounts receivable.......... $ 3,307 $ (977) $ (4,729) $ 1,976 $ 5,321 (Increase) decrease in inventories.................. (1,296) 1,348 (19) 33 (721) (Increase) decrease in prepaids..................... (345) (1,125) (86) 746 (412) Increase (decrease) in current liabilities.................. (1,554) (3,989) 1,392 2,796 943 ------- -------- -------- -------- -------- Changes in certain components of working capital........... $ 112 $ (4,743) $ (3,442) $ 5,551 $ 5,131 ======= ======== ======== ======== ========
F-16 MARKWEST HYDROCARBON PARTNERS, LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 9. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The following summarizes certain quarterly results of operations ($000s):
Operating Gross Profit Pretax Income Revenues (Loss) (a) (Loss)(b) --------- ------------ ------------- QUARTER ENDED: March 31, 1994............................ $16,342 $ 2,421 $1,492 June 30, 1994............................. 2,911 (1,023) (1,939) September 30, 1994........................ 9,707 1,955 893 December 31, 1994......................... 23,867 5,785 4,674 (c) ------- ------- ------ $52,827 $ 9,138 $5,120 ======= ======= ====== March 31, 1995............................ $15,566 $ 4,770 $3,589 June 30, 1995............................. 7,360 1,860 679 September 30, 1995........................ 8,665 1,564 (1,182)(d) December 31,1995.......................... 16,477 4,171 2,988 ------- ------- ------ $48,070 $12,365 $6,074 ======= ======= ====== March 31, 1996............................ $19,832 $ 5,514 $4,174 June 30, 1996............................. 8,788 1,580 314 ------- ------- ------ $28,620 $ 7,094 $4,488 ======= ======= ======
- -------- (a) Excludes gain on sale of oil and gas properties, general and administrative expenses, reduction in carrying value of assets and net interest expense. (b) Excludes income taxes since the Partnership is not subject to income taxes. (c) Includes $4,275 gain on sale of oil and gas properties and $2,950 charge for reduction in carrying value of assets. (d) Includes $1,750 extraordinary loss on extinguishment of debt. NOTE 10. PLANNED REORGANIZATION AND PARTNERSHIP DISTRIBUTION In connection with a planned offering of common stock to the public, the Partnership intends to reorganize and the existing general and limited partners will exchange their interests in the Partnership for common shares of MarkWest Hydrocarbon, Inc., a corporation formed to be the successor to the Partnership ("MHI"). Since MHI will be a taxable entity, a pro forma provision for income taxes has been presented in the financial statements as if the Partnership had been a taxable entity for all periods presented. Pro forma earnings per share has not been presented due to the planned significant change in capital structure. The pro forma capitalization as of June 30, 1996 presented on the face of the balance sheet reflects only the $10.0 million distribution to the partners planned to occur just prior to the reorganization and does not include the pro forma income tax effect of the reorganization. F-17 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS The Members Basin Pipeline L.L.C. Englewood, Colorado We have audited the accompanying balance sheet of Basin Pipeline L.L.C. (the "Company") as of December 31, 1995 and the related statements of operations and accumulated deficit and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Basin Pipeline, L.L.C. at December 31, 1995, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has incurred recurring losses from operations, has a working capital deficiency and is in default on a significant portion of its debt. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. BDO Seidman, LLP Denver, Colorado April 5, 1996 F-18 BASIN PIPELINE L.L.C. BALANCE SHEETS
December 31, June 30, 1995 1996 ------------ ----------- (unaudited) Assets (Note 2) Current: Cash................................................. $ 3,646 $ 9,353 Accounts receivable, related party................... 29,401 260,955 Other current assets................................. -- 8,072 ----------- ----------- Total current assets................................... 33,047 278,380 ----------- ----------- Property and equipment-- Gas gathering and processing......................... 9,393,405 10,332,817 Less accumulated depreciation........................ 1,566,981 80,118 ----------- ----------- Net property and equipment............................. 7,826,424 10,252,699 ----------- ----------- $ 7,859,471 $10,531,079 =========== =========== Liabilities and Members' Capital Deficit Current: Accounts payable..................................... $ 1,749,511 $ 92,814 Interest payable..................................... 178,938 -- Accrued expenses..................................... 3,302 31,811 Current maturities of long-term debt (Note 2)........ 9,112,275 -- ----------- ----------- Total current liabilities.............................. 11,044,026 124,625 Commitments and contingencies (Notes 1 and 3) Members' capital deficit: Contributed capital.................................. 2,000 10,359,404 Accumulated deficit.................................. (3,186,555) -- Retained earnings.................................... -- 47,050 ----------- ----------- Total members' capital deficit......................... (3,184,555) 10,406,454 ----------- ----------- $ 7,859,471 $10,531,079 =========== ===========
See accompanying report of independent certified public accountants, summary of accounting policies and notes to financial statements. F-19 BASIN PIPELINE L.L.C. STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
Six months ended Year Ended June 30, December 31, --------------------- 1995 1995 1996 ------------ ----------- -------- (unaudited) Revenue: Pipeline and transportation fees........ $ 841,380 $ 420,690 $534,211 Other income............................ 74 10 -- ----------- ----------- -------- Total revenue............................. 841,454 420,700 534,211 ----------- ----------- -------- Costs and expenses: Pipeline operating and other costs...... 669,004 324,568 294,736 General and administrative.............. 205,219 21,292 71,646 ----------- ----------- -------- Total costs and expenses.................. 874,223 345,860 366,382 ----------- ----------- -------- Other expenses: Depreciation............................ 899,728 449,864 241,815 Interest................................ 1,100,022 660,513 -- ----------- ----------- -------- Total other expenses...................... 1,999,750 1,110,377 241,815 ----------- ----------- -------- Net loss.................................. (2,032,519) $(1,035,537) $(73,986) =========== ======== Accumulated deficit, beginning of year.... (1,154,036) ----------- Accumulated deficit, end of year.......... $(3,186,555) ===========
See accompanying report of independent certified public accountants,summary of accounting policies and notes to financial statements. F-20 BASIN PIPELINE L.L.C. STATEMENT OF CASH FLOWS INCREASE (DECREASE) IN CASH
Year Ended December 31, 1995 ------------ Operating activities: Net loss........................................................ $(2,032,519) Adjustments to reconcile net loss to net cash provided by operating activities-- Depreciation................................................... 899,728 Changes in operating assets and liabilities: Trade accounts receivable..................................... 24,407 Intercompany accounts......................................... 180,287 Trade accounts payable........................................ 488,264 Interest payable.............................................. 512,200 Accrued expenses.............................................. 3,302 ----------- Cash provided by operating activities............................. 75,669 ----------- Cash used in investing activities-- Purchase of property and equipment................................ (489,828) ----------- Cash provided by financing activities-- Proceeds from long-term debt...................................... 417,114 ----------- Net increase in cash.............................................. 2,955 Cash, beginning of year........................................... 691 ----------- Cash, end of year................................................. $ 3,646 ===========
See accompanying report of independent certified public accountants,summary of accounting policies and notes to financial statements. F-21 BASIN PIPELINE L.L.C. SUMMARY OF ACCOUNTING POLICIES ORGANIZATION AND BUSINESS Basin Pipeline L.L.C. (the "Company") owns and operates a sour gas gathering system in Western Michigan and is also responsible for transportation and marketing operations. FINANCIAL INSTRUMENTS AND CREDIT RISK CONCENTRATION Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash. The Company maintains cash in bank deposit accounts that at times may exceed Federally insured limits. To date, the Company has not incurred a loss relating to these concentrations of credit risk. The Company derived all of its revenue from one customer. USE OF ESTIMATES The preparation of the Company's financial statements in conformity with generally accepted accounting principles requires the Company's management to make estimates and assumptions that affect the amounts reported in the accompanying financial statements. Actual results could differ from those estimates. PROPERTY, EQUIPMENT AND DEPRECIATION Property and equipment are recorded at cost. Renewals and betterments that substantially extend the useful life of the assets are capitalized. Maintenance and repairs are expensed when incurred. Depreciation is computed using the straight-line method over estimated useful lives ranging from seven to ten years. Gains and losses on retirements are included in operations. INCOME TAXES As a Limited Liability Company, the tax consequences of the Company's operations are the responsibility of each member. Accordingly, the accompanying financial statements do not include a provision for current or deferred income taxes. CASH EQUIVALENTS The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. REVENUE RECOGNITION Revenue is recognized upon the sale of gas at the wellhead. RECENT ACCOUNTING PRONOUNCEMENTS The Financial Accounting Standards Board has recently issued Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets." SFAS No. 121 requires that long-lived assets and certain identifiable intangibles be reported at the lower of the carrying amount or their estimated recoverable amount and the adoption of the statement by the Company is not expected to have an impact on the financial statements. This statement is effective for fiscal years beginning after December 15, 1995. F-22 BASIN PIPELINE L.L.C. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. GOING CONCERN As reflected in the accompanying financial statements, the Company incurred a net loss of $2,032,519 for the year ended December 31, 1995 and its current liabilities exceeded its current assets by approximately $11,000,000. Additionally, the Company is in default on a significant portion of its debt, resulting in classification of such amounts as current liabilities. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans with regard to the Company's ability to continue as a going concern include the contribution of the members' capital to a new entity in exchange for an interest in the newly formed entity. The Company believes the execution of this plan will provide sufficient liquidity for the Company to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. 2. LONG-TERM DEBT During December 1993, the Company and its affiliate Manistee Gas Limited Liability Company (the "Companies") entered into a credit agreement ("Credit Agreement") with Gas Fund to finance the construction and acquisition of certain processing facilities, gathering systems, and oil and gas properties. The original amount of the credit agreement was for up to $13,800,000. During 1995, the maximum amount available under the Credit Agreement was increased to $18,700,000. At December 31, 1995, the Company owes $9,112,275 to Gas Fund under the Credit Agreement. The Companies incur a placement fee of one and one-half percent (1 1/2%) of the amounts funded under the Credit Agreement, and are charged a commitment fee of one-half percent ( 1/2%) of the unused portion of the maximum loan amount. The Credit Agreement bears interest at 17% per annum as the combined balance due exceeds $16 million, with interest payments due quarterly. Principal payments are payable quarterly out of available cash flows, subject to annual mandatory prepayments. In addition to the payment terms, the Companies are subject to various restrictive covenants, including a current ratio requirement of not less than one to one from and after December 31, 1994. The Credit Agreement is collateralized by a first lien on substantially all of the Companies' assets. Borrowings under the Credit Agreement and related amounts are allocated between the Company and its affiliate based upon their proportionate amount of assets acquired with the proceeds received under the Credit Agreement. The Companies are in default on certain prepayment requirements and other covenants under the Credit Agreement. As such, the Companies have classified the entire balance owing to Gas Fund as current liabilities as of December 31, 1995. See Note 5. As a condition of the Credit Agreement, the Companies granted a net profits interest and preferred LLC interest (the "NPI") to Gas Fund. The NPI is based on net cash flows from operations, as adjusted for limitations on debt service payments, general and administrative expenses, and various other expenditures. The NPI is 22% after pay-out and is to be calculated quarterly and paid, if applicable, within thirty days following the end of each quarter. As of December 31, 1995, the Companies had amounts owing to Gas Fund totalling approximately $23,000 which are recorded in royalties payable of Manistee Gas Limited Liability Company. Interest expense was approximately $1,100,000 for the year ended December 31, 1995. Statement of Financial Accounting Standards No. 107 requires that the fair value of short-term notes payable, loans payable, and commercial paper be disclosed. The carrying amount of the Company's debt approximates fair value due to its short-term maturity. F-23 BASIN PIPELINE L.L.C. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 3. COMMITMENTS AND CONTINGENCIES The Company's operations may impose certain environmental and dismantlement commitments in future years. Management estimates that potential salvage proceeds will be sufficient to offset any material commitments of this nature. Accordingly, no accrual has been recorded for potential future costs. The Company leases certain vehicles and compressor equipment under the terms of noncancellable operating lease agreements. The original unexpired lease terms range from one to five years. Minimum future rental payments are as follows:
Years Ended December 31, - ------------------------ 1996.................................................................. $156,316 1997.................................................................. 155,125 1998.................................................................. 154,032 1999.................................................................. 53,562 2000.................................................................. 2,880 -------- $521,915 ========
Rent expense under operating leases for the year ended December 31, 1995 was approximately $162,000. 4. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash payments of interest totalled $572,970 for the year ended December 31, 1995. Excluded from the statement of cash flows for the year ended December 31, 1995 was $474,516, representing accrued interest on debt added back to debt principal. 5. SUBSEQUENT EVENT Effective March 29, 1996, the members of the Company contributed their interests to a newly formed entity, Michigan Energy Company, L.L.C. ("MEC"), in exchange for a 45 percent membership interest in MEC. F-24 MARKWEST HYDROCARBON, INC. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS The accompanying unaudited pro forma consolidated balance sheet and pro forma consolidated statements of operations give effect to the reorganization of the Company from a limited partnership into a corporation, to the application of the net proceeds from the initial public offering of 2,500,000 shares of common stock in the Corporation, and to the planned acquisition of an interest in Basin Pipeline, L.L.C., and are based on the assumptions set forth in the notes to such statements. The unaudited pro forma consolidated financial statements comprise historical financial data included elsewhere in this Prospectus which have been retroactively adjusted to reflect the effect of the above proposed transactions. The pro forma information assumes that the transactions were consummated on June 30, 1996 for the pro forma consolidated balance sheet and on January 1 of each period presented for the pro forma consolidated statement of operations. Such pro forma information should be read in conjunction with the related historical financial information and is not necessarily indicative of the results which would actually have occurred had the transactions been consummated on the dates or for the periods indicated or which may occur in the future. F-25 MARKWEST HYDROCARBON, INC. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET JUNE 30, 1996 ($000S)
MarkWest Reorganization Basin MarkWest Hydrocarbon and Historical Pipeline Hydrocarbon Partners, Offering Pro Forma Basin Acquisition Pro Forma Inc. Ltd. Adjustments Corporation Pipeline Adjustments Combined ----------- ----------- -------------- ----------- ---------- ----------- --------- ASSETS Current assets: Cash and cash equivalents............ $ 1 $ 666 $ 5,096 (b) $ 5,763 $ 9 $ (5,772)(e) $ -- Accounts receivable..... -- 3,588 -- 3,588 261 -- 3,849 Product inventory....... -- 3,287 -- 3,287 -- -- 3,287 Materials and supplies inventory.............. -- 264 -- 264 -- -- 264 Prepaid expenses and other assets........... -- 359 -- 359 8 -- 367 Prepaid feedstock....... -- 2,157 -- 2,157 -- -- 2,157 ---- -------- ------- ------- ------- -------- ------- Total current assets.... 1 10,321 5,096 15,418 278 (5,772) 9,924 ---- -------- ------- ------- ------- -------- ------- Property, plant and equipment, at cost..... -- 43,408 -- 43,408 10,333 16,216 (e) 69,957 Accumulated depreciation, depletion and amortization....... -- (10,810) -- (10,810) (80) -- (10,890) ---- -------- ------- ------- ------- -------- ------- Net property, plant and equipment.............. -- 32,598 -- 32,598 10,253 16,216 59,067 ---- -------- ------- ------- ------- -------- ------- Intangible assets, net of accumulated amortization........... -- 443 -- 443 -- -- 443 Other assets............ 100 629 (100) 629 -- (629)(f) -- ---- -------- ------- ------- ------- -------- ------- Total assets............ $101 $ 43,991 $ 4,996 $49,088 $10,531 $ 9,815 $69,434 ==== ======== ======= ======= ======= ======== ======= LIABILITIES AND EQUITY Current liabilities: Trade accounts payable.. $-- $ 4,430 $ -- $ 4,430 $ 93 -- $ 4,523 Accrued liabilities..... 100 418 (100) 418 32 -- 450 Interest payable........ -- 99 (99) -- -- -- -- Accrued bonus and profit sharing................ -- 230 -- 230 -- -- 230 ---- -------- ------- ------- ------- -------- ------- Total current liabilities............ 100 5,177 (199) 5,078 125 -- 5,203 Deferred income taxes... -- -- 3,206 (a) 3,206 -- -- 3,206 Long-term debt.......... -- 12,350 (12,350)(c) -- -- 10,459 (e) 10,459 ---- -------- ------- ------- ------- -------- ------- Total liabilities....... 100 17,527 (9,343) 8,284 125 10,459 18,868 Minority interest....... -- -- -- -- -- 9,749 (g) 9,749 Equity.................. 1 26,464 14,339 (d) 40,804 10,406 (10,393)(h) 40,817 ---- -------- ------- ------- ------- -------- ------- Total liabilities and equity................. $101 $ 43,991 $ 4,996 $49,088 $10,531 $ 9,815 $69,434 ==== ======== ======= ======= ======= ======== =======
F-26 MARKWEST HYDROCARBON, INC. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1995 ($000S, EXCEPT PER SHARE AMOUNTS)
MarkWest Reorganization Basin MarkWest Hydrocarbon and Historical Pipeline Hydrocarbon Partners, Offering Pro Forma Basin Acquisition Pro Forma Inc. Ltd. Adjustments Corporation Pipeline Adjustments Combined ----------- ----------- -------------- ----------- ---------- ----------- --------- Revenues: Plant revenue........... $-- $33,823 $ -- $33,823 $ -- $ -- $33,823 Terminal and marketing revenue................ -- 13,172 -- 13,172 -- -- 13,172 Oil and gas and other revenue................ -- 1,075 -- 1,075 841 -- 1,916 ---- ------- ------- ------- ------- ------ ------- Total revenue........... -- 48,070 -- 48,070 841 -- 48,911 ---- ------- ------- ------- ------- ------ ------- Costs and Expenses: Plant feedstock purchases.............. -- 17,308 -- 17,308 -- -- 17,308 Terminal and marketing purchases.............. -- 11,937 -- 11,937 -- -- 11,937 Operating expenses...... -- 4,706 -- 4,706 669 -- 5,375 General and administrative expenses............... -- 4,189 -- 4,189 205 -- 4,394 Depreciation, depletion and amortization....... -- 1,754 -- 1,754 900 -- 2,654 ---- ------- ------- ------- ------- ------ ------- Total costs and expenses............... -- 39,894 -- 39,894 1,774 -- 41,668 ---- ------- ------- ------- ------- ------ ------- Earnings (loss) from operations............. -- 8,176 -- 8,176 (933) -- 7,243 Interest expense, net of interest income........ -- (352) 508(i) 156 (1,100) 1,100(j) 156 ---- ------- ------- ------- ------- ------ ------- -- 7,824 508 8,332 (2,033) 1,100 7,399 Minority interest....... -- -- -- -- -- 373(k) 373 ---- ------- ------- ------- ------- ------ ------- Income (loss) before income taxes........... -- 7,824 508 8,332 (2,033) 1,473 7,772 (Provision) benefit for income taxes........... -- -- (3,128)(l) (3,128)(l) -- 210(l) (2,918)(l) ---- ------- ------- ------- ------- ------ ------- Net income.............. $-- $ 7,824 $(2,620) $ 5,204 $(2,033) $1,683 $ 4,854 ==== ======= ======= ======= ======= ====== ======= Weighted average common shares outstanding..... 5,771 5,771 ======= ======= Net income per common share.................. $ .90 $ .84 ======= =======
F-27 MARKWEST HYDROCARBON, INC. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1996 ($000S, EXCEPT PER SHARE AMOUNTS)
MarkWest Reorganization Basin MarkWest Hydrocarbon and Historical Pipeline Hydrocarbon Partners, Offering Pro Forma Basin Acquisition Pro Forma Inc. Ltd. Adjustments Corporation Pipeline Adjustments Combined ----------- ----------- -------------- ----------- ---------- ----------- --------- Revenues: Plant revenue........... $-- $18,045 $ -- $18,045 $-- $ -- $18,045 Terminal and marketing revenue................ -- 9,831 -- 9,831 -- -- 9,831 Oil and gas and other revenue................ -- 744 -- 744 534 -- 1,278 ---- ------- ------- ------- ---- ----- ------- Total revenue........... -- 28,620 -- 28,620 534 -- 29,154 ---- ------- ------- ------- ---- ----- ------- Costs and Expenses: Plant feedstock purchases.............. -- 8,538 -- 8,538 -- -- 8,538 Terminal and marketing purchases.............. -- 8,683 -- 8,683 -- -- 8,683 Operating expenses...... -- 2,979 -- 2,979 295 -- 3,274 General and administrative expenses............... -- 2,140 -- 2,140 71 -- 2,211 Depreciation, depletion and amortization....... -- 1,326 -- 1,326 241 517 (m) 2,084 ---- ------- ------- ------- ---- ----- ------- Total costs and expenses............... -- 23,666 -- 23,666 607 517 24,790 ---- ------- ------- ------- ---- ----- ------- Earnings (loss) from operations............. -- 4,954 -- 4,954 (73) (517) 4,364 Interest expense, net of interest income........ -- (466) 509 (i) 43 -- (392)(n) (349) ---- ------- ------- ------- ---- ----- ------- -- 4,488 509 4,997 (73) (909) 4,015 Minority interest....... -- -- -- -- -- 393 393 ---- ------- ------- ------- ---- ----- ------- Income (loss) before income taxes .......... -- 4,488 509 4,997 (73) (516) 4,408 (Provision) benefit for income taxes........... -- -- (1,859)(l) (1,859)(l) -- 219 (l) (1,640)(l) ---- ------- ------- ------- ---- ----- ------- Pro forma net income.... $-- $ 4,488 $(1,350) $ 3,138 $(73) $(297) $ 2,768 ==== ======= ======= ======= ==== ===== ======= Weighted average common shares outstanding..... 6,431 6,431 ======= ======= Net income per common share.................. $ .49 $ .43 ======= =======
F-28 MARKWEST HYDROCARBON, INC. NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - -------- (a) Represents the estimated deferred taxes to be recorded when the Partnership reorganizes into a corporation and, consequently, becomes a taxable entity. (b) Represents the incremental cash to the Company from net proceeds of the Offering, assuming that $22.4 million of the expected net proceeds of $27.3 million was used to retire debt, including the debt incurred to fund the $10.0 million Partnership Distribution, and for receipt of $.2 million from employees who financed their acquisition of stock with notes receivable and proceeds received upon exercise of options. (c) Reflects the retirement of existing debt with proceeds from the Offering. (d) Includes increases in equity of $27.3 million resulting from the expected net proceeds of the Offering, and for receipt of $.2 million from employees who financed their acquisition of stock with notes receivable and proceeds received upon exercise of options, offset by reductions of $10.0 million related to the Partnership Distribution and $3.2 million resulting from the charge to record the deferred taxes discussed in (a). (e) Reflects the planned increase in the investment in Basin Pipeline, L.L.C. of $16.2 million, funded by the $5.8 million remaining proceeds from the Offering and $10.5 million in borrowings. While the planned investment is expected to be made through capital expenditures over a period of approximately 18 months, the entire amount is reflected as if it had been invested on June 30, 1996 for purposes of the pro forma balance sheet at that date and as if it had been invested on January 1, 1995 for purposes of the pro forma statement of operations for the year ended December 31, 1995 and for the six months ended June 30, 1996. Since the assets will be under construction for approximately 12 months, no depreciation expense has been recorded for the year ended December 31, 1995 and all interest expense assumed to be incurred during 1995 has been capitalized. Finally, while the planned investment will be made in increments through capital expenditures and may never be made up to the $16.2 million level, the full amount, which represents a 60% interest in Basin, has been reflected for pro forma purposes. (f) Represents reclassification of the initial investment in Basin from other assets to property, plant and equipment. (g) Represents the 40% minority interest in Basin, assuming the Company owns 60% of Basin as discussed in (e) above. (h) Primarily represents the elimination of the book equity accounts of Basin. (i) Reflects the elimination of the historical interest expense of the Company because all outstanding debt is assumed to be retired with the proceeds of the Offering. (j) Represents the elimination of the historical interest expense of Basin because all debt of Basin was forgiven prior to and as a condition of the Company's investment in Basin. (k) Represents the 40% minority interest impact of the Basin adjustments. (l) Represents the income tax effects of the pro forma adjustments to income as well as the pro forma provision for income taxes assuming the Company will be a taxable entity after the reorganization. (m) Represents depreciation expense on the property, plant and equipment constructed with the amounts invested by the Company, assuming such assets were under construction for all of 1995 and were placed in service effective January 1, 1996. (n) Represents interest expense at 7.5% on the amount assumed to be borrowed in conjunction with the Basin acquisition (see (e) above). F-29 At the top center of the inside back cover page, within a text box, is the phrase "The Critical Link between the Gas Well and the Market is provided by" followed by the MarkWest logo. Below that, arranged from left to right on the page are several icons depicting five different phases of natural gas lifecycle, beginning with "Exploration & Production" and ending with "End-Use Customers." The following icons and narrative descriptions are included on the page: Natural Gas Wellhead icon labeled "Exploration & Production" followed by two narrative phrases (3rd party natural gas production) and (planned exploration activity in Michigan); Pipeline icon labeled "Gas Gathering & Compression" followed by three narrative phrases (31 mile regulated pipeline in Michigan), (50+ mile Michigan planned expansion) and (38 mile NGL pipeline in Appalachia); Natural Gas Refinery Plant icon labeled "Gas Processing Services" followed by three narrative phrases (2 extraction plants in Appalachia), (1 NGL Fractionator in Appalachia) and (1 planned Extraction/Fractionation plant in Michigan); Gas storage tank, barge, train car and tanker truck icons labeled "Marketing Services" followed by six narrative phrases (West Memphis, AR Terminal), (Church Hill, TN Terminal), (Mined Siloam, KY Caverns), (7 owned LPG transport trailers), (Fleet of 70+ rail cars) and (Marketing contracts & programs); and House, factory and home propane storage tank icons labeled "End-Use Customers" followed by four narrative phrases (Gas Consumers), (Petrochemical Plants), (Refineries) and (LPG Fuel Users). ================================================================================ NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFOR- MATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PRO- SPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AU- THORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTI- TUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, SHARES OF COMMON STOCK IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COM- PANY SINCE THE DATE HEREOF. --------------- TABLE OF CONTENTS
Page ---- Prospectus Summary....................................................... 3 Risk Factors............................................................. 10 Reorganization........................................................... 17 Use of Proceeds.......................................................... 18 Dividend Policy.......................................................... 18 Dilution................................................................. 19 Capitalization........................................................... 20 Selected Consolidated Financial and Other Information.................... 21 Management's Discussion and Analysis of Financial Condition and Results of Operations........................................................... 23 Business................................................................. 29 Management............................................................... 45 Certain Transactions..................................................... 51 Principal Stockholders................................................... 54 Description of Capital Stock............................................. 56 Shares Eligible for Future Sale.......................................... 58 Underwriting............................................................. 59 Legal Matters............................................................ 60 Experts.................................................................. 60 Additional Information................................................... 60 Financial Statements..................................................... F-1
--------------- UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICI- PATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. ================================================================================ ================================================================================ [LOGO OF MARKWEST APPEARS HERE] MARKWEST HYDROCARBON, INC. --------------- 2,500,000 SHARES COMMON STOCK PROSPECTUS , 1996 --------------- DILLON, READ & CO. INC. GEORGE K. BAUM & COMPANY ================================================================================ PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following table sets forth the costs and expenses, other than underwriting discounts and commissions, payable in connection with the sale of the Common Stock being registered hereby.
ITEM AMOUNT ---- ------- SEC registration fee............................................. $12,888 NASD filing fee.................................................. 4,238 Nasdaq National Market Listing Fee............................... 37,188 Blue Sky fees and expenses....................................... * Printing and engraving expenses.................................. * Legal fees and expenses.......................................... * Auditors' accounting fees and expenses........................... * Transfer Agent and Registrar fees................................ * Miscellaneous expenses........................................... * ------- Total........................................................ $ * =======
- -------- * To be supplied by amendment. ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Section 145 of the Delaware General Corporation Law (the "Delaware Law") authorizes a court to award, or a corporation's Board of Directors to grant, indemnity to directors and officers in terms sufficiently broad to permit such indemnification under certain circumstances for liabilities (including reimbursement for expenses incurred) arising under the Securities Act of 1933, as amended (the "Securities Act"). Article IX of the Registrant's Certificate of Incorporation (Exhibit 3.1 hereto) and Article VIII of the Registrant's Bylaws (Exhibit 3.2 hereto) provide for indemnification of the Registrant's directors, officers, employees and other agents to the maximum extent permitted by Delaware Law. In addition, the Underwriting Agreement (Exhibit l.) provides for cross-indemnification among the Registrant and the Underwriters with respect to certain matters, including matters arising under the Securities Act. The Registrant's Certificate of Incorporation also provides that directors of the Registrant shall be under no liability to the Registrant for monetary damages for breach of fiduciary duty as a director of the Registrant, except for those specific breaches and acts or omissions with respect to which Delaware Law expressly provides that a corporation's certificate of incorporation shall not eliminate or limit such personal liability of directors. Section 102(b)(7) of the Delaware Law provides that a corporation's certificate of incorporation may not limit the liability of directors for (i) breaches of their duty of loyalty to the corporation and its stockholders, (ii) acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) unlawful dividends or unlawful stock repurchases under Section 174 of the Delaware Law, or (iv) transactions from which a director derives an improper personal benefit. Reference is made to the following documents filed as exhibits to this Registration Statement regarding relevant indemnification provisions described above and elsewhere herein:
DOCUMENT EXHIBIT NUMBER -------- -------------- Underwriting Agreement..................................... 1. Registrant's Certificate of Incorporation.................. 3.1 Registrant's Bylaws........................................ 3.2
II-1 ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES. The following is a summary of the transactions by Registrant during the last three years involving sales of Registrant's securities that were not registered under the Securities Act of 1933, as amended (the "Securities Act"): 1. In conjunction with the Reorganization, the Company anticipates issuing 5,000,000 shares of Common Stock to the holders of partnership interests in MarkWest Hydrocarbon Partners, Ltd. in exchange for the partnership interests of such holders. The issuance of securities to such holders will be deemed to be exempt from registration under the Securities Act in reliance on Rule 506 promulgated under Section 4(2) thereunder as a transaction by an issuer not involving any public offering. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a) Exhibits 1.* Form of Underwriting Agreement 3.1 Certificate of Incorporation of Registrant 3.2 Bylaws of Registrant 4.1* Specimen Common Stock Certificate of Registrant 5.1* Opinion of Dorsey & Whitney LLP 10.1 Reorganization Agreement made as of August 1, 1996, by and among MarkWest Hydrocarbon, Inc., MarkWest Hydrocarbon Partners, Ltd., MWHC Holding, Inc., RIMCO Associates, Inc. and each of the limited partners of MarkWest Hydrocarbon Partners, Ltd. 10.2 Modification Agreement, dated July 31, 1996, among MarkWest Hydrocarbon Partners, LTD, MarkWest Hydrocarbon, Inc., Norwest Bank Colorado, N.A., First American National Bank, N M Rothschild and Sons Limited and Norwest 10.3 Amended and Restated Mortgage, Assignment, Security Agreement and Financing Statement, dated May 2, 1996, between West Shore Processing Company, LLC and Bank of America Illinois 10.4 Secured Guaranty, dated May 2, 1996, between West Shore Processing Company, LLC and Bank of America Illinois 10.5 Security Agreement, dated May 2, 1996, between West Shore Processing Company, L.L.C. and Bank of America Illinois 10.6 Pledge Agreement, dated May 2, 1996, between West Shore Processing Company, L.L.C. and Bank of America Illinois 10.7 Participation, Ownership and Operating Agreement for West Shore Processing Company, LLC, dated May 2, 1996 10.8 Second Amended and Restated Operating Agreement for Basin Pipeline L.L.C., dated May 2, 1996 10.9 Subordination Agreement, dated May 2, 1996, among MarkWest Michigan LLC, Bank of America Illinois, West Shore Processing Company, L.L.C., Basin Pipeline L.L.C., Michigan Energy Company, L.L.C. 10.10** Gas Treating and Processing Agreement, dated May 1, 1996, between West Shore Processing Company, LLC and Shell Offshore, Inc. 10.11** Gas Gathering, Treating and Processing Agreement, dated May 2, 1996, between Oceana Acquisition Company and West Shore Processing Company, LLC 10.12** Gas Gathering, Treating and Processing Agreement, dated May 2, 1996, between Michigan Production Company, L.L.C. and West Shore Processing Company, LLC
II-2 10.13** Products Exchange Agreements, dated May 1, 1996, with Ferrellgas, L.P. 10.14** Gas Processing and Treating Agreement, dated March 29, 1996, between Manistee Gas Limited Liability Company and Michigan Production Company, L.L.C. 10.15 Processing Agreement (Kenova Processing Plant), dated March 15, 1995, between Columbia Gas Transmission Corporation and MarkWest Hydrocarbon Partners, Ltd. 10.16 Natural Gas Liquids Purchase Agreement (Cobb Plant), between Columbia Gas Transmission Corporation and MarkWest Hydrocarbon Partners, Ltd. 10.17 Purchase and Demolition Agreement Construction Premises, dated March 15, 1995, between Columbia Gas Transmission Corporation and MarkWest Hydrocarbon Partners, Ltd. 10.18 Purchase and Demolition Agreement Remaining Premises, dated March 15, 1995, between Columbia Gas Transmission Corporation and MarkWest Hydrocarbon Partners, Ltd. 10.19 Agreement to Design and Construct New Facilities, dated March 15, 1995, between Columbia Gas Transmission Corporation and MarkWest Hydrocarbon Partners, Ltd. 10.20** Sales Acknowledgement, dated August 8, 1994, NO. 12577, confirming sale to Ashland Petroleum Company 10.21 Loan Agreement dated November 20, 1992, among MarkWest Hydrocarbon Partners, Ltd., Norwest Bank Denver, National Association, individually and as Agent, and First American National Bank 10.22* Contract for Construction and Lease of Boldman Plant, dated December 24, 1990, between Columbia Gas Transmission Corporation and MarkWest Hydrocarbon Partners, Ltd. 10.23 Natural Gas Liquids Purchase Agreement (Boldman Plant), dated December 24, 1990, between Columbia Gas Transmission Corporation and MarkWest Hydrocarbon Partners, Ltd. 10.24* Natural Gas Liquids Purchase Agreement, dated April 26, 1988, between Columbia Gas Transmission Corporation and MarkWest Hydrocarbon Partners, Ltd. 10.25 1996 Incentive Compensation Plan 10.26 1996 Stock Incentive Plan of Registrant 10.27 1996 Nonemployee Director Stock Option Plan 10.28 Form of Non-Compete Agreement between John M. Fox and MarkWest Hydrocarbon, Inc. 11. Computation of per share earnings 23.1 Consent of Price Waterhouse LLP 23.2 Consent of BDO Seidman, LLP 23.3* Consent of Dorsey & Whitney LLP (to be included as part of Exhibit 5.1) 24. Power of Attorney (see page II-5)
- -------- * To be filed by amendment. ** Confidential treatment requested. ITEM 17. UNDERTAKINGS. The undersigned hereby undertakes to provide to the Underwriters, at the Closing specified in the Underwriting Agreement, certificates in such denominations and registered in such names as required by the Underwriters to permit prompt delivery to each purchaser. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the provisions described in Item 14, or otherwise, the Registrant has been advised that, in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer of controlling person of the Registrant in the successful defense II-3 of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The undersigned Registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act, the Registrant will treat the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant under Rule 424(b)(1), or (4), or 497(h) under the Securities Act as part of this Registration Statement as of the time the Commission declares it effective. (2) For purposes of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-4 SIGNATURES IN ACCORDANCE WITH THE REQUIREMENT OF THE SECURITIES ACT OF 1933, THE REGISTRANT CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE REQUIREMENTS OF FILING ON FORM S-1 AND AUTHORIZED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, IN THE CITY OF DENVER, STATE OF COLORADO, ON THE 2ND DAY OF AUGUST, 1996. MARKWEST HYDROCARBON, INC. By: John M. Fox --------------------------------- JOHN M. FOX PRESIDENT AND CHIEF EXECUTIVE OFFICER POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS THAT EACH PERSON WHOSE SIGNATURE APPEARS BELOW CONSTITUTES AND APPOINTS JOHN M. FOX AND BRIAN T. O'NEILL AND EACH OF THEM, AS HIS TRUE AND LAWFUL ATTORNEYS-IN-FACT AND AGENTS, WITH FULL POWER OF SUBSTITUTION AND RESUBSTITUTION, FOR HIM AND IN HIS NAME, PLACE AND STEAD, IN ANY AND ALL CAPACITIES, TO SIGN ANY AND ALL AMENDMENTS (INCLUDING POST- EFFECTIVE AMENDMENTS) TO THIS REGISTRATION STATEMENT, AND TO FILE THE SAME WITH ALL EXHIBITS THERETO, AND OTHER DOCUMENTS IN CONNECTION THEREWITH, WITH THE SECURITIES AND EXCHANGE COMMISSION, GRANTING UNTO SAID ATTORNEYS-IN-FACT AND AGENTS, AND EACH OF THEM, FULL POWER AND AUTHORITY TO DO AND PERFORM EACH AND EVERY ACT AND THING REQUISITE AND NECESSARY TO BE DONE IN AND ABOUT THE PREMISES, AS FULLY TO ALL INTENTS AND PURPOSES AS HE MIGHT OR COULD DO IN PERSON, HEREBY RATIFYING AND CONFIRMING ALL THAT SAID ATTORNEYS-IN-FACT AND AGENTS, OR EITHER OF THEM, OR THEIR OR HIS SUBSTITUTE OR SUBSTITUTES, MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF. IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION STATEMENT WAS SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED BELOW AND ON THE DATES STATED.
SIGNATURE TITLE DATE --------- ----- ---- JOHN M. FOX President and Chief August 2, 1996 - ------------------------------------- Executive Officer JOHN M. FOX (Principal Executive Officer) BRIAN T. O'NEILL Senior Vice August 2, 1996 - ------------------------------------- President, and BRIAN T. O'NEILL Chief Operating Officer RITA E. HARVEY Director of Finance August 2, 1996 - ------------------------------------- and Treasurer RITA E. HARVEY (Principal Financial and Accounting Officer)
II-5
SIGNATURE TITLE DATE --------- ----- ---- ARTHUR J. DENNEY Vice President of August 2, 1996 - ------------------------------------- Engineering and ARTHUR J. DENNEY Business Development NORMAN H. FOSTER Director August 2, 1996 - ------------------------------------- NORMAN H. FOSTER BARRY W. SPECTOR Director August 2, 1996 - ------------------------------------- BARRY W. SPECTOR DAVID R. WHITNEY Director August 2, 1996 - ------------------------------------- DAVID R. WHITNEY
II-6 EX-3.1 2 CERTIFICATE OF INCORPORATION CERTIFICATE OF INCORPORATION OF MARKWEST HYDROCARBON, INC. To form a corporation pursuant to the Delaware General Corporation Law, the undersigned hereby certifies as follows: ARTICLE I --------- The name of the corporation (the "Corporation") is "MarkWest Hydrocarbon, Inc." ARTICLE II ---------- The address of its registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of its registered agent at such address is The Corporation Trust Company. ARTICLE III ----------- The nature of the business and purposes to be conducted or promoted by the Corporation is to engage in any lawful act or activity for which corporations may be organized under the Delaware General Corporation Law. ARTICLE IV ---------- The name and mailing address of the incorporator is as follows: Gregory A. Piel Dorsey & Whitney LLP Suite 4400 370 Seventeenth Street Denver, Colorado 80202 ARTICLE V --------- The total number of shares of capital stock which the Corporation is authorized to issue shall be twenty-five million (25,000,000) shares, consisting of twenty million (20,000,000) shares of common stock, par value $0.01 per share ("Common Stock"), and five million (5,000,000) shares of preferred stock, par value $0.01 per share ("Preferred Stock"). The relative powers, preferences and rights together with the qualifications and limitations and restrictions of the Common Stock and the Preferred Stock are as follows: ================================================================================ 1. COMMON STOCK (a) Dividends and Distributions. Subject to the preferences and other --------------------------- rights of the Preferred Stock, the holders of Common Stock shall be entitled to receive their pro rata shares, based upon the number of shares of Common Stock held by them, of such dividends or other distributions as may be declared by the board of directors from time to time, when and as declared by the board of directors, out of funds legally available therefor. (b) Liquidation. In the event of any liquidation, dissolution or winding ----------- up of the affairs of the Corporation, voluntary or involuntary, after payment or provision for payment to the holders of Preferred Stock of the amounts to which they may be entitled, the remaining assets of the Corporation available to stockholders shall be distributed equally per share to the holders of common Stock. (c) Voting Rights. Each holder of Common Stock shall be entitled to one ------------- vote in respect of each share of Common Stock held of record on all matters submitted to a vote of stockholders. Holders of Common Stock shall not be entitled to cumulate their votes in the election of directors and shall not be entitled to any preemptive rights to acquire shares of any class or series of capital stock of the Corporation. 2. UNDESIGNATED PREFERRED STOCK The board of directors of the Corporation is hereby authorized to provide, by resolution or resolutions adopted by such board, for the issuance of Preferred Stock from time to time in one or more classes and/or series, to establish the number of shares of each such class or series, and to fix the powers, designations, preferences and relative, participating, optional or other rights, if any, and the qualifications, limitations or restrictions thereof, if any, of the shares of each such class or series, all to the full extent permitted by the Delaware General Corporation Law, Sections 102(a)(4) and 151, or any successor provisions. Without limiting the generality of the foregoing, the board of directors is authorized to provide that shares of a class or series of Preferred Stock: (1) are entitled to cumulative, partially cumulative or noncumulative dividends or other distributions payable in cash, capital stock or indebtedness of the Corporation or other property, at such times and in such amounts as are set forth in the board resolutions establishing such class or series or as are determined in a manner specified in such resolutions; -2- (2) are entitled to a preference with respect to payment of dividends over one or more other classes and/or series of capital stock of the Corporation; (3) are entitled to a preference with respect to any distribution of assets of the Corporation upon its liquidation, dissolution or winding up over one or more other classes and/or series of capital stock of the Corporation in such amount as is set forth in the board resolutions establishing such class or series or as is determined in a manner specified in such resolutions; (4) are redeemable or exchangeable at the option of the Corporation and/or on a mandatory basis for cash, capital stock or indebtedness of the Corporation or other property, at such times or upon the occurrence of such events, and at such prices, as are set forth in the board resolutions establishing such class or series or as are determined in a manner specified in such resolutions; (5) are entitled to the benefits of such sinking fund, if any, as is required to be established by the Corporation for the redemption and/or purchase of such shares by the board resolutions establishing such class or series; (6) are convertible at the option of the holders thereof into shares of any other class or series of capital stock of the Corporation, at such times or upon the occurrence of such events, and upon such terms, as are set forth in the board resolutions establishing such class or series or as are determined in a manner specified in such resolutions; (7) are exchangeable at the option of the holders thereof for cash, capital stock or indebtedness of the Corporation or other property, at such times or upon the occurrence of such events, and at such prices, as are set forth in the board resolutions establishing such class or series or as are determined in a manner specified in such resolutions; (8) are entitled to such voting rights, if any, as are specified in the board resolutions establishing such class or series (including, without limiting the generality of the foregoing, the right to elect one or more directors voting alone as a single class or series or together with one or more other classes and/or series of Preferred Stock, if so specified by such board resolutions) at all times or upon the occurrence of specified events; and -3- (9) are subject to restrictions on the issuance of additional shares of Preferred Stock of such class or series or of any other class or series, or on the reissuance of shares of Preferred Stock of such class or series or of any other class or series, or on increases or decreases in the number of authorized shares of Preferred Dtock of such class or series or of any other class or series. Without limiting the generality of the foregoing authorizations, any of the voting powers, designations, preferences, rights and qualifications, limitations or restrictions of a class or series of Preferred Stock may be made dependent upon facts ascertainable outside the board resolutions establishing such class or series, all to the full extent permitted by the Delaware General Corporation Law. Unless otherwise specified in the board resolutions establishing a class or series of Preferred Stock, holders of a class or series of Preferred Stock shall not be entitled to cumulate their votes in any election of directors in which they are entitled to vote and shall not be entitled to any preemptive rights to acquire shares of any class or series of capital stock of the Corporation. ARTICLE VI ---------- The Corporation is to have perpetual existence. ARTICLE VII ----------- In furtherance and not in limitation of the powers conferred by statute, the by-laws of the Corporation may be made, altered, amended or repealed by the holders of at least a majority of the shares entitled to vote on the proposed action or by the majority vote of the board of directors. ARTICLE VIII ------------ Elections of directors need not be by written ballot. ARTICLE IX ---------- (a) The Corporation shall indemnify to the fullest extent permitted under and in accordance with the laws of the State of Delaware any person who is or was a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative by reason of the fact that he or she is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of or in any other capacity with another corporation, partnership,joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and - 4 - reasonably incurred by him or her in connection with such action, suit or proceeding if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. (b) Expenses incurred in defending a civil or criminal action, suit or proceeding shall (in the case of any action, suit or proceeding against a director of the Corporation) or may (in the case of any action, suit or proceeding against an officer, trustee, employee, or agent) be paid by the Corporation in advance of the final disposition of such action, suit or proceeding as authorized by the board of directors upon receipt of an undertaking by or on behalf of the indemnified person to repay such amount if it shall ultimately be determined that he or she is not entitled to be indemnified by the Corporation as authorized in this Article. (c) The indemnification and other rights set forth in this paragraph shall not be exclusive of any provisions with respect thereto in the by-laws or any other contract or agreement between the Corporation and any officer, director, employee or agent of the Corporation. (d) Neither the amendment nor repeal of this Article IX, paragraph (a), (b) or (c), nor the adoption of any provision of this Certificate of Incorporation inconsistent with Article IX, paragraph (a), (b) or (c), shall eliminate or reduce the effect of this Article IX, paragraphs (a), (b) and (c), in respect of any matter occurring before such amendment, repeal or adoption of an inconsistent provision or in respect of any cause of action, suit or claim relating to any such matter which would have given rise to a right of indemnification or right to receive expenses pursuant to this Article IX, paragraph (a), (b) or (c), if such provision had not been so amended or repealed or if a provision inconsistent therewith had not been so adopted. (e) The Corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him or her and incurred by him or her in any such capacity, or arising out of his or her status as such, whether or not the Corporation would have the power to indemnify him or her against such liability under this section. (f) No director shall be personally liable to the Corporation or any stockholder for monetary damages for breach of fiduciary duty as a director, except for any matter in respect of which such director (i) shall be liable under Section 174 of the Delaware General Corporation Law or any amendment thereto or successor -5- provision thereto, or (ii) shall be liable by reason that, in addition to any and all other requirements for liability, he or she: (1) shall have breached his or her duty of loyalty to the Corporation or its stockholders; (2) shall not have acted in good faith or, in failing to act, shall not have acted in good faith; (3) shall have acted in a manner involving intentional misconduct or a knowing violation of law or, in failing to act, shall have acted in a manner involving intentional misconduct or a knowing violation of law; or (4) shall have derived an improper personal benefit. If the Delaware General Corporation Law is amended after June 25, 1996, to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law, as so amended. ARTICLE X --------- Whenever a compromise or arrangement is proposed between this Corporation and its creditors or any class of them and/or between this Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this Corporation or of any creditor or stockholder thereof on the application of any receiver or receivers appointed for this Corporation under the provisions of Section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for this Corporation under the provisions of Section 279 of Title 8 of the Delaware Code order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this Corporation as a consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or classes of creditors, and/or on all stockholders or classes of stockholders of this Corporation, as the case may be, and also on this Corporation. -6- ARTICLE XI ---------- Meetings of stockholders may be held within or without the State of Delaware, as the by-laws of the Corporation may provide. The books of the Corporation may be kept (subject to any provision contained in the statutes) outside the State of Delaware at such place or places as may be designated from time to time by the board of directors or in the by-laws of the Corporation. ARTICLE XII ----------- The initial board of directors shall be comprised of: Name Address ---- ------- John M. Fox 5613 DTC Parkway, Suite 400 Englewood, CO 80111 Brian T. O'Neill 5613 DTC Parkway, Suite 400 Englewood, CO 80111 Arthur J. Denney 5613 DTC Parkway, Suite 400 Englewood, CO 80111 Norman H. Foster 1625 Broadway, Suite 530 Denver, CO 80202 David R. Whitney 22 Waterville Road Avon, CT 06001 Barry W. Spector 1050 17th Street, Suite 1660 Denver, CO 80202 -7- ARTICLE XIII ------------ The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in any manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation. THE UNDERSIGNED, being the incorporator hereinbefore named, for the purposes of forming a corporation pursuant to the Delaware General Corporation Law makes this certificate, hereby declaring and certifying that this is his act and deed and the facts herein stated are true and, accordingly, has hereunto set his hand this 25th day of June, 1996. /s/ Gregory A. Piel ------------------------------ Gregory A. Piel -8- EX-3.2 3 BYLAWS BYLAWS OF MARKWEST HYDROCARBON, INC. ARTICLE I. Offices, Corporate Seal Section 1.01. Offices. The Corporation shall have a registered ------- office, a principal office and such other offices as the Board of Directors may determine. Section 1.02. Corporate Seal. The Corporation shall have no -------------- corporate seal. ARTICLE II. Meetings of Stockholders Section 2.01. Place and Time of Meetings. Meetings of the -------------------------- stockholders may be held at such place and at such time as may be designated by the Board of Directors. In the absence of a designation of place, this meeting shall be held at the principal office. In the absence of a designation of time, the meeting shall be held at 10:00 a.m. Section 2.02. Annual Meetings. The annual meeting of the --------------- stockholders of the Corporation for the election of Directors and for the transaction of any other proper business, notice of which was given in the notice of the meeting, shall be held in June of each year on such business day as the Secretary of the Corporation shall determine from time to time. Section 2.03. Special Meetings. Special meetings of the stockholders ---------------- for any purpose or purposes shall be called by the Secretary at the written request of a majority of the total number of Directors, by the Chairman of the Board, by the President or by the stockholders owning a majority of the shares outstanding and entitled to vote. Such request shall state the purpose or purposes of the proposed meeting. Business transacted at any special meeting shall be limited to the purposes stated in the notice. Section 2.04. Quorum, Adjourned Meetings. The holders of a majority -------------------------- of the shares outstanding and entitled to vote shall constitute a quorum for the transaction of business at any annual or special meeting. If a quorum is not present at a meeting, those present shall adjourn to such day as they shall agree upon by majority vote. Notice of any adjourned meeting need not be given if the time and place thereof are announced at the meeting at which the adjournment is taken. At adjourned meetings at which a quorum is present, any business may be transacted which might have been transacted at the meeting as originally noticed. If a quorum is present, the stockholders may continue to transact business until adjournment notwithstanding the withdrawal of enough stockholders to leave less than a quorum. Section 2.05. Organization. At each meeting of the stockholders, the ------------ Chairman of the Board or in his or her absence the President or in his or her absence the chairman chosen by a majority in voting interest of the stockholders present in person or by proxy and entitled to vote shall act as chairman; and the Secretary of the Corporation or in his or her absence an Assistant Secretary or in his or her absence any person whom the chairman of the meeting shall appoint shall act as Secretary of the meeting. Section 2.06. Order of Business. The order of business at all ----------------- meetings of the stockholders shall be determined by the chairman of the meeting, but such order of business may be changed by the vote of a majority in voting interest of those present or represented at such meeting and entitled to vote thereat. Section 2.07. Voting. Each stockholder of the Corporation entitled ------ to vote at a meeting of stockholders or entitled to express consent in writing to the corporate action without a meeting shall have one vote in person or by proxy for each share of stock having voting rights held by him or her and registered in his or her name on the books of the Corporation. Upon the request of any stockholder, the vote upon any question before a meeting shall be by written ballot, and all elections of Directors shall be by written ballot. All questions at a meeting shall be decided by a majority vote of the number of shares entitled to vote represented at the meeting at the time of the vote except where otherwise required by statute, the Certificate of Incorporation or these Bylaws. Any action to be taken by written consent without a meeting may be taken by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting in which all shares entitled to vote thereon were present and voted. For the election of Directors, the persons receiving the largest number of votes (up to and including the number of Directors to be elected) shall be Directors. If Directors are to be elected by consent in writing of the stockholders without a meeting, those persons receiving the consent in writing of the largest number of shares in the aggregate and constituting not less than a majority of the total outstanding shares entitled to consent in writing thereon (up to and including the number of Directors to be elected) shall be Directors. Persons holding stock in a fiduciary capacity shall be entitled to vote the shares so held. If shares stand of record in the names of two or more persons, whether fiduciaries, members of a partnership, joint tenants, tenants in common, tenants by the entirety or otherwise, or if two or more persons shall have the same fiduciary relationship respecting the same shares, unless the Secretary of the Corporation shall have been given written notice to the contrary and shall have been furnished with a copy of the instrument or order appointing them or creating a relationship wherein it is so provided, their acts with respect to voting shall have the following effect: -2- (i) if only one shall vote, his or her act shall bind all. (ii) if more than one shall vote, the act of the majority voting shall bind all. (iii) if more than one shall vote, but the votes shall be evenly split on any particular matter, then, except as otherwise required by statute, each fraction may vote the shares in question proportionately. Section 2.08. Inspectors of Election. At each meeting of the ---------------------- stockholders, the chairman of such meeting may appoint two inspectors of election to act. Each inspector of election so appointed shall first subscribe an oath or affirmation briefly to execute the duties of an inspector of election at such meeting with strict impartiality and according to the best of his or her ability such inspectors of election, if any, shall take charge of the ballots at such meeting and after the balloting thereat on any question shall count the ballots cast thereon and shall make a report in writing to the Secretary of such meeting of the results thereof. An inspector of election need not be a stockholder of the Corporation, and any officer or employee of the Corporation may be an inspector of election on any question other than a vote for or against his or her election to any position with the Corporation or on any other question in which he or she may be directly interested. Section 2.09. Notices of Meetings and Consents. Every stockholder -------------------------------- shall furnish the Secretary of the Corporation with an address at which notices of meetings and notices and consent material with respect to proposed corporate action without a meeting and all other corporate communications may be served on or mailed to him or her. Except as otherwise provided by the Certificate of Incorporation or by statute, a written notice of each annual and special meeting of stockholders shall be given not less than 10 nor more than 60 days before the date of such meeting or the date on which the corporate action without a meeting is proposed to be taken to each stockholder of record of the Corporation entitled to vote at such meeting by delivering such notice of meeting to him or her personally or depositing the same in the United States mail, postage prepaid, directed to him or her at the post office address shown upon the records of the Corporation. Service of notice is complete upon mailing. Personal delivery to any officer of a corporation or association or to any member of a partnership is delivery to such corporation, association or partnership. Every notice of a meeting of stockholders shall state the place, date and hour of the meeting and the purpose or purposes for which the meeting is called. Section 2.10. Proxies. Each stockholder entitled to vote at a ------- meeting of stockholders or consent to corporate action without a meeting may authorize another person or persons to act for him or her by proxy by an instrument executed -3- in writing. If any such instrument designates two or more persons to act as proxies, a majority of such persons present at the meeting, or, if only one shall be present, then that one, shall have and may exercise all of the powers conferred by such written instrument upon all of the persons so designated unless the instrument shall otherwise provide. No such proxy shall be valid after three years from the date of its execution unless the proxy provides for a longer period. A proxy may be irrevocable if it states that it is irrevocable and, if, and only as long as, it is coupled with an interest sufficient to support an irrevocable power. Subject to the above, any proxy may be revoked if an instrument revoking it or proxy bearing a later date is filed with the Secretary. Section 2.11. Waiver of Notice. Notice of any annual or special ---------------- meeting may be waived either before, at or after such meeting in writing signed by the person or persons entitled to the notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting at the beginning of the meeting to the transacting of any business because the meeting is not lawfully called or convened. Section 2.12. Written Action. Any action that may be taken at a -------------- meeting of the stockholders may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the actions so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be required to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. Section 2.13. Stockholder List. The officer who has charge of the ---------------- stock ledger of the Corporation shall prepare and make, at least ten days before each meeting of stockholders, a complete list of the stockholders entitled to vote at such meeting, arranged in alphabetical order and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof and may be inspected by any stockholder who is present. -4- ARTICLE III. Board of Directors Section 3.01. General Powers. The business of the Corporation shall -------------- be managed by the Board of Directors. Section 3.02. Number, Qualification and Term of Office. The Board of ---------------------------------------- Directors shall consist of not less than six members. The exact number of Directors shall be fixed from time to time by the Board of Directors pursuant to a resolution adopted by a majority of the entire Board of Directors. The Directors shall be divided into three classes, as nearly equal in number as possible, with respect to the times for which they shall severally hold office. Directors of the First Class first chosen shall hold office for one year or until the first annual election following their election; Directors of the Second Class first chosen shall hold office for two years or until the second annual election following their election; and Directors of the Third Class first chosen shall hold office for three years or until the third annual election following their election; and, in each case, until their successors shall be duly elected and shall qualify. At each future annual meeting of the stockholders, the successors to the Class of Directors whose terms shall expire at that time shall be elected to hold office for a term of three years, so that the term of office of one Class of Directors shall expire in each year. Each Director elected shall hold office until his successor shall be elected and shall qualify. Notwithstanding anything contained in these By-Laws to the contrary, the affirmative vote of the holders of at least 80% of the shares of the Corporation entitled to vote for the election of Directors shall be required to amend or repeal, or to adopt any provision inconsistent with, this Section 3.02. Section 3.03. Annual Meeting. As soon as practicable after each -------------- election of Directors, the Board of Directors shall meet at the registered office of the Corporation, or at such other place previously designated by the Board of Directors, for the purpose of electing the officers of the Corporation and for the transaction of such other business as may come before the meeting. Section 3.04. Regular Meetings. Regular meetings of the Board of ---------------- Directors shall be held from time to time at such time and place as may be fixed by resolution adopted by a majority of the total number of Directors. Section 3.05. Special Meetings. Special meetings of the Board of ---------------- Directors may be called by the Chairman of the Board, the President, or by any two of the Directors and shall be held from time to time at such time and place as may be designated in the notice of such meeting. Section 3.06. Notice of Meetings. No notice need be given of any ------------------ annual or regular meeting of the Board of Directors. Notice of each special meeting of the Board of Directors shall be given by the Secretary who shall give at least -5- twenty-four hours' notice thereof to each Director by mail, telephone, telegram, or in person. Notice shall be effective upon receipt. Section 3.07. Waiver of Notice. Notice of any meeting of the Board ---------------- of Directors may be waived either before, at, or after such meeting in writing signed by each Director. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purposes of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Section 3.08. Quorum. A majority of the total number of Directors ------ shall constitute a quorum for the transaction of business. The vote of a majority of the Directors present at a meeting at which a quorum is present shall be the act of the Board of Directors unless these Bylaws require a greater number. Section 3.09. Vacancies. Newly created directorships resulting from --------- any increase in the authorized number of Directors or any vacancies in the Board of Directors resulting from death, resignation, retirement, disqualification, removal from office or other cause shall he filled by a majority vote of the remaining Directors, though less than a quorum, and the Directors so chosen shall hold office for a term expiring at the next annual meeting of stockholders at which a successor shall be elected and shall qualify. Notwithstanding anything contained in these By-Laws to the contrary, the affirmative vote of the holders of at least 80% of the shares of the Corporation entitled to vote for the election of Directors shall be required to amend or repeal, or to adopt any provision inconsistent with, this Section 3.09. Section 3.10. Removal. At any meeting of the stockholders held for ------- the purpose of removal of Directors, any Director may, by the vote of 80% of all the shares of stock outstanding and entitled to vote, be removed from office, but only for cause. Notwithstanding anything contained in these By-Laws to the contrary, the affirmative vote of the holders of at least 80% of the shares of the Corporation entitled to vote for the election of Directors shall be required to amend or repeal, or to adopt any provision inconsistent with, this Section 3.10. Section 3.11. Committees of Directors. The Board of Directors may, ----------------------- by resolution adopted by a majority of the total number of Directors, designate one or more committees, each to consist of two or more of the Directors of the Corporation, which, to the extent provided in the resolution, may exercise the powers of the Board of Directors in the management of the business and affairs of the Corporation. The Board of Directors may designate one or more Directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. Such committee or committees shall have such name or names as may be determined by the resolution adopted by the Directors. The committees shall keep regular minutes of their proceedings and report the same to the Board of Directors when required. -6- Section 3.12. Written Action. Any action required or permitted to be -------------- taken at a meeting of the Board of Directors or any committee thereof may be taken without a meeting if all Directors or committee members consent thereto in writing and the writing or writings are filed with the minutes of proceedings of the Board of Directors or committee. Section 3.13. Compensation. Directors who are not salaried officers ------------ of the Corporation may receive a fixed sum per meeting attended or a fixed annual sum and such other forms of reasonable compensation as may be determined by resolution of the Board of Directors. All Directors shall receive their expenses, if any, of attendance at meetings of the Board of Directors or any committee thereof. Any Director may serve the Corporation in any other capacity and receive proper compensation therefor. Section 3.14. Conference Communications. Directors may participate ------------------------- in any meeting of the Board of Directors, or of any duly constituted committee thereof, by means of a conference telephone conversation or other comparable communication technique whereby all persons participating in the meeting can hear and communicate to each other. For the purposes of establishing a quorum and taking any action at the meeting, such Directors participating pursuant to this Section 3.14 shall be deemed present in person at the meeting; and the place of the meeting shall be the place of origination of the conference telephone conversation or other comparable communication technique. Section 3.15. Conflicts of Interest. --------------------- (a) As used in this Section 3.15, "Control Person" means any Director or officer of the Corporation or any holder of 10% or more of the Corporation's securities. (b) As used in this Section 3.15, "Conflicting Interest Transaction" means any of the following: (i) A loan or other assistance by the Corporation to a Control Person or to an entity in which a Control Person is a director or officer or has a material financial interest; (ii) A guaranty by the Corporation of an obligation of a Control Person or of an obligation of an entity in which a Control Person is a director or officer or has a material financial interest; or (iii) A contract or transaction between the Corporation and a Control Person or between the Corporation and an entity in which a -7- Control Person is a director or officer or has a material financial interest. (c) As used in this Section 3.15, "Outside Director" means any member of the Board of Directors of the Corporation not employed by the Corporation and not a party to the Conflicting Interest Transaction under consideration. (d) The Corporation shall not enter into any Conflicting Interest Transaction unless and until the material facts as to the Director's relationship or interest and as to the Conflicting Interest Transaction are disclosed or are known to the Board of Directors, and a majority of the Outside Directors in good faith authorizes, approves, or ratifies the Conflicting Interest Transaction by affirmative vote, even though the Outside Directors are less than a quorum. (e) All Directors present at a meeting of the Board of Directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors which authorizes, approves, or ratifies the Conflicting Interest Transaction. ARTICLE IV. Officers Section 4.01. Number. The officers of the Corporation shall consist ------ of a President, one or more Vice Presidents, a Secretary, a Treasurer, and any officers and agents as the Board of Directors by a majority vote of the total number of Directors may designate. Any person may hold two or more offices. Section 4.02. Election, Term of Office, and Qualifications. At each -------------------------------------------- annual meeting of the Board of Directors all officers, from within or without their number, shall be elected. Such officers shall hold office until the next annual meeting of the Directors or until their successors are elected and qualified, or until such office is eliminated by a vote of the majority of all Directors. Officers who may be Directors shall hold office until the election and qualification of their successors, notwithstanding an earlier termination of their Directorship. Section 4.03. Removal and Vacancies. Any officer may be removed from --------------------- his or her office by a majority vote of the total number of Directors with or without cause. Such removal shall be without prejudice to the contract rights of the person so removed. A vacancy among the officers by death, resignation, removal, or otherwise shall be filled for the unexpired term by the Board of Directors. Section 4.04. Chairman of the Board. The Chairman of the Board, if --------------------- one is elected, shall preside at all meetings of the stockholders and Directors and -8- shall have such other duties as may be prescribed, from time to time, by the Board of Directors. Section 4.05. President. The President shall have general active --------- management of the business of the Corporation. He or she shall preside at all meetings of the stockholders and Directors. He or she shall be the chief executive officer of the Corporation and shall see that all orders and resolutions of the Directors are carried into effect. He or she shall be ex -- officio a member of all standing committees. He or she may execute and deliver - ------- in the name of the Corporation any deeds, mortgages, bonds, contracts or other instruments pertaining to the business of the Corporation and in general shall perform all duties usually incident to the office of the President. He or she shall have such other duties as may, from time to time, be prescribed by the Board of Directors. Section 4.06. Vice President. Each Vice President shall have such -------------- powers and shall perform such duties as may be prescribed by the Board of Directors or by the President. In the event of absence or disability of the President, Vice Presidents shall succeed to his or her power and duties in the order designated by the Board of Directors. Section 4.07. Secretary. The Secretary shall be secretary of and --------- shall attend all meetings of the stockholders and Board of Directors and shall record all proceedings of such meetings in the minute book of the Corporation. He or she shall give proper notice of meetings of stockholders and the Board of Directors. He or she shall perform such other duties as may from time to time be prescribed by the Board of Directors or by the President. Section 4.08. Treasurer. The Treasurer shall keep accurate accounts --------- of all moneys of the Corporation received or disbursed. He or she shall deposit all moneys, drafts and checks in the name of and to the credit of the Corporation in such banks and depositaries as a majority of the whole Board of Directors shall from time to time designate. He or she shall have power to endorse for deposit all notes, checks and drafts received by the Corporation. He or she shall disburse the funds of the Corporation as ordered by the Directors, making proper vouchers therefor. He or she shall render to the President and the Board of Directors whenever required an account of all his or her transactions as Treasurer and of the financial condition of the Corporation and shall perform such other duties as may from time to time be prescribed by the Board of Directors or by the President. Section 4.09. Duties of Other Officers. The duties of such other ------------------------ officers and agents as the Board of Directors may designate shall be set forth in the resolution creating such office or by subsequent resolution. Section 4.10. Compensation. The officers of the Corporation shall ------------ receive such compensation for their services as may be determined from time to -9- time by resolution of the Board of Directors or by one or more committees to the extent so authorized from time to time by the Board of Directors. ARTICLE V. Shares and Their Transfer Section 5.01. Certificates for Stock. Every holder of stock in the ---------------------- Corporation shall be entitled to a certificate, to be in such form as shall be prescribed by the Board of Directors, certifying the number of shares in the Corporation owned by him or her. The certificates for such shares shall be numbered in the order in which they shall be issued and shall be signed in the name of the Corporation by the Chairman of the Board, the President or a Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary. Every certificate surrendered to the Corporation for exchange or transfer shall be canceled, and no new certificate or certificates shall be issued in exchange for any existing certificate until such certificate shall have been so canceled, except in cases provided for in Section 5.05. Section 5.02. Issuance of Stock. The Board of Directors is ----------------- authorized to cause to be issued stock of the Corporation up to the full amount authorized by the Certificate of Incorporation in such amounts and for such consideration as may be determined by the Board of Directors. No shares shall be allotted except in consideration of cash, labor, personal property, or real property, or leases thereof, or of an amount transferred from surplus to stated capital upon a share dividend. At the time of such allotment of stock, the Board of Directors shall state its determination of the fair value to the Corporation in monetary terms of any consideration other than cash for which shares are allotted. Stock so issued shall be fully paid and nonassessable. The amount of consideration to be received in cash or otherwise shall not be less than the par value of the shares so allotted. Treasury shares may be disposed of by the Corporation for such consideration, expressed in dollars, as may be fixed by the Board of Directors. Section 5.03. Partly Paid Stock. The Corporation may issue the whole ----------------- or any part of its stock as partly paid and subject to call for the remainder of the consideration to be paid therefor. Upon the face or back of each certificate issued to represent any such partly paid stock, the total amount of the consideration to be paid therefor and the amount paid thereon shall be stated. Upon the declaration of any dividend on fully paid stock, the Corporation may declare a dividend upon partly paid stock of the same class, but only upon the basis of the percentage of the consideration actually paid thereon. The Board of Directors may, from time to time, demand payment, in respect of each share of stock not fully paid, of such sum of money as the necessities of the business may, in the judgment of the Board of Directors, require, not exceeding in the whole the balance remaining unpaid on such stock, and such sum so demanded shall be paid to the Corporation at such times and by such installments as the Directors shall direct. The Directors shall give -10- written notice of the time and place of such payments, which notice shall be mailed at least 30 days before the time for such payment, to each holder of or subscriber for stock which is not fully paid at his or her last known post- office address. Section 5.04. Transfer of Stock. Transfer of stock on the books of ----------------- the Corporation may be authorized only by the stockholder named in the certificate, the stockholder's legal representative or the stockholder's duly authorized attorney-in-fact and upon surrender of the certificate or the certificates for such stock. The Corporation may treat as the absolute owner of stock of the Corporation the person or persons in whose name stock is registered on the books of the Corporation. Section 5.05. Loss of Certificates. Any stockholder claiming a -------------------- certificate for stock to be lost, stolen or destroyed shall make an affidavit of that fact in such form as the Board of Directors may require and shall, if the Board of Directors so requires, give the Corporation a bond of indemnity in form, in an amount, and with one or more sureties satisfactory to the Board of Directors, to indemnify the Corporation against any claims which may be made against it on account of the alleged loss, theft or destruction of the certificate or issuance of such new certificate. A new certificate may then be issued in the same tenor and for the same number of shares as the one claimed to have been lost, stolen or destroyed. Section 5.06. Facsimile Signatures. Whenever any certificate is -------------------- countersigned by a transfer agent or by a registrar other than the Corporation or its employee, then the signatures of the officers or agents of the Corporation may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed on any such certificate shall cease to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation as though the person who signed such certificate or whose facsimile signature or signatures had been placed thereon were such officer, transfer agent or registrar at the date of issue. ARTICLE VI. Dividends, Surplus, Etc. Section 6.01. Dividends. The Board of Directors may declare --------- dividends from the Corporation's surplus, or if there be none, out of its net profits for the current fiscal year, and/or the preceding fiscal year in such amounts as in their opinion the condition of the affairs of the Corporation shall render advisable unless otherwise restricted by law. Section 6.02. Use of Surplus, Reserves. The Board of Directors may ------------------------ use any of its property or funds, unless such would cause an impairment of capital, in purchasing any of the stock, bonds, debentures, notes, scrip or other securities or evidences of indebtedness of the Corporation. The Board of Directors may from -11- time to time set aside from its surplus or net profits such sums as it deems proper as a reserve fund for any purpose. ARTICLE VII. Books and Records, Audit, Fiscal Year Section 7.01. Books and Records. The Board of Directors of the ----------------- Corporation shall cause to be kept: (a) a share ledger which shall be a charge of an officer designated by the Board of Directors; (b) records of all proceedings of stockholders and Directors; and (c) such other records and books of account as shall be necessary and appropriate to the conduct of the corporate business. Section 7.02. Audit. The Board of Directors shall cause the records ----- and books of account of the Corporation to be audited at least once in each fiscal year and at such other times as it may deem necessary or appropriate. Section 7.03. Annual Report. The Board of Directors shall cause to ------------- be filed with the Delaware Secretary of State in each year the annual report required by law. Section 7.04. Fiscal Year. The fiscal year of the Corporation shall ----------- end on December 31 of each year. Section 7.05. Examination by Stockholders. Any stockholder of record --------------------------- of the Corporation, upon written demand under oath stating the purpose thereof, shall have the right to inspect in person or by agent or attorney, during usual business hours, for any proper purpose, the Corporation's stock ledger, a list of its stockholders and its other books and records, and to make copies or extracts therefrom. A proper purpose shall mean a purpose reasonably related to such person's interest as a stockholder. Holders of voting trust certificates representing stock of the Corporation shall be regarded as stockholders for the purpose of this subsection. In every instance where an attorney or other agent shall be the person who seeks the right to inspection, the demand under oath shall be accompanied by a power of attorney or such other writing which authorizes the attorney or other agent to so act on behalf of the stockholder. The demand under oath shall be directed to the Corporation at its registered office in Delaware or at its principal office. ARTICLE VIII. Indemnification Section 8.01. Indemnification. The Corporation shall indemnify such --------------- persons for such liabilities in such manner under such circumstances, and to such extent, as permitted by the Certificate of Incorporation of the Corporation and by Section 145 of the Delaware General Corporation Law, as now enacted or hereafter -12- amended. The Board of Directors may authorize the purchase and maintenance of insurance and/or the execution of individual agreements for the purpose of such indemnification, and the Corporation shall advance all reasonable costs and expenses (including attorneys' fees) incurred in defending any action, suit or proceeding to all persons entitled to indemnification under this section 8.01, all in the manner, under the circumstances and to the extent permitted by the Certificate of Incorporation of the Corporation and by Section 145 of the Delaware General Corporation Law, as now enacted or hereafter amended. ARTICLE IX. Miscellaneous Section 9.01. Fixing Date for Determination of Stockholders of ------------------------------------------------ Record. (a) In order that the Corporation may determine the stockholders - ------ entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than 60 nor less than 10 days before the date of such meeting, nor more than 60 days prior to any other action. (b) If no record date is fixed: (i) The record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. (ii) The record date for determining stockholders entitled to express consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is necessary, shall be the day on which the first written consent is expressed. (iii) The record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. (c) A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. -13- Section 9.02. Periods of Time. During any period of time prescribed --------------- by these Bylaws, the date from which the designated period of time begins to run shall not be included, and the last day of the period so computed shall be included. Section 9.03. Voting Securities Held by the Corporation. Unless ----------------------------------------- otherwise ordered by the Board of Directors, the President shall have full power and authority on behalf of the Corporation (a) to attend and to vote at any meeting of security holders of other corporations in which the Corporation may hold securities; (b) to execute any proxy for such meeting on behalf of the Corporation; or (c) to execute a written action in lieu of a meeting of such other corporation on behalf of the Corporation. At such meeting, by such proxy or by such writing in lieu of meeting, the President shall possess and may exercise any and all rights and powers incident to the ownership of such securities that the Corporation might have possessed and exercised if it had been present. The Board of Directors may, from time to time, confer like powers upon any other person or persons. Section 9.04. Purchase and Sale of Securities. Unless otherwise ------------------------------- ordered by the Board of Directors, the President shall have full power and authority on behalf of the Corporation to purchase, sell, transfer or encumber any and all securities of any other corporation owned by the Corporation and may execute and deliver such documents as may be necessary to effectuate such purchase, sale, transfer or encumbrance. The Board of Directors may, from time to time, confer like powers upon any other person or persons. ARTICLE X. Amendments Section 10.01. Amendment by Board of Directors. The Board of ------------------------------- Directors shall have the power to make, amend and repeal these By-Laws of the Corporation, by vote of a majority of all of the Directors, at any regular or special meeting of the Board; provided, however, that any By-Laws made by the Board of Directors may be amended, altered, or repealed by the stockholders as provided in Section 10.02. Section 10.02. Amendment by Stockholders. Except as provided in ------------------------- Sections 3.02, 3.09 and 3.10 of these By-Laws, the stockholders, by the affirmative vote of the majority of the stock issued, outstanding and entitled to vote, may make, alter or amend these By-Laws without notice at any annual meeting, or any special meeting if notice thereof be contained in the notice of such meeting. July 1996 -14- EX-10.1 4 REORGANIZATION AGREEMENT REORGANIZATION AGREEMENT THIS AGREEMENT OF REORGANIZATION (the "Agreement") is made as of August 1, 1996, by and among MarkWest Hydrocarbon, Inc., a Delaware corporation (the "Company"), MarkWest Hydrocarbon Partners, Ltd., a Colorado limited partnership (the "Partnership"), MWHC Holding, Inc., a Colorado corporation and the general partner of the Partnership (the "General Partner"), RIMCO Associates, Inc. ("RIMCO"), and each of the limited partners of the Partnership listed on Exhibit A to this Agreement (the "Limited Partners," and, together with the General Partner, the "Partners"). A. This Agreement is intended to be and is adopted as a plan for the transfer of all interests in the Partnership (the "Interests") to the Company in exchange for newly issued shares of the Company's common stock pursuant to Section 351 under the Internal Revenue Code of 1986, as amended (the "Code"). The transfers and issuances (the "Reorganization") described in this Agreement will consist of the exchange of all of the outstanding interests of the Partnerships owned by the Partners for newly issued shares of the Company's common stock, $.01 par value (the "Common Stock"), and certain related transactions, upon the terms and conditions set forth in this Agreement. B. This Agreement also provides for the conversion of all of the outstanding options to purchase interests of the Partnerships held by current and former employees of the Partnership listed on Exhibit C (the "Optionees") for options to purchase shares of the Company's Common Stock. Options to purchase Company Common Stock to be issued to current employees of the Partnership will be issued pursuant to the Company's 1996 Stock Incentive Plan (the "Stock Incentive Plan"). WITNESSETH: WHEREAS, the authorized capital stock of the Company consists of 20,000,000 shares of Common Stock, one share of which is issued and outstanding as of the date hereof, and 5,000,000 shares of preferred stock, $.01 par value, none of which is issued and outstanding as of the date hereof; WHEREAS, the Company was formed for the purpose of acquiring the interests of each of the Partners and to act as the successor to the business, assets and liabilities of the Partnership; WHEREAS, each Partner owns that percentage interest in the Partnership as set forth across from such Partner's name in Exhibit A hereto; WHEREAS, in connection with the Reorganization, the Company intends to conduct an initial public offering of shares of its Common Stock (the "Offering"); WHEREAS, pursuant to Article 16 of the Limited Partnership Agreement of the Partnership, dated March 28, 1988, as amended (the "Partnership Agreement"), the General Partner has the power, as attorney-in-fact for each of the Limited Partners, to transfer all of the interests of the Limited Partners to the Company in exchange for shares of Common Stock as described herein for the purpose of facilitating the Offering; WHEREAS, the Partnership intends to distribute cash to the Partners immediately prior to the consummation of the Reorganization as a partial return of partnership capital; and WHEREAS, the Board of Directors of the Company, the General Partner and RIMCO deem it to be in their respective best interests to enter into this Agreement and to consummate the transactions comprising the Reorganization. NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by each party hereto, the parties hereto covenant and agree as follows: 1. TRANSFERS AND ISSUANCES; RELATED TRANSACTIONS. --------------------------------------------- (a) At the Closing (as hereinafter defined) of the Reorganization, each Partner will contribute to the Company such Partner's Interest, as set forth opposite his, her or its name in Exhibit A, in exchange for the number of shares of Common Stock as set forth opposite his, her or its name on Exhibit A hereto. The Partners acknowledge that the Common Stock share amounts set forth on Exhibit A represent a proportionate percentage ownership in the Company substantially equivalent to that represented by the Partners' Interests in the Partnership. (b) At the Closing of the Reorganization, each option agreement between the Partnership and each Optionee providing for an option to purchase an Interest (a "Partnership Option") shall be deemed terminated in exchange for each Optionee receiving an option to purchase shares of Common Stock in the Company ("Company Option"). Company Options issued to Optionees who are current employees of the Partnership will be issued pursuant to the Stock Incentive Plan. The form of the Company Option to be entered into between the Company and each Optionee who is an employee of the Partnership is set forth as Exhibit B. The number of shares of Common Stock subject to each Optionee's Company Option, -2- and the exercise price per share of Common Stock applicable for each Optionee, shall be as set forth opposite such Optionee's name on Exhibit C hereto. (c) The Partners acknowledge that they have been provided detailed information regarding the Company and have had the opportunity to conduct their own independent investigation relating to the Company. The Partners further acknowledge that the number of shares of Common Stock that Partners are entitled to receive in exchange for their Interests hereunder, and the number of shares of Common Stock into which options issued to Optionees hereunder, shall not be adjusted, notwithstanding any changes in circumstances regarding the Company after the execution of this Agreement. (d) Immediately prior to the Closing, the Partnership shall distribute cash to the Partners as a partial return of capital in amounts proportionate to the Partner's Interests. With respect to Partners who have promissory notes outstanding to the Partnership, fifty percent (50%) of such distribution shall be applied against the outstanding interest and principal, in that order, of such promissory notes. At the Closing of the Reorganization, Partners who have remaining balances due under such promissory notes shall execute new promissory notes in favor of the Company for such remaining balances in the form of note attached hereto as Exhibit D. (e) At the Closing, RIMCO shall cause each of RIMCO Partners, L.P. and RIMCO Partners, L.P. II (collectively, "RIMCO Partners") to exercise RIMCO Partners' option to purchase a 3-1/2% Interest in accordance with the terms and conditions set forth in the Cancellation of Note Agreement and Option Agreement, dated August 23, 1995, between RIMCO Partners and the Partnership (the "RIMCO Option"). In accordance with the terms of the RIMCO Option, the RIMCO Option shall be exercised for shares of Common Stock of the Company. RIMCO acknowledges that the RIMCO Option shall be exercisable into 175,000 shares of Common Stock (124,600 of which shall be held by RIMCO Partners, L.P. and 50,400 of which shall be held by RIMCO Partners, L.P. II) and that such number of shares of Common Stock represents a proportionate percentage ownership in the Company equivalent to that represented by RIMCO Partners' option to purchase an Interest in the Partnership under the RIMCO Option. (f) In connection with the Offering and pursuant to an underwriting agreement to be entered into between the Company and Dillon Read & Co. Inc. ("Dillon Read") after the Closing, up to 2,875,000 shares of Common Stock, representing approximately 30% of the shares of Common Stock to be outstanding after the Offering, are expected to be purchased by Dillon Read, which purchase shall be included as part of the Reorganization for purposes of Section 351 of the Code. -3- 2. ISSUANCE OF SHARES. ------------------ At the Closing, the Company shall issue to each Partner a certificate or certificates representing the shares of Common Stock to be received in exchange for such Partner's Interest. Immediately following the Closing, the Company shall issue to RIMCO a certificate or certificates representing the shares of Common Stock to be received by RIMCO upon exercise of the RIMCO Option. Each certificate representing shares of Common Stock issued to a Partner pursuant to this Agreement shall bear the following legend: The shares represented by this certificate may not be transferred without (i) an opinion of counsel satisfactory to this corporation that such transfer may lawfully be made without registration under the Securities Act of 1933, as amended, and all applicable state securities laws or (ii) such registration. 3. CLOSING. The closing of the exchange transactions contemplated by ------- this Agreement (the "Closing") shall take place at the offices of Dorsey & Whitney, Denver, Colorado, prior to the time at which the Registration Statement, including any amendments or supplements thereto (the "Registration Statement"), filed by the Company with the Securities and Exchange Commission (the "SEC") for registration under the Securities Act of 1933, as amended (the "Securities Act"), of the shares of Common Stock being sold in the Offering, is expected to be declared effective by the SEC, or at such other place or different time or day as may be mutually acceptable to the Company and the General Partner, acting on behalf of the Partners (the "Closing Date"). At the Closing, the following deliveries shall be made: (a) the General Partner, on behalf of each Partner, shall transfer each Partner's Interest to the Company in accordance with Section 1(a) hereof; (b) the Company shall deliver an instruction letter to the transfer agent and registrar for its Common Stock instructing the transfer agent to issue and deliver to (i) each Partner receiving shares of Common Stock pursuant to Section 1(a) hereof a stock certificate registered in the name of such Partner representing the number of shares of Common Stock issuable to the such Partner pursuant to Section 1(a) hereof, and (ii) RIMCO Partners a stock certificate registered in the name of RIMCO Partners representing the number of shares of Common Stock issuable to RIMCO Partners pursuant to Section 1(e) hereof; (c) RIMCO Partners shall, pursuant to the exercise of the RIMCO Option, pay to the Company the option exercise price equal to $35,000 by wire transfer or good check; -4- (d) each Partnership Option shall be deemed terminated in accordance with Section 1(b) hereof; (e) the Company shall deliver to each Optionee the Company Option issuable to such Optionee pursuant to Section 1(b) hereof; (f) the Company and the Partnership shall deliver to each other the Assignment and Assumption Agreement attached hereto as Exhibit F; and (g) each party hereto shall deliver such other documents as any other party hereto or its counsel may reasonably request. 4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. In order to induce --------------------------------------------- each Partner and RIMCO to enter into this Agreement and to consummate the transactions contemplated hereby, the Company hereby represents and warrants to each Partner and RIMCO that: (a) Organization, Standing, etc. The Company is a corporation duly --------------------------- organized, validly existing and in good standing under the laws of the State of Delaware. The Company has the requisite corporate power and authority to issue the shares of Common Stock to be exchanged pursuant to this Agreement and to otherwise perform its obligations under this Agreement. (b) Compliance With Applicable Laws and Other Instruments. Neither the ----------------------------------------------------- execution nor delivery of, nor the performance of or compliance with, this Agreement nor the consummation of the transactions contemplated hereby will, with or without the giving of notice or passage of time, result in any breach of, or constitute a default under, or result in the imposition of any lien or encumbrance upon any asset or property of the Company pursuant to any agreement or other instrument to which the Company is a party or by which the Company or any of its properties, assets or rights is bound or affected, and will not violate the Certificate of Incorporation or Bylaws of the Company. The Company is not in violation of its Certificate of Incorporation or Bylaws, nor is it in violation of, or in default under, any lien, indenture, mortgage, lease, agreement, instrument, commitment or arrangement in any material respect. The Company is not subject to any restriction which would prohibit it from entering into or performing its obligations under this Agreement. (c) Common Stock. The shares of Common Stock to be exchanged pursuant to ------------ this Agreement, when issued and delivered pursuant to the terms of this Agreement, will be duly authorized, validly issued and outstanding, fully paid, and nonassessable and shall be free and clear of all pledges, liens, encumbrances and restrictions, except to the extent the transfer thereof may be restricted by federal or state securities laws or any agreement entered by or on behalf of the Partners or RIMCO Partners contemplated by the Reorganization. -5- (d) Securities Laws. Based in part upon the representations of the --------------- Partners and RIMCO in Section 5 hereof, no consent, authorization, approval, permit or order of or filing with any governmental or regulatory authority is required under current laws and regulations in connection with the execution and delivery of this Agreement or the offer, issuance or delivery of the shares of Common Stock to be exchanged pursuant to this Agreement. The draft of the preliminary prospectus to be included in the Registration Statement filed by the Company in connection with the Offering (the "Preliminary Prospectus"), a copy of which has been delivered to each of the parties hereto, does not contain any untrue statements of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that the Company makes no representations or warranties as to information contained in or omitted from the Preliminary Prospectus in reliance upon, and in conformity with, information furnished to the Company by or on behalf of any Partner, RIMCO or RIMCO Partners or any underwriter in the Offering specifically for use in the preparation of the Preliminary Prospectus. (f) Capital Stock. At the date hereof, the authorized capital stock of ------------- the Company consists of 20,000,000 shares of Common Stock, $.01 par value, of which one share is issued and outstanding, and 5,000,000 shares of preferred stock, $.01 par value, of which no shares are issued and outstanding. Except as contemplated by the Reorganization, the Partnership Options, the Stock Incentive Plan and the Offering, there are no outstanding subscriptions, options, warrants, calls, contracts, demands, commitments, convertible securities or other agreements or arrangements of any character or nature whatever, other than this Agreement, under which the Company is obligated to issue any securities of any kind representing an ownership interest in the Company. No holder of any security of the Company is entitled to any preemptive or similar rights to purchase any securities of the Company from the Company; provided, however, that nothing in this Section 4(f) shall affect, alter or diminish any right granted to the Partners, RIMCO Partners or Optionees pursuant to this Agreement. (g) Corporate Acts and Proceedings. This Agreement has been duly ------------------------------ authorized by all necessary corporate action on behalf of the Company, has been duly executed and delivered by authorized officers of the Company, and is a valid and binding agreement on the part of the Company that is enforceable against the Company in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, moratorium, reorganization or other similar laws affecting the enforcement of creditors' rights generally and to judicial limitations on the enforcement of the remedy of specific performance and other equitable remedies. All corporate action necessary to the authorization, creation, issuance and delivery of the shares of Common Stock to be exchanged pursuant to this Agreement has been taken by the Company, or will be taken by the Company on or prior to the Closing Date. -6- (h) Registration Rights. Other than under this Agreement, the Company has ------------------- not agreed to register any of its authorized or outstanding securities under the Securities Act. 5. REPRESENTATIONS AND WARRANTIES OF THE PARTNERSHIP AND THE GENERAL ----------------------------------------------------------------- PARTNER. In order to induce the Company, each Partner and RIMCO to enter into - ------- this Agreement and to consummate the transactions contemplated hereby, the General Partner, on behalf of itself and the Partnership, hereby represents and warrants to the Company, each Partner and RIMCO that: (a) Organization, Standing, etc. The Partnership is a limited partnership ---------------------------- duly formed, validly existing and in good standing under the laws of the State of Colorado. The Partnership has the requisite partnership power and authority to perform its obligations under this Agreement. The General Partner has the requisite power and authority to execute and deliver this Agreement on behalf of the Partnership and each of the Partners. (b) Compliance With Applicable Laws and Other Instruments. Neither the ----------------------------------------------------- execution nor delivery of, nor the performance of or compliance with, this Agreement nor the consummation of the transactions contemplated hereby will, with or without the giving of notice or passage of time, result in any breach of, or constitute a default under, or result in the imposition of any lien or encumbrance upon any asset or property of the Partnership pursuant to any agreement or other instrument to which the Partnership is a party or by which the Partnership or any of its properties, assets or rights is bound or affected, and will not violate the Certificate of Limited Partnership of the Partnership or the Partnership Agreement. The Partnership is not in violation of its Certificate of Limited Partnership or Partnership Agreement, nor is it in violation of, or in default under, any lien, indenture, mortgage, lease, agreement, instrument, commitment or arrangement in any material respect. The Partnership is not subject to any restriction which would prohibit it from entering into or performing its obligations under this Agreement. (c) Partnership Acts and Proceedings. This Agreement has been duly -------------------------------- authorized by all necessary action on behalf of the Partnership and the General Partner, has been duly executed and delivered by authorized officers of the General Partner on behalf of the Partnership and the Partners, and is a valid and binding agreement on the part of the Partnership that is enforceable against the Partnership in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, moratorium, reorganization or other similar laws affecting the enforcement of creditors' rights generally and to judicial limitations on the enforcement of the remedy of specific performance and other equitable remedies. (d) Liens on Partnership Interests. To the extent that the Partnership ------------------------------ holds any security interest or lien on any Partner's Interest, the Partnership hereby releases such security interest or lien for the purposes of effecting the transactions contemplated hereby. -7- 6. REPRESENTATIONS AND WARRANTIES OF THE PARTNERS. In order to induce ---------------------------------------------- the Company, the Partnership, the other Partners and RIMCO to enter into this Agreement and to consummate the transactions contemplated hereby, each Partner hereby, severally and not jointly, represents and warrants to the Company and each other party hereto that: (a) Investment Intent. The shares of Common Stock to be issued to such ----------------- Partner pursuant to Section 1 hereof are being acquired by such Partner for investment for such Partner's own account and not with the view to, or for resale in connection with, any distribution or public offering thereof. Such Partner understands that such shares of Common Stock have not been registered under the Securities Act or any state securities laws by reason of their contemplated issuance in transactions exempt from the registration requirements of the Securities Act pursuant to Section 4(2) thereof and applicable state securities laws, and that the reliance of the Company and others upon these exemptions is predicated in part upon this representation by each Partner. Such Partner further understands that such shares of Common Stock may not be transferred or resold without (i) registration under the Securities Act and any applicable state securities laws, or (ii) an exemption from the requirements of the Securities Act and applicable state securities laws. Such Partner understands that an exemption from such registration may not presently be available pursuant to Rule 144 promulgated under the Securities Act by the SEC and that in any event a Partner may not sell any securities pursuant to Rule 144 prior to the expiration of a two-year period after such Partner is deemed to acquire such securities. Such Partner understands that any sales pursuant to Rule 144 can be made only in full compliance with the provisions of Rule 144. (b) Disclosure, etc. Each Partner acknowledges that such Partner has been ---------------- provided with a copy of the Preliminary Prospectus and with detailed financial information relating to the Company and has attended meetings at which the historical financial operating results, projected financial results, and the valuations used in determining the number of shares of Common Stock that such Partner is entitled to receive in the Reorganization have been discussed. Such Partner further acknowledges that each of the Partnership and the Company has given complete access to full and complete information regarding the Company, and has made available to such Partner at a reasonable time prior to the execution of this Agreement the opportunity to ask questions and receive answers concerning the terms and conditions of the exchange of shares contemplated by this Agreement and to obtain any additional information (which the Company possesses or can acquire without unreasonable effort or expense) as may be necessary to verify the accuracy of any information furnished to such Partner. Such Partner (i) is able to bear the loss of his or her entire investment in the Common Stock, and (ii) has such knowledge of the Company and experience in business matters that he or she is capable of evaluating the merits and risks of the investment to be made by him or her pursuant to this Agreement. -8- (c) Acts and Proceedings. This Agreement has been duly authorized (if -------------------- applicable), executed and delivered by or on behalf of such Partner and is a valid and binding agreement of such Partner. By execution of this Agreement, such Partner consents to and approves the Reorganization and each of the transactions comprising the Reorganization. (d) Compliance With Applicable Laws and Other Instruments. Neither the ----------------------------------------------------- execution nor delivery of, nor the performance of or compliance with, this Agreement nor the consummation of the transactions contemplated hereby will, with or without the giving of notice or passage of time, result in any breach of, or constitute a default under, or result in the imposition of any lien or encumbrance upon any asset or property of such Partner pursuant to any agreement or other instrument to which such Partner is a party or by which it or any of its properties, assets or rights is bound or affected. Such Partner is not subject to any restriction which would prohibit such Partner from entering into or performing his or her obligations under this Agreement. No consent, authorization, approval, permit or order of or filing with any governmental or regulatory authority is required under current laws and regulations in connection with the execution and delivery of this Agreement by or on behalf of such Partner or the performance of the transactions contemplated hereby by such Partner. (e) Beneficial Owner. Such Partner is now and will remain at all times ---------------- through the Closing Date the beneficial owner of the Interest set forth next to such Partner's name on Exhibit A hereto. Such Partner has and will have through the Closing Date good and valid title to such Interest free and clear of all pledges, liens, encumbrances and restrictions of whatever character (except to the extent that the Partnership may have a lien on such Interest), with full power and authority to transfer, exchange or otherwise dispose of such Interest as contemplated hereby. Such Partner shall take or cause to be taken all required actions on its part so that, upon consummation of such transfer, exchange or other disposition as contemplated hereby, the Company will become the record and beneficial owner of such Interest and will have good and valid title thereto, free and clear of all pledges, liens, encumbrances and restrictions of whatever character. (f) Exculpation Among Partners. Such Partner acknowledges that in making -------------------------- its decision to consummate the exchange of Interests for shares of Common Stock contemplated hereby, it is not relying on any other Partner or upon any person, firm or company. Such Partner agrees that none of the Company, the Partnership or any other Partner shall be liable for any actions taken by such Partner, or omitted to be taken by such Partner, in connection with such exchange of shares as contemplated by this Agreement. 7. REPRESENTATIONS AND WARRANTIES OF RIMCO. In order to induce the --------------------------------------- Company, the Partnership, and the Partners to enter into this Agreement and to consummate the transactions contemplated hereby, RIMCO, on behalf of -9- itself and RIMCO Partners, severally and not jointly, represents and warrants to the Company and each other party hereto that: (a) Investment Intent. The shares of Common Stock to be issued to RIMCO ----------------- Partners pursuant to Section 1 hereof are being acquired by RIMCO Partners for investment for RIMCO Partners' own account and not with the view to, or for resale in connection with, any distribution or public offering thereof. RIMCO understands that such shares of Common Stock have not been registered under the Securities Act or any state securities laws by reason of their contemplated issuance in transactions exempt from the registration requirements of the Securities Act pursuant to Section 4(2) thereof and applicable state securities laws, and that the reliance of the Company and others upon these exemptions is predicated in part upon this representation by RIMCO. RIMCO further understands that such shares of Common Stock may not be transferred or resold without (i) registration under the Securities Act and any applicable state securities laws, or (ii) an exemption from the requirements of the Securities Act and applicable state securities laws. RIMCO understands that an exemption from such registration may not presently be available pursuant to Rule 144 promulgated under the Securities Act by the SEC and that in any event RIMCO Partners may not sell any securities pursuant to Rule 144 prior to the expiration of a two-year period after RIMCO Partners is deemed to acquire such securities. RIMCO understands that any sales pursuant to Rule 144 can be made only in full compliance with the provisions of Rule 144. (b) Location of Domicile, Disclosure, etc. The state in which RIMCO's and -------------------------------------- RIMCO Partners' domicile is located is Connecticut. RIMCO acknowledges that RIMCO has been provided with a copy of the Preliminary Prospectus and with detailed financial information relating to the Company and has attended meetings at which the historical financial operating results, projected financial results, and the methods used in determining the number of shares of Common Stock that RIMCO is entitled to receive in the Reorganization have been discussed. RIMCO further acknowledges that each of the Company and the Partnership has given complete access to full and complete information regarding the Company, and has made available to RIMCO at a reasonable time prior to the execution of this Agreement the opportunity to ask questions and receive answers concerning the terms and conditions of the exchange of shares contemplated by this Agreement and to obtain any additional information (which the Company possesses or can acquire without unreasonable effort or expense) as may be necessary to verify the accuracy of any information furnished to RIMCO. RIMCO Partners (i) is able to bear the loss of its entire investment in the Common Stock, and (ii) has such knowledge of the Company and experience in business matters that he or she is capable of evaluating the merits and risks of the investment to be made by it pursuant to this Agreement. (c) Acts and Proceedings. This Agreement has been duly authorized (if -------------------- applicable), executed and delivered by or on behalf of RIMCO and RIMCO Partners and is a valid and binding agreement of RIMCO and RIMCO Partners. By execution -10- of this Agreement, RIMCO consents to and approves the Reorganization and each of the transactions comprising the Reorganization. (d) Compliance With Applicable Laws and Other Instruments. Neither the ----------------------------------------------------- execution nor delivery of, nor the performance of or compliance with, this Agreement nor the consummation of the transactions contemplated hereby will, with or without the giving of notice or passage of time, result in any breach of, or constitute a default under, or result in the imposition of any lien or encumbrance upon any asset or property of RIMCO or of RIMCO Partners pursuant to any agreement or other instrument to which RIMCO or RIMCO Partners is a party or by which it or any of its properties, assets or rights is bound or affected. Neither RIMCO nor RIMCO Partners is subject to any restriction which would prohibit RIMCO from entering into or performing his or her obligations under this Agreement. No consent, authorization, approval, permit or order of or filing with any governmental or regulatory authority is required under current laws and regulations in connection with the execution and delivery of this Agreement by or on behalf of RIMCO or RIMCO Partners or the performance of the transactions contemplated hereby by RIMCO and RIMCO Partners. (e) Exculpation. RIMCO acknowledges that in making its decision to ----------- consummate the exercise of the RIMCO Option contemplated hereby, it is not relying on any other Partner or upon any person, firm or company. RIMCO agrees that none of the Company, the Partnership or any Partner shall be liable for any actions taken by RIMCO, or omitted to be taken by RIMCO, in connection with such exchange of shares as contemplated by this Agreement. 8. BOARD OF DIRECTORS. The Partners and RIMCO acknowledge that the ------------------ initial Board of Directors of the Company consists of John Fox, Brian O'Neill, Arthur Denney, Barry Spector, David Whitney and Norman H. Foster. This Section 8 is not intended as, nor should it be construed as, an agreement by the Partners or RIMCO Partners to vote for any person to the Company's Board of Directors. The Partners acknowledge that there are no agreements to vote for members to the Company's Board of Directors. 9. RELEASES. Each of the parties hereto, on behalf of himself, herself -------- or itself and their respective heirs, executors, administrators, directors, officers, agents, employees, affiliates, parents, subsidiaries, successors and assigns, hereby releases and forever discharges each other and all of their past or present directors, officers, shareholders, agents, employees, affiliates, parents, subsidiaries, successors and assigns from all claims, demands, actions, liability, damages or rights of any kind, in equity or law, whether known or unknown, fixed or contingent, or otherwise, arising out of or resulting from any matter, fact or thing, occurring or existing prior to the Closing Date, including, without limitation, the transactions contemplated by Section 1 of this Agreement, and any and all transactions contemplated by the Reorganization and any and all actions taken or failures to take action in connection therewith, which each or any of the parties hereto or any of their foregoing related -11- parties had, now have or ever can, shall or may have, for or by reason of any cause or matter whatsoever, against each other or any of their foregoing related parties. 10. LEGAL REPRESENTATION; CONSENTS. Dorsey & Whitney LLP is representing ------------------------------ the Partnership and the Company in connection with the transactions contemplated by this Agreement. Each of the parties hereto specifically consent to Dorsey & Whitney LLP representing the Partnership and the Company in connection with the transactions contemplated by this Agreement and the parties hereto other than the Partnership and the Company represent that they have been advised by such firm to retain separate counsel in connection herewith. 11. LEGAL AND ACCOUNTING FEES. The parties hereto agree that, in the ------------------------- event the Reorganization is not consummated, the fees and expenses of Dorsey & Whitney LLP relating to the transactions contemplated by this Agreement will be paid by the Partnership. 12. PARTNER AGREEMENTS. Except for the Partnership Agreement and as ------------------ otherwise disclosed by a Partner in writing to the Partnership, each of the Partners represents and warrants that there are no existing equityholder, pre- incorporation, buy-sell or other similar agreements currently in existence between such Partner and other Partners or with respect to any of the shares of the Company. 13. CONSUMMATION OF THE OFFERING IS NOT A CONDITION TO THE REORGANIZATION. --------------------------------------------------------------------- Each party hereto expressly acknowledges that although such party expects that the Reorganization will be consummated in connection with the closing of the Offering, they agree that the closing of the Offering is not a condition to effecting the Reorganization contemplated by this Agreement. 14. OTHER AGREEMENTS. ---------------- (a) Partnership Tax Status. The Partners and RIMCO acknowledge and agree ---------------------- that as a result of the transactions contemplated by this Agreement, the Partnership will be converted from an entity that qualifies for pass-through partnership status to a subchapter "C" corporation for income tax reporting purposes effective on the Closing Date. (b) Consents. The parties hereto shall use their best efforts as may be -------- necessary to obtain all regulatory or other consents or approvals as may be necessary to carry out the transactions contemplated by the Reorganization. (c) Cooperation. The parties hereto agree that they shall cooperate with ----------- each other in all reasonable respects on and after the date hereof in order to effectuate the transactions contemplated hereby. (d) Option Plans. Attached hereto as Exhibit E is the form of the ------------ Company's 1996 Stock Incentive Plan and attached hereto as Exhibit F is the form of -12- the Company's 1996 Nonemployee Director Stock Option Plan (collectively, the "Option Plans"). The Partners agree to the adoption by the Company of the Option Plans. 15. CONTINGENT REGISTRATION RIGHTS FOR NON-AFFILIATES. The Company shall, ------------------------------------------------- in the event any Non-Affiliate (as defined below) whose Exchange Shares (as defined below) is subject to an agreement with the Company or Dillon Read not to sell such Exchange Shares during the Lockup Period (as defined below) is unable, based upon an opinion of legal counsel to the Company, to sell such Non- Affiliate's Exchange Shares (such person or persons hereinafter referred to as "Restricted Non-Affiliates") without registration under the Securities Act beginning 181 days after consummation of the Offering (the "Post-Lockup Period"), if any, provide the following rights to such Restricted Non- Affiliates: (a) Registration. The Company shall, within 45 calendar days prior to the ------------ commencement of the Post-Lockup Period, give written notice of its intention to file a registration statement under the Securities Act, on such appropriate form as the Company in its sole discretion shall determine, on behalf of all Restricted Non-Affiliates of record determined as of such date (the "Registration Statement"). Upon the written request of a Restricted Non- Affiliate given within 30 days after receipt of any such notice from the Company, the Company shall, except as herein provided, cause all the Exchange Shares held by Restricted Non-Affiliates which have so requested registration thereof, to be included in such Registration Statement, all to the extent required to permit the sale or other disposition by the prospective seller or sellers of the Exchange Shares to be so registered; provided, however, that nothing herein shall prevent the Company from delaying any such registration for a reasonable period of time (but not in excess of 90 days) if in the good faith judgment of the Company's legal counsel such filing would, at such time, require the disclosure of material information that the Company has a bona fide business purpose for preserving as confidential or would require the providing of information required by the Securities Exchange Commission or the Securities Act (or the rules and regulations promulgated thereunder) that at such time the Company would be unable to provide. At such time as it shall file the Registration Statement, the Company shall also make such filings with each state securities commission or agency of any states of the United States reasonably requested by each participating Restricted Non-Affiliate ("Participating Holder") in writing as are required to permit the Participating Holders to sell or otherwise dispose of any and all Common Stock in such states; provided, however, that the Company shall not be obligated to qualify as a foreign corporation to do business under the laws of any jurisdiction in which it shall then be qualified or to file any consent to service or process in any jurisdiction in which such a consent has been previously (and is not then) filed. The Company agrees to use its best efforts to cause the Registration Statement to become effective and to remain effective until the earlier to occur of (i) the completion of the Participating Holders' distribution of their Common Stock; (ii) that date after which the Exchange Shares held by the Participating Holders may be sold pursuant to Rule 144 under the Securities Act; and (iii) 60 days after the -13- effective date of the Registration Statement. Each of the Participating Holders undertakes to provide all such information and materials and take all such actions as may be required in order to permit the Company to comply with all applicable requirements of the Securities Exchange Commission and the Securities Act (and the rules and regulations promulgated thereunder), to obtain any desired acceleration of the effective date of the Registration Statement and to comply with all requirements of applicable state blue sky laws or other administrative agencies of states of the United States. (b) Expenses. The Company shall bear the following fees, costs and -------- expenses with respect to filing of the Registration Statement pursuant to Section 15(a): all registration, filing and NASD fees, printing expenses, fees and disbursements of counsel and accountants for the Company, all internal Company expenses, the premiums and other costs of policies of insurance against liability arising out of the public offering, and all legal fees and disbursements and other expenses of complying with state securities or blue sky laws of any jurisdictions in which the securities to be offered are to be registered or qualified. Fees and disbursements of counsel and accountants for the Participating Holders, underwriting discounts and commissions and transfer taxes for Participating Holders and any other expenses incurred by the Participating Holders not expressly included above shall be borne by the Participating Holders. (c) Indemnification. For all Exchange Shares included in the Registration --------------- Statement under Section 15(a): (i) The Company will indemnify and hold harmless each Participating Holder whose Exchange Shares are included in the Registration Statement pursuant to the provisions of this Section 15 and each person, if any, who controls such holder within the meaning of the Securities Act, from and against any and all loss, damage, liability, cost and expense to which such holder or any such underwriter or controlling person may become subject under the Securities Act or otherwise, insofar as such losses, damages, liabilities, costs or expenses are caused by any untrue statement or alleged untrue statement of any material fact contained in such registration statement, any prospectus contained therein or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading; provided, however, that the Company will not be liable to the Participating Holders in any such case to the extent that any such loss, damage, liability, cost or expense arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission so made in conformity with information furnished by such Participating Holder. -14- (ii) Each Participating Holder of Exchange Shares which are included in a registration pursuant to the provisions of this Section 15 will indemnify and hold harmless the Company, any controlling person and any underwriter from and against any and all loss, damage, liability, cost or expense to which the Company or any controlling person and/or any underwriter may become subject under the Securities Act or otherwise, insofar as such losses, damages, liabilities, costs or expenses are caused by any untrue or alleged untrue statement of any material fact contained in such registration statement, any prospectus contained therein or any amendment or supplement thereto, or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was so made in reliance upon and in conformity with information furnished by such Participating Holder. (iii) Promptly after receipt by an indemnified party pursuant to the provisions of paragraph (i) or (ii) of this Section 15(c) of notice of the commencement of any action involving the subject matter of the foregoing indemnity provisions, such indemnified party will, if a claim thereof is to be made against the indemnifying party pursuant to the provisions of said paragraph (i) or (ii), promptly notify the indemnifying party of the commencement thereof, but the omission to so notify the indemnifying party will not relieve it from any liability which it may have to any indemnified party otherwise than hereunder. In case such action is brought against any indemnified party and it notifies the indemnifying party of the commencement thereof, the indemnifying party shall have the right to participate in, and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel satisfactory to such indemnified party; provided, however, if the defendants in any action include both the indemnified party and the indemnifying party and there is a conflict of interest which would prevent counsel for the indemnifying party from also representing the indemnified party, the indemnified party or parties shall have the right to select separate counsel to participate in the defense of such action on behalf of such indemnified party or parties. After notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party will not be liable to such indemnified party pursuant to the provisions of said paragraph (i) or (ii) for any legal or other expense subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation, unless (A) the indemnified party shall have employed counsel in accordance with the proviso of the preceding sentence, (B) the indemnifying party shall not have employed counsel satisfactory to the indemnified party to represent the indemnified party within a reasonable time after the notice of the -15- commencement of the action, or (C) the indemnifying party has authorized the employment of counsel for the indemnified party at the expense of the indemnifying party. (d) Registration Rights of Transferees; Others. The registration rights ------------------------------------------ granted to the holders of Exchange Shares pursuant to this Section 15 are not transferable. No holder of Exchange Shares whose Exchange Shares are not the subject of an agreement with the Company or Dillon Read not to sell such Exchange Shares during the Lockup Period shall have any rights under this Section 15. (e) Definitions. For purposes of this Section 15: ----------- (i) "Non-Affiliate" shall refer to and include any Partner (including, for purposes of this definition, RIMCO Partners) who receives Exchange Shares as part of the Reorganization and who is not an officer, director or employee of the Company, or is not the beneficial holder of ten percent (10%) or more of the outstanding shares of Common Stock either at the time immediately following the Reorganization or at the time of a request made pursuant to Section 15(a) hereof. "Non-Affiliate" shall also include any equityholder of such Partner who receives Exchange Shares distributed by such Partner after consummation of the Reorganization so long as such equityholder also qualifies as a "Non-Affiliate" under the terms of the foregoing sentence. (ii) "Exchange Shares" shall refer to and include the shares of Common Stock issuable to the Partners (including, for purposes of this definition, RIMCO Partners) pursuant to the terms and conditions of Section 1 of this Agreement and any shares of capital stock of the Company issued with respect to, or in exchange for, any of the foregoing in any corporate recapitalization or corporate restructuring. 16. CONDITIONS OF THE COMPANY'S OBLIGATION. The obligation of the Company -------------------------------------- to consummate the transactions contemplated hereby is subject to the fulfillment prior to or on the Closing Date of the conditions set forth in this Section 16, any of which may be waived by the Company in its sole discretion. In the event that any such condition is not satisfied to the satisfaction of the Company with respect to any Partner or RIMCO or in the event that one or more of the Partners do not proceed with the exchange of shares such Partner has committed to exchange or RIMCO does not exercise the RIMCO Option, then the Company shall not be obligated to consummate any of the transactions contemplated hereby with any of the Partners or with RIMCO Partners. (a) No Errors, etc. The representations and warranties of each Partner -------------- and RIMCO under this Agreement shall be true in all material respects as of the Closing Date with the same effect as though made on and as of the Closing Date. -16- (b) Compliance with Agreement. Each Partner and RIMCO shall have ------------------------- performed and complied with all agreements or conditions required by this Agreement to be performed and complied with by it prior to or as of the Closing Date. (c) Certificate of General Partner. The General Partner shall have ------------------------------ delivered to the Company a certificate, dated the Closing Date, executed by or on behalf of the Partners and certifying to the satisfaction of the conditions specified in Sections 16(a) and 16(b). (d) Certificate of RIMCO. RIMCO shall have delivered to the Company a -------------------- certificate, dated the Closing Date, executed by RIMCO on behalf of RIMCO Partners and certifying to the satisfaction of the conditions specified in Sections 16(a) and 16(b). (e) Proceedings and Documents. All proceedings and actions taken in ------------------------- connection with the transactions contemplated hereby and all certificates, agreements, instruments and documents mentioned herein or incident to any such transaction shall be satisfactory in form and substance to legal counsel for the Company. (f) The Reorganization. All consents, authorizations, approvals, permits ------------------ or orders of or filings with all governmental and regulatory authorities shall have been obtained for the Reorganization and the transactions comprising the Reorganization (other than any such consents, authorizations, approvals, permits or orders of or filings required under the Securities Act or state securities laws); all consents to the Reorganization and the transactions comprising the Reorganization required pursuant to any agreement or instrument to which the Company or any party involved in the Reorganization is a party or by which it or any of its properties, assets or rights is bound or affected shall have been obtained; and there shall be no legal actions, suits, arbitrations or other legal, administrative or governmental proceedings or investigations pending or threatened against the Company or any of the parties involved in the Reorganization in connection with, relating to or arising out of the Reorganization or the transactions comprising the Reorganization. 17. CONDITIONS OF THE GENERAL PARTNER'S AND RIMCO'S OBLIGATIONS. The ----------------------------------------------------------- obligations of the General Partner and RIMCO to consummate the transactions contemplated hereby is subject to the fulfillment prior to or on the Closing Date of the conditions set forth in this Section 17, any of which may be waived by the General Partner or RIMCO, as the case may be, in their sole discretion. (a) No Errors, etc. The representations and warranties of the Company --------------- under this Agreement shall be true in all material respects as of the Closing Date with the same effect as though made on and as of the Closing Date. -17- (b) Compliance with Agreement. The Company shall have performed and ------------------------- complied with all agreements or conditions required by this Agreement to be performed and complied with by it prior to or as of the Closing Date. (c) Certificate of Officers. The Company shall have delivered to the ----------------------- General Partner and RIMCO a certificate, dated the Closing Date, executed by its Chief Executive Officer, President or Chief Financial Officer and certifying to the satisfaction of the conditions specified in Sections 17(a) and 17(b) to the extent such conditions relate to the Company. (d) Proceedings and Documents. All corporate and other proceedings and ------------------------- actions taken in connection with the transactions contemplated hereby and all certificates, opinions, agreements, instruments and documents mentioned herein or incident to any such transaction shall be satisfactory in form and substance to the Partners. (e) The Reorganization. All consents, authorizations, approvals, permits ------------------ or orders of or filings with all governmental and regulatory authorities shall have been obtained for the Reorganization and the transactions comprising the Reorganization (other than any such consents, authorizations, approvals, permits or orders of or filings required under the Securities Act or state securities laws); all consents to the Reorganization and the transactions comprising the Reorganization required pursuant to any agreement or instrument to which the Company or any party involved in the Reorganization is a party or by which it or any of its properties, assets or rights is bound or affected shall have been obtained; and there shall be no legal actions, suits, arbitrations or other legal, administrative or governmental proceedings or investigations pending or threatened against the Company or any of the parties involved in the Reorganization in connection with, relating to or arising out of the Reorganization and the transactions comprising the Reorganization. 18. MISCELLANEOUS. ------------- (a) Changes, Waivers, etc. Neither this Agreement nor any provision --------------------- hereof may be changed, waived, discharged or terminated orally, but only by a statement in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought. (b) Notices. All notices, requests, consents and other communications ------- required or permitted hereunder shall be in writing and shall be delivered, or mailed first-class postage prepaid, registered or certified mail, (i) if to a Partner, addressed to such holder at its address as shown on the books of the Partnership, or at such other address as such holder may specify by written notice to the Company, -18- (ii) if to RIMCO or RIMCO Partners, at Resource Investors Management Company, 22 Waterville Road, Avon, Connecticut 06001, Attention: David R. Whitney; or at such other address as RIMCO may specify by written notice to the Partnership and the Company, or (iii) if to the Company, at 5613 DTC Parkway, Suite 400, Englewood, Colorado 80111, Attention: Brian T. O'Neill; or at such other address as the Company may specify by written notice to the General Partners, and such notices and other communications shall for all purposes of this Agreement be treated as being effective or having been given if delivered personally, or, if sent by mail, on the day which is three days after such notice or communication is sent. (c) Survival of Representations and Warranties, etc. All representations ----------------------------------------------- and warranties contained herein shall survive the execution and delivery of this Agreement, any investigation at any time made by or on behalf of the Partners, the General Partner, RIMCO or the Company, and the transactions contemplated hereby. (d) Headings. The headings of the articles and sections of this Agreement -------- have been inserted for convenience of reference only and do not constitute a part of this Agreement. (e) Choice of Law. The laws of Delaware shall govern the validity of this ------------- Agreement, the construction of its terms and the interpretation of the rights and duties of the parties hereunder. The parties hereby agree that all disputes arising hereunder shall be submitted to and hereby subject themselves to the jurisdiction of the courts of competent jurisdiction, state and federal, in the State of Delaware. (f) Attorneys' Fees. In the event that any action is brought by a party --------------- to this Agreement, the prevailing party's attorneys' fees and costs shall be paid by the nonprevailing party. (g) Counterparts. This Agreement may be executed in two or more ------------ counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. -19- IN WITNESS WHEREOF, each of the Company, the Partnership and RIMCO has caused this Agreement to be executed by its duly authorized representative, and the General Partner has executed this Agreement on behalf of each of the Partners pursuant to a power-of-attorney granted by each Partner to the General Partner. MARKWEST HYDROCARBON, INC. MARKWEST HYDROCARBON PARTNERS, LTD. By: MWHC Holding, Inc. By /s/ Brian T. O'Neill Its general partner -------------------------------- Brian T. O'Neill, Senior Vice President By /s/ Brian T. O'Neill --------------------------- Brian T. O'Neill, Senior Vice President PARTNERS: All Partners, pursuant to powers of attorney and authorizations executed in favor of, and granted and delivered to, the General Partner: By: MWHC Holding, Inc. Its general partner By /s/ Brian T. O'Neill -------------------------------- Brian T. O'Neill, Senior Vice President RIMCO ASSOCIATES, INC., general partner of Resources Investors Management Company Limited Partnership, general partner of RIMCO Partners, L.P. and RIMCO Partners, L.P. II By:/s/ David R. Whitney -------------------------------- David R. Whitney Its: -20- EXHIBIT A ---------
Partner Name Percentage Interest Share Amount ------------ ------------------- ------------ Adkins, William 0.1367% 6,837 Brown, Dan 0.0569% 2,847 Crabtree, Brent A. Trust 1.5028% 75,140 Crabtree, Brian T. Trust 1.5028% 75,140 Crabtree, Carrie L. Trust 1.5028% 75,140 Denney, Arthur 1.0652% 53,258 Erin Investments 10.5194% 525,968 Fox, Marjorie S. 1.5477% 77,383 Garvin, Robert 0.0535% 2,673 Harvey, Rita 0.0873% 4,367 Holland, Katherine 0.1691% 8,453 La Rue, Michael 0.3196% 15,980 MarkWest Hydrocarbon, Inc. 66.5450% 3,327,248 Murray, Pat 1.6959% 84,795 Nickel, Henry 0.1078% 5,389 Nickerson, Randy 0.1448% 7,237 O'Meara, Joseph D. 0.1354% 6,769 O'Neill, Brian 3.9092% 195,461 O'Neill, Erin B. Trust 0.1529% 7,648 O'Neill, Kellen L. Trust 0.1529% 7,648 O'Neill, Shannon Eileen 0.1529% 7,648 Reed, Tom 0.9017% 45,085 RIMCO Partners, L.P. 2.4920% 124,600 RIMCO Partners, L.P. II 1.0080% 50,400 Shato, Fred 0.2430% 12,149 Simms, Rick 0.0713% 3,566 Smith, Ron 0.0337% 1,684 Spector, Barry 0.0996% 4,979 The Murray Company 2.5048% 125,238 Vance, Lisbeth Fox 0.9570% 47,849 Warner, Warren 0.2285% 11,421 ------ --------- Total 100.0000% 5,000,000 ========= =========
EX-10.2 5 MODIFICATION AGREEMENT MODIFICATION AGREEMENT This Modification Agreement (this "Agreement") dated as of July 31, 1996, --------- is by and among MARKWEST HYDROCARBON PARTNERS, LTD., a Colorado limited partnership ("Borrower"), MARKWEST HYDROCARBON, INC., a Delaware corporation -------- (the "Company"), NORWEST BANK COLORADO, NATIONAL ASSOCIATION (successor to ------- Norwest Bank Denver, National Association), a national banking association, ("Norwest"), FIRST AMERICAN NATIONAL BANK, a national banking association ------- ("First American"), and N M ROTHSCHILD AND SONS LIMITED, a company organized and -------------- existing under the laws of England ("Rothschild") (Norwest, First American and ---------- Rothschild are referred to individually as a "Lender" and collectively as the ------ "Lenders"), and NORWEST, AS AGENT FOR THE LENDERS (in such capacity, the ------- "Agent"). ----- RECITALS -------- A. Borrower, Agent and Lenders are parties to (i) that certain Loan Agreement dated as of November 20, 1992, as amended by a First Amendment to Loan Agreement dated as of September 14, 1993, a Second Amendment to Loan Agreement dated as of March 23, 1994, a Third Amendment to Loan Agreement dated as of September 8, 1995, and a Fourth Amendment to Loan Agreement dated as of May 31, 1996 (as amended, the "Revolver/Term Loan Agreement"), and (ii) that certain ---------------------------- Working Capital Loan Agreement dated as of November 20, 1992, as amended by a First Amendment to Working Capital Loan Agreement dated as of March 23, 1994, a Second Amendment to Working Capital Loan Agreement dated as of September 8, 1995, and a Third Amendment to Working Capital Loan Agreement dated as of May 31, 1996 (as amended, the "Working Capital Loan Agreement") (the Revolver/Term ------------------------------ Loan Agreement and the Working Capital Loan Agreement are referred to herein collectively as the "Loan Agreements"). Unless otherwise defined herein, --------------- capitalized terms used herein shall have the meaning assigned to them in the Loan Agreements. B. Borrower and related entities propose to carry out a reorganization and initial public offering pursuant to which Borrower will be dissolved and all of the assets and liabilities of Borrower will be assigned to and assumed by the Company. Such reorganization and public offering (collectively, the "Reorganization") are more fully described in its Registration Statement, Form -------------- S-1, to be filed by the Company with the Securities and Exchange Commission (the "Registration Statement"). ---------------------- C. The consent of the Lenders and Agent is required under the terms of the Loan Agreements in order for Borrower and the Company to carry out the Reorganization, and the parties accordingly desire to set forth their agreement concerning the terms on which Agent and the Lenders grant such consent. AGREEMENT --------- NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Borrower, the Company, Agent, and each of the Lenders hereby agree as follows: 1. Consent to Reorganization. The Lenders and Agent hereby consent to ------------------------- the transactions included in the Reorganization as described in the Registration Statement, including without limitation the $10,000,000 partial distribution of partnership capital by Borrower (the "Partnership Distribution") which will be ------------------------ funded by an advance under the Revolver/Term Loan Agreement, subject to satisfaction of the conditions set forth in Section 4 below. 2. Status of Reorganization. Prior to the consummation of the ------------------------ Reorganization, the Company shall keep Agent and the Lenders fully informed as to any material changes either to the Registration Statement or to the transactions and events to be carried out in connection with the Reorganization. 3. Amended Loan Documents. Subject to satisfaction of the conditions of ---------------------- Agent and the Lenders set forth in Section 4, contemporaneously with consummation of the Reorganization Agent, the Lenders and the Company shall execute the following amended loan documents to reflect the assignment and assumption by the Company of Borrower's obligations pursuant to the Reorganization: a. Amended and restated loan agreements which shall contain the current terms and conditions set forth in the Loan Agreements, modified as appropriate to reflect the Reorganization, and which shall contain such other terms and conditions as the Lenders shall deem reasonably appropriate in good faith. b. Amendments to the existing Security Documents and continuation statements for existing financing statements as necessary and appropriate in the Lenders' sole discretion to preserve the validity and priority of the liens and security interests currently held by Agent and the Lenders pursuant to the existing Security Documents; and c. Replacement Notes and any other documents deemed necessary or advisable by the Lenders in their sole discretion in order to properly document the assignment and assumption by the Company of Borrower's obligations under the Loan Agreements pursuant to the Reorganization. 4. Conditions to Consent. The consent of the Lenders and Agent set forth --------------------- in Section 1 above and the other obligations of the Lenders and Agent pursuant to this Agreement are subject to satisfaction of the following conditions: 2 a. In addition to the Assignment and Assumption Agreement executed by the Company in connection with the Reorganization, the Company shall have executed a separate Assumption Agreement containing an express assumption by the Company of Borrower's obligations under, and a specific description acceptable to the Lenders of, the Loan Agreements, the Security Documents and all other agreements executed in connection therewith; b. Prior to and at the consummation of the Reorganization the Company shall not have granted, and there shall not exist against the Company or its assets any judgment, lien, encumbrance, burden or claim of any kind that would attach to the assets of Borrower to be assigned to the Company in connection with the Reorganization except liens and encumbrances existing as a result of the Loan Agreements; c. Prior to consummation of the Reorganization, the Company shall have executed and delivered to Agent UCC financing statements (the "Company ------- Financing Statements") covering all of the assets of Borrower that are to be - -------------------- assigned to the Company and that are covered by financing statements executed by Borrower in connection with the Loan Agreements, and the Company Financing Statements shall have been properly filed in all appropriate jurisdictions designated by Agent; d. Agent shall be satisfied in its sole discretion and shall have received an opinion of counsel for the Company that upon consummation of the Reorganization the Lenders will have a perfected first priority lien and security interest in the assets assigned to the Company by Borrower; e. Prior to consummation of the Reorganization, the Company shall have obtained all necessary consents, permissions and approvals by third parties or governmental authorities in connection with the transfer of the assets of Borrower to the Company and the transfer of all governmental permits and licenses held by Borrower in connection with the operation of its business, and the Company shall have obtained all necessary waivers of preferential and similar rights of third parties to purchase any portion of such assets; f. No event or other circumstance shall have occurred or exist that would cause the financial condition of the Company upon consummation of the Reorganization to be materially and adversely different from the pro forma financial statements for the Company set forth in the Registration Statement; g. Except for the Partnership Distribution and the other elements of the Reorganization that would violate the terms of the Loan Agreements but for the consent set forth in Section 1 above, no Event of Default or Unmatured Event of 3 Default under the Loan Agreements shall have occurred or be continuing, all representations and warranties contained in Section 7 of the Revolver/Term Loan Agreement shall be true in all material respects (except those affected by the occurrence of the Reorganization), and Borrower and the Company shall have satisfied in all material respects their covenants and obligations under this Agreement; h. Borrower shall have obtained and delivered to Agent all releases and termination statements necessary to release or terminate of record all security instruments and financing statements executed in connection with the RIMCO Loan; i. No order shall have been entered by any court or governmental agency having jurisdiction over the parties or the subject matter of this Agreement that restrains or prohibits the Reorganization or the other transactions contemplated by this Agreement and which remains in effect at the time of the Reorganization and the other transactions contemplated hereby; j. Lenders shall have received an opinion of Dorsey & Whitney, LLP, counsel for the Company, addressed to Lenders and Agent, in form and substance satisfactory to Agent, concerning the legal issues set forth in paragraphs 1 through 7 of the Borrower's counsel opinion attached as Exhibit E to the Revolver/Term Loan Agreement, modified as appropriate to cover the Reorganization and the transactions contemplated by this Agreement; k. The amended loan documents referenced in Section 3 shall have been executed and delivered by the Company, Agent and the Lenders; and l. Prior to making the $10,000,000 advance under the Revolver/Term Loan Agreement (the "Distribution Advance") that will be used to fund the -------------------- Partnership Distribution, (i) the Lenders shall have received from the Borrower and the Company all information requested by the Lenders concerning the status of the Company's public offering, (ii) the Lenders shall be satisfied in their sole discretion that net proceeds from the Company's public offering will be sufficient to repay the Distribution Advance promptly upon completion of the Reorganization, and (iii) the Lenders shall be satisfied in their sole discretion that there has been no material adverse change from the financial condition of the Borrower on the date of this Agreement to the anticipated financial condition of the Company upon completion of the Reorganization. 5. Repayment of Distribution Advance. If the Distribution Advance and --------------------------------- the Partnership Distribution occur as described in the Registration Statement and thereafter for any reason the Reorganization does not occur (so that the assets of Borrower are not transferred to the Company and Borrower's obligations under the 4 Loan Agreements are not assumed by the Company), then in such event the consent and all waivers given by Lenders hereunder as to the Loan Agreements and the Partnership Distribution shall be deemed revoked, and Borrower shall repay the Distribution Advance within 30 days after the date the Partnership Distribution is made. 6. Counterparts. This Agreement may be executed in one or more ------------ counterparts, with each party signing on different counterparts, each of which shall be deemed an original, and all of which together shall constitute but one and the same instrument. Delivery of an executed counterpart of this Agreement by telecopy shall be equally effective as delivery of a manually executed counterpart of this Agreement, but the failure to deliver a manually executed counterpart shall not affect the validity, enforceability and binding effect of this Agreement. EXECUTED as of the date first above written. BORROWER: - --------- MARKWEST HYDROCARBON PARTNERS, LTD., a Colorado limited partnership By: MWHC HOLDING, INC., its General Partner By: /s/ Brian T. O'Neill By: /s/ Rita E. Harvey ------------------------------------ ----------------------------- Brian T. O'Neill, Sr. Vice President Rita E. Harvey, Treasurer THE COMPANY: - ------------ MARKWEST HYDROCARBON, INC., a Delaware corporation By: /s/ Brian T. O'Neill By: /s/ Rita E. Harvey ------------------------------------ --------------------------- Brian T. O'Neill, Sr. Vice President Rita E. Harvey, Treasurer 5 LENDERS: - -------- NORWEST BANK COLORADO, NATIONAL ASSOCIATION (successor to Norwest Bank Denver, National Association), a national banking association By: /s/ Thomas M. Foncannon ---------------------------- Thomas M. Foncannon Vice President FIRST AMERICAN NATIONAL BANK, a national banking association By: /s/ Mariah G. Lundberg ---------------------------- Mariah G. Lundberg Assistant Vice President N M ROTHSCHILD AND SONS LIMITED, a company organized and existing under the laws of England By: /s/ Andrew Wright By: /s/ Kelvin Russell -------------------------- ------------------------- Name: Andrew Wright Name: Kelvin Russell ------------------------ ----------------------- Title: Assistant Director Title: Assistant Director ----------------------- ----------------------- AGENT: - ------ NORWEST BANK COLORADO, NATIONAL ASSOCIATION (successor to Norwest Bank Denver, National Association), a national banking association By: /s/ Thomas M. Foncannon ---------------------------- Thomas M. Foncannon Vice President 6 EX-10.3 6 AMENDED AND RESTATED MORTGAGE (Gathering System Properties) AMENDED AND RESTATED MORTGAGE, ASSIGNMENT, SECURITY AGREEMENT AND FINANCING STATEMENT FROM WEST SHORE PROCESSING COMPANY, LLC, MORTGAGOR TO BANK OF AMERICA ILLINOIS, LENDER Dated as of May 2, 1996 A CARBON, PHOTOGRAPHIC, FACSIMILE, OR OTHER REPRODUCTION OF THIS INSTRUMENT IS SUFFICIENT AS A FINANCING STATEMENT. THIS INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS, SECURES PAYMENT OF FUTURE ADVANCES, AND COVERS PROCEEDS OF COLLATERAL. THIS INSTRUMENT SHALL BE EFFECTIVE AS A FINANCING STATEMENT FILED AS A FIXTURE FILING WITH RESPECT TO ALL FIXTURES INCLUDED IN THE PROPERTY, AND IS TO BE FILED FOR RECORD, AMONG OTHER PLACES, IN THE REAL ESTATE OR COMPARABLE RECORDS OF THE COUNTIES REFERENCED IN EXHIBIT A HERETO. THE MORTGAGOR HAS AN INTEREST OF RECORD IN THE REAL ESTATE CONCERNED, WHICH INTEREST IS DESCRIBED IN SECTION 1.1 OF THIS INSTRUMENT. A POWER OF SALE HAS BEEN GRANTED IN THIS MORTGAGE. A POWER OF SALE MAY ALLOW - ---------------------------------------------------------------------------- LENDER (AS HEREINAFTER DEFINED) TO TAKE THE MORTGAGED PROPERTIES AND SELL THEM - ------------------------------------------------------------------------------ WITHOUT GOING TO COURT IN A FORECLOSURE ACTION UPON DEFAULT BY THE MORTGAGOR (AS - -------------------------------------------------------------------------------- HEREINAFTER DEFINED) UNDER THIS MORTGAGE. - ----------------------------------------- WARNING; THIS MORTGAGE CONTAINS A POWER OF SALE AND UPON DEFAULT MAY BE - ----------------------------------------------------------------------- FORECLOSED BY ADVERTISEMENT. IN FORECLOSURE BY ADVERTISEMENT AND THE SALE OF THE - -------------------------------------------------------------------------------- PROPERTY IN CONNECTION THEREWITH, NO HEARING IS REQUIRED AND THE ONLY NOTICE - ---------------------------------------------------------------------------- REQUIRED IS THE PUBLICATION OF NOTICE IN A LOCAL NEWSPAPER AND THE POSTING OF A - ------------------------------------------------------------------------------- COPY OF THE NOTICE ON THE PROPERTY. - ----------------------------------- WHEN RECORDED OR FILED RETURN TO: Rex A. Palmer Mayer, Brown & Platt 190 South LaSalle Street Chicago, Illinois 60603 AMENDED AND RESTATED MORTGAGE, ASSIGNMENT, SECURITY AGREEMENT AND FINANCING STATEMENT THIS AMENDED AND RESTATED MORTGAGE, ASSIGNMENT, SECURITY AGREEMENT AND FINANCING STATEMENT (this "Mortgage"), dated as of May 2, 1996, is from West ------------ Shore Processing Company, LLC, a Michigan limited liability company (herein called the "Mortgagor"), to BANK OF AMERICA ILLINOIS, an Illinois banking ------------- corporation having offices at 231 South LaSalle Street, Chicago, Illinois 60697 (herein called "Lender"). RECITALS: 1. Manistee Gas Limited Liability Company, a Wyoming limited liability company ("Manistee"), has previously executed, acknowledged and delivered to ------------- Michigan Gas Fund I, a Texas general partnership ("MGF"), that certain Mortgage, -------- Assignment, Security Agreement and Financing Statement dated as of December 1, 1993, which was recorded and filed as set forth on Schedule 1 attached hereto, ---------- as amended by that certain First Supplement to Mortgage, Assignment, Security Agreement and Financing Statement dated March 30, 1994, which was recorded and filed as set forth on Schedule 1 attached hereto, and as amended by that certain ---------- Second Supplement to Mortgage, Assignment, Security Agreement and Financing Statement dated October 24, 1994, which was recorded and filed as set forth on Schedule 1 attached hereto (such mortgage, as so amended, the "Original Plant - ---------- --------------- and Gathering System Mortgage"). - -------------------------------- 2. In order to secure the indebtedness to and performance of all obligations of MGF under (i) that certain Interim Construction and Acquisition Facility Credit Agreement dated as of December 1, 1993 (as amended, the "Interim -------- Credit Agreement"), between MGF and Den norske Bank AS, a Norwegian Bank ("Den - ------------------- norske"), (ii) that certain Term Credit Agreement dated as of December 1, 1993 (as amended to the date hereof, the "Original Term Credit Agreement"), ---------------------------------- originally entered into between MGF and Den norske and (iii) that certain Trust Indenture and Security Agreement dated as of December 1, 1993, between MGF, Manistee, Basin Pipeline, L.L.C., a Michigan limited liability company ("Basin"), and Bankers Trust Company ("Trustee"), as trustee for Den norske, as ------------ amended by that certain First Amendment to Trust Indenture and Security Agreement dated March 30, 1994, that certain Second Amendment to Trust Indenture and Security Agreement dated as of June 30, 1994, that certain Third Amendment to Trust Indenture and Security Agreement dated as of October 24, 1994, and that certain Fourth Amendment to Trust Indenture and Security Agreement dated as of December 29, 1995, each entered into among MGF, Manistee, Basin and Trustee (as so amended, the "Original Indenture"), MGF pledged, assigned and transferred to ---------------------- Trustee, for the benefit of Den norske, all MGF's right, title and interest in, to and under the Original Plant and Gathering System Mortgage, among other rights and interests, pursuant to that certain Collateral Assignment of Notes and Liens by MGF in favor of Bankers Trust, as trustee, dated as of December 1, 1993, which was recorded as set forth on Schedule 1 attached hereto, as amended ---------- by that Certain Amended and Restated Collateral Assignment of Notes and Liens dated as of March 31, 1994, which was recorded as set forth on Schedule 1 ---------- attached hereto, as amended by that certain Second Amended and Restated Collateral Assignment of Notes and Liens dated as of December 29, 1995, which was recorded as set forth on Schedule 1 attached hereto. ---------- 3. On December 29, 1995, Bank of America Illinois, an Illinois banking corporation (the "Lender") purchased all of Den norske's interests under the Original Term Credit Agreement and has succeeded to the interest of Den norske under the Original Term Credit Agreement and under the Original Indenture and in connection therewith, Den norske has granted, sold, conveyed, transferred and assigned to the Lender all Den norske's right, title and interest in, to and under the Term Credit Agreement, the Term Note and the Original Indenture, pursuant to that certain Assignment of Notes and Liens dated as of December 29, 1995, which was recorded and filed as set forth on Schedule 1 attached hereto. ---------- 4. Pursuant to that certain Conveyance dated as of March 29, 1996, Manistee has transferred to Michigan Energy Company, L.L.C., a Michigan limited liability company ("MEC"), all of its right, title and interest in those certain properties described below as the "Property" (which properties, and certain other properties, are encumbered by and are subject to the Original Plant and Gathering System Mortgage) and, in connection with such Conveyance, MEC and Michigan Production Company, L.L.C, a Michigan limited liability company ("MPC"), have assumed the debt of Basin and Manistee to MGF, including amounts owing under that certain note (the "First Note") in the face amount of -------------- $16,084,913 in favor of MGF. In a subsequent conveyance, MEC transferred to Mortgagor all interest in the Property which was transferred to it by Manistee in the above referenced conveyance. 5. MGF has granted, sold, conveyed, transferred and assigned to the Lender the First Note and, among other rights and interests, all of its right, title and interest in, to and under the Original Plant and Gathering System Mortgage, insofar as such Original Plant and Gathering System Mortgage relates to the Property (as defined below) covered hereby (such rights so assigned being herein called the "Partial Assigned Mortgage Rights"). The Original Plant and --------------------------------- Gathering System Mortgage has been segregated into two mortgages, one (the "Gathering System Mortgage") securing the First Note (which was assigned to - ---------------------------- Lender as discussed above) and covering the Property covered hereby, and the other (the "Plant Only Mortgage") securing certain indebtedness (other than the ---------------------- First Note) which was assigned to MEC and covering the certain Property (as defined in the Original Plant and Gathering System Mortgage) other than the Property covered hereby. Such assignment to Lender is an absolute assignment and not merely a collateral assignment as provided for in the documents described in Recital 2 above. 6. Concurrently herewith, MEC, MPC and the Lender are entering into that certain Amended and Restated Credit Agreement (herein, as the same may be amended, modified, restated or supplemented from time to time, called the "Amended and Restated Credit Agreement"), pursuant to which Lender has agreed to - ----------------------------------------- lend to MPC and MEC amounts not to exceed $30,000,000 at any time outstanding, and MPC and MEC, to evidence such indebtedness to Lender under the Amended and Restated Credit Agreement, have executed and delivered to Lender their promissory notes dated of even date herewith (herein collectively called the "Loan Note"), in the aggregate principal amount of $30,000,000 to mature on - ------------- December 31, 2000, the Loan Note being payable to the order of Lender, bearing interest at the rates provided for therein, and containing provisions for the payment of attorneys' fees and acceleration of maturity in the event of default, as set forth therein. 7. In order to secure repayment of the Loan Note and payment and performance of the Obligations (as defined in the Amended and Restated Credit Agreement), Mortgagor has executed and delivered to the Lender its Secured Guaranty, dated of even date herewith (herein, as the same may be from time to time amended, modified, restated or supplemented, called the "Guaranty"). ------------ 8. In order to secure repayment of the Guaranty and the Loan Note and payment and performance of the Obligations (as defined in the Amended and Restated Credit Agreement), Mortgagor and the Lender desire to enter into this Amended and Restated Mortgage, Deed of Trust, Assignment, Security Agreement and Financing Statement to confirm and ratify the Gathering System Mortgage, to mortgage certain additional property owned by Mortgage but not covered by the Gathering System Mortgage and to amend the Gathering System Mortgage to provide that it secures -2- the obligations of MEC and MPC under the Amended and Restated Credit Agreement. 9. MEC and MarkWest Michigan LLC, a Michigan limited liability company ("Markwest") are parties to that certain Participation, Ownership and Operating Agreement dated as of May 2, 1996 (the "Participation Agreement"), pertaining to --------------------------- the formation and capitalization of Mortgagor and Basin Pipeline, L.L.C., a Michigan limited liability company ("Basin"), pursuant to which Markwest will earn member interests in Mortgagor. 10. MEC, Markwest, Mortgagor and Basin are parties to that certain Subordination Agreement dated as of May 2, 1996 (the "Subordination Agreement"), -------------------------- pursuant to which Lender agreed that its rights, interests and remedies under and pursuant to this Mortgage, among other things, is subject and subordinate to the Participation Agreement. 11. The Mortgagor or its Affiliates (as defined in the Amended and Restated Agreement) may enter into certain Hedging Agreements (as defined in the Amended and Restated Credit Agreement) with Bank of America National Trust and Savings Association, an Affiliate of the Lender, pursuant to the terms of the Amended and Restated Credit Agreement. It is a condition precedent to the obligations of the Lender to make Loans under the Amended and Restated Credit Agreement and to the obligations of Bank of America National Trust and Savings Association under the Hedging Agreements referred to above, that the Mortgagor executes and delivers this instrument. WITNESSETH: ARTICLE I. Granting Clauses; Indebtedness ------------------------------ Section 1.1. Grant and Mortgage. The Mortgagor for and in consideration of ------------------- the sum of Ten Dollars ($10.00) to Mortgagor in hand paid, and in order to secure the payment of the Indebtedness hereinafter referred to and the performance of the obligations, covenants, agreements, warranties and undertakings of Mortgagor hereinafter described, does hereby MORTGAGE AND WARRANT to the Lender and grant to Lender a POWER OF SALE (pursuant to this Mortgage and applicable law) with respect to, all of the following described rights, interests and properties (the "Mortgaged Properties"): ------------------------ A. The easements (collectively herein called the "Easements") ------------ described in Exhibit A attached hereto and made a part hereof or described in any instrument or document described in Exhibit A attached hereto; B. Without limitation of the foregoing, all other right, title and interest of Mortgagor of whatever kind or character (whether now owned or hereafter acquired by operation of law or otherwise) in and to the lands which are described in Exhibit A hereto (or which are described in any of the instruments or documents described in Exhibit A hereto), even though such interest of Mortgagor may be incorrectly described in, or omitted from, Exhibit A attached hereto; C. All of Mortgagor's interest in and rights under (whether now owned or hereafter acquired by operation of law or otherwise) the contracts and agreements described on Exhibit B attached hereto and made a part hereof and all other presently existing and hereafter created gas purchase agreements, gas sales agreements, product sales agreements, processing agreements, exchange agreements, gathering agreements, transportation agreements and other contracts and agreements which cover, affect, or otherwise relate to the Gathering Systems (below defined) or the gathering -3- and/or transportation of gas through such Gathering Systems, and all other contracts and agreements (including without limitation, equipment leases, maintenance agreements, electrical supply contracts and other contracts and agreements) which cover, affect or otherwise relate to the properties described in clauses A and B or the Gathering Systems (or to the operation thereof or the treating, handling, storing, transporting, or marketing of Production, below defined) (all of the foregoing being collectively herein called the "Certain Contracts"); --------------------- D. All of Mortgagor's interest (whether now owned or hereafter acquired by operation of law or otherwise) in and to all gathering systems and/or pipeline systems, and other improvements now or hereafter located on or in the lands which are described in Exhibit A hereto (or which are described in any of the instruments or documents described in Exhibit A hereto) and all materials, equipment, and other property now or hereafter located on such lands, or which are used or held for use, regardless of where the same are located, in connection with, or otherwise related to, such lands or such gathering systems, pipeline systems, or improvements (including, but not limited to, materials and supply inventory, surface or subsurface machinery and equipment, line pipe and pipe connections, fittings, flanges, wells or interconnects, valves, control equipment, cathodic or electrical protection units, by-passes, regulators, drips, meters and metering stations, compression equipment, pump houses and pumping stations, treating equipment, dehydration equipment, separation equipment, telephone, and other communication systems, office equipment and furniture, files and records, computer equipment and software) (all of the foregoing being herein called the "Gathering Systems"); and --------------------- E. All of Mortgagor's interest (whether now owned or hereafter acquired by operation of law or otherwise) in all permits, licenses, orders, franchises, certificates and other rights and privileges which are now used, or held for use, in connection with, or otherwise relate to, the ownership or operation of the Gathering Systems; TO HAVE AND TO HOLD the Mortgaged Properties unto Lender, and Lender's successors and assigns, upon the terms, provisions and conditions herein set forth. Section 1.2. Grant of Security interest. In order to further secure the --------------------------- payment of the Indebtedness hereinafter referred to and the performance of the obligations, covenants, agreements, warranties, and undertakings of Mortgagor hereinafter described, Mortgagor hereby grants to Lender a security interest in the entire interest of Mortgagor (whether now owned or hereafter acquired by operation of law or otherwise) in and to: (a) all oil, gas, other hydrocarbons and other minerals (and products processed or obtained from oil, gas, other hydrocarbons, or other minerals) now or hereafter located in or on, or transported or gathered through, or otherwise related to the Mortgaged Properties (including, without limitation, any and all of the same held as inventory) (the "Production"), -------------- and all proceeds thereof and all accounts, contract rights and general intangibles under which such proceeds may arise, and together with all liens and security interests securing payment of the proceeds of the Production, including, but not limited to, those liens and security interests provided for under statutes enacted in the jurisdictions in which the Mortgaged Properties are located; (b) without limitation of any other provisions of this Section 1.2, all payments received in lieu of payment for Production (regardless of whether such payments accrued, -4- and/or the events which gave rise to such payments occurred, on or before or after the date hereof), including, without limitation, "take or pay" or "minimum bill" payments and similar payments, payments received in settlement of or pursuant to a judgment rendered with respect to take or pay or minimum bill or similar obligations or other obligations under a sales contract, and payments received in buyout or buydown or other settlement of a contract covered hereby (the payments described in this subsection (b) being herein called "Payments in Lieu"); (c) all equipment, inventory, improvements, fixtures, accessions, goods and other personal property (of whatever nature) of Mortgagor now or hereafter located on or used or held for use in connection with, or otherwise related to, the Mortgaged Properties (or in connection with the operation thereof or the transporting, gathering or marketing of Production), and all accessions and appurtenances thereto, and all renewals or replacements of or substitutions for any of the foregoing; (d) all permits, licenses, orders, franchises, certificates, similar authorizations, and other rights and privileges now held or hereafter obtained in connection with the Mortgaged Properties or the Collateral (as hereinafter defined) (or in connection with the operation thereof or the transporting, gathering or marketing of Production), and all renewals or replacements of the foregoing or substitutions for the foregoing; (e) all contract rights, choses in action (i.e., rights to enforce contracts or to bring claims thereunder) and other general intangibles (regardless of whether the same arose, and/or the events which gave rise to the same occurred, on or before or after the date hereof) of Mortgagor, including without limitation those related to the Mortgaged Properties (or the operation thereof or the transporting, gathering or marketing of Production) including, without limitation, rights under the Certain Contracts); (f) Without limitation of the generality of the foregoing, any rights and interests of Mortgagor under any present or future hedge or swap agreements, cap, floor, collar, exchange, forward or other hedge or protection agreements or transactions relating to crude oil, natural gas or other hydrocarbons, or any option with respect to any such agreement or transaction now existing or hereafter entered into by or on behalf of Mortgagor; (g) all accounting, legal, title, technical and other business data concerning the Mortgaged Properties, the Production or any other item of Property (as hereinafter defined) or otherwise relating to Mortgagor's business which are now or hereafter in the possession of Mortgagor or in which Mortgagor can otherwise grant a security interest, and all books, files, records, magnetic media, and other forms of recording or obtaining access to such data; (h) all money, documents, instruments, chattel paper, securities, accounts or general intangibles of Mortgagor, including without limitation those arising from or by virtue of any transaction (regardless of whether such transaction occurred on or before or after the date hereof) related to the Mortgaged Properties, the Production or any other item of Property (all of the properties, rights and interests described in subsections (a), (b), (c), (d), (e) (f) and (g) above and this subsection (h) being herein sometimes collectively called the "Collateral"); and -------------- (i) all proceeds of the Collateral and of the Mortgaged Properties, whether such proceeds or payments are 39154715.6 -5- goods, money, documents, instruments, chattel paper, securities, accounts, general intangibles, fixtures, real property, personal property or other assets including, without limitation, insurance proceeds and condemnation proceeds (the Mortgaged Properties, the Collateral and the proceeds of the Collateral being herein sometimes collectively called the "Property"). ------------ Section 1.3. Guaranty Note, Loan Documents, Other Obligations. This ------------------------------------------------- Mortgage is made to secure and enforce the payment and performance of the following promissory notes, obligations, indebtedness and liabilities: A. Items of Indebtedness Secured. The following items of ------------------------------ indebtedness are secured hereby: a. The Guaranty, the Loan Note, and all other obligations and liabilities of MEC or MPC under the Amended and Restated Credit Agreement; b. All indebtedness evidenced by any promissory notes evidencing additional loans which the Lender may from time to time make to the Mortgagor or to MEC or to MPC, the Lender not being obligated, however, to make such additional loans; c. Any sums advanced or express or costs incurred by the Lender (or any receiver appointed hereunder) which are made or incurred pursuant to, or permitted by, the terms hereof, plus interest thereon at the rate herein specified or otherwise agreed upon, from the date of the advances or the incurring of such expenses or costs until reimbursed; d. Any and all other indebtedness of the Mortgagor or MEC or MPC to the Lender now or hereafter owing, whether direct or indirect, primary or secondary, fixed or contingent, joint or several, regardless of how evidenced or arising, including without limitation all Hedging Agreements (as defined in the Amended and Restated Credit Agreement) between the Mortgagor or MEC or MPC or any Affiliate (as defined in the Amended and Restated Credit Agreement) of the Mortgagor or MEC or MPC and the Lender or any Affiliate of the Lender, including, without limitation, Bank of America National Trust and Savings Association; and e. Any extensions, refinancings, modifications or renewals of all such indebtedness described in subparagraphs (a) through (d) ----------------- --- above, whether or not the Mortgagor or MEC or MPC executes any extension agreement or renewal instrument. B. Indebtedness. Notes and Loan Documents Defined. All the above ----------------------------------------------- items of indebtedness are hereinafter collectively referred to as the "Indebtedness". Any promissory note evidencing any part of the -------------- Indebtedness, including, without limitation, the Loan Note, is hereinafter referred to as a "Note", and all such promissory notes are hereinafter ------- referred to collectively as the "Notes". Loan Documents" means, ------- --------------- collectively, the Amended and Restated Credit Agreement, the Guaranty, the Note, and any all other instruments evidencing or securing the Indebtedness or otherwise executed in connection with the Amended and Restated Credit Agreement or the Indebtedness. "MEC Shares" means, as of any date of determination with respect to any asset, interest or property, the undivided proportionate beneficial interest of MEC in the Property represented and measured by MEC's ownership of equity interests in Mortgagor and Basin pursuant to the Participation Agreement. -6- Section 1.4. Future Advance Mortgage. This is a future advance mortgage within the meaning of Act. No. 348 of Michigan Public Acts of 1990. ARTICLE II. Section 2.1. Mortgagor covenants as follows: (a) Title and Permitted Encumbrances. Mortgagor covenants to maintain, ---------------------------------- good, defensible and marketable title to the Property, free and clear of all liens, security interests, and encumbrances except for (i) the liens and security interests evidenced by this Mortgage, (ii) statutory liens for taxes and assessments which are not yet delinquent, (iii) mechanics' and materialmen's liens, with respect to obligations which are not yet due, and (iv) other liens and security interests (if any) in favor of Lender, and (v) those items set forth on the Disclosure Schedule to the Participation Agreement or of record on the date hereof (the matters described in the foregoing clauses (i), (ii), (iii), (iv) and (v) being herein called the "Permitted Encumbrances"); Mortgagor will warrant and defend title to the Property, subject to the aforesaid exceptions, against the claims and demands of all persons claiming or to claim the same or any part thereof by, through or under Mortgagor, and not otherwise. There will not be any unexpired financing statement covering any part of the Property on file in any public office naming any party other than Lender as secured party. Upon request by Lender, Mortgagor will deliver to Lender schedules of all internal and third party information identifying the Property. (b) Leases and Contracts; Performance of Obligations. Mortgagor agrees ------------------------------------------------- to maintain each Easement, each Certain Contract, and each other contract or agreement forming a part of the Property in full force and effect, and all payments due and payable under the same, or otherwise attendant to the ownership or operation of the Property will be properly and timely paid. Mortgagor will fulfill all obligations coming due in the future under such Easements, Certain Contracts, and other contracts, agreements, or otherwise attendant to the ownership or operation of any part of the Property, where failure to do so could adversely affect the ownership or operation of the Property. (c) [Not used.] (d) Condition of Personal Property. The machinery, equipment, ------------------------------- inventory, improvements, fixtures, goods and other tangible personal property forming a part of the Property will remain in good repair and condition and will be adequate for the normal operation of the Property in accordance with prudent industry standards; all of such Property will remain, located on the Mortgaged Properties, except for that portion thereof which is or shall be located elsewhere (including that usually located on the Mortgaged Properties but temporarily located elsewhere) in the course of the normal operation of the Property. Upon request of Lender, Mortgagor will deliver to Lender an inventory and/or financing statements describing and showing the make, model, serial number and location of all machinery, equipment, inventory, fixtures, goods and other tangible personal property forming a part of the Property. (e) [Not used. ] (f) Operation of Mortgaged Properties. The Mortgaged Properties ---------------------------------- hereafter will be, operated and maintained in a good and workmanlike manner, in accordance with prudent -7- industry standards and in conformity with all applicable laws and all rules, regulations and orders of all duly constituted authorities having jurisdiction and in conformity with all contracts and agreements forming a part of the Property, and in conformity with the Permitted Encumbrances. (g) Sale or disposal. Mortgagor will not, without the prior written ----------------- consent of Lender or as permitted by Section 5.4 of the Participation ----------- Agreement, sell, exchange, lease, transfer, or otherwise dispose of any part of, or interest in, the Property other than (i) sales, transfers and other dispositions of machinery, equipment and other personal property and fixtures which are (A) obsolete for their intended purpose and disposed of in the ordinary course of business or (B) replaced by articles of at least equal suitability and value owned by Mortgagor free and clear of all liens except this Mortgage and the Permitted Encumbrances, and (ii) sales of Production which are made in the ordinary course of business and in compliance with Section 2.1(c) hereof; provided that nothing in clause (ii) shall be construed as limiting Lender's rights under Article III of this Mortgage. Mortgagor shall account fully and faithfully for and, if Lender so elects, shall promptly pay or turn over to Lender the proceeds in whatever form received from disposition in any manner of any of the Property. Mortgagor shall at all times keep the Property and its proceeds separate and distinct from other property of Mortgagor and shall keep accurate and complete records of the Property and its proceeds. (h) Payment and Discharge of Obligations. Mortgagor will pay and ------------------------------------- discharge when due all of its indebtedness and obligations. Mortgagor will file all required tax returns and will pay all taxes and other governmental charges or levies imposed upon or against its income, properties or profits, before the same became, or becomes, in default, including but not limited to all ad valorem taxes assessed against the Property or any part thereof and all franchise taxes, occupation taxes and all production, severance and other taxes assessed against, or measured by, the Production or the value, or proceeds, of the Production. (i) [Not used.] (j) Environmental. -------------- (A) Current status. The uses which Mortgagor intends to make --------------- of the Property will not result in the disposal or other release of any hazardous substance or solid waste on or to the Property. The terms "hazardous substance" and "release" as used in this Mortgage --------- shall have the meanings specified in the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986 (as amended, hereinafter called "CERCLA"), and the terms "solid waste" and ------------- "disposal" (or "disposed") shall have the meanings specified in the ---------- ----------- Resource Conservation and Recovery Act of 1976, as amended by the Used Oil Recycling Act of 1980, the Solid Waste Disposal Act Amendments of 1980, and the Hazardous and Solid Waste Amendments of 1984 (as amended, hereinafter called "RCRA"); provided, in the event either -------- CERCLA or RCRA is amended so as to broaden the meaning of any term defined thereby, such broader meaning shall apply subsequent to the effective date of such amendment and provided further, to the extent that the laws of the states in which the Mortgaged Properties are located establish a meaning for "hazardous substance," "release," "solid waste," or "disposal" which is broader than that specified in -8- either CERCLA or RCRA, such broader meaning shall apply. (B) Future Performance. Mortgagor will not cause or permit ------------------- the Property or Mortgagor, or cause the Associated Property (as defined below), to be in violation of, or do anything or permit anything to be done which will subject the Property to (or do anything which will subject the Associated Property to), any remedial obligations under any Applicable Environmental Laws, assuming disclosure to the applicable governmental authorities of all relevant facts, conditions and circumstances, if any, pertaining to the Property and the Associated Property and Mortgagor will promptly notify Lender in writing of any existing, pending or, to the best knowledge of Mortgagor, threatened investigation or inquiry by any governmental authority in connection with any Applicable Environmental Laws. Mortgagor will take all steps necessary to determine that no hazardous substances or solid wastes have been disposed of or otherwise released on or to the Property or the Associated Property, except as set forth on the Disclosure Statement to the Participation Agreement, Mortgagor will not cause or permit the disposal or other release of any hazardous substance or solid waste on or to the Property or the Associated Property and covenants and agrees to keep or cause the Property, or to the extent caused by Mortgagor the Associated Property, to be kept free of any hazardous substance or solid waste and to remove the same (or if removal is prohibited by law, to take whatever action is required by law) promptly upon discovery at its sole expense. Upon Lender's reasonable request, at any time and from time to time during the existence of this Mortgage, Mortgagor will provide at Mortgagor's sole expense an inspection or audit of the Property and the Associated Property from an engineering or consulting firm approved by Lender, indicating the presence or absence of hazardous substances and solid waste on the Property and/or the Associated Property. The term "Associated Property" as used in this Mortgage shall mean any and all interests in and to (and or carved out of) the lands included in the Property, or on which the Property is located, whether or not such property interests are owned by Mortgagor. (k) Condemnation of the Property; Proceeds. Immediately upon obtaining --------------------------------------- knowledge of the institution of any proceedings for the condemnation of the Property or any portion thereof, or any other proceedings arising out of injury or damage to the Property, or any portion thereof, Mortgagor will notify Lender of the pendency of such proceedings. Lender may participate in any such proceedings, and Mortgagor shall from time to time deliver to Lender all instruments requested by it to permit such participation. Mortgagor shall, at its expense, diligently prosecute any such proceedings, and shall consult with Lender, its attorneys and experts, and cooperate with them in the carrying on or defense of any such proceedings. All proceeds of condemnation awards or proceeds of sale in lieu of condemnation with respect to the Property and all judgments, decrees and awards for injury or damage to the Property shall be paid to Lender, and shall be applied toward costs, charges and expenses (including reasonable attorneys' fees), if any, incurred by Lender in the collection thereof, then to the payment, in the order determined by Lender in its own discretion, of the Indebtedness, and any balance remaining shall be subject to the order of Mortgagor. Mortgagor hereby assigns and transfers all such proceeds, judgments, decrees and awards to Lender and agrees to execute such further assignments of -9- all such proceeds, judgments, decrees and awards as Lender may request. Lender is hereby authorized, in the name of Mortgagor, to execute and deliver valid acquittance for, and to appeal from, any such judgment, decree or award. Lender shall not be, in any event or circumstances, liable or responsible for failure to collect, or exercise diligence in the collection of, any such proceeds, judgments, decrees and/or awards. (1) Defense of Mortgage. If the validity or priority of this Mortgage -------------------- or of any rights, titles, liens or security interests created or evidenced hereby with respect to the Property or any part thereof or the title of Mortgagor to the Property shall be endangered or questioned or shall be attacked directly or indirectly or if any legal proceedings are instituted against Mortgagor with respect thereto, Mortgagor will give prompt written notice thereof to Lender and at Mortgagor's own cost and expense will diligently endeavor to cure any defect that may be developed or claimed, and will take all necessary and proper steps for the defense of such legal proceedings, including, but not limited to, the employment of counsel, the prosecution or defense of litigation and the release or discharge of all adverse claims, and Lender (whether or not named as a party to legal proceedings with respect thereto) is hereby authorized and empowered to take such additional steps as in its judgment and discretion may be necessary or proper for the defense of any such legal proceedings or the protection of the validity or priority of this Mortgage and the rights, titles, liens and security interests created or evidenced hereby, including but not limited to the employment of independent counsel, the prosecution or defense of litigation, the compromise or discharge of any adverse claims made with respect to the Property, the purchase of any tax title and the removal of prior liens or security interests, and all expenditures so made of every kind and character shall be a demand obligation (which obligation Mortgagor hereby expressly promises to pay) owing by Mortgagor to Lender and shall bear interest from the date expended until paid at the rate described in Section 2.2 hereof, and the Lender shall be subrogated to all rights of the person receiving such payment. (m) Fees and Expenses: Indemnity. Mortgagor will reimburse Lender (for ----------------------------- purposes of this paragraph, the term "Lender" shall include the directors, officers, partners, employees and agents of Lender, and any persons or entities owned or controlled by or affiliated with Lender) for all expenditures, including reasonable attorneys' fees and expenses, incurred or expended in connection with (i) the breach by Mortgagor of any covenant, agreement or condition contained herein or in any other Loan Document, (ii) the exercise by Lender of any of its rights and remedies hereunder or under any other Loan Document, and (iii) the protection of the Property and/or Lender's liens and security interests therein. Mortgagor will indemnify and hold harmless Lender from and against (and will reimburse Lender for) all expenditures, including reasonable attorneys' fees and expenses, incurred or expended in connection with all claims, demands, liabilities, losses, damages (including without limitation consequential damages), causes of action, judgments, penalties, costs and expenses (including without limitation reasonable attorneys' fees and expenses) which may be imposed upon, asserted against or incurred or paid by Lender on account of, in connection with, or arising out of (A) any bodily injury or death or property damage occurring in or upon or in the vicinity of the Property through any cause whatsoever, (B) any act performed or omitted to be performed hereunder or the breach of any representation or warranty herein, (C) the exercise of any rights and remedies hereunder or under any other Loan Document, (D) any transaction, act, -10- omission, event or circumstance arising out of or in any way connected with the Property or with this Mortgage or any other Loan Document, (E) any violation on or prior to the Release Date (as hereinafter defined) of any Applicable Environmental Law, (F) the presence on or release onto the Property or Associated Property or the groundwater of either, on or prior to the Release Date, of any hazardous substance or solid waste, (G) any act, omission, event or circumstance existing or occurring on or prior to the Release Date (including without limitation the presence on the Property or the Associated Property or release from the Property or the Associated Property of hazardous substances or solid wastes disposed of or otherwise released), resulting from or in connection with the ownership, construction, occupancy, operation, use and/or maintenance of the Property or the Associated Property, regardless of whether the act, omission, event or circumstance constituted a violation of any Applicable Environmental Law at the time of its existence or occurrence, and (H) any and all claims or proceedings (whether brought by private party or governmental agencies) for bodily injury, property damage, abatement or remediation, environmental damage or impairment or any other injury or damage resulting from or relating to any hazardous or toxic substance, solid waste or contaminated material located upon or migrating into, from or through the Property or the Associated Property (whether or not the release of such materials was caused by Mortgagor, a tenant or subtenant or a prior owner or tenant or subtenant on the Property or the Associated Property and whether or not the alleged liability is attributable to the handling, storage, generation, transportation, removal or disposal of such substance, waste or material or the mere presence of such substance, waste or material on the Property or the Associated Property), which the Lender may have liability with respect to due to the making of the loan or loans evidenced by the Note, the granting of this Mortgage, the exercise of any of its rights under the Loan Documents, or otherwise. Lender shall have the right to compromise and adjust any such claims, actions and judgments, and in addition to the rights to be indemnified as herein provided, all amounts paid by Lender in compromise, satisfaction or discharge of any such claim, action or judgment, and all court costs, attorneys' fees and other expenses of every character expended by Lender pursuant to the provisions of this section shall be a demand obligation (which obligation Mortgagor hereby expressly promises to pay) owing by Mortgagor to Lender. The "Release Date" as used -------------- herein shall mean the earlier of the following two dates: (i) the date on which the Indebtedness and obligations secured hereby have been paid and performed in full and this Mortgage has been released of record, or (ii) the date on which the lien of this Mortgage is foreclosed or a deed in lieu of such foreclosure is fully effective and recorded. WITHOUT LIMITATION, IT IS THE INTENTION OF MORTGAGOR AND MORTGAGOR AGREES THAT THE FOREGOING INDEMNITIES SHALL APPLY TO EACH INDEMNIFIED PARTY WITH RESPECT TO CLAIMS, DEMANDS, LIABILITIES, LOSSES, DAMAGES, CAUSES OF ACTION, JUDGMENTS, PENALTIES, COSTS AND EXPENSES (INCLUDING WITHOUT LIMITATION REASONABLE ATTORNEYS' FEES) WHICH IN WHOLE OR IN PART ARE CAUSED BY OR ARISE OUT OF THE NEGLIGENCE OF SUCH (AND/OR ANY OTHER) INDEMNIFIED PARTY. However, such indemnities shall not apply to any particular indemnified party (but shall apply to the other indemnified parties) to the extent the subject of the indemnification is caused by or arises out of the gross negligence or willful misconduct of such particular indemnified party. The foregoing indemnities shall not terminate upon the Release Date or upon the release, foreclosure or other termination of this Mortgage but will survive the Release Date, foreclosure of this Mortgage or conveyance in lieu of foreclosure, and the repayment of the indebtedness and the discharge and release of this Mortgage -11- and the other documents evidencing and/or securing the indebtedness. Any amount to be paid hereunder by Mortgagor to Lender shall be a demand obligation owing by Mortgagor to Lender and shall be subject to and covered by the provisions of the last two sentences of Section 2.2 hereof. (n) Insurance. Mortgagor will carry insurance as provided by the ---------- Participation Agreement. In the event of any loss under any insurance policies so carried by Mortgagor, Lender shall have the right (but not the obligation) to make proof of loss and collect the same, and all amounts so received shall be applied toward costs, charges and expenses (including reasonable attorneys' fees), if any, incurred by lender in the collection thereof, then to the payment, in the order determined by Lender in its own discretion, of the Indebtedness, and any balance remaining shall be subject to the order of Mortgagor. Lender is hereby authorized but not obligated to enforce in its name or in the name of Mortgagor payment of any or all of said policies or settle or compromise any claim in respect thereof, and to collect and make receipts for the proceeds thereof and Lender is hereby appointed Mortgagor's agent and attorney-in-fact to endorse any check or draft payable to Mortgagor in order to collect the proceeds of insurance. In the event of foreclosure of this Mortgage, or other transfer of title to the Property in extinguishment in whole or in part of the Indebtedness, all right, title and interest of Mortgagor in and to such policies then in force concerning the Property and all proceeds payable thereunder shall thereupon vest in the purchaser at such foreclosure or Lender or other transferee in the event of such other transfer of title. (o) Further Assurances. Mortgagor will, on request of Lender, (i) ------------------- promptly correct any defect, error or omission which may be discovered in the contents of this Mortgage, or in any other Loan Document, or in the execution or acknowledgment of this Mortgage or any other Loan Document; (ii) execute, acknowledge, deliver and record and/or file such further instruments (including, without limitation, further deeds of trust, mortgages, security agreements, financing statements, continuation statements, and assignments of production, accounts, funds, contract rights, general intangibles, and proceeds) and do such further acts as may be necessary, desirable or proper to carry out more effectively the purposes of this Mortgage and the other Loan Documents and to more fully identify and subject to the liens and security interests hereof any property intended to be covered hereby, including specifically, but without limitation, any renewals, additions, substitutions, replacements, or appurtenances to the Property; and (iii) execute, acknowledge, deliver, and file and/or record any document or instrument (including specifically any financing statement) desired by Lender to protect the lien or the security interest hereunder against the rights or interests of third persons. Mortgagor shall pay all costs connected with any of the foregoing. (p) Name and Place of Business. Mortgagor will not cause or permit any --------------------------- change to be made in its name, identity, or corporate or partnership structure, or its federal employer identification number unless Mortgagor shall have notified Lender of such change at least thirty (30) days prior to the effective date of such change, and shall have first taken all action required by Lender for the purpose of further perfecting or protecting the lien and security interest of Lender in the Property. Mortgagor's principal place of business and chief executive office, and the place where Mortgagor keeps its books and records concerning the Property (including, particularly, the records with respect to "Proceeds", as defined in Section 3.1 hereof, from the Mortgaged Properties) will be (unless Mortgagor notifies -12- Lender of any change in writing at least thirty (30) days prior to the date of such change), the address set forth opposite the signature of Mortgagor to this Mortgage. Section 2.2. Performance by Lender Mortgagor's Behalf. Mortgagor agrees ----------------------------------------- that, if Mortgagor fails to perform any act or to take any action which hereunder Mortgagor is required to perform or take, or to pay any money which hereunder Mortgagor is required to pay, Lender, in Mortgagor's name or its own name, may, but shall not be obligated to, perform or cause to be performed such act or take such action or pay such money, and any expenses so incurred by Lender and any money so paid by Lender shall be a demand obligation owing by Mortgagor to Lender (which obligation Mortgagor hereby expressly promises to pay) and Lender, upon making such payment, shall be subrogated to all of the rights of the person, corporation or body politic receiving such payment. Each amount due and owing by Mortgagor to Lender pursuant to this Mortgage shall bear interest each day, from the date of such expenditure or payment until paid, at a rate equal to the rate as provided for past due principal under the Note (provided that, should applicable law provide for a maximum permissible rate of interest on such amounts, such rate shall not be greater than such maximum permissible rate); all such amounts, together with such interest thereon, shall be a part of the Indebtedness and shall be secured by this Mortgage. ARTICLE III. Assignment of Rents. Profits, Income, Contracts and Bonds --------------------------------------------------------- Section 3.1. Assignment. Mortgagor does hereby absolutely and ----------- unconditionally assign, transfer and set over to Lender all rents, income, receipts, revenues, profits, proceeds and other sums of money to be derived from the Property (including but not limited to proceeds from the sale of oil, gas, other hydrocarbons, and other minerals forming a part of, or transported or gathered through, the Property, transportation or gathering fees, take or pay or other minimum bill type payments, all proceeds payable under any policy of insurance covering the loss of or interruption of business caused by destruction or damage to the Property, and any sums of money that may become due and payable to Mortgagor as a result of mineral interests, whether fee or leasehold, royalty interests, overriding royalties, bonuses, delay rentals, royalties or any other interest in oil, gas, other hydrocarbons, or other minerals in and under the lands covered by the Mortgaged Properties), including without limitation the immediate and continuing right to collect and receive all of such rents, income, receipts, revenues, profits, proceeds, and other sums of money that may now or at any time hereafter become due and payable to Mortgagor (the "Proceeds"). Section 3.2. Effectuating Payment of Production Proceeds to Lender. ------------------------------------------------------ Independent of the foregoing provisions and authorities herein granted, and without limitation, Mortgagor hereby constitutes and appoints Lender as Mortgagor's special attorney-in-fact (with full power of substitution, either generally or for such periods or purposes as Lender may from time to time prescribe) in the name, place and stead of Mortgagor to do any and every act and exercise any and every power that Mortgagor might or could do or exercise personally with respect to all Proceeds (the same having been assigned by Mortgagor to Lender pursuant to Section 3.1 hereof), giving and granting unto said attorney-in-fact full power and authority to do and perform any and every act and thing whatsoever necessary and requisite to be done as fully and to all intents and purposes, as Mortgagor might or could do if personally present. The powers and authorities herein conferred upon Lender may be exercised by Lender through any person who, at the time of the execution of the particular instrument, is an officer of Lender. The power of attorney herein conferred is granted for valuable consideration and hence -13 - is coupled with an interest and is irrevocable so long as the Indebtedness, or any part thereof, shall remain unpaid. All persons dealing with Lender or any substitute shall be fully protected in treating the powers and authorities conferred by this paragraph as continuing in full force and effect until advised by Lender that all the Indebtedness is fully and finally paid. Lender may, but shall not be obligated to, take such action as it deems appropriate in an effort to collect the Proceeds, and any reasonable expenses (including reasonable attorneys' fees so incurred by Lender shall be a demand obligation of Mortgagor and shall be part of the Indebtedness, and shall bear interest each day, from the date of such expenditure or payment until paid, at the rate described in Section 2.2 hereof. Section 3.3. Application of Proceeds. So long as no default has occurred ------------------------ hereunder, the Proceeds received by Lender during each calendar month shall on the first business day of the next succeeding calendar month (or, at the option of Lender, on any earlier date) be applied by Lender (a) as provided for in the Amended and Restated Credit Agreement or (b) if not provided for in the Amended and Restated Credit Agreement, as follows: FIRST, to the payment of all Indebtedness then due and payable, in ------ such manner and order as Lender deems advisable; SECOND, to the prepayment of the remainder of the Indebtedness in such ------- manner and order and to such extent as Lender deems advisable; and THIRD, the remainder, if any, of the Proceeds shall be paid over to ------ Mortgagor or to Mortgagor's order or to such other parties as may be entitled thereto by law. After a default hereunder has occurred, all Proceeds from time to time in the hands of Lender shall be applied by it toward the payment of all Indebtedness (principal, interest, attorneys' fees and other fees and expenses) at such times and in such manner and order and to such extent as Lender deems advisable. Section 3.4. Release From Liability: Indemnification. Lender and its ---------------------------------------- successors and assigns are hereby absolved from all liability for failure to enforce collection of the Proceeds and from all other responsibility in connection therewith, except the responsibility of each to account to Mortgagor for funds actually received by each. Mortgagor agrees to indemnify and hold harmless Lender (for purposes of this paragraph, the term "Lender" shall include the directors, officers, partners, employees and agents of Lender and any persons or entities owned or controlled by or affiliated with Lender) from and against all claims, demands, liabilities, losses, damages (including without limitation consequential damages), causes of action, judgments, penalties, costs and expenses (including without limitation reasonable attorneys' fees and expenses) imposed upon, asserted against or incurred or paid by Lender by reason of the assertion that Lender received, either before or after payment in full of the Indebtedness, funds claimed by third persons (and/or which Lender or Mortgagor was otherwise not entitled to receive), and Lender shall have the right to defend against any such claims or actions, employing attorneys of its own selection, and if not furnished with indemnity satisfactory to it, Lender shall have the right to compromise and adjust any such claims, actions and judgments, and in addition to the rights to be indemnified as herein provided, all amounts paid by Lender in compromise, satisfaction or discharge of any such claim, action or judgment, and all court costs, attorneys' fees and other expenses of every character expended by Lender pursuant to the provisions of this section shall be a demand obligation (which obligation Mortgagor hereby expressly promises to pay) owing by Mortgagor to Lender and shall bear interest, from the date expended until paid, at the rate described in Section 2.2 hereof. The foregoing indemnities shall not terminate upon the Release Date or upon the -14- release, foreclosure or other termination of this Mortgage but will survive the Release Date, foreclosure of this Mortgage or conveyance in lieu of foreclosure, and the repayment of the Indebtedness and the discharge and release of this Mortgage and the other documents evidencing and/or securing the Indebtedness. WITHOUT LIMITATION, IT IS THE INTENTION OF MORTGAGOR AND MORTGAGOR AGREES THAT THE FOREGOING INDEMNITIES SHALL APPLY TO EACH INDEMNIFIED PARTY WITH RESPECT TO ALL CLAIMS, DEMANDS, LIABILITIES, LOSSES, DAMAGES (INCLUDING WITHOUT LIMITATION CONSEQUENTIAL DAMAGES), CAUSES OF ACTION. JUDGMENTS, PENALTIES, COSTS AND EXPENSES (INCLUDING WITHOUT LIMITATION REASONABLE ATTORNEYS' FEES AND EXPENSES) WHICH IN WHOLE OR IN PART ARE CAUSED BY OR ARISE OUT OF THE NEGLIGENCE OF SUCH (AND/OR ANY OTHER) INDEMNIFIED PARTY. However, such indemnities shall not apply to any particular indemnified party (but shall apply to the other indemnified parties) to the extent the subject of the indemnification is caused by or arises out of the gross negligence or willful misconduct of such particular indemnified party. Section 3.5. Mortgagor's Absolute Obligation. Nothing herein contained -------------------------------- shall detract from or limit the obligations of Mortgagor to make prompt payment of the Guaranty, the Note, and any and all other Indebtedness, at the time and in the manner provided herein and in the Loan Documents, regardless of whether the Proceeds herein assigned are sufficient to pay same, and the rights under this Article III shall be cumulative of all other rights of Lender under the Loan Documents. ARTICLE IV. Remedies Upon Default --------------------- Section 4.1. The term "default" as used in this Mortgage shall mean the occurrence of any of the following events: (a) the occurrence of an "Event of Default" as defined in the Amended and Restated Credit Agreement, including without limitation, an Event of Default arising from a breach of the representations and warranties made in the Amended and Restated Credit Agreement concerning the Mortgaged Properties and the Mortgagor; (b) the failure of Mortgagor to make due and punctual payment of the Guaranty, the Note or of any other Indebtedness or of any installment of principal thereof or interest thereon, or any part thereof, as the same shall become due and payable, whether at a date for payment of a fixed installment or contingent or other payment, or as a result of acceleration, or otherwise; or (c) the failure of Mortgagor to pay over to Lender any Proceeds which are receivable by Lender under this Mortgage but which are paid to Mortgagor rather than Lender (either as provided in Section 3.2 hereof or otherwise), except Proceeds paid over to Mortgagor by Lender under clause THIRD of Section 3.2; or (d) the failure of Mortgagor timely and properly to observe, perform or comply with any covenant, agreement, warranty, condition or provision herein contained, if such failure is not remedied within 30 days after the occurrence thereof; or (e) any representation or warranty contained herein shall prove to have been false or incorrect in any material respect on the date made (or on the date as of which made); or -15- (f) Mortgagor suffers the entry against it of a judgment, decree or order for relief by a court of competent jurisdiction in an involuntary proceeding commenced under any applicable bankruptcy, insolvency or other similar law of any jurisdiction now or hereafter in effect, including the United States Bankruptcy Code, as from time to time amended, or has such a proceeding commenced against it which remains undismissed for a period of 30 days; or (g) Mortgagor commences a voluntary case under any applicable bankruptcy, insolvency or similar law now or hereafter in effect, including the United States Bankruptcy Code, as from time to time amended, or applies for or consents to the entry of an order for relief in an involuntary case under any such law; or Mortgagor makes a general assignment for the benefit of creditors or fails to pay (or admits in writing its inability to pay) its debts as such debts become due; or Mortgagor takes corporate or other action in furtherance of any of the foregoing; or (h) Mortgagor suffers the appointment of or taking of possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official for a substantial part of its assets or for any part of the Property in a proceeding brought against or initiated by it and (1) such appointment or taking is neither made ineffective nor discharged within 30 days after the making of such appointment or within 30 days after such taking, or (2) such appointment or taking is consented to, requested by, or acquiesced to by Mortgagor; or (i) Mortgagor suffers a writ or warrant of attachment or any similar process to be issued by any court against all or any substantial part of its assets or any part of the Property, and such writ or warrant of attachment or any similar process is not stayed or released within 30 days after the entry or levy thereof or after any stay is vacated or set aside; or (j) the Property is so demolished, destroyed or damaged that, in the judgment of Lender, it cannot be restored or rebuilt with available funds to a profitable condition within a reasonable period of time; or (k) so much of the Property is taken in condemnation, or sold in lieu of condemnation, or the Property is so diminished in value due to any injury or damages to the Property, that the remainder thereof cannot, in the judgment of Lender, continue to be operated profitably for the purpose for which it was being used immediately prior to such taking, sale or diminution. Section 4.2. Acceleration of Indebtedness. Upon the occurrence of a default ----------------------------- described in subsection (f), (g), (h) or (i) of Section 4.1 above, all of the Indebtedness shall thereupon be immediately due and payable, without presentment, demand, protest, notice of protest, declaration or notice of acceleration or intention to accelerate, putting the Mortgagor in default, dishonor, notice of dishonor or any other notice or declaration of any kind, all of which are hereby expressly waived by Mortgagor, and the liens evidenced hereby shall be subject to foreclosure in any manner provided for herein or provided for by law as Lender may elect. During the continuance of any other default, Lender at any time and from time to time may without notice to Mortgagor or any other person declare any or all of the Indebtedness immediately due and payable and all such Indebtedness shall thereupon be immediately due and payable, without presentment, demand, protest, notice of protest, notice of acceleration or of intention to accelerate, putting the Mortgagor in default, dishonor, notice of dishonor or any other notice or declaration of any kind, all of which are hereby expressly waived by Mortgagor, and the liens evidenced hereby -16- shall be subject to foreclosure in any manner provided for herein or provided for by law as Lender may elect. Section 4.3. Pre-ForeClosure. Remedies. Upon the occurrence of a default, -------------------------- or any event or circumstance which, with the lapse of time or the giving of notice, or both, would constitute a default hereunder, Lender is authorized, prior or subsequent to the institution of any foreclosure proceedings, to enter upon the Property, or any part thereof, and to take possession of the Property and all books and records relating thereto, and to exercise without interference from Mortgagor any and all rights which Mortgagor has with respect to the management, possession, operation, protection or preservation of the Property. If necessary to obtain the possession provided for above, Lender may invoke any and all remedies to dispossess Mortgagor. All costs, expenses and liabilities of every character incurred by Lender in managing, operating, maintaining, protecting or preserving the Property shall constitute a demand obligation (which obligation Mortgagor hereby expressly promises to pay) owing by Mortgagor to Lender and shall bear interest from date of expenditure until paid at the rate described in Section 2.2 hereof, all of which shall constitute a portion of the Indebtedness and shall be secured by this Mortgage and by any other instrument securing the Indebtedness. In connection with any action taken by Lender pursuant to this Section 4.3, LENDER SHALL NOT BE LIABLE FOR ANY LOSS SUSTAINED BY MORTGAGOR RESULTING FROM ANY ACT OR OMISSION OF LENDER IN MANAGING THE PROPERTY UNLESS SUCH LOSS IS CAUSED BY THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF LENDER, nor shall Lender be obligated to perform or discharge any obligation, duty or liability of Mortgagor arising under any agreement forming a part of the Property or arising under any Permitted Encumbrance or otherwise arising. Mortgagor hereby assents to, ratifies and confirms any and all actions of Lender with respect to the Property taken under this Section 4.3. Section 4.4. Foreclosure. ------------ (a) Upon the occurrence of a default, this Mortgage may be foreclosed as to the Mortgaged Properties, or any part thereof, in any manner permitted by applicable law. Cumulative of the foregoing and the other provisions of this Section 4.4, Lender may commence foreclosure proceedings against the property through judicial proceedings or by advertisement, at the option of Lender, pursuant to the statutes in such case made and provided, and sell the property or to cause the same to be sold at public sale, and convey the same to the purchaser in accordance with said statutes in a single parcel or in several parcels at the option of Lender. A POWER OF SALE HAS BEEN GRANTED IN THIS MORTGAGE. A POWER OF SALE MAY ---------------------------------------------------------------------- ALLOW LENDER TO TAKE THE MORTGAGED PROPERTIES AND SELL THEM WITHOUT GOING TO - ---------------------------------------------------------------------------- COURT IN A FORECLOSURE ACTION UPON DEFAULT BY MORTGAGOR UNDER THIS MORTGAGE. - ---------------------------------------------------------------------------- WARNING; THIS MORTGAGE CONTAINS A POWER OF SALE AND UPON DEFAULT MAY BE ----------------------------------------------------------------------- FORECLOSED BY ADVERTISEMENT. IN FORECLOSURE BY ADVERTISEMENT AND THE SALE OF THE - -------------------------------------------------------------------------------- PROPERTY IN CONNECTION THERE-WITH, NO HEARING IS REQUIRED AND THE ONLY NOTICE - ----------------------------------------------------------------------------- REQUIRED IS THE PUBLICATION OF NOTICE IN A LOCAL NEWSPAPER AND THE POSTING OF A - ------------------------------------------------------------------------------- COPY OF THE NOTICE ON THE PROPERTY. - ----------------------------------- (b) Upon the occurrence of a default, Lender may exercise its rights of enforcement with respect to the Collateral under the Uniform Commercial Code or similar statute in force in Michigan, or in force in any other state to the extent the same is applicable law. Cumulative of the foregoing and the other provisions of this Section 4.4: (i) Lender may enter upon the Mortgaged Properties or otherwise upon Mortgagor's premises to take possession of, assemble and collect the Collateral or to render it unusable; and -17- (ii) Lender may require Mortgagor to assemble the Collateral and make it available at a place Lender designates which is mutually convenient to allow Lender to take possession or dispose of the Collateral; and (iii) written notice mailed to Mortgagor as provided herein at least five (5) days prior to the date of public sale of the Collateral or prior to the date after which private sale of the Collateral will be made shall constitute reasonable notice; and (iv) in the event of a foreclosure of the liens and/or security interests evidenced hereby, the Collateral, or any part thereof, and the Mortgaged Properties, or any part thereof may, at the option of Lender, be sold, as a whole or in parts, together or separately (including, without limitation, where a portion of the Mortgaged Properties is sold, the Collateral related thereto may be sold in connection therewith); and (v) the expenses of sale provided for in clause FIRST of Section 4.6 shall include the reasonable expenses of retaking the Collateral, or any part thereof, holding the same and preparing the same for sale or other disposition; and (vi) should, under this subsection, the Collateral be disposed of other than by sale, any proceeds of such disposition shall be treated under Section 4.6 as if the same were sales proceeds. (c) To the extent permitted by applicable law, the sale by Lender hereunder of less than the whole of the Property shall not exhaust the powers of sale herein granted or the right to judicial foreclosure, and successive sale or sales may be made until the whole of the Property shall be sold, and, if the proceeds of such sale of less than the whole of the Property shall be less than the aggregate of the Indebtedness and the expense of conducting such sale, this Mortgage and the liens and security interests hereof shall remain in full force and effect as to the unsold portion of the Property just as though no sale had been made; provided, however, that Mortgagor shall never have any right to require the sale of less than the whole of the Property. In the event any sale hereunder is not completed or is defective in the opinion of Lender, such sale shall not exhaust the powers of sale hereunder or the right to judicial foreclosure, and Lender shall have the right to cause a subsequent sale or sales to be made. Any sale may be adjourned by announcement at the time and place appointed for such sale without further notice except as may be required by law. The Lender acting under power of sale, may appoint or delegate any one or more persons as agent to perform any act or acts necessary or incident to any sale held by it (including, without limitation, the posting of notices and the conduct of sale). Any and all statements of fact or other recitals made in any deed or deeds, or other instruments of transfer, given in connection with a sale as to nonpayment of the Indebtedness or as to the occurrence of any default, or as to Lender's having declared all of the Indebtedness to be due and payable, or as to the request to sell, or as to notice of time, place and terms of sale and the properties to be sold having been duly given, or as to any other act or thing having been duly done, shall be taken as prima facie evidence of the truth of the facts so stated and recited. With respect to any sale held in foreclosure of the liens and/or security interests covered hereby, it shall not be necessary for Lender, any public officer acting under execution or order of the court or any other party to have physically present or constructively in his/her or its possession, either at the time of or prior to such sale, the Property or any part thereof. Section 4.5. Receiver. In addition to all other remedies herein provided --------- for, Mortgagor agrees that, upon the occurrence -18- of a default or any event or circumstance which, with the lapse of time or the giving or notice, or both, would constitute a default hereunder, Lender shall be entitled to the appointment of a receiver or receivers for all or any part of the Property, whether such receivership be incident to a proposed sale (or sales) of such property or otherwise, and without regard to the value of the Property or the solvency of any person or persons liable for the payment of the Indebtedness, and Mortgagor does hereby consent to the appointment of such receiver or receivers, waives any and all defenses to such appointment, and agrees not to oppose any application therefor by Lender, and agrees that such appointment shall in no manner impair, prejudice or otherwise affect the rights of Lender under Article III hereof. Nothing herein is to be construed to deprive Lender of any other right, remedy or privilege it may now or hereafter have under the law to have a receiver appointed. Any money advanced by Lender in connection with any such receivership shall be a demand obligation (which obligation Mortgagor hereby expressly promises to pay) owing by Mortgagor to Lender and shall bear interest, from the date of making such advancement by Lender until paid, at the rate described in Section 2.2 hereof. Section 4.6. Proceeds of Foreclosure. The proceeds of any sale held in ------------------------ foreclosure of the liens and/or security interests evidenced hereby shall be applied: FIRST, to the payment of all necessary costs and expenses incident to ------ such foreclosure sale, including but not limited to all court costs and charges of every character in the event foreclosed by suit; SECOND, to the payment of the Indebtedness (including specifically ------- without limitation the principal, interest and attorneys' fees due and unpaid on the Note and the amounts due and unpaid and owed to Lender under this Mortgage) in such manner and order as Lender may elect; and THIRD, the remainder, if any there shall be, shall be paid to ------ Mortgagor, or to Mortgagor's heirs, devisees, representatives, successors or assigns, or such other persons as may be entitled thereto by law. Section 4.7. Lender as Purchaser. Any party constituting Lender shall have -------------------- the right to become the purchaser at any sale held in foreclosure of the liens and/or security interests evidenced hereby, and any Lender purchasing at any such sale shall have the right to credit upon the amount of the bid made therefor, to the extent necessary to satisfy such bid, the Indebtedness owing to such Lender, or if such Lender holds less than all of such Indebtedness, the pro rata part thereof owing to such Lender, accounting to all other Lenders not joining in such bid in cash for the portion of such bid or bids apportionable to such non-bidding Lender or Lenders. Section 4.8. Foreclosure as to Mature Debt. Upon the occurrence of a ------------------------------ default, Lender shall have the right to proceed with foreclosure of the liens and/or security interests evidenced hereby without declaring the entire Indebtedness due, and in such event, any such foreclosure sale may be made subject to the unmatured part of the Indebtedness and shall not in any manner affect the unmatured part of the Indebtedness, but as to such unmatured part, this Mortgage shall remain in full force and effect just as though no sale had been made. The proceeds of such sale shall be applied as provided in Section 4.6 except that the amount paid under clause SECOND thereof shall be only the matured portion of the Indebtedness and any proceeds of such sale in excess of those provided for in clauses FIRST and SECOND (modified as provided above) shall be applied as provided in clause SECOND and THIRD of Section 3.3 hereof. Several sales may be made hereunder without exhausting the right of sale for any unmatured part of the Indebtedness. -19- Section 4.9. Remedies Cumulative. All remedies herein provided for are -------------------- cumulative of each other and of all other remedies existing at law or in equity and are cumulative of any and all other remedies provided for in any other Loan Document, and Lender shall, in addition to the remedies herein provided, be entitled to avail itself of all such other remedies as may now or hereafter exist at law or in equity for the collection of the Indebtedness and the enforcement of the covenants herein and the foreclosure of the liens and/or security interests evidenced hereby, and the resort to any remedy provided for hereunder or under any such other Loan Document or provided for by law shall not prevent the concurrent or subsequent employment of any other appropriate remedy or remedies. Section 4.10. Lender's Discretion as to Security. Lender may resort to any ----------------------------------- security given by this Mortgage or to any other security now existing or hereafter given to secure the payment of the indebtedness, in whole or in part, and in such portions and in such order as may seem best to Lender in its sole and uncontrolled discretion, and any such action shall not in any way be considered as a waiver of any of the rights, benefits, liens or security interests evidenced by this Mortgage. Section 4.11. Mortgagor's Waiver of Certain Rights. To the full extent ------------------------------------- Mortgagor may do so, Mortgagor agrees that Mortgagor will not at any time insist upon, plead, claim or take the benefit or advantage of any law now or hereafter in force providing for any appraisement, valuation, stay, extension or redemption, and Mortgagor, for Mortgagor, Mortgagor's heirs, devisees, representatives, successors and assigns, and for any and all persons ever claiming any interest in the Property, to the extent permitted by applicable law, hereby waives and releases all rights of appraisement, valuation, stay of execution, redemption, notice of intention to mature or declare due the whole of the Indebtedness, notice of election to mature or declare due the whole of the Indebtedness and all rights to a marshaling of assets of Mortgagor, including the Property, or to a sale in inverse order of alienation in the event of foreclosure of the liens and/or security interests hereby created. To the extent permitted by applicable law, Mortgagor shall not have or assert any right under any statute or rule of law pertaining to the marshaling of assets, sale in inverse order of alienation, the exemption of homestead, the administration of estates of decedents, or other matters whatever to defeat, reduce or affect the right of Lender under the terms of this Mortgage to a sale of the Property for the collection of the Indebtedness without any prior or different resort for collection, or the right of Lender under the terms of this Mortgage to the payment of the Indebtedness out of the proceeds of sale of the Property in preference to every other claimant whatever. If any law referred to in this section and now in force, of which Mortgagor or Mortgagor's heirs, devisees, representatives, successors or assigns or any other persons claiming any interest in the Mortgaged Properties or the Collateral might take advantage despite this section, shall hereafter be repealed or cease to be in force, such law shall not thereafter be deemed to preclude the application of this section. Section 4.12. Mortgagor as Tenant Post-Foreclosure. In the event there is a ------------------------------------- foreclosure sale hereunder and at the time of such sale Mortgagor or Mortgagor's heirs, devisees, representatives, successors or assigns or any other persons claiming any interest in the Property by, through or under Mortgagor are occupying or using the Property, or any part thereof, each and all shall immediately become the tenant of the purchaser at such sale, which tenancy shall be a tenancy from day to day, terminable at the will of either landlord or tenant, at a reasonable rental per day based upon the value of the property occupied, such rental to be due daily to the purchaser. To the extent permitted by applicable law, the purchaser at such sale shall, notwithstanding any language herein apparently to the contrary, have the sole option to demand immediate possession -20- following the sale or to permit the occupants to remain as tenants at will. In the event the tenant fails to surrender possession of said property upon demand, the purchaser shall be entitled to institute and maintain a summary action for possession of the property (such as an action for forcible entry and detainer) in any court having jurisdiction. ARTICLE V. Miscellaneous ------------- Section 5.1. Scope of Mortgage. This Mortgage is a mortgage of both real ------------------ and personal property, a security agreement, a financing statement and an assignment, and also covers proceeds and fixtures. Section 5.2. Effective as a Financing Statement. This Mortgage shall be ----------------------------------- effective as a financing statement filed as a fixture filing with respect to all fixtures included within the Property. This Mortgage is to be filed for record in the real estate records of each county where any part of the Mortgaged Properties is situated, and may also be filed in the offices of the Bureau of Land Management or the Minerals Management Service or state agency (or any successor agencies). This Mortgage shall also be effective as a financing statement covering any other Property and may be filed in any other appropriate filing or recording office. The mailing address of Mortgagor is the address of Mortgagor set forth at the end of this Mortgage and the address of Lender from which information concerning the security interests hereunder may be obtained is the address of Lender set forth at the end of this Mortgage. Section 5.3. Reproduction of Mortgage as Financing Statement. A carbon, ------------------------------------------------ photographic, facsimile or other reproduction of this Mortgage or of any financing statement relating to this Mortgage shall be sufficient as a financing statement for any of the purposes referred to in Section 5.2. Section 5.4. Notice to Account Debtors. In addition to, but without -------------------------- limitation of, the rights granted in Article III hereof, Lender may at any time notify the account debtors or obligors of any accounts, chattel paper, negotiable instruments or other evidences of indebtedness included in the Collateral to pay Lender directly. Section 5.5. Waiver by Lender. Lender may at any time and from time to time ----------------- in writing waive compliance by Mortgagor with any covenant herein made by Mortgagor to the extent and in the manner specified in such writing, or consent to Mortgagor's doing any act which hereunder Mortgagor is prohibited from doing, or to Mortgagor's failing to do any act which hereunder Mortgagor is required to do, to the extent and in the manner specified in such writing, or release any part of the Property or any interest therein or any Proceeds from the lien and security interest of this Mortgage, or release any party liable, either directly or indirectly, for the Indebtedness or for any covenant herein or in any other Loan Document, without impairing or releasing the liability of any other party. No such act shall in any way impair the rights or powers of Lender hereunder except to the extent specifically agreed to by Lender in such writing. Section 5.6. No Impairment of Security. The lien, security interest and -------------------------- other security rights of Lender hereunder shall not be impaired by any indulgence, moratorium or release granted by Lender including, but not limited to, any renewal, extension or modification which Lender may grant with respect to any indebtedness, or any surrender, compromise, release, renewal, extension, exchange or substitution which Lender may grant in respect of the Property (including without limitation Proceeds), or any part thereof or any interest therein, or any release or -21- indulgence granted to any endorser, guarantor or surety of any indebtedness. Section 5.7. Acts Not Constituting Waiver by Lender. Lender may waive any --------------------------------------- default without waiving any other prior or subsequent default. Lender may remedy any default without waiving the default remedied. Neither failure by Lender to exercise, nor delay by Lender in exercising, any right, power or remedy upon any default shall be construed as a waiver of such default or as a waiver of the right to exercise any such right, power or remedy at a later date. No single or partial exercise by Lender of any right, power or remedy hereunder shall exhaust the same or shall preclude any other or further exercise thereof, and every such right, power or remedy hereunder may be exercised at any time and from time to time. No modification or waiver of any provision hereof nor consent to any departure by Mortgagor therefrom shall in any event be effective unless the same shall be in Writing and signed by Lender and then such waiver or consent shall be effective only in the specific instances, for the purpose for which given and to the extent therein specified. No notice to nor demand on Mortgagor in any case shall of itself entitle Mortgagor to any other or further notice or demand in similar or other circumstances. Acceptance by Lender of any payment in an amount less than the amount then due on any Indebtedness shall be deemed an acceptance on account only and shall not in any way excuse the existence of a default hereunder. Section 5.8. Mortgagor's Successors. In the event the ownership of the ----------------------- Property or any part thereof becomes vested in a person other than Mortgagor, Lender may, without notice to Mortgagor, deal with such successor or successors in interest with reference to this Mortgage and to the indebtedness in the same manner as with Mortgagor, without in any way vitiating or discharging Mortgagor's liability hereunder or for the payment of the Indebtedness or performance of the obligations secured hereby. No transfer of the Property, no forbearance on the part of Lender, and no extension of the time for the payment of the Indebtedness given by Lender shall operate to release, discharge, modify, change or affect, in whole or in part, the liability of Mortgagor hereunder or for the payment of the Indebtedness or performance of the obligations secured hereby or the liability of any other person hereunder or for the payment of the Indebtedness. Section 5.9. Place of Payment. All Indebtedness which may be owing ----------------- hereunder at any time by Mortgagor shall be payable at the place designated in the Amended and Restated Credit Agreement (or if no such designation is made, at the address of Lender indicated at the end of this Mortgage), or at such other place as Lender may designate in writing. Section 5.10. Subrogation to Existing Liens. To the extent that proceeds of ------------------------------ the Note are used to pay indebtedness secured by any outstanding lien, security interest, charge or prior encumbrance against the Property, such proceeds have been advanced by Lender at Mortgagor's request, and Lender shall be subrogated to any and all rights, security interests and liens owned by any owner or holder of such outstanding liens, security interests, charges or encumbrances, irrespective of whether said liens, security interests, charges or encumbrances are released, and it is expressly understood that, in consideration of the payment of such indebtedness by Lender, Mortgagor hereby waives and releases all demands and causes of action for offsets and payments to, upon and in connection with the said indebtedness. Section 5.11. Application of Payments to Certain Indebtedness. If any part ------------------------------------------------ of the Indebtedness cannot be lawfully secured by this Mortgage or if any part of the Property cannot be lawfully subject to the lien and security interest hereof to the full extent of such Indebtedness, then all payments made shall be applied on said Indebtedness first in discharge of that portion thereof which is not secured by this Mortgage. -22- Section 5.12. Compliance with Usury Laws. It is the intent of Mortgagor, --------------------------- Lender and all other parties to the Loan Documents to contract in strict compliance with applicable usury law from time to time in effect. In furtherance thereof, it is stipulated and agreed that none of the terms and provisions contained herein shall ever be construed to create a contract to pay, for the use, forbearance or detention of money, interest in excess of the maximum amount of interest permitted to be charged by applicable law from time to time in effect. Section 5.13. Release of Mortgage. If all of the Indebtedness be paid as -------------------- the same becomes due and payable and all of the covenants, warranties, undertakings and agreements made in this Mortgage are kept and performed and Lender shall have no further obligation to provide credit or advance funds to Mortgagor or the maker of any promissory note (or other obligor with respect to other Indebtedness) secured hereby, then, Lender shall, at Mortgagor's request, release this Mortgage, in due form and at Mortgagor's cost; provided, however, that, notwithstanding such release, certain indemnifications, and other rights, which are provided herein to continue following the release hereof, shall continue in effect unaffected by such release. Section 5.14. Notices. All notices, requests, consents, demands and other -------- communications required or permitted hereunder shall be in writing and shall be deemed sufficiently given or furnished if delivered by personal delivery, by telecopy, by delivery service with proof of delivery, or by registered or certified United States mail, postage prepaid, at the addresses specified at the end of this Mortgage (unless changed by similar notice in writing given by the particular party whose address is to be changed). Any such notice or communication shall be deemed to have been given (a) in the case of personal delivery or delivery service, as of the date of first attempted delivery at the address and in the manner provided herein, (b) in the case of telecopy, upon receipt, and (c) in the case of registered or certified United States mail, three days after deposit in the mail. Notwithstanding the foregoing, or anything else in the Loan Documents which may appear to the contrary, any notice given in connection with a foreclosure of the liens and/or security interests created hereunder, or otherwise in connection with the exercise by Lender of its rights hereunder or under any other Loan Document, which is given in a manner permitted by applicable law shall constitute proper notice; without limitation of the foregoing, notice given in a form required or permitted by statute shall (as to the portion of the Property to which such statute is applicable) constitute proper notice. Section 5.15. Invalidity of Certain Provisions. A determination that any --------------------------------- provision of this Mortgage is unenforceable or invalid shall not affect the enforceability or validity of any other provision and the determination that the application of any provision of this Mortgage to any person or circumstance is illegal or unenforceable shall not affect the enforceability or validity of such provision as it may apply to other persons or circumstances. Section 5.16. Gender: Titles. Within this Mortgage, words of any gender --------------- shall be held and construed to include any other gender, and words in the singular number shall be held and construed to include the plural, unless the context otherwise requires. Titles appearing at the beginning of any subdivisions hereof are for convenience only, do not constitute any part of such subdivisions, and shall be disregarded in construing the language contained in such subdivisions. Section 5.17. Recording. Mortgagor will cause this Mortgage and all ---------- amendments and supplements thereto and substitutions therefor and all financing statements and continuation statements relating thereto to be recorded, filed, re-recorded and refiled in such manner and in such places as -23- Lender shall reasonably request and will pay all such recording, filing, re- recording and refiling taxes, fees and other charges. Section 5.18. Reporting Compliance. Mortgagor agrees to comply with any and --------------------- all reporting requirements applicable to the transaction evidenced by the Note and secured by this Mortgage which are set forth in any law, statute, ordinance, rule, regulation, order or determination of any governmental authority, and further agrees upon request of Lender to furnish Lender with evidence of such compliance. Section 5.19. Lender's Consent. Except where otherwise expressly provided ----------------- herein, in any instance hereunder where the approval, consent or the exercise of judgment of Lender is required, the granting or denial of such approval or consent and the exercise of such judgment shall be within the sole discretion of Lender, and Lender shall not, for any reason or to any extent, be required to grant such approval or consent or exercise such judgment in any particular manner, regardless of the reasonableness of either the request or Lender's judgment. Section 5.20. Certain Obligations of Mortgagor. Without limiting --------------------------------- Mortgagor's obligations hereunder, Mortgagor liability hereunder shall extend to and include all post petition interest, expenses, and other duties and liabilities with respect to Mortgagor's obligations hereunder which would be owed but for the fact that the same may be unenforceable due to the existence of a bankruptcy, reorganization or similar proceeding. Section 5.21. Restatement of Assigned Mortgages. It is the desire and ---------------------------------- intention of Mortgagor and Lender to renew all liens, rights, powers, privileges, superior titles, estates and security interests existing by virtue of the Partially Assigned Mortgage Rights and the Gathering System Mortgage, and in connection therewith, it is understood and agreed that this Mortgage restates and amends the Gathering System Mortgage in its entirety. This Mortgage renews all liens, rights, powers, privileges, superior titles, estates and security interests existing by virtue of the Gathering System Mortgage but the terms, provisions and conditions of such liens, powers, privileges, superior titles, estates and security interests shall hereafter be governed in all respects by this Mortgage and any amendments or supplements thereto. Section 5.22. Counterparts. This Mortgage may be executed in several ------------- counterparts, all of which are identical. All of such counterparts together shall constitute one and the same instrument. Section 5.23. Successors and Assigns. The terms, provisions, covenants, ----------------------- representations, indemnifications and conditions hereof shall be binding upon Mortgagor, and the successors and assigns of Mortgagor, and shall inure to the benefit of Lender and its successors and assigns, and shall constitute covenants running with the Mortgaged Properties. All references in this Mortgage to Mortgagor or Lender shall be deemed to include all such successors and assigns. Section 5.24. FINAL AGREEMENT OF THE PARTIES. THE WRITTEN LOAN DOCUMENTS ---------------------------------------------------------- REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY - -------------------------------------------------------------------------------- EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE - ------------------------------------------------------------------------ PARTIES. THERE ARE NO MITTEN ORAL AGREEMENT BETWEEN THE PARTIES. - ----------------------------------------------------------------- Section 5.25. CHOICE OF LAW. THIS MORTGAGE SHALL BE CONSTRUED AND ENFORCED -------------- IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF ILLINOIS APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE AND THE LAWS OF THE UNITED STATES OF AMERICA, EXCEPT THAT TO THE EXTENT THAT THE LAW OF A STATE IN WHICH A PORTION OF THE PROPERTY IS LOCATED (OR WHICH IS OTHERWISE APPLICABLE TO A PORTION OF THE PROPERTY) NECESSARILY GOVERNS WITH RESPECT TO PROCEDURAL AND SUBSTANTIVE -24- MATTERS RELATING TO THE CREATION, PERFECTION AND ENFORCEMENT OF THE LIENS, SECURITY INTERESTS AND OTHER RIGHTS AND REMEDIES OF THE LENDER GRANTED HEREIN, THE LAW OF SUCH STATE SHALL APPLY AS TO THAT PORTION OF THE PROPERTY LOCATED IN (OR OTHERWISE SUBJECT TO THE LAWS OF) SUCH STATE. Section 5.26. After Acquired Interests. If the Mortgagor shall hereafter ------------------------- acquire any additional interest in any tract or parcel currently a part of the Mortgaged Properties or shall hereafter acquire any interest in other lands in the State of Michigan, then the Mortgagor shall promptly thereafter advise the Lender of such acquisition and enter into such supplemental mortgages, security agreements and financing statements pertaining thereto as may be reasonably requested by the Lender to evidence and confirm of record the inclusion of such interests in the Mortgaged Properties and subject to the lien and security interest of this instrument. Section 5.27 No Merger. If both the lessor's and lessee's estates under any ---------- lease or any portion thereof which constitutes a part of the Mortgaged Properties shall at any time become vested in one owner, this instrument and the lien and security interest created hereby shall not be destroyed or terminated by application of the doctrine of merger and, in such event, Lender shall continue to have and enjoy all of the rights and privileges of Lender as to the separate estates. In addition, upon the foreclosure of the lien and security interest created by this instrument on the Mortgaged Properties pursuant to the provisions hereof, any leases or subleases then existing and created by the Mortgagor shall not be destroyed or terminated by application of the law of merger or as a matter of law or as a result of such foreclosure unless Lender or any purchaser at any such foreclosure sale shall so elect. No act by or on behalf of Lender or any such purchaser shall constitute a termination of any lease or sublease unless Lender or such purchaser shall give written notice thereof to such tenant or subtenant. In addition, no interest held or acquired by Lender under this instrument shall ever be deemed to merge with or into any other interest held or acquired by Lender in the lands, properties or interests comprising the Mortgaged Properties. Section 5.28. Lender as Agent for its Affiliates. As described above, ----------------------------------- certain Affiliates of the Lender, including without limitation, Bank of America National Trust and Savings Association, are or may become parties to certain Hedging Agreements with the Mortgagor and/or Affiliates of the Mortgagor. This Mortgage secures the obligations of the Mortgagor and such Affiliates, as the case may be, under such Hedging Agreements, and the parties hereto acknowledge for all purposes that the Lender acts as agent on behalf of such Affiliates of the Lender which are so entitled to share in the rights and benefits accruing to the Lender under this Mortgage. Section 5.29. Subordination. Notwithstanding anything to the contrary -------------- contained herein, Lender hereby agrees for itself and its successors and assigns, that Lender's rights and remedies hereunder (the "Rights"), and any and all liens and security interests granted in or pursuant to this Mortgage that are granted to secure the Rights (the "Liens") as well as any interest in any property or asset, including the Property, acquired by reason of the enforcement of any of the Rights or the Liens are subject to the terms of the Subordination Agreement, which provides, among other things, that the Rights and the Liens are subject to the Participation Agreement as more particularly set forth therein. This Section 5.29 shall be deemed a covenant binding upon and running with the Property. Section 5.30 Limitation on Recourse. Notwithstanding the general terms of ----------------------- Mortgagor's obligations under this Mortgage or anything to the contrary contained herein, Lender hereby agrees not to seek to satisfy Mortgagor's obligations under this Mortgage out of any property, assets, revenues or funds of -25- Mortgagor other than (i) MEC's Share of the Property (which shall remain subject to the Subordination Agreement) or (ii) funds which are distributed to West Shore and, in turn, to MEG from time to time pursuant to the Participation Agreement. -26- IN WITNESS WHEREOF, this instrument is executed by Mortgagor this 2nd day of May, 1996. Name: Mary Beth Rhodey WESTSHORE PROCESSING COMPANY, L.L.C., By: MarkWest Michigan: its Operator By: MarkWest Hydrocarbon Partners, Ltd., its Manager By: MarkWest Hydrocarbon, Inc., its General Partner Title: Vice President The address of Lender is: The address of Mortgagor is: 231 South LaSalle Street c/o MarkWest Michigan LLC Chicago, Illinois 60697 5615 DTC Parkway, Suite 400 Englewood, Colorado 80111 STATE OF TEXAS (S) COUNTY OF HARRIS (S) The foregoing instrument was acknowledged before me on this 2nd day of May, 1996, by Arthur J. Denney, the Vice President of MarkWest Hydrocarbon, Inc., the General Partner of MarkWest Hydrocarbon Partners, Ltd., the Manager of MarkWest Michigan LLC, the Operator of West Shore Processing Company, L.L.C., a Michigan limited liability company, on behalf of said company. MARY JOSEPHINE GORDON JULY 12, 1997 My commission expires: 7/12/96 Notary Public State of Texas Mary Josephine Gordon (printed name) This instrument prepared by: Kevin L. Shaw Mayor, Brown &Platt 250 South Grand Avenue Los Angeles, California 90071-1563 SCHEDULE 1 Part One -------- 1. Mortgage, Assignment, Security Agreement and Financing Statement dated December 1, 1993, executed by Manistee Gas Limited Liability Company in favor of Michigan Gas Fund I, counterparts of which were recorded as follows:
State/County Recording Data Date of filing - ------------ -------------- -------------- Michigan/Manistee Liber 586, Page 11 1/7/94 Michigan/Mason Liber 436, Page 701 1/18/94
2. First Supplement to Mortgage, Assignment, Security Agreement and Financing Statement dated March 30, 1994, executed by Manistee Gas Limited Liability Company and Michigan Gas Fund I, recorded as follows:
State/County Recording Data Date of filing - ------------ -------------- -------------- Michigan/Manistee Liber 592, Page 55/4/94 Michigan/Mason Liber 439, Page 630 4/14/94
3. Second Supplement to Mortgage, Assignment, Security Agreement and Financing Statement dated October 24, 1994, executed by Manistee Gas Limited Liability Company and Michigan Gas Fund I, recorded as follows:
State/County Recording Data Date of filing - ------------ -------------- -------------- Michigan/Manistee Liber 605, Page 69 2/12/94 Michigan/Mason Liber 439, Page 630 12/8/94
Part Two 1. Collateral Assignment of Notes and Liens dated December 1, 1993 from Michigan Gas Fund I to Bankers Trust Company, Trustee, recorded as follows:
State/County Recording Data Date of Filing - ------------ -------------- -------------- Michigan/Manistee Liber 586, Page 135 1/7/94 Michigan/Mason Liber 436, Page 786 1/18/94 Michigan/Muskegon Liber 1743, Page 532 12/27/93 Michigan/Oceana File No. 9313153 12/27/93
2. Amended and Restated Collateral Assignment of Notes and Liens dated March 31, 1994 from Michigan Gas Fund I to Bankers Trust Company, Trustee, recorded as follows:
State/County Recording Data Date of filing - ------------ -------------- -------------- Michigan/Manistee Michigan/Mason Michigan/Muskegon Michigan/Oceana
3. Second Amended and Restated Collateral Assignment of Notes and Liens dated December 29, 1996 from Michigan Gas Fund I to Bankers Trust Company, Trustee, recorded as follows:
State/County Recording Data Date of Filing - ------------ -------------- -------------- Michigan/Manistee Liber 626, Page 253 2/6/96 Michigan/Mason Liber 460, Page 592 1/18/96
State/County Recording Data Date of Filing - ------------ -------------- -------------- Michigan/Muskegon Liber 1877, Page 615 1/24/96 Michigan/Oceana File No. 960683 1/18/96
-1- 4. Assignment of Notes and Liens dated December 29, 1995, to Bank of America Illinois, recorded as follows:
State/County Recording Data Date of filing - ------------ -------------- -------------- Michigan/Manistee Liber 626, Page 244 2/6/96 Michigan/Mason Liber 460, Page 583 1/18/96 Michigan/Muskegon Liber 1877, Page 606 1/24/96 Michigan/Oceana File No. 960644 1/18/96
-2- EXHIBIT A - EASEMENTS AND LEASES TO MEC EASEMENTS. 1. Easement and right of way conveyed by Stanley J. Motyka et al. to The Dow Chemical Company on April 18, 1984, and recorded in the office of the Mason County Register of Deeds at Liber 313, Page 469, Mason County, Michigan; 2. Easement and right of way conveyed by James A. Nickelson et al. to The Dow Chemical Company on April 18, 1984, and recorded in the office of the Mason County Register of Deeds at Liber 313, Page 471, Mason County, Michigan; 3. Easement and right of way conveyed by Consumers Power Company to The Dow Chemical Company on October 29, 1973, and recorded in the office of the Mason County Register of Deeds at Liber 86, Page 222, Mason County, Michigan; 4. Easement and right of way conveyed by Esther Weinert to The Dow Chemical Company on May 14, 1984 and recorded in the office of the Mason County Register of Deeds at Liber 314, Page 382, Mason County, Michigan; 5. Easement and right of way conveyed by William C. Groth et at. to The Dow Chemical Company on June 26, 1973, and recorded in the office of the Mason County Register of Deeds at Liber 85, Page 375, Mason County, Michigan; 6. Easement and right of way conveyed by George E. Brant et al. to The Dow Chemical Company on June 26, 1973, and recorded in the office of the Mason County Register of Deeds at Liber 85, Page 369, Mason County, Michigan; 7. Easement and right of way conveyed by Fredrick L. Bates to The Dow Chemical Company on June 26, 1973, and recorded in the office of the Mason County Register of Deeds at Liber 85, Page 371, Mason County, Michigan; 8. Easement and right of way conveyed by Joseph E. O'Brien et al. to The Dow Chemical Company on June 27, 1973, and recorded in the office of the Mason County Register of Deeds at Liber 85, Page 373, Mason County, Michigan; 9. Easement and right of way conveyed by Richard H. Kraft et al. to The Dow Chemical Company on July 28, 1973, and recorded in the office of the Mason County Register of Deeds at Liber 85, Page 367, Mason County, Michigan; 10. Easement and right of way conveyed by Frederick F. Petersen et al. to The Dow Chemical Company on June 17, 1978, and recorded in the office of the Mason County Register of Deeds at Liber 243, Page 436, Mason County, Michigan; 11. Easement and right of way conveyed by Donald C. Diesing et al. to The Dow Chemical Company on May 19, 1978, and recorded in the office of the Mason County Register of Deeds at Liber 243, Page 432, Mason County, Michigan; A-1 12. Easement and right of way conveyed by David A. Diesing and Daryl L. Diesing, to The Dow Chemical Company on May 23, 1978, for David, and May 19, 1978, for Daryl, and recorded in the office of the Mason County Register of Deeds at Liber 243, Page 430, Mason County, Michigan; 13. Easement and right of way conveyed by Robert A. Raschka to The Dow Chemical Company on July 20, 1973, and recorded in the office of the Mason County Register of Deeds at Liber 85, Page 365, Mason County, Michigan; 14. Easement and right of way conveyed by Emmett E. Petersen et al. to The Dow Chemical Company on August 2, 1973, and recorded in the office of the Mason County Register of Dens at Liber 85, Page 361, Mason County, Michigan; 15. Easement and right of way conveyed by Birdsill Holly et al. to The Dow Chemical Company on July 19, 1973, and recorded in the office of the Mason County Register of Deeds at Liber 85, Page 363, Mason County, Michigan; 16. Easement and right of way conveyed by Frederick F. Peterson et al.. to The Dow Chemical Company on August 1, 1975, and recorded in the office of the Mason County Register of Deeds at Liber 89, Page 417, Mason County, Michigan; 17. Easement and right of way conveyed by Donald Diesing et al. to The Dow Chemical Company on November 13, 1974, and recorded in the office of the Mason County Register of Deeds at Liber 89, Page 199, Mason County, Michigan; 18. Easement and right of way conveyed by Alfred W. Stadler to The Dow Chemical Company on May 8, 1974, and recorded in the office of the Biason County Register of Deeds at Liber 89, Page 221, Mason County, Michigan; 19. Easement and right of way conveyed by Bernard O. Stadler el al. to The Dow Chemical Company on May 9, 1974, and recorded in the office of the Mason County Register of Deeds at Liber 89, Page 211, Mason County, Michigan; 20. Easement and right of way conveyed by William John Leak et al. to The Dow Chemical Company on May 9, 1974, and recorded in the office of the Mason County Register of Deeds at Liber 89, Page 213, Mason County, Michigan; 21. Easement and right of way conveyed by William Sadler to The Dow Chemical Company on July 17, 1974, and recorded in the office of the Mason County Register of Deeds at Liber 89, Page 197, Mason County, Michigan; 22. Easement and right of way conveyed by Homer C. Hansen et al. to The Dow Chemical Company on August 14, 1973, and recorded in the office of the Mason County Register of Deeds at Liber 85, Page 377, Mason County, Michigan; 23. Easement and right of way conveyed by Elizabeth Hagen et al. to The Dow Chemical Company on October 18, 1990, and recorded in the office of the Mason County Register of Deeds at Liber 405, Page 301, Mason County, Michigan; A-2 24. Easement and right of way conveyed by Esther E. Billow to The Dow Chemical Company on October 16, 1975, and recorded in the office of the Mason County Register of Deeds at Liber 90, Page 55, Mason County, Michigan; 25. Easement and right of way conveyed by Charles Williams et al. to The Dow Chemical Company on July 5, 1973, and recorded in the office of the Mason County Register of Deeds at Liber 85, Page 357, Mason County, Michigan; 26. Easement and right of way conveyed by Jerry A. Malstrom et al. to The Dow Chemical Company on August 11, 1973, and recorded in the office of the Mason County Register of Deeds at Liber 85, Page 349, Mason County, Michigan; 27. Easement and right of way conveyed by Reva J. Miller et el. to The Dow Chemical Company on April 22, 1975, and recorded in the office of the Mason County Register of Deeds at Liber 92, Page 535, Mason County, Michigan; 28. Easement and right of way conveyed by Reva J. Miller et el. to The Dow Chemical Company on December 8, 1975, and recorded in the office of the Mason County Register of Deeds at Liber 90, Page 244, Mason County, Michigan; 29. Easement and right of way conveyed by John O. Swanson et el. to The Dow Chemical Company on November 6, 1973, and recorded in the office of the Mason County Register of Deeds at Liber 86, Page 159, Mason County, Michigan; 30. Easement and right of way conveyed by Jerry A. Malstrom et el. to The Dow Chemical Company on May 28, 1990, and recorded in the office of the Mason County Register of Deeds at Liber 267, Page 15, Mason County, Michigan; 31. Easement and right of way conveyed by John Olson to The Dow Chemical , Company on May 20, 1974, and recorded in the office of the Mason County Register of Deeds at Liber 89, Page 219, Mason County, Michigan; 32. Easement and right of way conveyed by Bernard Sterley et al. to The Dow Chemical Company on August 11, 1973, and recorded in the office of the Mason County Register of Deeds at Liber 85, Page 351, Mason County, Michigan; 33. Easement and right of way conveyed by Edgar A. Williams et al. to The Dow Chemical Company on October 31, 1973, and recorded in the office of the Mason County Register of Deeds at liber 86, Page 100, Mason County, Michigan; 34. Easement and right of way conveyed by Edgar A. Williams et el. to The Dow Chemical Company on November 5, 1974, and recorded in the office of the Mason County Register of Deeds at Liber 89, Page 191, Mason County, Michigan; 35. Easement and right of way conveyed by Richard Dennis et el. to The Dow Chemical Company on February 6, 1975, and recorded in the office of the Mason County Register of Deeds at Liber 89, Page 187, Mason County, Michigan; A-3 36. Easement and right of way conveyed by Lawrence Timpy et al. to The Dow Chemical Company on May 20, 1974, and recorded in the office of the Mason County Register of Deeds at Liber 89, Page 215, Mason County, Michigan; 37. Easement and right of way conveyed by Arthur Swanson et al. to The Dow Chemical Company on May 16, 1974, and recorded in the office of the Mason County Register of Deeds at Liber 89, Page 223, Mason County, Michigan; 38. Easement and right of way conveyed by Ray Karboske et al. to The Dow Chemical Company on January 29, 1975, and recorded in the office of the Mason County Register of Deeds at Liber 89, Page 193, Mason County, Michigan; 39. Easement and right of way conveyed by Donald O. Swanson et al. to The Dow Chemical Company on August 14, 1974, and recorded in the office of the Mason County Register of Deeds at Liber 89, Page 205, Mason County, Michigan; 40. Easement and right of way conveyed by Robert Ruby et al. to The Dow Chemical Company on July 16, 1974, and recorded in the office of the Mason County Register of Deeds at Liber 89, Page 203, Mason County, Michigan; 41. Easement and right of way conveyed by Ann Raschka to The Dow Chemical Company on August 16, 1974, and recorded in the office of the Mason County Register of Deeds at Liber 89, Page 209, Mason County, Michigan; 42. Easement and right of way conveyed by Donald C. Diesing et al. to The Dow Chemical Company on August 4, 1981, and recorded in the office of the Mason County Register of Deeds at Liber 281, Page 332, Mason County, Michigan; 43. Easement and right of way conveyed by Thompson Cabinet Company to The Dow Chemical Company on August 11, 1981, and recorded in the office of the Mason County Register of Deeds at Liber 281, Page 203, Mason County, Michigan; 44. Easement and right of way conveyed by Charles F. Larson et al. to The Dow Chemical Company on August 9, 1981, and recorded in the office of the Mason County Register of Deeds at Liber 281, Page 201, Mason County, Michigan; 45. Easement and right of way conveyed by Benjamin F. Campeau et al. to The Dow Chemical Company on June 20, 1981, and recorded in the office of the Mason County Register of Deeds at Liber 280, Page 40, Mason County, Michigan; 46. Easement and right of way conveyed by Freeman L. Thompson et al. to The Dow Chemical Company on June 20, 1981, and recorded in the office of the Mason County Register of Deeds at Liber 280, Page 38, Mason County, Michigan; 47. Easement and right of way conveyed by Freeman L. Thompson et al. to The Dow Chemical Company on July 23, 1974, and recorded in the office of the Mason County Register of Deeds at Liber 89, Page 201, Mason County, Michigan; A-4 48. Easement and right of 'way conveyed by Howard T. Fugere et al. to The Dow Chemical Company on May 27, 1980, and recorded in the office of the Mason County Register of Deeds at Liber 267, Page 13, Mason County, Michigan. 49. Easement Agreement dated August 16, 1993 between City of Manistee and Manistee Gas Limited Liability Company recorded on August 21, 1993, in Liber 578, Page 282, Deed of Records of Manistee County, Michigan. LEASES 1. Lease Agreement from Dow Chemical to Manistee Gas limited Liability Company dated March 14, 1994, covering the following described land: Part of the E 1/2 of the NE 1/4 of the NW 1/4 of Section 19, T19N-R17W, Victory Township, Mason County, Michigan, described as follows: Commencing at the N 1/4 corner of said Section 19; thence due West along the Section line 652.32'; thence S 00 degrees 11 '28" W, along the West line of the E 1/2 of the NE 1/4 of the NW 1/4 of said Section 19, 537.03' to the Point of Beginning; thence S 63 degrees 40'37" E 142.79'; thence S 26 degrees 19'23" W 206.00'; thence S 63 degrees 40'37" E 142.79; thence S 26 degrees 19'23" W 206.00'; thence N 63 degrees 40'37" W 41.74'; thence N 00 degrees 11'28" E 229.45' to the Point of Beginning, 0.44 acres. 2. Sublease from Dow Chemical to Manistee Gas Limited Liability Company, dated March 14, 1994, covering the Lease Agreement between Emmett Earl Peterson and Jeanine Peterson, as Landlord, and The Dow Chemical Company, as Tenant. 3. Lease dated effective December 2.7, 1993 by and between Kenneth Dennis and Noel Parrish and Manistee (Gas Ltd. Liability Co. covering the premises at 356 River St., Manistee, Michigan. A-5 EXHIBIT B-CONTRACTS AND AGREEMENTS TO MEC 1. Transportation Agreement dated December 1, 1993 between Manistee Gas Limited Liability Company, as Shipper, and Basin Pipeline LLC, as Transporter. 2. Asset Purchase Agreement dated December 1, 1993, between Dow Chemical Company, as Buyer, and Manistee Gas Limited Liability Company as Seller. 3. Promissory Note dated December 1, 1993 from Manistee to The Dow Chemical Company in the principal sum of $720,000.00. 4. Pipeline Construction Agreement dated November 30, 1993, by and between Basin, as owner, and Murphy Bros. Inc., as Contractor, as amended by First Amendment to the Pipeline Construction Agreement dated November 30, 1993. 5. Agreement dated December 22, 1994 between Basin, West Bay Exploration Co., Savoy Oil and Gas Inc. and H&H Star Energy, Inc. for the Filer 1-10 Well. 6. Transportation Agreement dated April 1, 1995, by and between Manistee and Michigan Consolidated Gas Company. 7. KIF Use Agreement dated October 1, 1991, between Shell Michigan Pipeline Company and Manistee. 8. Gas and Condensate Processing Agreement - Kalkaska Plant dated April 1, 1995, by and between Shell Western E&P, Inc. and Manistee. 9. Product Purchase Agreement dated July 12, 1994, accepted July 15, 1994, by and between Enerkon Resources Corporation and Manistee. 10. Gathering Line Construction and Gas Processing Agreement dated December 22, 1994, by and between Manistee, Basin, West Bay Exploration Company, Savoy Oil & Gas, Inc., and H&H Star Energy, Inc. B-1 10. Lease/Purchase of Gas Compressor for the Victory #32 Compressor Station 1 ------------------------------------------------------------------------- Lessor: Gas Compression Services, Inc. ("Gasco"). Lessee: Manistee Gas, L.L.C. "Manistee"). Date of agreement: January 3, 1994 Suction pressure: 300 to 350 psig. Discharge pressure: 1,000psig. Specific gravity: 0.70. Volume: 2.5 to 3.1 Mmcfld. Operations: Gasco will operate the compressor. Manistee will furnish all parts, lube oil, and dry sweet fuel gas. Terms: Sixty (60) months upon which Manistee will have option to purchase the compressor unit for $53,350.42 within thirty (30) days after final lease payment is made. Pricing: $3,916.67 per month (includes $750.00 for the operation of the compressor unit). 11. Lease/Purchase of gas compressor for the Victory #32 Compressor Station #2 -------------------------------------------------------------------------- Lessor: Gas Compression Services, Inc. ("Gasco"). Lessee: Manistee Gas, L.L.C. "Manistee"). Date of agreement: January 3, 1994 Suction pressure: 300 to 350 psig. Discharge pressure: 1,000psig. Specific gravity: 0.70. Volume: 2.5 to 3.1 Mmcfld. Operations: Gasco will operate the compressor. Manistee will furnish all parts, lube oil, and dry sweet fuel gas. Terms: Sixty (60) months upon which Manistee will have option to purchase the compressor unit for $53,350.42 within thirty (30) days after final lease payment is made. Pricing: $3,916.67 per month (includes $750.00 for the operation of the compressor unit). 12. Lease purchase of gas compressor for the Victory #32 Compressor Station #3 -------------------------------------------------------------------------- Lessor: Gas Compression Services, Inc. ("Gasco"). Lessee: Manistee Gas, L.L.C. "Manistee"). Date of agreement: January 3, 1994 Suction pressure: 300 to 350 psig. Discharge pressure: 1,000psig. Specific gravity: 0.70. Volume: 2.5 to 3.1 Mmcfld. Operations: Gasco will operate the compressor. Manistee will furnish all parts, lube oil, and dry sweet fuel gas. Terms: Sixty (60) months upon which Manistee will have option to purchase the compressor unit for $53,350.42 within thirty (30) days after final lease payment is made. Pricing: $3,916.67 per month (includes $750.00 for the operation of the compressor unit). B-2 13. Lease/ Purchase of gas compressor for Peterson Facility. -------------------------------------------------------- Lessor: Gas Compression Services, Inc. ("Gasco"). Lessee: Manistee Gas, L.L.C. ("Manistee"). Date of agreement: February 1, 1995 Suction pressure: 15 to 35 psig. Suction Temperature: 70 degrees. Discharge pressure: 350 psig. Specific gravity: 0.83. Volume: 0.9 to 1.3 Mmcfld. Ambient Temperature: 100 degrees. Operations: Lessor will operate the compressor. Lessee will furnish all parts, lube oil, and dry sweet fuel gas. Terms: Sixty (60) months. Upon final payment, Lessor will assign lessee the compressor unit for no additional charge. Pricing: $2,880.56 per month (includes $0.00 for the operation of the compressor unit). 14. Letter Agreement regarding Transportation, Compression, Treating and Processing dated February 23, 1996 between Manistee, Basin and Dynamic Development, Inc. for the Peterson #1-19 Victory Well in Victory Township, Mason County. Table of Vehicle Leases Including: Vehicle Description Payments Drivers ID #'s Leases Mileage V.I.D. #'s EXHIBIT B - Transferred Brown-19 Assets to MEC Basin and/or Manistee Assets Located at the Brown 19 Treating Plant - ------------------------------------------------------------------- The Basin and/or Manistee assets located at the Brown 19 treating plant include: 1. Slug catcher 2. Filter Unit 3. Basin Gas Pack 4. Three 12,000-gallon sour NGL storage tanks and one 24,000 NGL storage tank 5. The spare gas pack 6. The sour NGL truck-loading facilities 7. All spare or unused equipment, facilities and supplies located at or near the Brown 19 Treating Plant site and in the portion of the Plant commonly known as the "Bone Yard", excluding however, the Lake Orion NGL amine skid, NGL plant skid and related equipment. The above facilities shall include all line-pipe, pipe, connections, fittings, flanges, interconnect with other pipelines, valves, control equipment, pigs, pig launchers and receivers, cathodic protection, bypasses, regulators, drips, meters and metering equipment, all equipment loacted on, at or appurtenant to the Peterson compressor staion, all other equipment and personal property and/or fixtures associated therewith including the following: Delivery Points Valves - --------------- ------ 1) Basin Pipeline Gas Pack a) The first valve (gas) downstream of the Basin Gas Pack a) All piping from the 2-inch valve (air) to the Basin Gas Pack b) The 2-inch valve (fuel) and piping to the Basin Gas Pack c) All piping from the 1-inch and 2-inch flare valves to the Basin Gas Pack. 2) Sour NGL Storage a) The four (4) 4" x 6" relief valves on the piping from the sour NGL storage tanks to the Brown 19 flare system. b) All piping between the 2inch flash gap valves and each sour NGL Storage Tank. c) All piping between the 2-inch valves on the sour NGL storage tanks to the Brown 19 flare system. d) All piping between the 2-inch valve (truck load-out to the Brown 19 flare system) and the tanks. e) All piping between the 1-inch valves on the sour NGL filter vapor water return dump line in the truck loading area and the sour NGL filter. B-4 Unscannable forms follow. EX-10.4 7 SECURED GUARANTY, DATED MAY 2, 1996 SECURED GUARANTY ---------------- THIS SECURED GUARANTY (this "Guaranty"), dated as of May 2, 1996, made by ---------- West Shore Processing Company, LLC, a Michigan limited liability company (the "Guarantor"), in favor of Bank of America Illinois, an Illinois banking - ----------- corporation (the "Lender"), W I T N E S S E T H: ------------------- WHEREAS, pursuant to an Amended and Restated Credit Agreement, dated as of May 2, 1996 (together with all amendments and other modifications, if any, from time to time thereafter made thereto, the "Credit Agreement"), among Michigan ------------------ Energy Company, L.L.C., a Michigan limited liability company ("Energy Company") ----------------- and Michigan Production Company, L.L.C., a Michigan limited liability company (together with Energy Company, collectively, the "Borrower") and the Lender, the ---------- Lender agreed to make loans (collectively, the "Loan") to the Borrower; and ------ WHEREAS, Energy Company owns 99% of the issued and outstanding membership interests of the Guarantor; and WHEREAS, the Borrower has entered or may enter into certain Hedging Agreements with Bank of America National Trust and Savings Association, an Affiliate of the Lender, pursuant to the terms of the Credit Agreement; and WHEREAS, as a condition precedent to the making of the Loan under the Credit Agreement and to the obligations of Bank of America National Trust and Savings Association under the Hedging Agreements referred to above, the Guarantor is required to execute and deliver this Guaranty; and WHEREAS, it is in the best interests of the Guarantor to execute this Guaranty inasmuch as the Guarantor will derive substantial direct and indirect benefits from the Loan made to the Borrower by the Lender pursuant to the Credit Agreement; and WHEREAS, the obligations of the Guarantor under this Guaranty are secured by that certain Amended and Restated Mortgage, Deed of Trust, Assignment, Security Agreement and Financing Statement dated as of May 2, 1996, from the Guarantor in favor of the Lender (the "Mortgage") and that certain Security ---------- Agreement dated as of May 2, 1996, from the Guarantor in favor of the Lender (the "Security Agreement"), each of which is subject to the terms and conditions -------------------- of the Subordination Agreement; NOW, THEREFORE, for good and valuable consideration the receipt of which is hereby acknowledged, and in order to induce the -1- NOTE: PAGE 2 IS MISSING (FROM THE ORIGINAL) -2- "Energy Company's Share" means, as of any date of determination with ------------------------ respect to any asset, interest or property, the proportionate beneficial interest of Energy Company therein represented by Energy Company's direct and indirect ownership of equity interests in Basin and West Shore and which are subject to the Participation Agreement and, to the extent liens against such assets, interest or property are granted pursuant to the Loan Documents, the Subordination Agreement. "ERISA" means the Employee Retirement Income Security Act of 1974, as ------- amended, and any successor statute of similar import, together with the regulations thereunder, in each case as in effect from time to time. References to sections of ERISA also refer to any successor sections. "Event of Default" means an Event of Default under the Credit Agreement. ------------------ "GAAP" means generally accepted accounting principles. ------ "Guarantor" is defined in the preamble. ----------- "Guaranty" is defined in the preamble. ---------- "Hedging Agreements" means: -------------------- (a) interest rate swap agreements, basis swap agreements, interest rate cap agreements, forward rate agreements, interest rate floor agreements and interest rate collar agreements, and all other agreements or arrangements designed to protect such Person against fluctuations in interest rates or currency exchange rates, and (b) forward contracts, options, futures contracts, futures options, commodity swaps, commodity options, commodity collars, commodity caps, commodity floors and all other agreements or arrangements designed to protect such Person against fluctuations in the price of commodities. "Hedging Obligations" means, with respect to any Person, all liabilities --------------------- (including but not limited to obligations and liabilities arising in connection with or as a result of early or premature termination of a Hedging Agreement, whether or not occurring as a result of a default thereunder) of such Person under a Hedging Agreement. "Lender" is defined in the preamble. -------- "Loan Document" has the meaning ascribed to it in the Credit Agreement as --------------- in effect on the date hereof. -3- "MarkWest" means MarkWest Michigan LLC. ---------- "Mortgage" is defined in the sixth recital. ---------- "Note" means the promissory notes of the Borrowers payable to the order of ------ the Lender, (as such promissory notes may be amended, endorsed or otherwise modified from time to time), evidencing the aggregate debt of each Borrower to the Lender under the Credit Agreement resulting from outstanding Loans, and also means all other promissory notes accepted from time to time in substitution therefor of renewal thereof. "Obligor" means Michigan Gas Fund I, Tennessee Gas Pipeline Company, --------- Tenneco Ventures Corporation, EnCap Ventures 1993 Limited Partnership, the Borrowers, Basin, Guarantor or any other Person (other than the Lender) from time to time obligated under, or otherwise a party to, any Loan Document. "Participation Agreement" means that certain Participation, Ownership and ------------------------- Operating Agreement for West Shore, by and among Energy Company and MarkWest dated as of May 2, 1996, (the "Participation Agreement"). "Pension Plan" means a "pension plan", as such term is defined in section -------------- 3(2) of ERISA, which is subject to Title IV of ERISA (other than a multiemployer plan as defined in section 4001(a)(5) of ERISA), and to which a Borrower or any corporation, trade or business that is, along with such Borrower, a member of a Controlled Group, may have liability, including any liability by reason of having been a substantial employer within the meaning of section 4063 of ERISA at any time during the preceding five years, or by reason of being deemed to be a contributing sponsor under section 4069 of ERISA. "Person" means any natural person, corporation, partnership, limited -------- liability company, firm, association, trust, government, governmental agency or any other entity, whether acting in an individual, fiduciary or other capacity. "Pipeline" means the natural gas pipeline and related facilities presently ---------- owned by Basin and those pipelines and related facilities to be constructed by MarkWest pursuant to the Participation Agreement. "Plan" means any Pension Plan or Welfare Plan. ------ "Plant" means, as the context requires, the Brown l9 Gas Plant (as defined ------- in the Participation Agreement), the "Treating Plant" (as defined in the Shell Contract) and other facilities and equipment, as such combination of assets may be constituted from -4- time to time and used by West Shore for the processing of natural gas as contemplated by the Participation Agreement. "Property" means any interest in any kind of property or asset, whether ---------- real, personal or mixed, or tangible or intangible. "Security Agreement" is defined in the sixth recital. -------------------- "Security Documents" means, collectively, the documents, agreements and -------------------- instruments, including without limitation, the Mortgage and the Security Agreement, given to secure the Obligations. "Shell Contract" means the Gas Treating and Processing Agreement dated as ---------------- of May 1, 1996, between Shell Western E & P Inc. and West Shore. "Subordination Agreement" means the Subordination Agreement dated as of ------------------------- May 2, 1996, by and among MarkWest, the Lender, Energy Company, Guarantor, and Basin. "Welfare Plan" means a "welfare plan", as such term is defined in section -------------- 3(1) of ERISA. "West Shore" means West Shore Processing Company, L.L.C. ------------ ARTICLE II GUARANTY PROVISIONS SECTION 2.1. GUARANTY. The Guarantor hereby absolutely, unconditionally --------- and irrevocably (a) guarantees the full and punctual payment when due, whether at stated maturity, by required prepayment, declaration, acceleration, demand or otherwise, of all monetary obligations of the Borrower or any 0bligor to the Lender under the Credit Agreement or any other Loan Document ("Obligations"), ------------- whether for principal, interest, fees, expenses or otherwise (including all such amounts which would become due but for the operation of the automatic stay under Section 362(a) of the United States Bankruptcy Code, 11 U.S.C. symbol 362(a), and the operation of Sections 502(b) and 506(b) of the United States Bankruptcy Code, 11 U.S.C. symbol 502(b) and symbol 506(b), (b) indemnifies and holds harmless the Lender for any and all costs and expenses (including reasonable attorney's fees and expenses) incurred by the Lender in enforcing any rights under this Guaranty, and -5- (c) guarantees the full and punctual payment and performance when due of all of the Borrower's and/or the Guarantor's obligations, to the Lender or any Affiliate of the Lender, under all Hedging Obligations arising under Hedging Agreements between the Borrower, the Guarantor or any other Affiliate of the Guarantor and the Lender or any Affiliate of the Lender, including without limitation, Bank of America National Trust and Savings Association, whether now or hereafter owing, whether direct or indirect, primary or secondary, fixed or contingent, joint or several, regardless of how evidenced or arising. This Guaranty constitutes a guaranty of payment when due and not of collection, and the Guarantor specifically agrees that it shall not be necessary or required that the Lender or any holder of any Note exercise any right, assert any claim or demand or enforce any remedy whatsoever against the Borrower or any other Obligor before or as a condition to the obligations of the Guarantor hereunder, except as required by the Subordination Agreement. SECTION 2.2. ACCELERATION OF GUARANTY. The Guarantor agrees that, in the ------------------------- event of the dissolution or insolvency of the Borrower, any other Obligor or the Guarantor, or the inability or failure of the Borrower, any other Obligor or the Guarantor to pay debts as they become due, or an assignment by the Borrower, any other Obligor or the Guarantor for the benefit of creditors, or the commencement of any case or proceeding in respect of the Borrower, any other 0bligor or the Guarantor under any bankruptcy, insolvency or similar laws, and if such event shall occur at a time when any of the Obligations of the Borrower may not then be due and payable, the Guarantor will pay to the Lender forthwith the full amount which would be payable hereunder by the Guarantor if all such Obligations were then due and payable. SECTION 2.3. GUARANTY ABSOLUTE, ETC. This Guaranty shall in all ----------------------- respects be a continuing, absolute, unconditional and irrevocable guaranty of payment and performance, and shall remain in full force and effect until all Obligations of the Borrower and each Obligor have been paid in full, all obligations of the Guarantor hereunder shall have been paid in full and all Commitments shall have terminated. The liability of the Guarantor under this Guaranty shall be absolute, unconditional and irrevocable irrespective of: (a) any lack of validity, legality or enforceability of the Credit Agreement or any other Loan Document; (b) the failure of the Lender or any holder of any Note (i) to assert any claim or demand or to enforce any right or remedy against the Borrower, any other Obligor -6- under the provisions of the Credit Agreement, any other Loan Document or otherwise, or (ii) to exercise any right or remedy against any other guarantor of, or collateral securing, any Obligations; (c) any change in the time, manner or place of payment of, or in any other term of, all or any of the Obligations, or any other extension, compromise or renewal of any Obligation; (d) any reduction, limitation, impairment or termination of the Obligations for any reason, including any claim of waiver, release, surrender, alteration or compromise, and shall not be subject to (and the Guarantor hereby waives any right to or claim of) any defense or setoff, counterclaim, recoupment or termination whatsoever by reason of the invalidity, illegality, nongenuineness, irregularity, compromise, unenforceability of, or any other event or occurrence affecting, the Obligations or otherwise; (e) any amendment to, rescission, waiver, or other modification of, or any consent to departure from, any of the terms of the Credit Agreement or any other Loan Document; (f) any addition, exchange, release, surrender or nonperfection of any collateral, or any amendment to or waiver or release or addition of, or consent to departure from, any other guaranty, held by the Lender securing any of the Obligations; (g) any other circumstance which might otherwise constitute a defense available to, or a legal or equitable discharge of, the Borrower, any other Obligor, any surety or any guarantor, other than payment in full of the Obligations; or (h) any defense based on any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of the terms of the Credit Agreement or the rights of the Lender with respect to the Credit Agreement or the Loan Documents. SECTION 2.4. REINSTATEMENT, ETC. The Guarantor agrees that this ------------------- Guaranty shall continue to be effective or be reinstated, as the case may be, if at any time any payment (in whole or in part) of any of the Obligations is rescinded or must otherwise be restored by the Lender or any holder of any Note, upon the insolvency, bankruptcy or reorganization of the Borrower, any other Obligor or otherwise, as though such payment had not been made. -7- SECTION 2.5. LIMITED RECOURSE. Notwithstanding the general terms of the ----------------- Guarantor's obligations under this Guaranty or anything to the contrary contained herein and subject to the terms and conditions of the Subordination Agreement, the Lender hereby agrees not to seek to satisfy Guarantor's obligations under this Guaranty out of any property, assets, revenues or funds of Guarantor other than (i) Energy Company's Share of the Collateral or (ii) funds which are distributable to Energy Company from time to time pursuant to the Participation Agreement to the extent such funds are distributable to Energy Company. Notwithstanding the foregoing, the Guarantor shall be fully liable to the Lender, and the Lender may enforce any judgment against the Guarantor, for: (i) any fraud by the Guarantor in connection with this Guaranty or the Loan Documents to which it is a party; provided, that any fraud committed by Energy --------- Company, individually or as a member of the Guarantor, in which MarkWest had no part shall not be imputed to the Guarantor and shall not constitute fraud on the part of the Guarantor; (ii) the retention of funds required to be distributed in respect of Energy Company's Share in Guarantor after the Lender has given notice that the Guarantor is in default under the Guaranty, the Credit Agreement or any Loan Document to which it is a party (a "Default Notice"), to the full extent of ---------------- such funds so retained; (iii) the fair market value, as of the time of any Default Notice, of any personal property or fixtures comprising the Plant removed or disposed of by the Guarantor, other than in accordance with the terms of the Participation Agreement; or (iv) the retention or misapplication of any insurance proceeds or condemnation or other awards, if and to the extent such sums are required to the extent of Energy Company's Share and subject to the terms of the Subordination Agreement to be paid or delivered to the Lender and/or used for restoration of the Plant in accordance with the terms of the Mortgage or the Security Agreement. The Lender shall have the right to recover its damages hereunder in a separate proceeding brought for that purpose, or in any foreclosure action under any of the Loan Documents, or by invocation of any of the Lender's other rights and remedies thereunder or at law or equity; and the Guarantor's liability under this Section 275 shall survive foreclosure under ----------- any Loan Document. SECTION 2.6. WAIVER, ETC. ------------ (a) The Guarantor hereby waives promptness, diligence, notice of acceptance and any other notice with respect to any of the Obligations and this Guaranty and any requirement that the Lender or any holder of any Credit Agreement protect, secure, perfect or insure any security interest, or any property subject thereto, or exhaust any right or take any action against the Borrower, any other Obligor or any other Person or entity or any collateral securing the Obligations. -8- (b) Based on the representations and warranties of the Guarantor set forth herein, the Guarantor hereby forever and completely waives any right the Guarantor might otherwise have to assert or claim, as part of a defense against any action taken by Lender against the Guarantor under this Guaranty after the Lender shall have completed an action against the Borrower or another Obligor for the enforcement of any of the Obligations, that such action against the Guarantor is barred by operation of the laws of any applicable jurisdiction, because either (i) this Guaranty and the Credit Agreement are part and parcel with the Loans as one integrated transaction loan transaction, rather than related but separate and distinct transactions, or (ii) that the Borrower is the alter ego of the Guarantor or the Guarantor is the alter ego of the Borrower. (c) Without limitation on any of the other waivers of the Guarantor hereunder, the Guarantor hereby specifically waives the benefit of the laws of any applicable jurisdiction (and any and all rights arising out of), which gives a guarantor or surety the power to require a creditor to proceed against the principal, or to pursue any other remedy in the creditor's power which the guarantor or surety can not pursue and which would lighten the guarantor's or the surety's burden; and if the creditor neglects to do so, exonerating the guarantor or the surety to the extent to which it is thereby prejudiced. SECTION 2.7. SUBROGATION, ETC. The Guarantor will not exercise any ----------------- rights which it may acquire by way of subrogation under this Guaranty, by any payment made hereunder or otherwise, until the prior indefeasible payment, in full and in cash, of all Obligations. Any amount paid to the Guarantor on account of any such subrogation rights prior to the payment in full of all Obligations shall be held in trust for the benefit of the Lender and shall immediately be paid to the Lender and credited and applied against the Obligations, whether matured or unmatured, in accordance with the terms of the Credit Agreement; provided, however, that if --------- -------- (a) the Guarantor has made payment to the Lender of all or any part of the Obligations, and (b) all Obligations have been indefeasibly paid in full and all Commitments have been permanently terminated, the Lender agrees that, at the Guarantor's request, the Lender will execute and deliver to the Guarantor appropriate documents (without recourse and without representation or warranty) necessary to evidence the transfer by subrogation to the Guarantor of an interest in the Obligations resulting from such payment by the -9- Guarantor. In furtherance of the foregoing, for so long as any Obligations remain outstanding, the Guarantor shall refrain from taking any action or commencing any proceeding against the Borrower or any other Obligor (or its successors or assigns, whether in connection with a bankruptcy proceeding or otherwise) to recover any amounts in the respect of payments made under this Guaranty to the Lender. Upon a default by the Borrower, the Lender, in its sole discretion, without consent of the Guarantor, may elect to: (i) upon or after giving notice to Guarantor, foreclose either judicially or nonjudicially against any real or personal property security granted by Guarantor held from time to time for the Loans, (ii) after giving notice to Guarantor, accept a transfer of any such security granted by Guarantor in lieu of foreclosure, (iii) compromise or adjust any of the Loans or any part of any Loan or make any other accommodation with the Borrower or any guarantor or surety of any of the Loans or (iv) exercise any other remedy against the Borrower or any security (other than security granted by Guarantor). No such action by the Lender shall release or limit the liability of the Guarantor, who shall remain liable under this Guaranty after the action, even if the effect of the action is to deprive the Guarantor of any subrogation rights, rights of indemnity, or other rights to collect reimbursement from the Borrower for any sums paid to any of the Lender Parties, whether contractual or arising by operation of applicable law or otherwise. The Guarantor expressly agrees that under no circumstances shall it be deemed to have any right, title, interest or claim in or to any real or personal property to be held by the Lender or any third party after any foreclosure or transfer in lieu of foreclosure of any security for the Loan, except as provided in the Participation Agreement and the Subordination Agreement, and the Lender acknowledges that, the Lender's interest in any such property will remain subject to the terms and conditions of the Participation Agreement and the Subordination Agreement. SECTION 2.8. SUCCESSORS, TRANSFEREES AND ASSIGNS; TRANSFERS OF NOTES, -------------------------------------------------------- ETC. This Guaranty shall: - ---- (a) be binding upon the Guarantor, and its successors, transferees and assigns; and (b) inure to the benefit of and be enforceable by the Lender, each holder of any Note and each of their respective successors, transferees and assigns. Without limiting the generality of clause (b), the Lender may assign or otherwise transfer (in whole or in part) the Credit Agreement or Loan held by it to any other Person or entity, and such other Person or entity shall thereupon become vested with all rights and benefits in respect thereof granted to the Lender under any Loan Document (including this Guaranty) or otherwise. -10- SECTION 2.9. SUBORDINATION. NOTWITHSTANDING ANYTHING TO THE CONTRARY -------------- CONTAINED HEREIN, THE LENDER HEREBY AGREES FOR ITSELF AND ITS SUCCESSORS AND ASSIGNS, THAT THE LENDER'S RIGHTS AND REMEDIES HEREUNDER (THE "RIGHTS"), AND -------- ANY AND ALL LIENS AND SECURITY INTERESTS THAT ARE GRANTED TO SECURE THE RIGHTS (THE "LIENS") AS WELL AS ANY INTEREST IN ANY PROPERTY OR ASSET ACQUIRED BY ------- REASON OF THE ENFORCEMENT OF ANY OF THE RIGHTS OR THE LIENS ARE SUBJECT TO THE TERMS OF THAT CERTAIN SUBORDINATION AGREEMENT WHICH PROVIDES, AMONG OTHER THINGS, THAT THE RIGHTS AND THE LIENS ARE SUBJECT TO THE RIGHTS OF MARKWEST AND, AS APPLICABLE, THE OTHER LENDERS (as defined in the Subordination Agreement) AS SUCH RIGHTS ARISE UNDER THE PARTICIPATION AGREEMENT, AS MORE PARTICULARLY SET FORTH THEREIN. THIS SECTION 2.9 SHALL BE DEEMED A COVENANT BINDING UPON AND ----------- RUNNING WITH THE PROPERTY AND ASSETS SUBJECT TO THE LIENS. NO DEFAULT BY GUARANTOR OR BORROWER (OR ANY OBLIGOR OR OTHER PARTY) SHALL IN ANY WAY LIMIT THE EFFECTIVENESS OR ENFORCEABILITY OF THE SUBORDINATION AGREEMENT. ARTICLE III REPRESENTATIONS AND WARRANTIES SECTION 3.1. REPRESENTATIONS AND WARRANTIES. The Guarantor hereby ------------------------------- represents and warrants unto the Lender as set forth in this Article III. SECTION 3.1.1. RELATIONSHIP OF THE PARTIES. ---------------------------- (a) The Guarantor and the Borrower are distinct and separate entities and neither the Guarantor nor the Borrower is the alter ego of the other. (b) The Lender has not made any representation or warranty of any kind or nature whatsoever to the Guarantor regarding the creditworthiness of the Borrower or the prospects of repayment from sources other than the Borrower. (c) This Guaranty is executed at the request of the Borrower. (d) To the Guarantor's knowledge, based solely on information from the Borrower and without having made any independent inquiry, the Borrower is solvent. (e) The Guarantor assumes full responsibility for keeping fully informed with respect to the business, operation, condition and assets of the Borrower and each other Obligor. -11- The Guarantor hereby agrees that the Lender shall not have any duty to disclose or report to the Guarantor any information now or hereafter known to the Lender relating to the business, operation, condition and assets of the Borrower or any other Obligor. The Lender shall have no duty to inquire into the authority or powers of the Borrower or any other Obligor, or any officer, employee or agent of the Borrower or any other Obligor, with regard to any Obligations, and all Obligations made or created in good faith reliance upon the professed exercise of any such authority or powers shall be guaranteed hereunder. SECTION 3.1.2. ORGANIZATION, ETC. The Guarantor is a limited liability ------------------ company validly organized and existing and in good standing under the laws of the jurisdiction of its formation, is duly qualified to do business and is in good standing as a foreign limited liability company in each jurisdiction where the nature of its business requires such qualification, and has full power and authority and holds all requisite governmental licenses, permits and other approvals to enter into and perform its obligations under this Guaranty and to own and hold under lease its property and to conduct its business substantially as currently conducted by it. SECTION 3.1.3. DUE AUTHORIZATION, NON-CONTRAVENTION, ETC. The execution, ------------------------------------------ delivery and performance by the Guarantor of this Guaranty are within the Guarantor's powers, have been duly authorized by all necessary action, and do not (a) contravene the Guarantor's Articles of Organization and Regulations; (b) contravene or result in any violation of or default under any law or governmental regulation or any contractual restriction, court decree or order, in each case binding on or affecting the Guarantor or any of its properties, businesses, assets or revenues; (c) to the Guarantor's knowledge, without independent inquiry, result in, or require the creation or imposition of, any lien on any of the Guarantor's properties, businesses, assets or revenues. SECTION 3.1.4. GOVERNMENT APPROVAL, REGULATION, ETC. No authorization or ------------------------------------- approval or other action by, and no notice to or filing with, any governmental authority or regulatory body or other Person is required for the due execution, delivery or performance by the Guarantor of this Guaranty except as set forth in the Disclosure Schedule to the Participation Agreement. SECTION 3.1.5. PUBLIC UTILITY HOLDING COMPANY ACT. The Guarantor is not a ----------------------------------- "holding company" or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company" or of -12- a "subsidiary company" of a "holding company", within the meaning of the Public Utility Holding Company Act of 1935, as amended. SECTION 3.1.6. VALIDITY, ETC. This Guaranty constitutes the legal, valid -------------- and binding obligations of the Guarantor enforceable in accordance with its terms, subject to the effect of any applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' rights generally. SECTION 3.1.7. SOLVENCY. The Guarantor is not "insolvent", as such term --------- is used and defined in the United States Bankruptcy Code, 11 U.S.C. symbol 101, et seq. - ------- SECTION 3.1.8. REGULATIONS G, U AND X. The Guarantor is not engaged in ----------------------- the business of extending credit for the purpose of purchasing or carrying margin stock, and no proceeds of any Loans will be used for a purpose which violates, or would be inconsistent with, F.R.S. Board Regulation G, U or X. Terms for which meanings are provided in F.R.S. Board Regulation G, U or X or any regulations substituted therefor, as from time to time in effect, are used in this Section with such meanings. ARTICLE IV COVENANTS, ETC. SECTION 4.1. AFFIRMATIVE COVENANTS. The Guarantor covenants and agrees ---------------------- that, so long as any portion of the Obligations shall remain unpaid or unperformed, the Guarantor will, unless the Lender shall otherwise consent in writing, perform the obligations set forth in this Section. SECTION 4.1.1. COMPLIANCE WITH LAWS, ETC. Guarantor will comply in all -------------------------- material respects with all applicable laws, rules, regulations and orders, such compliance to include (without limitation): (a) the maintenance and preservation of its limited liability company existence and qualification as a foreign limited liability company when the nature of its business requires such qualification; and (b) the payment, before the same become delinquent, of all taxes, assessments and governmental charges imposed upon it or upon its property except to the extent being diligently contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP shall have been set aside on its books. -13- SECTION 4.2. NEGATIVE COVENANTS. The Guarantor covenants and agrees ------------------- that, so long as any portion of the Obligations shall remain unpaid, the Guarantor will not, without the prior written consent of the Lender, do anything prohibited in this Section. SECTION 4.2.1. The Guarantor will not enter into, or cause, suffer or permit to exist any arrangement or contract with any of its other Affiliates, other those in existence as of the date hereof, unless such arrangement or contract is fair and equitable to the Guarantor and is an arrangement or contract, of the kind which would be entered into by a prudent Person in the position of the Guarantor with a Person which is not one of its Affiliates. ARTICLE V MISCELLANEOUS PROVISIONS SECTION 5.1. [NOT USED.] SECTION 5.2. GUARANTY SECURED. The Guaranty and each of the Guarantor's ----------------- other obligations under this Guaranty are secured by the Mortgage and the Security Agreement. The Mortgage and the Security Agreement encumbers, with respect to the Guarantor and Basin only, among other things, Energy Company's Share in the Plant, and is expressly subject to the terms and conditions of the Subordination Agreement. SECTION 5.3. BINDING ON SUCCESSORS, TRANSFEREES AND ASSIGNS; ASSIGNMENT ---------------------------------------------------------- OF GUARANTY. In addition to, and not in limitation of, Section 2.8, this - ------------ Guaranty shall be binding upon the Guarantor and its successors, transferees and assigns and shall inure to the benefit of and be enforceable by the Lender and its successors and assigns, who shall likewise be subject to the limitations set forth herein (to the full extent provided pursuant to Section 2.8); provided, however, that the Guarantor may not delegate or assign any of its obligations hereunder without the prior written consent of the Lender. SECTION 5.4. AMENDMENTS, ETC. No amendment to or waiver of any ---------------- provision of this Guaranty, nor consent to any departure by the Guarantor herefrom, shall in any event be effective unless the same shall be in writing and signed by the Lender, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. SECTION 5.5. ADDRESSES FOR NOTICES TO THE GUARANTOR. All notices and --------------------------------------- other communications hereunder to the Guarantor shall be in writing and shall be hand delivered or sent by overnight courier, certified mail (return receipt requested), or telecopy to him, addressed to it at the address set forth below his signature -14- hereto or at such other address as shall be designated by the Guarantor in a written notice to the Lender at the following address and complying as to delivery with the terms of this Section 5.4.: ------------ Bank of America Illinois 231 South LaSalle Street Chicago, Illinois 60697 Attention: Energy and Minerals Dept. 0il and Gas Group Facsimile: (312) 987-5614 Without limiting any other means by which a party may be able to provide that a notice has been received by the other party, a notice shall be deemed to be duly received (a) if sent by hand, on the date when left with a responsible person at the address of the recipient; (b) if sent by certified mail or overnight courier, on the date of receipt by a responsible person at the address of the recipient; or (c) if sent by telecopy, upon receipt by the sender of an acknowledgment or transmission report generated by the machine from which the telecopy was sent indicating that the telecopy was sent in its entirety to the recipient's telecopy number. All notices and other communications provided to any party hereto under this Agreement or any other Loan Document shall be in writing and shall be hand delivered or sent by over night courier, certified mail (return receipt requested) or by telecopy to such party at its address or telecopy number set forth above or on the signature pages hereof or at such other address or telecopy number as may be designated by such party in a notice to the other parties. Without limiting any other means by which a party may be able to provide that a notice has been received by the other party, a notice shall be deemed to be duly received (a) if sent by hand, on the date when left with a responsible person at the address of the recipient; (b) if sent by certified mail or overnight courier, on the date of receipt by the sender of an acknowledgment or transmission reports generated by the machine from which the telefax was sent indicating that the telefax was sent in its entirety to the recipient's telefax number. SECTION 5.6. NO WAIVER; REMEDIES. In addition to, and not in limitation -------------------- of, Section 2.3 and Section 2.6 no failure on the part of the Lender to ----------- ----------- exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. SECTION 5.7. SECTION CAPTIONS. Section captions used in this Guaranty ----------------- are for convenience of reference only, and shall not affect the construction of this Guaranty. -15- SECTION 5.8. SETOFF. In addition to, and not in limitation of, any ------- rights of the Lender under applicable law, the Lender shall, upon the occurrence of any Event of Default have the right to appropriate and apply to the payment of the obligations of the Guarantor owing to it hereunder, whether or not then due, and the Guarantor hereby grants to the Lender a continuing security interest in, any and all balances, credits, deposits, accounts or moneys of the Guarantor then or thereafter maintained with the Lender, to the extent and only to the extent of Energy Company's Share. SECTION 5.9. SEVERABILITY. Wherever possible each provision of this ------------- Guaranty shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Guaranty shall be prohibited by or invalid under such law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the reminder of such provision or the remaining provisions of this Guaranty. SECTION 5.10. GOVERNING LAW. THIS GUARANTY SHALL BE G0VERNED BY -------------- CONSTRUED IN ACCORDANCE WITH INTERNAL LAWS OF THE STATE OF ILLINOIS. FOR PURPOSES OF ANY ACTION OR PROCEEDING INVOLVING THIS GUARANTY, THE GUARANTOR HEREBY EXPRESSLY SUBMITS TO THE JURISDICTION OF ALL FEDERAL AND STATE COURTS LOCATE IN THE STATE OF ILLINOIS. SECTION 5.11. FORUM SELECTION AND CONSENT TO JURISDICTION. LITIGATION --------------------------------------------- BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS GUARANTY OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATES (WHETHER OPAL OR WRITTEN) OR ACTIONS OF THE LENDER OR THE GUARANTOR SHALL BE BROUGHT AND MAINTAINED IN THE COURTS OF THE STATE OF ILLINOIS OR IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS. THE GUARANTOR HEREBY EXPRESSLY IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS OF THE STATE OF ILLINOIS AND OF THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS FOR THE PURPOSE OF ANY SUCH LITIGATION SET FORTH ABOVE AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH SUCH LITIGATION. THE GUARANTOR FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF ILLINOIS. THE GUARANTOR HEREBY EXPRESSLY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH HE MAY HAVE OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO AB0VE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT THAT THE GUARANTOR HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM ANT LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS -16- PROPERTY, THE GUARANTOR HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF THIS OBLIGATIONS UNDDER THIS GUARANTY. SECTION 5.12. WAIVER OF JURY TRIAL. THE GUARANTOR HEREBY KNOWINGLY, --------------------- VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS GUARANTY OR ANY COURSE OF C0NDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF THE LENDER OR THE GUARANTOR. THE GUARANTOR ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION AND TEAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE LENDER ENTERING INTO THIS CREDIT AGREEMENT AND EACH OTHER LOAN DOCUMENT. SECTION 5.13. THE LENDER AS AGENT FOR ITS AFFILIATES. As described --------------------------------------- above, certain Affiliates of the Lender, including without limitation, Bank of America National Trust and Savings Association, are or may become parties to certain Hedging Agreements with the Borrower, the Guarantor and/or Affiliates of the Borrower or the Guarantor. This Guaranty secures the obligations of the Borrower, the Guarantor and such Affiliates, as the case may be, under such Hedging Agreements, and the parties hereto acknowledge for all purposes that the Lender acts as agent. on behalf of such Affiliates of the Lender which are so entitled to share in the rights and benefits accruing to the Lender under this Guaranty. -17- IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be duly executed and delivered by its officer thereunto duly authorized as of the date first above written. WESTSHORE PROCESSING COMPANY, L.L.C. By: MarkWest Michigan LLC, its Operator By: MarkWest Hydrocarbon Partners, Ltd., its Manager By: MarkWest Hydrocarbon, Inc., its General Partner By: /s/ Arthur J. Denney ------------------------------------ Name: Arthur J. Denney Title: Vice President Address: c/o MarkWest Michigan LLC 5613 DTC Parkway, Suite 400 Englewood, Colorado 80111 Telecopy: (303) 290-8769 EX-10.5 8 SECURITY AGREEMENT, DATED MAY 2, 1996 SECURITY AGREEMENT ------------------ THIS SECURITY AGREEMENT (this "Security Agreement"), dated as of May 2, ------------------- 1996, made by WEST SHORE PROCESSING COMPANY, L.L.C., a Michigan limited liability company (the "Grantor"), in favor of BANK OF AMERICA ILLINOIS, an Illinois banking corporation (the "Lender"). -------- WITNESSETH: ---------- WHEREAS, pursuant to an Amended and Restated Credit Agreement, dated as of the date hereof (together with all amendments and other modifications, if any, from time to time thereafter made thereto, the "Credit Agreement"), among ------------------ Michigan Energy Company, L.L.C., a Michigan limited liability company, ("Energy ------- Company"), Michigan Production Company, L.L.C., a Michigan limited liability - -------- company ("Reserves Company," together with Energy Company, the "Borrower") and ------------------- ---------- the Lender, the Lender has extended commitments (the "Commitments") to make ------------- loans (the "Loans") to the Borrower; and ------- WHEREAS, the Borrower has entered or may enter into certain Hedging Agreements with Bank of America National Trust and Savings Association, an Affiliate of the Lender, pursuant to the terms of the Credit Agreement; and WHEREAS, as a condition precedent to the making of the initial Loan under the Credit Agreement and to the obligations of Bank of America National Trust and Savings Association under the Hedging Agreements referred to above, the Grantor is required to execute and deliver this Security Agreement; and WHEREAS, the Grantor has duly authorized the execution, delivery and performance of this Security Agreement; NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and in order to induce the Lender to make Loans (including the initial Loan) to the Borrower pursuant to the Credit Agreement, the Grantor agrees, for the benefit of the Lender, as follows: ARTICLE I DEFINITIONS SECTION 1.1. Certain Terms. The following terms (whether or not ------------- underscored) when used in this Security Agreement, including its preamble and recitals, shall have the following meanings (such definitions to be equally applicable to the singular and plural forms thereof): "Basin" means Basin Pipeline L.L.C. ------- "Borrower" is defined in the first recital. ---------- ------------- "Collateral" is defined in Section 2.1. ------------ ----------- "Commitments" is defined in the first recital. ------------- ------------- "Computer Hardware and Software Collateral" means: ------------------------------------------- (a) all computer and other electronic data processing hardware, integrated computer systems, central processing units, memory units, display terminals, printers, features, computer elements, card readers, tape drives, hard and soft disk drives, cables, electrical supply hardware, generators, power equalizers, accessories and all peripheral devices and other related computer hardware; (b) all software programs (including both source code, object code and all related applications and data files), whether now owned, licensed or leased or hereafter acquired by the Grantor, designed for use on the computers and electronic data processing hardware described in clause (a) ---------- above; (c) all firmware associated therewith; (d) all documentation (including flow charts, logic diagrams, manuals, guides and specifications) with respect to such hardware, software and firmware described in the preceding clauses (a) through (c ); and ----------- ---- (e) all rights with respect to all of the foregoing, including, without limitation, any and all copyrights, licenses, options, warranties, service contracts, program services, test rights, maintenance rights, support rights, improvement rights, renewal rights and indemnifications and any substitutions, replacements, additions or model conversions of any of the foregoing. "Copyright Collateral" means all copyrights and all semi-conductor chip ---------------------- product mask works of the Grantor, whether statutory or common law, registered or unregistered, now or hereafter in force throughout the world including, without limitation, all of the Grantor's right, title and interest in and to all copyrights and mask works registered in the United States Copyright Office or anywhere else in the world and also including, without limitation, the right to sue for past, present and future infringements of any thereof, all rights corresponding thereto throughout the world, all -2- extensions and renewals of any thereof and all proceeds of the foregoing, including, without limitation, licenses, royalties, income, payments, claims, damages and proceeds of suit. "Credit Agreement" is defined in the first recital. ------------------ ------------- "Energy Company" is defined in the first recital. ---------------- ------------- "Energy Company's Share" means, as of any date of determination with ------------------------ respect to any asset, interest or property, the proportionate beneficial interest of Energy Company therein represented by Energy Company's ownership of equity interests in Basin and Grantor. "Environmental Laws" means all applicable federal, state or local statutes, -------------------- laws, ordinances, codes, rules, regulations and guidelines (including consent decrees and administrative orders) relating to public health and safety through protection of the environment. "Equipment" is defined in clause (a) of Section 2.1. ----------- ---------- ----------- "Grantor" is defined in the preamble. --------- -------- "Guaranty" means those certain Secured Guaranties, of even date herewith, ---------- executed by Basin and Grantor in favor of the Lender pursuant to the terms of the Credit Agreement. "Hazardous Material" means -------------------- (a) any "hazardous substance", as defined by the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended; (b) any "hazardous waste", as defined by the Resource Conservation and Recovery Act, as amended; (c) any petroleum, crude oil or fraction thereof; (d) any hazardous, dangerous or toxic chemical, material, waste or substance within the meaning of any Environmental Law; (e) any radioactive material, including any naturally occurring radioactive material, and any source, special or by-product material as defined in 42 U.S.C. (S) 2011 et seq., and any amendments or ------- reauthorizations thereof; (f) asbestos-containing materials in any form or condition; or (g) polychlorinated biphenyls in any form or condition. -3- "Intellectual Property Collateral" means, collectively, the Computer ---------------------------------- Hardware and Software Collateral, the Copyright Collateral, the Patent Collateral, the Trademark Collateral and the Trade Secrets Collateral. "Inventory" is defined in clause (b) of Section 2.1. ----------- ----------- "Lender" is defined in the preamble. -------- -------- "Loans" is defined in the first recital. ------- ------------- "MarkWest" means MarkWest Michigan LLC. ---------- "Participation Agreement" means that certain Participation, Ownership and ------------------------- Operating Agreement for Grantor, by and among Energy Company and MarkWest dated as of May 2, 1996 (the "Participation Agreement"). "Patent Collateral" means: ------------------- (a) all letters patent and applications for letters patent throughout the world, including all patent applications in preparation for filing anywhere in the world; (b) all patent licenses; (c) all reissues, divisions, continuations, continuations-in-part, extensions, renewals and reexaminations of any of the items described in clauses (a) and (b); and ----------- ----- (d) all proceeds of, and rights associated with, the foregoing (including license royalties and proceeds of infringement suits), the right to sue third parties for past, present or future infringements of any patent or patent application, for breach or enforcement of any patent license and all rights corresponding thereto throughout the world. "Receivables" is defined in clause (c) of Section 2.1. ------------- ---------- ----------- "Related Contracts" is defined in clause (c) of Section 2.1. ------------------- ---------- ----------- "Reserves Company" is defined in the first recital. ------------------ ------------- "Secured Obligations" is defined in Section 2.2 --------------------- ----------- "Security Agreement" is defined in the preamble. -------------------- -------- "Subordination Agreement" means the Subordination Agreement dated May 2, ------------------------- 1996 by and among MarkWest, Lender, Energy Company, Grantor and Basin. -4- "Subsidiary" means as to any Person (a) a corporation of which ------------ outstanding shares of stock having ordinary voting power (other than stock having such power only by reason of the happening of a contingency) to elect a majority of the Board of Directors of such corporation are at the time owned, directly or indirectly through one or more intermediaries, or both, by such Person and (b) any partnership, association, joint venture or other business entity the controlling interest of which is at the time owned, directly or indirectly through one or more intermediaries, or both, by such Person. "Trademark Collateral" means: ---------------------- (a) all trademarks, trade names, corporate names, company names, business names, fictitious business names, trade styles, service marks, certification marks, collective marks, logos, other source of business identifiers, prints and labels on which any of the foregoing have appeared or appear, designs and general intangibles of a like nature (all of the foregoing items in this clause (a) being collectively called a "Trademark") ---------- ----------- now existing anywhere in the world or hereafter adopted or acquired, whether currently in use or not, all registrations and recordings thereof and all applications in connection therewith, whether pending or in preparation for filing, including registrations, recordings and applications in the United States Patent and Trademark Office or in any office or agency of the United States of America or any State thereof or any foreign country; (b) all Trademark licenses; (c) all reissues, extensions or renewals of any of the items described in clauses (a) and (b); ----------- --- (d) all of the goodwill of the business connected with the use of, and symbolized by the items described in, clauses (a) and (b); and ------- --- (e) all proceeds of, and rights associated with, the foregoing, including any claim by the Grantor against third parties for past, present or future infringement or dilution of any Trademark, Trademark registration or Trademark license, including any Trademark, Trademark registration or Trademark license referred to in clauses (a) and (b), or for any injury to ----------- --- the goodwill associated with the use of any such Trademark or for breach or enforcement of any Trademark license. "Trade Secrets Collateral" means common law and statutory trade secrets -------------------------- and all other confidential or proprietary or useful information and all know-how obtained by or used in or contemplated at any time for use in the business of the Grantor (all of the -5- foregoing being collectively called a "Trade Secret"), whether or not such Trade -------------- Secret has been reduced to a writing or other tangible form, including all documents and things embodying, incorporating or referring in any way to such Trade Secret, all Trade Secret licenses including the right to sue for and to enjoin and to collect damages for the actual or threatened misappropriation of any Trade Secret and for the breach or enforcement of any such Trade Secret license. "U.C.C." means the Uniform Commercial Code, as in effect in the State of -------- Illinois. SECTION 1.2. Guaranty Definitions. Unless otherwise defined herein or the -------------------- context otherwise requires, terms used in this Security Agreement, including its preamble and recitals, have the meanings provided in the Guaranty. SECTION 1.3. U.C.C. Definitions. Unless otherwise defined heroin or the ------------------ context otherwise requires, terms for which meanings are provided in the U.C.C. are used in this Security Agreement, including its preamble and recitals, with such meanings. ARTICLE II SECURITY INTEREST SECTION 2.1. Grant of Security. The Grantor hereby assigns and pledges to ----------------- the Lender, and hereby grants to the Lender a security interest in, Energy Company's Share of all of the following, whether now or hereafter existing or acquired (the "Collateral"): ------------ (a) all equipment in all of its forms of the Grantor, wherever located, including all equipment and facilities used or useful for the processing, transportation or marketing of oil, gas or other hydrocarbons or other materials extracted therefrom, and all parts thereof and all accessions, additions, attachments, improvements, substitutions and replacements thereto and therefor (any and all of the foregoing being the "Equipment"); ----------- (b) all inventory in all of its forms of the Grantor, wherever located, including (i) all oil, gas or other hydrocarbons or materials extracted therefrom, raw materials and work in process therefor, finished goods thereof, and materials used or consumed in the manufacture or production thereof, -6- (ii) all goods in which the Grantor has an interest in mass or a joint or other interest or right of any kind (including goods in which the Grantor has an interest or right as consignee), and (iii) all goods which are returned to or repossessed by the Grantor, and all accessions thereto, products thereof and documents therefor (any and all such inventory, materials, goods, accessions, products and documents being the "Inventory"); - ----------- (c) all accounts (including, without limitation, the Accounts), contracts, contract rights, chattel paper, documents, instruments, and general intangibles of the Grantor, whether or not arising out of or in connection with the sale or lease of goods or the rendering of services, and all rights of the Grantor now or hereafter existing in and to all security agreements, guaranties, leases and other contracts securing or otherwise relating to any such accounts, contracts, contract rights, chattel paper, documents, instruments, and general intangibles (any and all such accounts, contracts, contract rights, chattel paper, documents, instruments, and general intangibles being the "Receivables," ----------- excluding those fees payable under Section 6.11 of the Participation Agreement, and any and all such security agreements, guaranties, leases and other contracts being the "Related Contracts," which term shall include each document listed on ----------------- Schedule 1 attached hereto); - ---------- (d) all Intellectual Property Collateral of the Grantor; (e) all books, records, writings, data bases, information and other property relating to, used or useful in connection with, evidencing, embodying, incorporating or referring to, any of the foregoing in this Section 2.1; ----------- (f) all of the Grantor's other property and rights of every kind and description and interests therein; and (g) all products, offspring, rents, issues, profits, returns, income and proceeds of and from any and all of the foregoing Collateral (including proceeds which constitute property of the types described in clauses (a), (b), (c), (d), -------------------------- (e) and (f), proceeds deposited from time to time in any lock boxes of the - ----------- Grantor, and, to the extent not otherwise included, all payments under insurance (whether or not the Lender is the loss payee thereof), or any indemnity, warranty or guaranty, payable by reason of loss or damage to or otherwise with respect to any of the foregoing Collateral). -7- SECTION 2.2. Security for Obligations. This Security Agreement secures ------------------------ the prompt payment when due, whether at stated maturity, by acceleration or otherwise (including the payment of amounts which would become due but for the operation of the automatic stay under Section 362 of the Bankruptcy Code) of (a) all Obligations now or hereafter existing under the Credit Agreement, the Note, the Hedging Agreements and each other Loan Document, whether for principal, interest, costs, fees, expenses or otherwise, and (b) all other obligations of the Borrower to the Lender, howsoever created, arising or evidenced, whether direct or indirect, absolute or contingent or now or hereinafter existing or due or to become due (all such Obligations and other obligations being the "Secured Obligations"). --------------------- SECTION 2.3. Continuing Security Interest; Transfer of Note[s]. This ------------------------------------------------- Security Agreement shall create a continuing security interest in the Collateral and shall (a) remain in full force and effect until payment in full of all Secured Obligations and the termination of the Commitments and any other commitments of the Lender to the Borrower; (b) be binding upon the Grantor, its successors, transferees and assigns; and (c) inure, together with the rights and remedies of the Lender hereunder, to the benefit of the Lender and its successors, transferees and assigns. Without limiting the generality of the foregoing clause (c), the Lender may ---------- assign or otherwise transfer (in whole or in part) any Note or Loan to any other Person or entity, and such other Person or entity shall thereupon become vested with all the rights and benefits in respect thereof granted to the Lender under any Loan Document (including this Security Agreement) or otherwise, subject, however, to any contrary provisions in such assignment or transfer, and to the provisions of Section 9.11 of the Credit Agreement. Upon the indefeasible ------------ payment in full of all Secured Obligations and the termination of the Commitments and any other commitments of the Lender to the Borrower, the security interest granted herein shall terminate and all rights to the Collateral shall revert to the Grantor. Upon any such termination, the Lender will, at the Grantor's sole expense, execute and deliver to the Grantor such documents as the Grantor shall reasonably request to evidence such termination. SECTION 2.4. Grantor Remains Liable. Anything herein to the contrary ---------------------- notwithstanding (a) the Grantor shall remain liable under the contracts and agreements included in the Collateral to the extent set -8- forth therein, and shall perform all of its duties and obligations under such contracts and agreements to the same extent as if this Security Agreement had not been executed; (b) the exercise by the Lender of any of its rights hereunder shall not release the Grantor from any of its duties or obligations under any such contracts or agreements included in the Collateral; and (c) the Lender shall not have any obligation or liability under any such contracts or agreements included in the Collateral by reason of this Security Agreement, nor shall the Lender be obligated to perform any of the obligations or duties of the Grantor thereunder or to take any action to collect or enforce any claim for payment assigned hereunder. ARTICLE III REPRESENTATIONS AND WARRANTIES SECTION 3.1. REPRESENTATIONS AND WARRANTIES. The Grantor represents and ------------------------------ warrants unto the Lender as set forth in this Article. SECTION 3.1.1. Validity, .etc. This Security Agreement creates a valid -------------- security interest in the Collateral, securing the payment of the Secured Obligations except as set forth on the Disclosure Schedule to the Participation Agreement, and all filings and other actions necessary or desirable to perfect and protect such security interest have been duly taken. SECTION 3.1.2. AUTHORIZATION, APPROVAL, ETC. NO authorization, approval or ---------------------------- other action by, and no notice to or filing with, any governmental authority or regulatory body is required either (a) for the grant by the Grantor of the security interest granted hereby or for the execution, delivery and performance of this Security Agreement by the Grantor; or (b) for the perfection of or except as set forth on the Disclosure Schedule to the Participation Agreement, the exercise by the Lender of its rights and remedies hereunder. -9- ARTICLE IV COVENANTS SECTION 4.1. CERTAIN COVENANTS. The Grantor covenants and agrees that, so ----------------- long as any portion of the Secured 0bligations shall remain unpaid or the Lender shall have any outstanding Commitments or other commitment by the Lender to the Borrower, the Grantor will, unless the Lender shall otherwise consent in writing, perform the obligations set forth in this Section. SECTION 4.1.1. AS TO EQUIPMENT AND INVENTORY. The Grantor hereby agrees ----------------------------- that it shall keep all the Equipment and Inventory (other than Inventory sold in the ordinary course of business) in the State of Michigan. SECTION 4.1.2. AS TO RECEIVABLES. The Grantor shall keep its place(s) of ----------------- business and chief executive office and the office(s) where it keeps its records concerning the Receivables, and all originals of all chattel paper which evidenced Receivables, located at the address set forth below its name on the signature page hereof, or, upon 30 days' prior written notice to the Lender, at such other locations in a jurisdiction where all actions required by the first ----- sentence of Section 4.1.4 shall have been taken with respect to the - -------- ------------- Receivables; not change its name except upon 30 days' prior written notice to the Lender; hold and preserve such records and chattel paper; and permit representatives of the Lender at any time during normal business hours to inspect and make abstracts from such records and chattel paper. SECTION 4.1.3. AS TO INTELLECTUAL PROPERTY COLLATERAL. The Grantor shall -------------------------------------- not, unless the Grantor shall either (i) reasonably and in good faith determine (and notice of such determination shall have been delivered to the Lender) that any of the Patent Collateral is of negligible economic value to the Grantor, or (ii) have a valid business purpose to do otherwise, do any act, or omit to do any act, whereby any of the Patent Collateral may lapse or become abandoned or dedicated to the public or unenforceable. SECTION 4.1.4. FURTHER ASSURANCES, ETC. The Grantor agrees that, from time ----------------------- to time at its own expense, the Grantor will promptly execute and deliver all further instruments and documents, and take all further action, that may be reasonably necessary or desirable, or that the Lender may request, in order to perfect, preserve and protect any security interest granted or purported to be granted hereby or to enable the Lender to exercise and enforce -10- its rights and remedies hereunder with respect to any Collateral. Without limiting the generality of the foregoing, the Grantor will: (a) execute and file such financing or continuation statements, or amendments thereto, and such other instruments or notices (including, without limitation, any assignment of claim form under or pursuant to the federal assignment of claims statute, 31 U.S.C. (S) 3726, any successor or amended version thereof or any regulation promulgated under or pursuant to any version thereof), as may be necessary or desirable, or as the Lender may request, in order to perfect and preserve the security interests and other rights granted or purported to be granted to the Lender hereby; and (b) furnish to the Lender, from time to time at the Lender's request, statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as the Lender may reasonably request, all in reasonable detail. With respect to the foregoing and the grant of the security interest hereunder, the Grantor hereby authorizes the Lender to file one or more financing or continuation statements, and amendments thereto, relative to all or any part of the Collateral without the signature of the Grantor where permitted by law, all of which security interests shall be subject to the terms and conditions of the Subordination Agreement. A carbon, photographic or other reproduction of this Security Agreement or any financing statement covering the Collateral or any part thereof shall be sufficient as a financing statement where permitted by law. SECTION 4.1.5. COMPLIANCE WITH LAWS, ETC. Grantor agrees to comply in all ------------------------- material respects with all applicable laws, rules, regulations and orders, such compliance to include (without limitation): (a) the maintenance and preservation of its limited liability company existence and qualification as a foreign limited liability company; and (b) the payment, before the same become delinquent, of all taxes, assessments and governmental charges imposed upon it or upon its property except to the extent being diligently contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP shall have been set aside on its books. SECTION 4.1.6. ENVIRONMENTAL COVENANT. Grantor agrees to agrees to ---------------------- cause Basin to, (a) use, operate and maintain all of its facilities and Properties in material compliance with all Environmental -11- Laws, keep all necessary permits, approvals, certificates, licenses and other authorizations relating to environmental matters in effect and remain in material compliance therewith, and handle all Hazardous Materials in material compliance with all applicable Environmental Laws; and (b) (i) use all reasonable efforts to have dismissed with prejudice any actions or proceedings relating to compliance with Environmental Laws which would or could in the reasonable opinion of the Lender have, individually or in the aggregate, a material adverse effect, and (ii) diligently pursue cure of any material underlying environmental problem which forms the basis of any such claim, complaint, notice or inquiry. SECTION 4.1.7. BUSINESS ACTIVITIES; ACQUISITIONS. The Grantor will not --------------------------------- engage in any business activity, except as permitted by the Participation Agreement and such activities as may be incidental or related thereto. SECTION 4.1.8. RESTRICTED PAYMENTS, ETC. On and at all times after the ------------------------ Effective Date Grantor will only make distributions as permitted by the Participation Agreement. SECTION 4.1.9. CONSOLIDATION, MERGER, ETC. Grantor will not liquidate or -------------------------- dissolve, consolidate with, or merge into or with, any other limited liability company, partnership or corporation, or purchase or otherwise acquire all or substantially all of the assets of any Person (or of any division thereof). Grantor will not create any Subsidiary except with the prior written consent of the Lender. ARTICLE V THE LENDER SECTION 5.1. LENDER APPOINTED ATTORNEY-IN-FACT. The Grantor hereby --------------------------------- irrevocably appoints the Lender the Grantor's attorney-in-fact, with full authority in the place and stead of the Grantor and in the name of the Grantor or otherwise, to take any action and to execute any instrument which the Lender may deem necessary or advisable to accomplish the purposes of this Security Agreement, including, without limitation: (a) to ask, demand, collect, sue for, recover, compromise, receive and give acquittance and receipts for moneys due and to become due under or in respect of any of the Collateral; -12- (b) to receive, indorse, and collect any drafts or other instruments, documents and chattel paper, in connection with clause (a) above; ---------- (c) to file any claims or take any action or institute any proceedings which the Lender may deem necessary or desirable for the collection of any of the Collateral or otherwise to enforce the rights of the Lender with respect to any of the Collateral; and (d) to perform the affirmative obligations of the Grantor hereunder (including all obligations of the Grantor pursuant to Section 4.1.4). -------------- The Grantor hereby acknowledges, consents and agrees that the power of attorney granted pursuant to this Section is irrevocable and coupled with an interest, but in all events only with respect to matters and interests relating solely to the Collateral and subject to the Subordination Agreement; and in no event will Lender exercise the foregoing power of attorney with respect to any of MarkWest's interest or any interests of the Grantor which are not part of the Collateral. SECTION 5.2. LENDER MAY PERFORM. If the Grantor fails to perform any ------------------ agreement contained herein, the Lender may itself perform, or cause performance of, such agreement, and the expenses of the Lender incurred in connection therewith shall be payable by the Grantor. SECTION 5.3. LENDER HAS NO DUTY. In addition to, and not in limitation of, ------------------ Section 2.4, the powers conferred on the Lender hereunder are solely to protect - ----------- its interest in the Collateral and shall not impose any duty on it to exercise any such powers. Except for the reasonable care of any Collateral in its possession and the accounting for moneys actually received by it hereunder, the Lender shall have no duty as to any Collateral or as to the taking of any necessary steps to preserve rights against prior parties or any other rights pertaining to any Collateral. SECTION 5.4. REASONABLE CARE. The Lender is required to exercise reasonable --------------- care in the custody and preservation of any of the Collateral in its possession; provided, however, the Lender shall be deemed to have exercised reasonable care - ----------------- in the custody and preservation of any of the Collateral, if it takes such action for that purpose as the Grantor reasonably requests in writing at times other than upon the occurrence and during the continuance of any Event of Default, but failure of the Lender to comply with any such request at any time shall not in itself be deemed a failure to exercise reasonable care. -13- ARTICLE VI REMEDIES SECTION 6.1. CERTAIN REMEDIES. If any Event of Default shall have occurred ---------------- and be continuing: (a) The Lender may exercise in respect of the Collateral, in addition to other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party on default under the U.C.C. (whether or not the U.C.C. applies to the affected Collateral) and also may (i) require the Grantor to, and the Grantor hereby agrees that it will, at its expense and upon request of the Lender forthwith, assemble all or part of the Collateral as directed by the Lender and make it available to the Lender at a place to be designated by the Lender which is reasonably convenient to both parties and (ii) without notice except as specified below, sell the Collateral or any part thereof in one or more parcels at public or private sale, at any of the Lender's offices or elsewhere, for cash, on credit or for future delivery, and upon such other terms as the Lender may deem commercially reasonable. The Grantor agrees that, to the extent notice of sale shall be required by law, at least ten days' prior notice to the Grantor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. The Lender shall not be obligated to make any sale of Collateral regardless of notice of sale having been given. The Lender may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. (b) All cash proceeds received by the Lender in respect of any sale of, collection from, or other realization upon all or any part of the Collateral may, in the discretion of the Lender, be held by the Lender as collateral for, and/or then or at any time thereafter applied in whole or in part by the Lender against, all or any part of the Secured Obligations in such order as the Lender shall elect. Any surplus of such cash or cash proceeds held by the Lender and remaining after payment in full of all the Secured Obligations shall be paid over to the Grantor or to whomsoever may be lawfully entitled to receive such surplus. -14- (c) The exercise of any right hereunder shall be expressly subject to and in compliance with the Subordination Agreement. ARTICLE VII MISCELLANEOUS PROVISIONS SECTION 7.1. LOAN DOCUMENT. This Security Agreement is a Loan Document ------------- executed pursuant to the Credit Agreement and shall (unless otherwise expressly indicated herein) be construed, administered and applied in accordance with the terms and provisions thereof subject, however in all events to the Subordination Agreement. SECTION 7.2. AMENDMENTS; ETC. No amendment to or waiver of any provision of --------------- this Security Agreement nor consent to any departure by the Grantor herefrom, shall in any event be effective unless the same shall be in writing and signed by the Lender, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. SECTION 7.3. ADDRESSES FOR NOTICES. All notices and other communications --------------------- provided for hereunder shall be in writing (including telegraphic communication) and, if to the Grantor, mailed or telegraphed or delivered to it, addressed to it at the address set forth below its signature hereto, if to the Lender, mailed or delivered to it, addressed to it at the address of the Lender specified in the Guaranty, or as to either party at such other address as shall be designated by such party in a written notice to each other party complying as to delivery with the terms of this Section. All such notices and other communications shall, when mailed or telegraphed, respectively, be effective when deposited in the mails or delivered to the telegraph company, respectively, addressed as aforesaid. SECTION 7.4. SECTION CAPTIONS. Section captions used in this Security ---------------- Agreement are for convenience of reference only, and shall not affect the construction of this Security Agreement. SECTION 7.5. SEVERABILITY. Wherever possible each provision of this ------------ Security Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Security Agreement shall be prohibited by or invalid under such law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Security Agreement. SECTION 7.6. GOVERNING LAW, ENTIRE AGREEMENT, ETC. THIS SECURITY ------------------------------------ AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN -15- ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF ILLINOIS, EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF ILLINOIS. THIS SECURITY AGREE AND THE OTHER LOAN DOCUMENTS CONSTITUTE THE ENTIRE UNDERSTANDING AMONG THE PARTIES HERETO WITH RESPECT TO THE SUBJECT MATTER HEREOF AND SUPERSEDE ANY PRIOR AGREEMENTS, WRITTEN OR ORAL, WITH RESPECT THERETO. SECTION 7.7. FORUM SELECTION AND CONSENT TO JURISDICTION. ANY LITIGATION ------------------------------------------- BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS SECURITY AGREEMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE LENDER OR THE GRANTOR SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE COURTS OF THE STATE OF ILLINOIS OR IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS; PROVIDED, HOWEVER, ----------------- THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT THE LENDER'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. THE GRANTOR HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS OF THE STATE OF ILLINOIS AND OF THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH SUCH LITIGATION. THE GRANTOR FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF ILLINOIS. THE GRANTOR HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY HAVE OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT THAT THE GRANTOR HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, THE GRANTOR HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS SECURITY AGREEMENT. SECTION 7.8. WAIVER OF JURY TRIAL. THE LENDER AND THE GRANTOR HEREBY -------------------- KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS SECURITY AGREEMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE LENDER OR THE GRANTOR. THE GRANTOR ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION (AND EACH OTHER PROVISION OF EACH OTHER LOAN DOCUMENT TO WHICH IT IS A PARTY) AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR -16- THE LENDER ENTERING INTO THIS SECURITY AGREEMENT AND EACH SUCH OTHER LOAN DOCUMENT. SECTION 7.9. THE LENDER AS AGENT FOR ITS AFFILIATES. As described above, -------------------------------------- certain Affiliates of the Lender, including without limitation, Bank of America National Trust and Savings Association, are or may become parties to certain Hedging Agreements with the Borrower, the Grantor and/or Affiliates of the Borrower or the Grantor. This Security Agreement secures the obligations of the Borrower, the Grantor and such Affiliates, as the case may be, under such Hedging Agreements, and the parties hereto acknowledge for all purposes that the Lender acts as agent on behalf of such Affiliates of the Lender which are so entitled to share in the rights and benefits accruing to the Lender under this Security Agreement. SECTION 7.10. Subordination. Notwithstanding anything to the contrary ------------- contained herein, the Lender hereby agrees for itself and its successors and assigns, that the Lender's rights and remedies hereunder (the "Rights"), and any ------------ and all liens and security interests that are granted to secure the Rights (the "Liens") as well as any interest in any property or asset acquired by reason of - ------- the enforcement of any of the Rights or the Liens are subject to the terms of the Subordination Agreement, which provides, among other things, that the Rights and the Liens are subject to the Participation Agreement as more particularly set forth therein. This Section 7.10 shall be deemed a covenant binding upon ------------ and running with the property and assets subject to the Liens. SECTION 7.11. Limitation On Recourse. Notwithstanding the general terms of ---------------------- the Grantor's obligations under this Security Agreement or anything to the contrary contained herein, the Lender hereby agrees not to seek to satisfy Grantor's obligations under this Security Agreement out of any property, assets, revenues or funds of the Grantor other than (i) Energy Company's Share of the Collateral (which shall remain subject to the Subordination Agreement) and/or (ii) funds which are distributable to Energy Company from time to time pursuant to the Participation Agreement. -17- IN WITNESS WHEREOF, the Grantor has caused this Security Agreement to be duly executed and delivered by its officer thereunto duly authorized as of the date first above written. WESTSHORE PROCESSING COMPANY, L.L.C. By: MarkWest Michigan LLC, its Operator By: MarkWest Hydrocarbon Partners, Ltd., its Manager By: MarkWest Hydrocarbon, Inc., its General Partner By: /s/ Arthur J. Denney Name: Arthur J. Denney Title: Vice President c/o MarkWest Michigan LLC Address: 5613 DTC Parkway, Suite 400 ----------------------- Englewood, Colorado 80111 ------------------- Attention: Arthur J. Denney Telex: Telecopier: (303) 290-8769 Schedule I to West Shore Security Agreement 1. Transportation Agreement dated December 1, 1993 between Manistee Gas Limited Liability Company, as Shipper, and Basin Pipeline LLC, as Transporter. 2. Asset Purchase Agreement dated December 1, 1993, between Dow Chemical Company, as Buyer, and Manistee Gas Limited Liability Company as Seller. 3. Promissory Note dated December 1, 1993 from Manistee to The Dow Chemical Company in the principal sum of $720,000.00. 4. Pipeline Construction Agreement dated November 30, 1993, by and between Basin, as owner, and Murphy Bros. Inc., as Contractor, as amended by the First Amendment to the Pipeline Construction Agreement dated November 30, 1993. 5. Agreement dated December 22, 1994 between Basin, West Bay Exploration Co., Savoy Oil and Gas Inc. and H&H Star Energy, Inc. for the Filer 1-10 Well. 6. Transportation Agreement dated April 1, 1995, by and between Manistee and Michgan Consolidated Gas Company. 7. KIF Use Agreement dated October 1, 1991, between Shell Michigan Pipeline Company and Manistee. 8. Gas and Condensate Processing Agreement - Kalkasa Plant dated April 1, 1995, by and between Shell Western E&P, Inc. and Manistee. 9. Product Purchase Agreement dated July 12, 1994, accepted July 15, 1994, by and between Enerkon Resources Corporation and Manistee. 10. Gathering Line Construction and Gas Processing Agreement dated December 22, 1994, by and between Manistee, Basin, West Bay Exploration Company, Savoy Oil & Gas, Inc., and H&H Star Energy, Inc. 11. Gas Treating and Processing Agreement between Shell Offshore, Inc. and West Shore Processing Company dated as of May 1, 1996. 12. Gas Gathering, Treating and Processing Agreement between Michigan Production Company and West Shore Processing Company. 13. Second Amended and Restated Operating Agreement for Basin Pipeline L.L.C. dated May 1, 1996 by and among Basin, West Shore, MarkWest and Michigan Energy Company, L.L.C. 14. Gas Processing and Treating Agreement for Brown 19 Plant between Manistee and West Shore dated_________, 1996. 15. Lease/Purchase of gas compressor for the Victory #32 Compressor Station #1 -------------------------------------------------------------------------- Lessor: Gas Compression Services, Inc. ("Gasco"). Lessee: Manistee Gas, L.L.C. ("Manistee"). Date of agreement January 3, 1994 Suction Pressure: 300 to 350 psig. Discharge pressure: 1000psig. Specific gravity: 0.70. Volume: 2.5 to 3.1 Mmcf/d Operations: Gasco will operate the compressor. Manistee will furnish all parts, lube oil, and dry sweet fuel gas. Terms: Sixty (60) months upon which Manistee will have option to purchase the compressor unit for $53,350.42 within thirty days after final lease payment is made. Pricing: $3916.67 per month (includes $750.00 for the operation of the compressor unit). 16. Lease/Purchase of gas compressor for the Victory #32 Compressor Station #2 -------------------------------------------------------------------------- Lessor: Gas Compression Services, Inc. ("Gasco"). Lessee: Manistee Gas, L.L.C. ("Manistee"). Date of agreement January 3, 1994 Suction Pressure: 300 to 350 psig. Discharge pressure: 1000psig. Specific gravity: 0.70. Volume: 2.5 to 3.1 Mmcf/d Operations: Gasco will operate the compressor. Manistee will furnish all parts, lube oil, and dry sweet fuel gas. Terms: Sixty (60) months upon which Manistee will have option to purchase the compressor unit for $53,350.42 within thirty days after final lease payment is made. Pricing: $3916.67 per month (includes $750.00 for the operation of the compressor unit). 17. Lease/Purchase of gas compressor for the Victory #32 Compressor Station #3 -------------------------------------------------------------------------- Lessor: Gas Compression Services, Inc. ("Gasco"). Lessee: Manistee Gas, L.L.C. ("Manistee"). Date of agreement January 3, 1994 Suction Pressure: 300 to 350 psig. Discharge pressure: 1000psig. Specific gravity: 0.70. Volume: 2.5 to 3.1 Mmcf/d Operations: Gasco will operate the compressor. Manistee will furnish all parts, lube oil, and dry sweet fuel gas. Terms: Sixty (60) months upon which Manistee will have option to purchase the compressor unit for $53,350.42 within thirty days after final lease payment is made. Pricing: $3916.67 per month (includes $750.00 for the operation of the compressor unit). 18. Lease/Purchase of gas compressor for Peterson Facility Lessor: Gas Compression Services, Inc. ("Gasco"). Lessee: Manistee Gas, L.L.C. ("Manistee"). Date of agreement February 1, 1995. Suction Pressure: 15 to 35 psig. Suction temperature: 70 degrees. Discharge pressure: 350psig. Specific gravity: 0.83. Volume: 0.9 to 1.3 Mmcf/d Ambient temperature: 100 degrees Operations: Lessor will operate the compressor. Lessee will furnish all parts, lube oil, and dry sweet fuel gas. Terms: Sixty (60) months. Upon final payment, Lessor will assign lessee the compressor unit for no additional charges. Pricing: $2880.56 per month (includes $0.00 for the operation of the compressor unit). 19. Letter Agreement regarding Transportation, Compression, Treating and Processing dated February 23, 1996 between Manistee, Basin and Dynamic Development, Inc. for the Peterson #1-19 Victory Well in Victory Township, Mason County. Vehicle Leases Table Showing the following: Vehicle Description, Primary Driver, Monthly payment, Monthly Insurance, Total Monthly Payment & Insurance, Annual Payment & Insurance, Lease Maturity, Current Mileage, Vehicle ID#, Ford Motor Lease number. Transferred Brown-19 Assets to MEC Basin and/or Manistee Assets Located at the Brown 19 Treating Plant - ------------------------------------------------------------------- The Basin and/or Manistee assets located at the Brown 19 treating plant include: 1. Slug catcher 2. Filter unit 3. Basin Gas Pack 4. Three 12, 000-gallon sour NGL storage tanks and one 24,000 NGL storage tank 5. The spare gas pack 6. The spur NGL truck-loading facilities 7. All spare or unused equipment, facilities and supplies located at or near the Brown 19 Treating Plant site and in the portion of the Plant commonly known as the "Bone-yard", excluding however, the Lake Orion NGL amine skid, NGL plant skid and related equipment. The above facilities shall include all line-pipe, pipe, connections, fittings, flanges, interconnect with other pipelines, valves, control equipment, pigs, pig launchers and receivers, cathodic protection, bypasses, regulators, drips, meters and metering equipment, all equipment located on, at or appurtenant to the Peterson compressor station, all other equipment and personal property and/or fixtures associated therewith including the following: Delivery Points Valves 1) Basin Pipeline Gas Pack a) The first valve (gas) downstream of the Basin Gas Pack. b) All piping from the 2-inch valve (air) to the Basin Gas Pack. c) The 2-inch valve (fuel) and piping to the Basin Gas Pack. d) All piping from the 1-inch and 2-inch flare valves to the Basin Gas Pack 2) Sour NGL Storage a) The four (4) 4" x 6" relief valves on the piping from the sour NGL storage tanks to the Brown 19 flare system. b) All piping between the 2-inch flash gas valves and each sour NGL storage tank. c) All piping between the 2-inch valves on the sour NGL storage tanks to the Brown 19 flare system. d) All piping between the 2-inch valve (truck load-out to the Brown 19 flare system) and the tanks. e) All piping between the 1-inch valves on the sour NGL filter vapor return dump line in the truck loading area and the sour NGL filter. (FOLLOWING IS A UNIFORM COMMERCIAL CODE FINANCING STATEMENT-SEE ORIGINAL) EX-10.6 9 PLEDGE AGREEMENT, DATED MAY 2, 1996 PLEDGE AGREEMENT ---------------- (LLC Interests) THIS PLEDGE AGREEMENT (this "Pledge Agreement"), dated as of May 2, 1996, ------------------- made by WEST SHORE PROCESSING COMPANY, L.L.C., a Michigan limited liability company (the "Pledgor"), in favor of BANK OF AMERICA ILLINOIS, an Illinois --------- banking corporation (the "Lender"), --------- WITNESSETH: WHEREAS, pursuant to an Amended and Restated Credit Agreement, dated as of May 2, 1996 (together with all amendments and other modifications, if any, from time to time thereafter made thereto, the "Credit Agreement"), among Michigan ------------------- Production Company, L.L.C., a Michigan limited liability company ("MPC"), ------- Michigan Energy Company, L.L.C., a Michigan limited liability company ("MEC") ------ (together with MPC, the "Borrowers"), and the Lender, the Lender has extended ----------- commitments ("Commitments") to make loans ("Loans") to the Borrowers; and --------------- -------- WHEREAS, the Pledgor has executed and delivered to the Lender its Secured Guaranty of even date herewith (the "Guaranty"), pursuant to which the Pledgor ------------ has guaranteed payment of the Obligations (as defined in the Credit Agreement) under the Credit Agreement WHEREAS, the Borrowers have entered or may enter into certain Hedging Agreements (as defined in the Guaranty) with Bank of America National Trust and Savings Association, an Affiliate (as defined in the Guaranty) of the Lender, pursuant to the terms of the Credit Agreement; and WHEREAS, as a condition precedent to the making of the initial Loan under the Credit Agreement and to the obligations of Bank of America National Trust and Savings Association under the Hedging Agreements referred to above, the Pledgor is required to execute and deliver this Pledge Agreement; and WHEREAS, the Pledgor has duly authorized the execution, delivery and performance of this Pledge Agreement; and WHEREAS, it is in the best interests of the Pledgor to execute this Pledge Agreement inasmuch as the Pledgor will derive substantial direct and indirect benefits from the Loans made from time to time to the Borrowers by the Lender pursuant to the Credit Agreement; NOW THEREFORE, for good and valuable consideration the receipt of which is hereby acknowledged, and in order to induce the Lender to make Loans (including the initial Loan) to the Borrowers pursuant to the Credit Agreement, the Pledgor agrees, for the benefit of the Lender, as follows: DEFINITIONS SECTION 1.1 Certain Terms. The following terms (whether or not underscored) -------------- when used in this Pledge Agreement, including its preamble and recitals, shall have the following meanings (such definitions to be equally applicable to the singular and plural forms thereof): "Basin" means Basin Pipeline L.L.C., a Michigan limited liability company. ------- "Borrowers" is defined in the first recital. ----------- -------------- "Collateral" is defined in Section 2.1. ------------ "Credit Agreement" is defined in the first recital. ------------------ -------------- "Distributions" means all cash distributions made in respect of the Pledged --------------- interests, whether of net income, return of capital or otherwise, and all other distributions (whether similar or dissimilar to the foregoing) on or with respect to any Pledged Interests or other rights or interests constituting Collateral. "Energy Company's Share" means, as of any date of redetermination with ------------------------ respect to any asset, interest or property, the proportionate beneficial interest of MEC therein represented by MEC's direct and indirect ownership of equity interest in Basin and Pledgor. "Guaranty" is defined in the second recital. ---------- --------------- "Lender" is defined in the preamble. -------- --------- "MarkWest" means MarkWest Michigan LLC. ---------- "MEC" is defined in the first recital. ------ -------------- "MPC" is defined in the first recital. ------ -------------- "Participation Agreement" means that certain Participation, Ownership and ------------------------- Operating Agreement for Pledgor, by and among MEC and MarkWest dated as of May 2, 1996. "Pledge Agreement" is defined in the preamble. - ------------------ --------- 2 "Pledged Interests" means all member interests or other ownership interests ------------------- in Basin described in Attachment 1 hereto, all member interests or other ownership interests issued by Basin's subsidiaries, all registrations, certificates, articles or agreements governing or representing any such interests, all options and other rights, contractual or otherwise, at any time existing with respect to such interests, and all distributions, cash, instruments and other property now or hereafter received, receivable or otherwise distributed in respect of or in exchange for any or all of such interests. "Pledged Property" means all Pledged Interests, securities, all assignments ------------------ of any amounts due or to become due, all other instruments which are now being delivered by the Pledgor to the Lender or may from time to time hereafter be delivered by the Pledgor to the Lender for the purpose of pledge under this Pledge Agreement or any other Loan Document, and all proceeds of any of the foregoing. "Pledgor" is defined in the preamble. --------- ------------- "Secured Obligations" is defined in Section 2.2. --------------------- ------------ "Securities Act" is defined in Section 6.2. ---------------- ------------ "Subordination Agreement" means the Subordination Agreement dated as of May ------------------------- 2, 1996, by and among MarkWest, Lender, MEC, Pledgor and Basin. "U.C.C." means the Uniform Commercial Code as in effect in the State of -------- Illinois. SECTION 1.2 Guaranty Definitions. Unless otherwise defined herein or the ---------------------- context otherwise requires, terms used in this Pledge Agreement, including its preamble and recitals, have the meanings provided in the Guaranty. SECTION 1.3 U.C.C. Definitions. Unless otherwise defined herein or the -------------------- context otherwise requires, terms for which meanings are provided in the U.C.C. are used in this Pledge Agreement, including its preamble and recitals, with such meanings. II PLEDGE SECTION 2.1 Grant of Security Interest. The pledgor hereby pledges, --------------------------- hypothecates, assigns, charges, mortgages, delivers, and transfers to the Lender, and hereby grants to the Lender a continuing security interest in, all of the following property (the "Collateral"): -------------- 3 2.1.1 all Pledged interests identified in Item A of Attachment 1 hereto; ------- ------------ 2.1.2 all Other Pledged Interests issued from time to time; 2.1.3 all other Pledged Property, whether now or hereafter delivered to the Lender in connection with this Pledge Agreement; 2.1.4 all Distributions, interest, and other payments and rights with respect to any Pledged Property; and 2.1.5 all proceeds of any of the foregoing. SECTION 2.2 Security for Obligations. This Pledge Agreement secures the ------------------------- payment in full of all Obligations now or hereafter existing under the Credit Agreement, the Notes, the Hedging Agreements and each other Loan Document, whether for principal, interest, costs, fees, expenses, or otherwise, and all other obligations of the Borrowers to the Lender, howsoever created, arising or evidenced, whether direct or indirect, absolute or contingent or now or hereafter existing or due or to become due, and all obligations of the Pledgor now or hereafter existing under this Pledge Agreement and each other Loan Document to which it is or may become a party (all such Obligations and other obligations of the Borrowers and the Pledgor being the "Secured Obligations"). ---------------------- SECTION 2.3 Delivery of Pledged Property. All certificates or instruments ----------------------------- representing or evidencing any Collateral, including all Pledged Interests, shall be delivered to and held by or on behalf of the Lender pursuant hereto, shall be in suitable form for transfer by delivery, and shall be accompanied by all necessary instruments of transfer or assignment, duly executed in blank. SECTION 2.4 Distributions on Pledged Interests. In the event that any ----------------------------------- Distribution is to be paid on any Pledged Interests at a time when (x) no default under the Credit Agreement ("Default") has occurred and is continuing, and (y) no Event of Default has occurred and is continuing, such Distribution or payment may be paid directly to the Pledgor. If any such Default or Event of Default has occurred and is continuing then any such Distribution or payment shall be paid directly to the Lender. SECTION 2.5 Continuing Security Interest. This Pledge Agreement shall ----------------------------- create a continuing security interest in the Collateral and shall 2.5.1 remain in full force and effect until payment in full of all Secured Obligations and the termination of the 4 Commitments and any other commitments of the Lender to the Borrowers, 2.5.2 be binding upon the Pledgor and its successors, transferees and assigns, and 2.5.3 inure to the benefit of the Lender and its successors, transferees, and assigns. Without limiting the foregoing clause 2.5.3, the Lender my assign or otherwise ------------- transfer (in whole or in part) the any Note or Loan to any other Person or entity, and such other Person or entity shall thereupon become vested with all the rights and benefits in respect thereof granted to the Lender under any Loan Document (including this Pledge Agreement) or otherwise, subject, however, to any contrary provisions in such assignment or transfer, and to the applicable provisions of the Credit Agreement. Upon the payment in full of all Secured Obligations and the termination of the Commitments and any other commitments of the Lender to the Borrowers, the security interest granted heroin shall terminate and all rights to the Collateral shall revert to the Pledgor. Upon any such termination, the Lender will, at the Pledgor's sole expense, deliver to the Pledgor, without any representations, warranties or recourse of any kind whatsoever, all certificates and instruments representing or evidencing all Pledged Interests, together with all other Collateral held by the Lender hereunder, and execute and deliver to the Pledgor such documents as the Pledgor shall reasonably request to evidence such termination. SECTION 2.6 Security Interest Absolute. All rights of the Lender and the --------------------------- security interests granted to the Lender hereunder, and all obligations of the Pledgor hereunder, shall be absolute and unconditional, irrespective of 2.6.1 any lack of validity or enforceability of the Credit Agreement, any Note or any other Loan Document, 2.6.2 the failure of the Lender or any holder of any Note (a) to assert any claim or demand or to enforce any right or remedy against either Borrower, any other Obligor or any other Person under the provisions of the Credit Agreement, any Note, any other Loan Document or otherwise, or (b) to exercise any right or remedy against any other guarantor of, or collateral securing, any Secured Obligations, 5 2.6.3 any change in the time, manner or place of payment of, or in any other term of, all or any of the Secured Obligations or any other extension, compromise or renewal of any Secured Obligation, 2.6.4 any reduction, limitation, impairment or termination of any Secured Obligations for any reason, including any claim of waiver, release, surrender, alteration or compromise, and shall not be subject to (and the Pledgor hereby waives any right to or claim of) any defense or setoff, counterclaim, recoupment or termination whatsoever by reason of the invalidity, illegality, nongenuineness, irregularity, compromise, unenforceability of, or any other event or occurrence affecting, any Secured Obligations, 2.6.5 any amendment to, rescission, waiver, or other modification of, or any consent to departure from, any of the terms of the Credit Agreement, the any Note or any other Loan Document, 2.6.6 any addition, exchange, release, surrender, or non-perfection of any collateral (including the Collateral), or any amendment to or waiver or release of or addition to or consent to departure from any guaranty, for any of the Secured Obligations, or 2.6.7 any other circumstances which might otherwise constitute a defense available to, or a legal or equitable discharge of, either Borrower, any other Obligor, any surety or any guarantor. SECTION 2.7 Waiver of Subrogation. The Pledgor hereby irrevocably waives ---------------------- any claim or other rights which it may now or hereafter acquire against the Borrowers or any other Obligor that arise from the existence, payment, performance or enforcement of the Pledgor's obligations under this Pledge Agreement or any other Loan Document, including any right of subrogation, reimbursement, exoneration or indemnification, any right to participate in any claim or remedy of the Lender against either Borrower or any other Obligor or any collateral which the Lender now has or hereafter acquires, whether or not such claim, remedy or right arises in equity, or under contract, statute or common law, including the right to take or receive from either Borrower or any other Obligor, directly or indirectly, in cash or other property or by set-off or in any manner, payment or security on account of such claim or other rights. If any amount shall be paid to the Pledgor in violation of the preceding sentence and the Secured Obligations shall not have been paid in cash in full and the Commitments and any other commitments by the Lender to the Borrowers have not been terminated, such amount shall be deemed to have been paid to the Pledgor for the benefit of, and held in trust for, the Lender, and 6 shall forthwith be paid to the Lender to be credited and applied upon the Secured Obligations, whether matured or unmatured. The Pledgor acknowledges that it will receive direct and indirect benefits from the financing arrangements contemplated by the Credit Agreement and that the waiver set forth in this Section is knowingly made in contemplation of such benefits. III REPRESENTATIONS AND WARRANTIES SECTION 3.1 Warranties, etc. The Pledgor represents and warrants unto the ---------------- Lender, as at the date of each pledge and delivery hereunder (including each pledge and delivery, where applicable, of Pledged Interests) by the Pledgor to the Lender of any Collateral, as set forth in this Article. SECTION 3.1.1 [Not used.] SECTION 3.1.2 Valid security Interest. The filing of a financing statement ------------------------ with the Secretary of State of the States of Michigan and Colorado will be effective to create a valid, perfected, security interest in such Collateral and all proceeds thereof, securing the Secured Obligations. SECTION 3.1.3 As to Pledged Interests. In the case of the Pledged Interests ------------------------ constituting such Collateral, such Pledged Interests constitute 100% of the Pledgor's member interest in Basin. SECTION 3.1.4 Location of Pledgor and Records. Pledgor's chief executive -------------------------------- office and principal place of business and the office where the records concerning the Collateral are kept is located at its address set forth next to Pledgor's signature hereunder. SECTION 3.1.5 Pledged Member interests. The Pledged Interests are duly ------------------------- registered in the permanent ownership records of Basin, and such registration is maintained in the principal office of such issuer. Such registration continues valid and genuine and has not been altered. All Pledged Interests have been duly authorized and validly issued and registered, are fully paid and non-assessable, and were not issued in violation of the preemptive rights, if any, of any Person or of any agreement by which Pledgor or Basin is bound. All documentary, stamp or other taxes or fees owing in connection with the registration, issuance, transfer or pledge of Collateral have been paid. No restrictions or conditions exist with respect to the registration, transfer, voting or capital of any Pledged Interests except as provided in the Operating Agreement of Basin. The Pledged Interests constitute the percentage of ownership in Basin as indicated on Attachment 1. ------------- 7 Basin has no outstanding rights, rights to subscribe, options, warrants or convertible securities outstanding or any other rights outstanding whereby any Person would be entitled to acquire member interests or units of Basin. SECTION 3.1.6 Authorization, Approval, etc. No authorization, approval, ----------------------------- or other action by, and no notice to or filing with, any governmental authority, regulatory body or any other Person is required either (a) for the pledge by the Pledgor of any Collateral pursuant to this Pledge Agreement or for the execution, delivery, and performance of this Pledge Agreement by the Pledgor, or (b) for the exercise by the Lender of the voting or other rights provided for in this Pledge Agreement, or, except with respect to any Pledged Interests, as may be required in connection with a disposition of such Pledged Interests by laws affecting the offering and sale of securities generally, the remedies in respect of the Collateral pursuant to this Pledge Agreement. IV COVENANTS SECTION 4.1 Protect Collateral; Further Assurances, etc. The Pledgor will -------------------------------------------- not sell, assign, transfer, pledge, or encumber in any other manner the Collateral (except in favor of the Lender hereunder). The Pledgor will warrant and defend the right and title heroin granted unto the Lender in and to the Collateral (and all right, title, and interest represented by the Collateral) against the claims and demands of all Persons whomsoever. The Pledgor agrees that at any time, and from time to time, at the expense of the Pledgor, the Pledgor will promptly execute and deliver all further instruments, and take all further action, that may be necessary or desirable, or that the Lender may reasonably request, in order to perfect and protect any security interest granted or purported to be granted hereby or to enable the Lender to exercise and enforce its rights and remedies hereunder with respect to any Collateral. SECTION 4.2 Certificates, etc. The Pledgor agrees that all certificates ------------------ evidencing Pledged Interests, if any, delivered by the Pledgor pursuant to this Pledge Agreement will be accompanied by duly executed undated blank stock powers, or other equivalent instruments of transfer acceptable to the Lender. The Pledgor will, from time to time upon the request of the Lender, promptly deliver to the Lender such stock powers, instruments, and similar documents, satisfactory in form and substance to the Lender, with 8 respect to the Collateral as the Lender may reasonably request and will, from time to time upon the request of the Lender after the occurrence of any Event of Default, promptly transfer any Pledged Interests into the name of any nominee designated by the Lender. SECTION 4.3 Continuous Pledge. Subject to Section 2.4, the Pledgor will, at ------------------ ------------ all times, keep pledged to the Lender pursuant hereto all Pledged Interests and all other Collateral, all Distributions with respect thereto, and all other Collateral and other securities, instruments, proceeds, and rights from time to time received by or distributable to the Pledgor in respect of any Collateral. SECTION 4.4 Voting Rights; Dividends, etc. The Pledgor agrees: ------------------------------ 4.4.1 after any Default or an Event of Default shall have occurred and be continuing, promptly upon receipt thereof by the Pledgor and without any request therefor by the Lender, to deliver (properly endorsed where required hereby or requested by the Lender) to the Lender all Distributions, all other cash payments, and all proceeds of the Collateral, all of which shall be held by the Lender as additional Collateral for use in accordance with Section 6.4; and ---------------- 4.4.2 after any Event of Default shall have occurred and be continuing and the Lender has notified the Pledgor of the Lender's intention to exercise its voting power under this Section 4.4.2 ------------- (a) the Lender may exercise (to the exclusion of the Pledgor) the voting power and all other incidental rights of ownership with respect to any Pledged Interests or other Collateral and the Pledgor hereby grants the Lender an irrevocable proxy., exercisable under such circumstances, to vote the Pledged Interests and such other Collateral, and (b) promptly to deliver to the Lender such additional proxies and other documents as may be necessary to allow the Lender to exercise such voting power. All Distributions, cash payments, and proceeds which may at any time and from time to time be held by the Pledgor but which the Pledgor is then obligated to deliver to the Lender, shall, until delivery to the Lender, be held by the Pledgor separate and apart from its other property in trust for the Lender. The Lender agrees that unless an Event of Default shall have occurred and be continuing and the Lender shall have given the notice referred to in Section ------- 4.4.2, the Pledgor shall have the exclusive voting power - ------ 9 with respect to any Pledged Interests constituting Collateral and the Lender shall, upon the written request of the Pledgor, promptly deliver such proxies and other documents, if any, as shall be reasonably requested by the Pledgor which are necessary to allow the Pledgor to exercise voting power with respect to any such Pledged Interests constituting Collateral; provided, however, that ------------------ no vote shall be cast, or consent, waiver, or ratification given, or action taken by the Pledgor that would impair any Collateral or be inconsistent with or violate any provision of the Credit Agreement or any other Loan Document (including this Pledge Agreement). SECTION 4.5 Delivery of Pledged Collateral. All requisite formalities for ------------------------------- the granting of a security interest in the Pledged Interests required pursuant to the Articles of Organization of Basin (the "Articles") and the Operating Agreement of Basin have been complied with on or prior to the execution and delivery of this Agreement. All registrations, consents, instruments and writings required under the Articles have been obtained by Pledgor. All Pledged Interests are duly registered in the permanent ownership records of Basin and clearly show Lender's security interest thereon. SECTION 4.6 Status of Pledged Interests. The registration of the Pledged ---------------------------- interests on the permanent ownership records of Basin shall at all times be valid and genuine and shall not be altered. The Pledged Interests at all times shall be duly authorized, validly registered, fully paid, and non-assessable, and shall not be registered in violation of the Articles or the preemptive rights of any Person, if any, or of any agreement by which Pledgor or Basin is bound. SECTION 4.7 Additional Undertakings. The Pledgor will not, without the ------------------------ prior written consent of the Lender: 4.7.1 enter into any agreement amending, supplementing, or waiving any provision of any Pledged Interests (including the operating agreement to which such Pledged Interests relate) or compromising or releasing or extending the time for payment of any obligation of the maker thereof; 4.7.2 take or omit to take any action the taking or the omission of which would result in any impairment or alteration of any obligation of Basin in respect of any Pledged Interests constituting Collateral; 4.7.3 cause or permit any change to be made in its name, identity or corporate structure, or any change to be made to a jurisdiction other than as represented in (i) the location of any Collateral, (ii) the location of any records concerning any Collateral or (iii) in the location of its chief executive 10 office or chief place of business, unless Pledgor shall have notified Lender of such change at least thirty (30) days prior to the effective date of such change, and shall have first taken all action required by Lender for the purpose of further perfecting or protecting the security interest in favor of Lender in the Collateral. In any notice furnished pursuant to this subsection, Pledgor will expressly state that the notice is required by this Agreement and contains facts that may require additional filings of financing statements or other notices for the purposes of continuing perfection of Lender's security interest in the Collateral; 4.7.4 permit the issuance of (i) any additional member interests or units of any class of member interests or units of Basin (unless immediately upon issuance the same are pledged and delivered to Lender pursuant to the Terms hereof to the extent necessary to give Lender a security interest after such issue in at least the same percentage of Basin's outstanding interests or units as before such issue), (ii) any securities convertible voluntarily by the holder thereof or automatically upon the occurrence or non-occurrence of any event or condition into, or exchangeable for, any such member interests or units or shares, or (iii) any warrants, options, contracts or other commitments entitling any Person to purchase or otherwise acquire any such interests, units or shares; or 4.7.5 enter into any agreement creating, or otherwise permit to exist, any restriction or condition upon the transfer, voting or control of any Pledged Interests, except as contained in Basin's Operating Agreement. V THE LENDER SECTION 5.1 Lender Appointed Attorney-in-Fact. The Pledgor hereby ----------------------------------- irrevocably appoints the Lender the Pledgor's attorney-in-fact, with full authority in the place and stead of the Pledgor and in the name of the Pledgor or otherwise, from time to time in the Lender's discretion, to take any action and to execute any instrument which. the Lender may deem necessary or advisable to accomplish the purposes of this Pledge Agreement, including without limitation: 5.1.1 after the occurrence and continuance of an Event of Default, to ask, demand, collect, sue for, recover, compromise, receive and give acquittance and receipts for moneys due and to become due under or in respect of any of the Collateral; 11 5.1.2 to receive, endorse, and collect any drafts or other instruments, documents and chattel paper, in connection with Clause 5.1.1 ------------ above; and ---------- 5.1.3 to file any claims or take any action or institute any proceedings which the Lender may deem necessary or desirable for the collection of any of the Collateral or otherwise to enforce the rights of the Lender with respect to any of the Collateral. The Pledgor hereby acknowledges, consents and agrees that the power of attorney granted pursuant to this Section is irrevocable and coupled with an interest. SECTION 5.2 Lender May Perform. If the Pledgor fails to perform any ------------------- agreement contained herein, the Lender may itself perform, or cause performance of, such agreement, and the expenses of the Lender incurred in connection therewith shall be payable by the Pledgor. SECTION 5.3 Lender Has No Duty. The powers conferred on the Lender ------------------- hereunder are solely to protect its interest in the Collateral and shall not impose any duty on it to exercise any such powers. Except for the reasonable care of any Collateral in its possession and the accounting for moneys actually received by it hereunder, the Lender shall have no duty as to any Collateral or responsibility for (a) ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relative to any Pledged Property, whether or not the Lender has or is deemed to have knowledge of such matters, or (b) taking any necessary steps to preserve rights against prior parties or any other rights pertaining to any Collateral. SECTION 5.4 Reasonable Care. The Lender is required to exercise reasonable ---------------- care in the custody and preservation of any of the Collateral in its possession; provided, however, the Lender shall be deemed to have exercised reasonable care - ------------------ in the custody and preservation of any of the Collateral, if it takes such action for that purpose as the Pledgor reasonably requests in writing at times other than upon the occurrence and during the continuance of any Event of Default, but failure of the Lender to comply with any such request at any time shall not in itself be deemed a failure to exercise reasonable care. VI REMEDIES SECTION 6.1 Certain Remedies. If any Event of Default shall have occurred ----------------- and be continuing: 12 6.1.1 The Lender may exercise in respect of the Collateral, in addition to other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party on default under the U.C.C. (whether or not the U.C.C. applies to the affected Collateral) and also may, without notice except as specified below, sell the Collateral or any part thereof in one or more parcels at public or private sale, at any of the Lender's offices or elsewhere, for cash, on credit or for future delivery, and upon such other terms as the Lender may deem commercially reasonable. The Pledgor agrees that, to the extent notice of sale shall be required by law, at least ten days' prior notice to the Pledgor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. The Lender shall not be obligated to make any sale of Collateral regardless of notice of sale having been given. The Lender my adjourn any public or private sale from time to time by announcement at the time and placed fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. 6.1.2 The Lender may (a) transfer all or any part of the Collateral into the name of the Lender or its nominee, with or without disclosing that such Collateral is subject to the lien and security interest hereunder, (b) notify the parties obligated on any of the Collateral to make payment to the Lender of any amount due or to become due thereunder, (c) enforce collection of any of the Collateral by suit or otherwise, and surrender, release or exchange all or any part thereof, or compromise or extend or renew for any period (whether or not longer than the original period) any obligations of any nature of any party with respect thereto, (d) endorse any checks, drafts, or other writings in the Pledgor's name to allow collection of the Collateral, (e) take control of any proceeds of the Collateral, and (f) execute (in the name, place and stead of the Pledgor) endorsements, assignments, stock powers and other instruments of conveyance or transfer with respect to all or any of the Collateral. 13 SECTION 6.2 Securities Laws. If the Lender shall determine to exercise its ---------------- right to sell all or any of the Collateral pursuant to Section 6.1, the Pledgor ------------ agrees that, upon request of the Lender, the Pledgor will, at its own expense: 6.2.1 execute and deliver, and cause each issuer of the Collateral contemplated to be sold and the partners thereof to execute and deliver, all such instruments and documents, and do or cause to be done all such other acts and things, as may be necessary or, in the opinion of the Lender, advisable to permit the Collateral to be privately sold or transferred in compliance with the provisions of the Securities Act of 1933, as from time to time amended (the "Securities Act"), and the rules and regulations of the Securities and Exchange Commission applicable thereto; 6.2.2 use its best efforts to permit the Collateral to be privately sold or transferred in compliance with the state securities or "Blue Sky" laws and to obtain all necessary governmental approvals for such sale of the Collateral, as requested by the Lender; 6.2.3 cause each such issuer to make available to its security holders, as soon as practicable, an earnings statement that will satisfy the provisions of Section 11(a) of the Securities Act; and 6.2.4 do or cause to be done all such other acts and things as may be necessary to make such sale of the Collateral or any part thereof valid and binding and in compliance with applicable law. The Pledgor further acknowledges the impossibility of ascertaining the amount of damages that would be suffered by the Lender by reason of the failure by the Pledgor to perform any of the covenants contained in this Section and, consequently, agrees that, if the Pledgor shall fail to perform any of such covenants, it shall pay, as liquidated damages and not as a penalty, an amount equal to the value (as determined by the Lender) of the Collateral on the date the Lender shall demand compliance with this Section. SECTION 6.3 Compliance with Restrictions. The Pledgor agrees that in any ----------------------------- sale of any of the Collateral whenever an Event of Default shall have occurred and be continuing, the Lender is hereby authorized to comply with any limitation or restriction in connection with such sale as it may be advised by counsel is necessary in order to avoid any violation of applicable law (including compliance with such procedures as may restrict the number of prospective bidders and purchasers, require that such prospective bidders and purchasers have certain qualifications, and restrict such prospective bidders and purchasers to persons who 14 will represent and agree that they are purchasing for their own account for investment and not with a view to the distribution or resale of such Collateral), or in order to obtain any required approval of the sale or of the purchaser by any governmental regulatory authority or official, and the Pledgor further agrees that such compliance shall not result in such sale being considered or deemed not to have been made in a commercially reasonable manner, nor shall the Lender be liable nor accountable to the Pledgor for any discount allowed by the reason of the fact that such Collateral is sold in compliance with any such limitation or restriction. SECTION 6.4 Application of Proceeds. All cash proceeds received by the ------------------------ Lender in respect of any sale of, collection from, or other realization upon, all or any part of the Collateral may, in the discretion of the Lender, be held by the Lender as additional collateral security for, or then or at any time thereafter be applied (after payment of any amounts payable to the Lender pursuant to the Credit Agreement) in whole or in part by the Lender against, all or any part of the Secured Obligations in such order as the Lender shall elect. Any surplus of such cash or cash proceeds held by the Lender and remaining after payment in full of all the Secured Obligations, and the termination of all Commitments and any other commitments by the Lender to the Borrowers, shall be paid over to the Pledgor or to whomsoever may be lawfully entitled to receive such surplus. SECTION 6.5 Private Sale of Member Interests. Pledgor recognizes that --------------------------------- Lender may be unable to effect a public sale or disposition (including, without limitation, any disposition in connection with a merger of a Subsidiary) of any or all the Pledged Interests by reason of certain prohibitions contained in the Securities Act, and applicable state securities laws, but may be compelled to resort to one or more private sales or dispositions thereof to a restricted group of purchasers who will be obliged to agree, among other things, to acquire such securities for their own account for investment and not with a view to the distribution or resale thereof. Pledgor acknowledges and agrees that any such private sale or disposition may result in prices and other terms (including the terms of any securities or other property received in connection therewith) less favorable to the seller than if such sale or disposition were a public sale or disposition. Lender shall be under no obligation to delay a sale or disposition of any of the Pledged Interests to permit Pledgor or the Subsidiary to register such securities for public sale under the Securities Act, or under applicable state securities laws, even if Pledgor would agree to do so. Notwithstanding the foregoing any such sale or disposition shall be made in a commercially reasonable manner. Pledgor further agrees to do or cause to be done all such other acts and things as may be necessary to make such sale or 15 sales or dispositions of any portion or all of the Pledged interests valid and binding and in compliance with any and all applicable laws, regulations, orders, writs, injunctions, decrees or awards of any and all courts, arbitrators or governmental instrumentalities, domestic or foreign, having jurisdiction over any such sale or sales or dispositions, all at Pledgor's expense, provided that Pledgor shall be under no obligation to take any action to enable any or all of the Pledged Interests to be registered under the provisions of the Securities Act. Pledgor further agrees that a breach of any of the covenants contained in this Section 6.5 will cause irreparable injury to Lender, that Pledgee has no ----------- adequate remedy at law in respect of such breach and, as a consequence, agrees that each and every covenant contained in this paragraph shall be specifically enforceable against Pledgor, and Pledgor hereby waives and agrees not to assert any defenses against an action for specific performance of such covenants except for a defense that no Event of Default has occurred under the Credit Agreement. VII MISCELLANEOUS PROVISIONS SECTION 7.1 Loan Document. This Pledge Agreement is a Loan Document -------------- executed pursuant to the Credit Agreement and shall (unless otherwise expressly indicated heroin) be construed, administered and applied in accordance with the terms and provisions thereof. SECTION 7.2 Amendments, etc. No amendment to or waiver of any provision of ---------------- this Pledge Agreement nor consent to any departure by the Pledgor herefrom shall in any event be effective unless the same shall be in writing and signed by the Lender, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which it is given. SECTION 7.3 Protection of Collateral. The Lender may from time to time, at ------------------------- its option, perform any act which the Pledgor agrees hereunder to perform and which the Pledgor shall fail to perform after being requested in writing so to perform (it being understood that no such request need be given after the occurrence and during the continuance of an Event of Default) and the Lender may from time to time take any other action which the Lender reasonably deems necessary for the maintenance, preservation or protection of any of the Collateral or of its security interest therein. SECTION 7.4 Addresses for Notices. All notices and other communications ---------------------- provided for hereunder shall be in writing (including telegraphic communication) and, if to the Pledgor, mailed or telegraphed or delivered or sent by facsimile to it at 16 the address set forth below its signature hereto, if to the Lender, mailed or delivered to it, addressed to it at the address of the Lender specified in the Guaranty or, as to either party, at such other address as shall be designated by such party in a written notice to each other party complying as to delivery with the terms of this Section. All such notices and other communications shall, when mailed or telegraphed or sent by facsimile, respectively, be effective when deposited in the mails or delivered to the telegraph company or machine confirmation of receipt of the facsimile, respectively, addressed as aforesaid. SECTION 7.5 Section Captions. Section captions used in this Pledge ----------------- Agreement are for convenience of reference only, and shall not affect the construction of this Pledge Agreement. SECTION 7.6 Severability. Wherever possible each provision of this Pledge ------------- Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Pledge Agreement shall be prohibited by or invalid under such law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Pledge Agreement. SECTION 7.7 Governing Law, Entire. Agreement, etc. THIS PLEDGE AGREEMENT -------------------------------------- SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF ILLINOIS, EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE G0VERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF ILLINOIS. THIS PLEDGE AGREEMENT AND THE OTHER LOAN DOCUMENTS CONSTITUTE THE ENTIRE UNDERSTANDING AMONG THE PARTIES HERET0 WITH RESPECT TO THE SUBJECT MATTER HEREOF AND SUPERSEDE ANY PRIOR AGREEMENTS, WRITTEN OR 0RAL, WITH RESPECT THERETO. SECTION 7.8 Forum Selection and Consent to Jurisdiction. ANY LITIGATION -------------------------------------------- BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS PLEDGE AGREEMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE LENDER OR THE PLEDGOR SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE COURTS OF THE STATE OF ILLINOIS OR IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY C0LLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT THE LENDER'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. THE PLEDGOR HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS OF THE STATE OF ILLINOIS AND OF THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH SUCH LITIGATION. THE PLEDGOR FURTHER 17 IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF ILLINOIS. THE PLEDGOR HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY HAVE OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT THAT THE PLEDGOR HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, THE PLEDGOR HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS PLEDGE AGREEMENT. SECTION 7.9 WAIVER OF JURY TRIAL. THE LENDER AND THE PLEDGOR HEREBY --------------------- KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS PLEDGE AGREEMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE LENDER OR THE PLEDGOR. THE PLEDGOR ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION (AND EACH OTHER PROVISION OF EACH OTHER LOAN DOCUMENT TO WHICH IT IS A PARTY) AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE LENDER ENTERING INTO THIS PLEDGE AGREEMENT AND EACH SUCH OTHER LOAN DOCUMENT. SECTION 7.10 Subordination. Notwithstanding anything to the contrary -------------- contained heroin, the Lender hereby agrees for itself and its successors and assigns, that the Lender's rights and remedies hereunder (the "Rights"), and any -------- and all liens and security interests that are granted to secure the Rights (the "Liens") as well as any interest in any property or asset acquired by reason of - ------- the enforcement of any of the Rights or the Liens are subject to the terms of the Subordination Agreement, which provides, among other things, that the Rights and the Liens are subject to the Participation Agreement as more particularly set forth therein. This Section 7.10 shall be deemed a covenant binding upon and ------------ running with the property and assets subject to the Liens. SECTION 7.11 Limitation on Recourse. Notwithstanding the general terms of ------------------------ the Pledgor's obligations under this Pledge Agreement or anything to the contrary contained heroin, the Lender hereby agrees not to seek to satisfy Pledgor's obligations under this Pledge Agreement out of any property, assets, revenues or funds of the Pledgor other than (i) Energy Company's Share of the Collateral which shall remain subject to the Subordination Agreement and/or (ii) funds which are distributable to Energy Company from time to time pursuant to the Participation Agreement. 18 SECTION 7.12 The Lender as Agent for its Affiliates. As described above, --------------------------------------- certain Affiliates of the Lender, including without limitation, Bank of America National Trust and Savings Association, are or may become parties to certain Hedging Agreements with the Borrower, the Pledgor and/or Affiliates of the Borrower or the Pledgor. This Pledge Agreement secures the obligations of the Borrower, the Pledgor and such Affiliates, as the case may be, under such Hedging Agreements, and the parties hereto acknowledge for all purposes that the Lender acts as agent on behalf of such Affiliates of the Lender which are so entitled to share in the rights and benefits accruing to the Lender under this Pledge Agreement. 19 IN WITNESS WHEREOF, the parties hereto have caused this Pledge Agreement to be duly executed and delivered by their respective officers thereunto duly authorized as of the day and year first above written. WESTSHORE PROCESSING COMPANY, L.L.C. By: MarkWest Michigan LLC, its Operator By: MarkWest Hydrocarbon Partners, Ltd., its Manager By: MarkWest Hydrocarbon, Inc., its General Partner By: /s/ Arthur J. Denney Name: Arthur J. Denney Title: Vice President c/o: Markwest Michigan LLC 5613 DTC Parkway Suite 400 Englewood, Colorado 80111 Facsimile No.: (303) 290-8769 Attention: Arthur J. Denney BANK OF AMERICA ILLINOIS By: /s/ John H. Homier Title: Vice President Address: 231 South LaSalle Street Chicago, Illinois 60697 Facsimile No.: (312) 987-5614 Attention: John H. Homier -------------- ATTACHMENT 1 to Pledge Agreement Item A. Pledged Interests ----------------- Limited Liability Company Description - -------------------------- ----------- Basin Pipeline L.L.C. 100% of its member interest in such limited liability company being a 98% interest 21 EX-10.7 10 PARTICIPATION, OWNERSHIP AND OPERATING AGREEMENT PARTICIPATION, OWNERSHIP AND OPERATING AGREEMENT FOR WEST SHORE PROCESSING COMPANY, LLC A MICHIGAN LIMITED LIABILITY COMPANY (COMPRISED OF MICHIGAN ENERGY COMPANY, L.L.C. AND MARKWEST MICHIGAN, LLC) PARTICIPATION, OWNERSHIP AND OPERATING AGREEMENT FOR WEST SHORE PROCESSING COMPANY, LLC THIS PARTICIPATION, OWNERSHIP AND OPERATING AGREEMENT ("Agreement"), made and entered into this 2nd day of May, 1996 by and among MICHIGAN ENERGY COMPANY, L.L.C., herein referred to as "MEC", and MARKWEST MICHIGAN, LLC, herein referred to as "Markwest", each of MEC and MarkWest herein referred to from time to time as a "Party", and collectively as "Parties", or as a "Member" and collectively as "Members". RECITALS: A. The Parties desire to enter into this agreement to create WEST SHORE PROCESSING COMPANY, LLC, a limited liability company organized under the laws of the state of Michigan, (the "Company") and to govern their relationship, duties, rights and obligations pertaining to the Company as further defined herein, and to provide for the development, installation, acquisition and operation of properties and rights made part of the Company, including the ownership and operation of Basin Pipeline Limited Liability Company ("Basin"). NOW THEREFORE, in consideration of the mutual covenants, promises and agreements contained herein, the Parties hereto agree as follows: ARTICLE I THE COMPANY 1.1 Scope and Purpose. This Agreement and the Company shall pertain to ----------------- and shall include all gas gathering, gas transportation, gas purchasing and selling, gas treating, and gas processing assets, contracts, agreements, real and personal properties and activities in which any of the Parties have interests or hereafter acquire interests (other than in Sole Risk Projects as defined below) within the areas of Manistee, Mason, Oceana and Muskegon Counties, Michigan, which area is referred to herein as the "Company Area", including, without limitation activities and ownership of the following assets which shall be referred to herein as the "Assets": a. 98% of the Membership Interests in Basin Pipeline Limited Liability Company which will own and operate all of the assets of Basin which include all pipeline facilities, and all related equipment, machinery, supplies, pipelines, facilities, easements, certificates, licenses, rights of way, surface leases and agreements, permits and other properties, real or personal, necessary to ownership and operation thereof, used in connection therewith or appurtenant thereto as owned as of the date hereof, including, without limitation, those facilities and properties described on Exhibit M, attached hereto and made a part hereof. b. All personal property and equipment, and fixtures located on or appurtenant to the assets described in paragraph a., above, or used in -1- connection therewith. c. All accounts receivable attributable to the assets described in paragraphs a. and b., above accruing on or after the Final Closing Date; provided, MEC retains the right to all revenues attributable to the Assets prior to Final Closing, even if received after Final Closing, including, all rights to refunds or rebates of sales taxes related to the Assets prior to the Final Closing Date, even if received after Final Closing. d. All records, maps, data, files, test results, and other information in MEC's possession related to the portions of the Assets described above (the "Records"). e. All real property, rights-of-way, easements, surface agreements, licenses and permits related to or used in connection with the ownership, operation and maintenance of the portions of the Assets described above, including those as more fully described on Exhibit B, attached hereto and made a part hereof, including an easement from Manistee to the Company and/or Basin providing access across, ingress to and egress from the lands of Manistee related to the Brown 19 gas plant for the purposes of permitting the Company access to its and/or Basin's facilities which are located on the lands utilized by the Brown 19 Gas Plant, which easement shall be in form and content acceptable to the Company. f. Those portions of the Brown 19 Gas Plant and other assets of MEC described on Exhibit A; which shall exclude those portions of the Brown 19 Gas Plant which are subject to the Option Agreement attached as Exhibit V and which are subject to Section 2.2(c). g. All contracts and agreements pertaining to the portions of the Assets described above, to the extent described on Exhibit C, attached hereto and made a part hereof. All such activities of all or any of the Parties, and their Affiliates (as defined in Section 9.2), within the Company Area shall be conducted exclusively by and through the Company and/or Basin and shall be subject to this Agreement, including, without limitation, the activities, construction and operation of facilities related to the Company and/or Basin. The general purposes of the Company and Basin under this Agreement are for the Parties to acquire, own, construct, operate and maintain certain pipeline and gas treating and processing, and related facilities located in the Company Area, to gather, treat, transport, process and market natural gas and residue gas (under gas purchase contracts between the Company and producers) and natural gas liquids, and to do any and all acts incidental to those purposes. The general purposes of the Company shall not include and nothing herein shall apply to the ownership and operation of any oil, gas and mineral estates, including but not limited to leaseholds and fee interests (including all rights and activities incidental to such ownership and operation, including without limitation exploration, development and production activities) owned individually by any -2- of the Parties and neither the Company nor Basin shall acquire any ownership interest in any oil, gas and mineral estates, whether leasehold or fee. 1.2 Effective Date. This Agreement shall be effective as of 12:01 a.m., -------------- Eastern Time, on the date hereof, 1996, (the "Effective Date"). 1.3 Term. This Agreement shall be in force as of the date hereof and, ---- unless sooner terminated by the provisions herein, shall, after the creation of the Company, continue for so long as the Company continues in existence, or until otherwise terminated by the Parties. 1.4 Relationship of the Parties. Until the Final Closing Date, the --------------------------- Parties and Basin shall be deemed to be individual owners of the Assets as owned on the date hereof, and with respect to work to be performed by MarkWest and operations to be conducted by MarkWest, MarkWest shall be deemed an independent contractor of MEC. Upon the Final Closing Date, the Parties hereto shall be Members of the Company. Nothing contained herein is intended to nor shall be construed to create a partnership (except to the extent considered a partnership solely for tax purposes as set forth in Exhibit E), joint venture or other relationship with attributes of joint and several liability. 1.5 Formation of Company. At or before Final Closing, the Parties shall -------------------- create and establish the Company in conformance with the terms hereof, and upon the Effective Date, this Agreement shall be considered to be the Operating Agreement of the Company to govern its management and affairs. ARTICLE II CAPITAL REQUIREMENTS AND CONTRIBUTIONS -------------------------------------- 2.1 MarkWest's Initial Contributions. (a) Commencing upon the -------------------------------- Effective Date, MarkWest will undertake the following activities, which until Final Closing shall be paid for from the Working Capital Fund established by MEC under Section 6.8, and which, after Final Closing shall be paid for by contributions of MarkWest of money to the Company towards the ownership, construction, and development (which contributions will include, without limitation, all expenditures by MarkWest of amounts which would otherwise be considered direct charges under the terms of the Accounting Procedures attached as Exhibit F) of the following: (i) a nominal 10-inch diameter pipeline extension of the current Basin pipeline (to be owned by Basin) along the right of way of Consumers Power to the delivery point at the gathering lateral of the existing Slocum No. 1-21 well, located in Section 21, Township 15 North, Range 16 West, Elbridge Township, Oceana County, Michigan, (as approximately depicted on the map attached hereto as Exhibit N), including all matters related to the acquisition of requisite permits (for which permits MarkWest shall diligently apply for and use its reasonable efforts to acquire), installation, construction, and acquisition of necessary easements and rights of way ("Basin Extension"). The installation and construction of the Basin Extension shall be conducted in a good and workmanlike manner -3- consistent with prudent industry standards. Should the amount required to complete that extension exceed $10,000,000, then MEC shall be obligated to pay 80% of all such excess amounts, and MarkWest shall be obligated to pay 20% of all such excess amounts, which amounts shall not be utilized in calculating Ownership Interests hereunder. MarkWest will commence activities related to this installation promptly following the Effective Date. MarkWest will undertake planning aimed at completing the Basin Extension by December 31, 1996, and, in any event, will use its reasonable efforts to complete the Basin Extension, subject to conditions not within MarkWest's reasonable control, by March 31, 1997. Additionally, MarkWest will reimburse MEC for costs related to the Basin Extension and which were incurred before the Effective Date to the extent those costs are specified on Exhibit D, attached hereto. (ii) the installation of the Filer 1-10 lateral and related facilities, located in Section 10, Township 21 North, Range 17 West, Filer Township, Manistee County, Michigan, and, at Final Closing, MarkWest shall reimburse MEC for the costs incurred by MEC, or the Parties comprising MEC, which are directly related to the Filer 1-10 lateral and facility installation and which are reimbursable by the producers connected to the Filer No.1-10 lateral to the extent specified on Exhibit D, (iii) constructing and installing compression facilities, turbo expander extraction facilities designed to recover no less than 80% of the propane content of the gas, and such other facilities at or near the Shell Western E&P, Inc., #23 facility, located in Section 23, Township 22 North, Range 16 West, Manistee County, Michigan, ("Shell #23 Plant"), on terms acceptable to MarkWest and MEC, as necessary to deliver gas into the MichCon dry header and to extract, depropanize and/or separate natural gas liquids. Should the amount to be paid for those facilities exceed $5,600,000, then MEC shall be obligated to pay 80% of all such excess amounts, and MarkWest shall be obligated to pay 20% of all such excess amounts, which amounts shall not be utilized in calculating Ownership Interests hereunder. Prior to the commencement of the construction and installation of those facilities, MEC shall have the right to propose alternate activities with regard to the extraction of natural gas liquids from the gas and the basis upon which MEC believes, based upon its interest in the Company only, without regard to the interests of producers, that such alternative will be economically advantageous to the Company. If MarkWest agrees with MEC's proposal, based solely upon an economic analysis of the effect on the Company without regard to any economic effect upon producers, then the character of the facilities to be constructed will be modified accordingly. MarkWest agrees that its concurrence to MEC's proposal shall not be unreasonably withheld, (iv) installation of pipelines, and related metering facilities, to and from the Brown 19 plant, located in Section 19, Township 22 North, Range 15 West, Manistee County, Michigan, and the Shell #23 Plant; provided, this obligation may be replaced and discharged by MichCon installing such -4- pipelines and charging a transportation rate acceptable to MarkWest and MEC, (v) if Michigan Production Company, L.L.C., ("MPC") does not commence to install the necessary well production, surface and metering facilities on the Slocum No. 1-21 well in a timely manner as necessary to equip the well for production within thirty (30) days following the date that MarkWest completes the installation of the Basin pipeline extension under i., above, then MarkWest may, but will have no obligation to, install those facilities, subject to the reimbursement obligations to the Company of MPC under the Gas Facilities Agreement described in Section 17.15, hereof, (vi) to the extent that MarkWest has not then made its maximum required contributions under this Section 2.1, MEC may cause MarkWest to remedy the non-compliance of the Assets with the Occupational Safety and Health Administration's standards contained in 29 CFR Section 1910.119, up to the first $150,000 of required expenditures, with MEC remaining liable and responsible for all portions of those remediation expenses exceeding that amount. To the extent that MEC has remedied those non-compliances in the Brown 19 Gas Plant before the Company, if ever, acquires the Brown 19 Gas Plant, then upon the Company acquiring the Brown 19 Gas Plant, and to the extent, at that time, that MarkWest has not then made its maximum required contributions under this Section 2.1, MarkWest will reimburse MEC for the amounts expended by MEC to remedy those non-compliances up to the limits set forth above, (vii) installation of basic upgrades to the Basin pipeline as described on Exhibit O, and (viii) such other facilities as are unanimously agreed upon by the Parties. (b) The maximum aggregate initial contribution by MarkWest for the items described in this Section 2.1, together with any payments by MarkWest under Section 3.1(b), shall be $16,800,000. These contributions shall be for the construction of the facilities described above. Amounts in excess of those amounts shall be paid by the Parties in accordance with their then applicable Ownership Interests. (c) The expenditures for the items in this Section 2.1 shall be in conformance with the Preliminary Cost Estimates attached to this Agreement as Exhibit S; and with AFE's to be agreed upon by the Parties before the purchasing of materials or the commencement of construction. After the Final Closing Date, MarkWest shall be authorized to pursue the activities required in this Section 2.1, in conformance with the scope specified on the approved AFE's. If MarkWest proposes to materially change the scope of the activity specified in the approved AFE's, all such material scope changes shall require the unanimous approval of the Parties. MEC agrees that its consent to any such scope changes will not be unreasonably withheld giving due regard to the -5- economic or other justification for those changes or additional expenditures. It is understood and agreed that the approval of an AFE means, in the absence of material scope changes, that the Operator shall have the right to complete the project which is the subject of the AFE and that the Parties shall be responsible for their proportionate share (as determined under this Agreement) of all costs and expenses incurred in completing that project, even if the aggregate amount incurred reasonably exceeds the estimate stated on the AFE. 2.2 MEC's Initial Contributions and Obligations. ------------------------------------------- (a) On the Final Closing Date, MEC shall contribute all of the Assets to the Company. Upon those contributions and performance of obligations under this Section 2.2, MEC shall be deemed to have made a capital contribution to the Company equal to $11,200,000. (b) To the extent any lease, contract, right or commitment included in the Assets is not capable of being assigned or transferred without the consent or waiver of the issuer thereof or the other party thereto or any third party (including a government or governmental unit), or if such assignment or transfer or attempted assignment or transfer would constitute a breach thereof or a violation of any law, decree, order, regulation or other governmental edict, this Agreement shall not constitute an assignment or transfer thereof, or an attempted assignment, transfer or sublease of any such lease, contract, right or commitment. Anything in this Agreement to the contrary notwithstanding, MEC is not obligated to transfer to the Company any of its rights and obligations in and to any such contract without first having obtained all necessary consents and waivers. For a reasonable period of time after the Final Closing Date, MEC shall use all reasonable efforts, and the Company shall cooperate with MEC to obtain all necessary consents and waivers. To the extent that such consents and waivers are not obtained by MEC, MEC shall use all reasonable efforts to establish arrangements that are reasonable and lawful as to both MEC and the Company and which provide the benefits, risks and burdens of the relevant contract to the Company for the remaining term of such contract. If such arrangements cannot be established providing to the Company the benefits, risks and burdens of the relevant contract contemplated hereunder without a material adverse effect to the Company, then the parties shall determine the economic value of excluding those from the Company, and such value shall be deducted from MEC's deemed capital contribution under Section 2.2(a), above. (c) MEC agrees that it shall provide the Company with reasonable prior written notice of its intention to exercise its rights set forth in the Option Agreement, attached as Exhibit V, between MEC and Manistee Gas Limited Liability Company, which notice shall include a listing of the Brown 19 Gas Plant assets that MEC intends to acquire from Manistee. In the event that MEC has not determined to exercise its option thereunder, the Company may, upon written notice to MEC, cause MEC to exercise that option as to the assets identified by the Company. Prior to MEC's exercise, the Company shall provide MEC with a list of those assets which at such time constitute part of the Brown 19 Gas Plant and which the Company desires to take title to, which list may -6- include assets excluded from the list provided to the Company by MEC; provided, in that event, the Company will expressly assume and be responsible for all general cleanup and abandonment costs related to the assets which it elected to have MEC acquire hereunder. MEC shall exercise its option to acquire all assets (to the extent then owned by Manistee) set forth on both lists, provided that MEC and the Company shall cause title to any assets requested by the Company to be transferred directly to the Company. Notwithstanding the terms of the Option Agreement, no additional consideration shall be paid by the Company to MEC in connection with such transfer, and MEC shall not be entitled to any increase in its initial deemed capital account with respect to such transfer. Title to all other assets not requested by the Company and acquired by MEC pursuant to its exercise of the option shall remain the property of MEC. (d) MEC shall be subject to the following requirements, and any expenditures in connection therewith shall not be utilized in calculating Ownership Interests: (i) Should the amount required to complete the Basin Extension exceed $10,000,000, then MEC shall be obligated to pay 80% of all such excess amounts, (ii) Should the amount to be paid for the facilities related to the Shell #23 Plant, as described in Section 2.1(a)(iii), necessary to deliver gas into the MichCon dry header and to extract, fractionate and/or separate natural gas liquids at that Plant exceed $5,600,000, then MEC shall be obligated to pay 80% of all such excess amounts, (iii) MEC shall pay all amounts in excess of those required to be paid by MarkWest under Section 2.1(a)(vi) required to remedy the non-compliance of the Assets with the Occupational Safety and Health Administration's standards contained in 29 CFR Section 1910.119; and MEC shall pay all amounts to remedy all other non-compliances or environmental conditions disclosed in the Woodward- Clyde reports described on Exhibit T, including, without limitation, those relating to the eleven (11) 20,000-gallon buried tanks. 2.3 Claybanks Extension. (a) MarkWest shall construct all facilities ------------------- necessary to extend the Basin Extension to the vicinity of the Claybanks 2 Unit, located in Section 2, Township 13 North, Range 18 West, Claybanks Township, Oceana County, Michigan, ("Claybanks Extension") which shall be owned by Basin, in accordance with the specifications of an AFE to be approved by the Parties before commencement of construction. MarkWest shall commence pre-engineering activities related to that construction and installation promptly following the Effective Date and continue with diligence constructing and installing in accordance with applicable laws and in accordance with prudent practices. The installation and construction of the Claybanks Extension, from the Effective Date until the Final Closing Date, shall be paid out of the Company's Working Capital Fund in accordance with Section 6.8, and the expenses related to the Claybanks Extension after the Final Closing Date shall be initially at MarkWest's sole expense, which -7- expenditures shall not be utilized in calculation of the Ownership Interests in the Company. MarkWest shall maintain separate accounting records relating to the construction of the Claybanks Extension and will provide MEC with monthly statements of the cumulative costs incurred. (b) Upon completion of the Claybanks Extension, MarkWest shall notify MEC of the total costs incurred in constructing and installing the Claybanks Extension. MarkWest shall recover those total costs, together with interest accruing thereon at the rate of 25% per annum, through a processing and treating fee surcharge under the Gas Gathering, Treating and Processing Agreement between the Company and MPC, of even date herewith, in the form attached hereto as Exhibit G, which shall additionally include a surcharge, measured at the receipt points thereunder, calculated to permit MarkWest to recover those total costs, and all accrued interest, within two years following the completion of the Claybanks Extension. The Parties agree that all amounts received by the Company representing that surcharge shall be immediately remitted to MarkWest; and, no other Member shall have any rights to any portion thereof and those remittances shall not be considered as any portion of MarkWest's distributions to be made under Section 4.1. (c) Upon one year following the date of initial deliveries of gas by MEC into the Claybanks Extension, the Company will calculate the amount of reimbursement which would have been due to MEC under the terms of the Gas Gathering, Treating and Processing Agreement, attached as Exhibit G, had MEC actually installed the Claybanks Extension at its expense and shall (i) if MEC has not repaid the amounts required under (b), above, pay that amount to MarkWest and accordingly, the amount then due MarkWest from MEC under (b), above, will be reduced by a corresponding amount, or (ii) if MEC has repaid the amounts due under (b) above, pay that amount to MEC. (d) MEC shall use its best efforts to cause MPC to install all required gathering lines and all other facilities necessary to cause gas to be delivered into the Claybanks Extension as required under the terms of the Gas Gathering, Treating and Processing Agreement; and to install those facilities in a manner so that the existing wells in the Claybanks 2 Unit will be capable of production and delivery of gas to the Company within thirty (30) days of the date by which MarkWest has completed the Claybanks Extension. MarkWest agrees to keep MEC and MPC informed of the plans and progress on the Claybanks Extension so that MEC may cause MPC to timely complete its facilities. (e) Notwithstanding any of the provisions of this Section 2.3 to the contrary, MEC shall have the right to fund, or to cause an Affiliate to fund, the costs of the Claybanks Extension on a monthly basis as the facilities are constructed. If MEC or such Affiliate elects to pay such costs, then Claybanks Extension shall be owned and operated by Basin and the provisions of Sections 2.3(b) and 2.3(c) shall not apply. 2.4 Additional Capital Expenditures. The commitment by MarkWest to make ------------------------------- initial monetary contributions under Section 2.1, shall be limited to the items specified in Section 2.1 and to the aggregate maximum amounts specified -8- therein. Subject to the AFE and budget approval procedures herein, the Parties understand and acknowledge that the scope of operations and activities, and other requirements may change, or that actual or other costs to be incurred may differ from current estimates. Therefore, in the event those actual costs exceed the maximum aggregate amounts specified in Section 2.1, or if the Company incurs costs for activities or items other than those specified in Section 2.1, all Parties agree to pay their proportionate share of all amounts exceeding those aggregate maximums based upon each Party's then applicable Ownership Interest in the Company as specified in Article III, below. In the event that any Party is unable to pay its proportionate share, or elects not to pay its proportionate share, it shall be subject to the nonconsent provisions below. 2.5 Limited Guaranty. With respect to, and only with respect to the ---------------- obligations of MarkWest under Section 2.1, above, MarkWest Hydrocarbon Partners, Ltd., absolutely, unconditionally and irrevocably guarantees that it will provide, or otherwise cause to be made available, sufficient funding to MarkWest to enable MarkWest to comply in all respects with its obligations under Section 2.1. In the event of a default in the timely payment of MarkWest of any of its obligations under Section 2.1, MarkWest Hydrocarbon Partners, Ltd., shall promptly pay or perform or cause to be paid or performed such obligations upon receipt of written notice of that default and demand for payment from MEC. MarkWest Hydrocarbon Partners, Ltd., further agrees to pay all reasonable out-of-pocket expenses (including, without limitation, reasonable expenses for legal services) actually paid or incurred by MEC in enforcing this guaranty, provided that MEC prevails in that enforcement. Nothing contained in this Section 2.5 shall be construed to act as any other or further guaranty by MarkWest Hydrocarbon Partners, Ltd., of any other or further obligations of MarkWest under this Agreement. ARTICLE III OWNERSHIP INTERESTS AND TAX MATTERS ----------------------------------- 3.1 Ownership Interests in the Company. (a) As of the Effective ---------------------------------- Date, MEC shall be deemed to own 100% of the Assets. The Ownership Interest of MarkWest and MEC in the Company will be determined, initially at the Final Closing Date, and from time to time thereafter, based upon its contributions made under Section 2.1 above, and its repayments to the Working Capital Fund under Section 6.8, from and after the Effective Date. MarkWest shall earn a proportionately increasing Ownership Interest in the Company, up to a maximum of 60% of the Ownership Interests in the Company based upon, at any given time, the ratio that the aggregate capital contributions made by MarkWest under Section 2.1, as of that time, bear to the sum of (i) $11,200,000, plus (ii) the aggregate capital contributions made by MarkWest under Section 2.1, as of that time; and, accordingly, as MEC's Ownership Interest will be correspondingly reduced to equal the difference between 100% and the Ownership Interest of MarkWest. It is agreed that Ownership Interests are based upon the actual capital contributions of MarkWest, up to $16,800,000, and the deemed initial capital contribution of MEC of $11,200,000 without regard to the actual -9- capital accounts of the Parties. (b) If MarkWest has not achieved a 60% Ownership Interest by July 1, 1997, based upon its contributions under Section 2.1, then within 60 days following July 1, 1997, and upon written notice to MEC, MarkWest shall have the right, but not the obligation to pay MEC an amount, that if (i) that amount was added to the contributions then made by MarkWest, and (ii) that amount was at the same time subtracted from the deemed initial capital contribution of MEC, would result, based upon the calculation in (a), above, in up to 60% Ownership Interest for MarkWest. Upon making that payment, the amount paid shall be deducted from MEC's capital contribution in the Company. If MarkWest does not elect to acquire those interests, or if after electing to acquire those interests, MarkWest does not timely pay the amounts required, then as of September 1, 1997, the Ownership Interests of the Members in the Company shall be as otherwise determined under Section 3.1(a), above. 3.2 Certain Additional Obligations of MEC. ------------------------------------- (a) MEC shall be liable for all ad valorem, real and other property taxes affecting the Assets applicable to taxable periods or portions thereof ending on or before the Final Closing Date. Ad valorem, real and other property taxes with respect to the Assets for the taxable year that begins before and ends after the Final Closing Date shall be apportioned between MEC and the Company on a pro rata daily basis over the relevant tax period. The Company assumes the obligation to pay all such taxes for the taxable year beginning before and ending after the Final Closing Date to the appropriate governmental entity on or before the applicable due date. MEC will reimburse the Company for its pro rata share of such taxes. MEC shall be entitled to any refunds of ad valorem, real and other property taxes relating to the Assets for periods prior to the Final Closing Date, regardless of when received. Should the Company receive any refunds of such taxes after Final Closing relating to the Assets and relating to periods prior to the Final Closing Date, the Operator shall promptly remit such refunds to MEC. (b) MEC shall timely pay when due and payable all expenses and liabilities relating to the Assets and arising or accruing during periods prior to the Final Closing Date, regardless of when invoiced or asserted. MEC shall be entitled to all revenues relating to the Assets for periods prior to the Final Closing Date, regardless of when received. Should MEC receive any revenues after Final Closing relating to the Assets and relating to periods from and after the Final Closing Date, MEC shall promptly remit those to the Operator for the benefit of the Company. Should the Company receive any revenues after Final Closing relating to the Assets and relating to periods before the Final Closing Date, the Operator shall promptly remit those to MEC. 3.3 Conveyance of Ownership Interests. (a) As MarkWest makes the --------------------------------- contributions, from time to time under Section 2.1, or the acquisition under 3.1(b), it shall be deemed to have been conveyed the corresponding Ownership Interest in the Company without any further action being required upon the part of MEC or the Company; provided, however, upon request from any Party, MEC and -10- the Company will execute and deliver to the requesting Party a certificate indicating the then current Ownership Interest of MarkWest. All Ownership Interests acquired by MarkWest hereunder shall be free and clear from all liens, encumbrances and adverse claims of any nature, except for liens in favor of MEC's secured lender which liens are subordinate to the rights and interests of MarkWest under this Agreement pursuant to the Subordination Agreement attached as Exhibit H. (b) The Ownership Interests shall be determined at the end of each calendar month based upon the cumulative contributions made by MarkWest under Section 2.1 (and as paid under Section 3.1(b), if applicable) as of the end of that month and the deemed contribution of MEC under Section 2.2, above. Contributions by MarkWest shall be based upon actual expenditures made. The calculation of Ownership Interests at the end of a calendar month shall be deemed effective for all purposes under this Agreement as of the last day of that month for which the determination was made. 3.4 Profits, Losses and Other Tax Matters. Profits and losses (except ------------------------------------- for matters for which a Party indemnifies the others under Article XIII) of the Company shall be the individual benefits of and liabilities of each of the Parties allocated in accordance with the individual Party's Ownership Interest at the given time and as determined and allocated in accordance with the provisions of Exhibit E. The Parties agree that MarkWest will act in the capacity of Tax Matters Partner. MarkWest, as Tax Matters Partner, agrees to use its best efforts to comply with its duties and responsibilities as set forth in the Internal Revenue Code. MarkWest will prepare the federal, state and local partnership income tax returns and other returns and reports necessary for the operations reportable under the Tax Partnership in accordance with the provisions of the Tax Matters attached hereto as Exhibit E. 3.5 Tax Depreciation. Tax depreciation related to the Company will be ---------------- allocated in accordance with Exhibit E; provided, in all events, MarkWest will be allocated 100% of depreciation attributable to the capital contributions made by MarkWest under Section 2.1. 3.6 Ownership of Basin. Upon conveyance of Ownership Interests to ------------------ MarkWest under Section 3.3, above, aggregating at least 1.2%, MarkWest shall be --- conveyed a 1.2% Membership Interest in Basin and Basin shall be owned in the --- following proportions: The Company shall own 98% of the membership interests, -- MEC shall own 0.8% of the membership interests, and MarkWest shall own 1.2% of --- --- the membership interests. The direct ownership of membership interests in Basin shall be taken into consideration at any time at which the respective indirect undivided ownership interests in Basin is determined. The provisions of this Agreement shall, to the extent not inconsistent with the amended operating agreement of Basin as of the Final Closing Date, control the governance and operation of Basin; and, as used herein "Company" shall include Basin unless the context otherwise provides. -11- ARTICLE IV ACCOUNTING MATTERS ------------------ 4.1 Cash Distributions. Cash distributions shall be made at least ------------------ monthly and shall equal all cash remaining from operations, (which shall be after payment of all direct expenses, including producer payments, processing fees, operating expenses, and overhead charges and after payment of the marketing fees to MarkWest specified in Section 6.11 and after the payment of the surcharge to MarkWest referenced in Section 2.3). Distributable cash available shall be calculated and determined without regard to, and free of the burden of any obligations of the Members to their respective lenders, whether or not any of those obligations are guaranteed by the Company. Distributions shall be made based upon each Party's Ownership Interest. The Operator shall distribute those distributions within thirty (30) days following the end of the month for which the distributions relate. 4.2 Distributions All revenues attributable to any of the operations or ------------- activities of the Company, including Basin, shall be initially received by the Operator. Each Party which is a party to a contract with the Company under which revenues are to be received by the Company, shall direct those revenues to be paid to the Operator. The Operator shall, from those revenues, first discharge all accounts payable and other obligations attributable to the Company then due prior to making any distributions to the Parties under Section 4.1, above; provided, it will withhold distributions for approved capital expenditures, to the extent that withholding is required as a result of non-consent expenditures under Section 6.6. 4.3 Payment of Expenses; Cash Shortfall. ----------------------------------- a. Subject to the Operator's right to bill for approved capital expenses under Section 6.7, and to require the Working Capital Account under Section 6.8, the Operator shall initially pay all non-capital costs incurred hereunder, including all costs of gas purchases (under gas purchase contracts between the Company and producers within the Company Area) and all non-capital costs incurred in the construction, maintenance, operation, enlargement, alteration, supervision and management of the Company. Prior to any distributions under Section 4.1, the Operator shall net out of all Company revenues amounts due to it for those costs and expenses as permitted or authorized under the provisions of Exhibit F, Accounting Procedures. In the event that, during any month, the revenues attributable to the operations and activities of the Company are insufficient to discharge all accounts payable and other obligations attributable to the Company then due, the Operator shall have the right to bill each Party for its proportionate share of the shortfall. Within fifteen (15) days after it receives any bill, each Party shall pay to the Operator its proportionate share of the shortfall. If any Party does not pay that bill within that 15- day period, then, in addition to the other rights of the Operator, the unpaid amount shall bear interest monthly, accruing immediately, at the prime rate per annum as published in the Wall Street Journal, Money Rates, determined on the -12- first business day of the month in which the delinquency occurs, plus four (4) percentage points. b. Should any Party dispute any portion of invoices or charges submitted or assessed by the Operator for expenditures which (i) have been approved by the Members pursuant to this Agreement, (ii) which comply with an approved AFE and (iii) which have been invoiced within the time forecast for the applicable expenditure or the payment progress schedule as approved by the Members or as specified in the approved AFE, then that Party shall nevertheless pay the full invoiced amount, but shall specify, when remitting payment, the portion and the reasons for its dispute accompanied by reasonable documentation to substantiate the dispute. If the Parties are unable to resolve the dispute within thirty (30) days following the specification of the dispute, the matter shall be resolved according to the dispute resolution procedures in Article XX, below. 4.4 Accounting Procedures. Operator shall comply with, and the Parties --------------------- shall be bound by the Accounting Procedures attached as Exhibit F. ARTICLE V MANAGEMENT AND RESTRICTIONS --------------------------- 5.1 Management. ---------- a. Representation and Voting Interests. ----------------------------------- (i) Each Party shall have the right to participate in the management of the Company (and before Final Closing, in the management and operations of the Assets) by having a voting interest ("Voting Interest") as specified below, without regard to that Party's actual Ownership Interest at the time: MEC 40% MarkWest 60% (ii) Notwithstanding the foregoing, if MarkWest is in material default with respect to any of its material obligations hereunder, and has not remedied the default within thirty (30) days following written notice of the default from MEC (or in the case of a default that cannot be remedied within 30 days, has not commenced and is diligently pursuing the remedy of that default within that 30-day period), the Voting Interests of the Parties shall be the same as their then applicable, from time to time, Ownership Interests until such time as MarkWest has remedied that material default. Should MarkWest dispute that it is in material default, the determination of whether or not MarkWest is in material default shall be submitted to arbitration under the terms of Article XX; provided, that during the pendency of the arbitration proceedings, the Voting Interests shall be based upon the then applicable Ownership -13- Interests of the Members. Additionally, in the event that MarkWest has not made applicable capital contributions in accordance with Section 2.1 hereof in the amount of at least $16,800,000 and has not fully exercised the right to purchase the balance of the 60% ownership interest as set forth in Section 3.1(b) hereto, then, as of September 1, 1997, Voting Interests of the Parties shall thereupon equal the then effective Ownership Interests of such Parties. b. Construction Management. Management of all construction activities ----------------------- of the Company and Basin (or the Assets before Final Closing) will be by the Operator. 5.2 Voting Procedure. On all matters requiring a vote of the Members ---------------- (or of the Parties before Final Closing) in accordance with the provisions of this Agreement, the Operator shall conduct the voting either at a meeting of the Members, by written polling of the Members, or, where capital is proposed to be spent, by submission from the Operator of written authorites for expenditure (AFE). On all matters requiring a vote hereunder relating to capital expenditures or budgets, the unanimous approval of the members shall be required;and, an affirmative vote of a simple majority affirmative vote of a simple majority of the Members, based upon the Voting Interests specified above, shall be binding upon all Parties, except as otherwise specified herein. If voting occurs other than at a meeting, the time in which a Party has to vote on the issue presented will be ten (10) days following the date presented. 5.3 Delegation to Operator. As of the Effective Date, the day-to-day ---------------------- managing and operation of the Company, (and of the Assets prior to Final Closing) including the physical operations of the gas gathering systems, gas processing and treating plants and other facilities of the Company, shall be delegated to and shall be the responsibility of the Operator. MarkWest is hereby designated as the Operator of the Company and shall act in accordance with the provisions of this Agreement. The Operator shall have the power to bind the Company within the scope specified by this Agreement. a. The Operator shall have control and management, subject to the provisions of this Agreement, regarding the construction, operation, repair, replacement, expansion, maintenance, alteration and enlargement of the assets of the Company. b. The Operator shall conduct all operations hereunder in a good and workmanlike manner and shall have the right and duty to conduct the operations in accordance with what a prudent operator would do under the same or similar circumstances in material compliance with applicable laws, rules, regulations, permits and licenses, including environmental laws, rules and regulations. The Operator shall freely consult with the Parties and shall keep them advised of all matters arising in connection with operations hereunder which the Operator, in the exercise of its best and reasonable judgment, considers important or of which matters the Parties specifically request consultation, advisement and documentation. -14- c. The Operator will act in the best interests of the Company at all times. d. The Operator will conduct operations in compliance with the provisions of Article VI. 5.4 Restrictions on Parties. Notwithstanding the authority delegated ----------------------- herein to the Operator, no Party, without the unanimous consent of the Parties obtained in accordance with the voting procedures above shall: a. Sell, lease, exchange, abandon, encumber, or convey title to or grant options for sale of all or any portion of the Company's property; provided, this shall not preclude a Member from mortgaging or encumbering its Ownership Interest in the Company or any of the assets of the Company in connection with financing arrangements so long as mortgages or encumbrances are made subordinate to the rights of the other Parties to this Agreement; or, b. Borrow money, or incur any indebtedness or other obligations, or execute any contract (other than contracts permitted under Section 6.3) on behalf of the Company; or, c. Settle or compromise any dispute or litigation matter involving the Company with any third party for an amount greater than $50,000.00. 5.5 Accounting Records. The Operator shall maintain Company accounting ------------------ records on behalf of the Parties and shall charge all costs and expenses to those accounts as set out in the Accounting Procedures, Exhibit F. The Company accounting records shall be maintained by the Operator at the principal place of business of the Operator and each Party shall, at all times, have access thereto. The Company's accounting records shall be identified separately from the Operator's non-Company accounting records. Operator shall keep Company records in accordance with generally accepted accounting principles, and report the Company's income for income tax purposes in accordance with the provisions of Exhibit E. The Operator shall make a final monthly accounting to each Party, in writing, no later than thirty (30) days following the end of that month. The written final monthly accounting shall include, but not be limited to, an "Operating Statement" containing at least the following information: (i) financial statements including a comparative income statement (current and prior months), balance sheet with fluctuation analysis between current and prior months, budget variance comparison report, capital expenditure report, schedule of cash contributions; and (ii) any other information as determined reasonably necessary by any Member, upon written notice to the Operator specifying such additional information and the reasons requested. The Company's books shall be closed and balanced at the end of each calendar year, and financial statements shall be prepared by the Operator and delivered to the Parties no later than ninety (90) days following the close of the calendar year. The Operator shall cause to be prepared all income tax returns and reports required to be filed by the Company, in accordance with the -15- Tax Partnership, Exhibit E, and shall furnish copies of those returns or reports, as well as any schedule to the Parties as soon as it becomes available, subject to the provisions of Exhibit E. The Operator shall cause, at Company expense, an annual audited financial statement for the Company, consolidated with Basin. 5.6 Removal of Operator. The Operator shall be subject to removal from ------------------- that position upon the occurrence of one or more of the following events: a. The Operator becomes insolvent, or files for protection from creditors or for protection under the bankruptcy laws; or, b. Should the Members determine, by a majority vote in accordance with the Voting Interests specified above, after excluding the Voting Interest of the Operator, and of its Affiliates, that there are material deficiencies in the performance of the Operator's duties, those Members shall send a written notice to the Operator specifying, in detail, the deficiencies ("Deficiency Notice"). The Operator shall have twenty-five (25) days following receipt of the Deficiency Notice in which to respond, in writing, to the Members specifying the plans of the Operator to remedy the claimed deficiencies. Should the Members not approve, by a majority vote, after excluding the Voting Interest of the Operator, the plans of the Operator, and if the Operator does not dispute the existence of the material deficiencies, then the Operator shall be deemed removed, with no further action on the part of the Members, upon the expiration of sixty (60) days following the date of the Deficiency Notice. c. If the Operator disputes the existence of the material deficiencies specified in the Deficiency Notice, or contends that it has sufficiently remedied those deficiencies but the Members (other than the Operator or its affiliate) do not concur, the determination of whether or not a material deficiency exists shall be resolved in accordance with the Alternative Dispute Resolution Procedures of Article XX, and if it is determined that material unremedied deficiencies exist, the Operator shall be deemed to be removed without further notice or opportunity to cure and a new operator shall be selected pursuant to Section 5.8. 5.7 Resignation. The Operator will have the right to resign its ----------- position upon providing ninety (90) days advance written notice to the other Parties. 5.8 Selection of Successor Operator. In the event the Operator resigns ------------------------------- or is removed pursuant hereto, then a new Operator shall be appointed based upon a unanimous vote of Members; provided if an Operator was removed under the provisions of Section 5.6, the removed Operator may not vote for itself unless at least one other Member also votes for that removed Operator. The new Operator shall be a Member of the Company unless otherwise agreed by unanimous -16- vote of the Members. 5.9 Effectiveness of Resignation or Removal. Upon the resignation or --------------------------------------- removal of the then Operator, that Operator shall be released from its further duties and obligations as Operator, except as specified in this Section 5.9, upon the earlier of (i) ninety (90) days after the effective date of its removal or resignation, as provided above, or (ii) upon the date that a successor Operator is selected by the Parties; provided, the removed or resigned Operator shall assist the successor Operator, at no expense to the removed or resigned Operator, during a transition period of sixty (60) days following the date the removed or resigned Operator is otherwise released from its duties and obligations under this Section 5.9. 5.10 Consent to Bankruptcy Proceedings. The Members agree that neither --------------------------------- the Company, nor Basin, shall voluntarily file for protection under any bankruptcy laws without the unanimous consent of all Members voting in accordance with the provisions of this Agreement. ARTICLE VI OPERATION OF THE COMPANY 6.1 Purpose. The Company shall be operated hereunder, in accordance ------- with applicable laws and regulations, including environmental laws, rules and regulations, consistent with sound economic, technical and operating practices and with the intent of generating the maximum return on investment to the Parties. Each Party hereby agrees to devote to the business of the Company time and attention as is reasonably required in order to pursue the Company's business. The Parties agree that the Company shall be operated for the exclusive benefit of the Parties without regard to the effect of those operations on any individual Party. 6.2 Construction Matters. The Operator shall have direct charge and -------------------- supervision of all matters arising in connection with and pertaining to the actual construction work, if any, which the Parties determine necessary pursuant to this Agreement; and the Operator shall discharge that responsibility in a good and workmanlike manner and in accordance with what a prudent operator would do under the same or similar circumstances and in compliance with environmental laws, rules and regulations. Any Party shall have the right to inspect and observe the construction work of the Company at all reasonable times, and the Operator shall, during the period of any construction, submit to each of the Parties periodic written reports (but not less frequently than monthly) showing the progress of major construction work. 6.3 Operator Duties. The Operator shall have the responsibility of --------------- operating the Company (and the responsibility on behalf of the Company of operating Basin), as provided herein or as otherwise directed by the Members, voting in accordance with this Agreement, and of all activities incidental or necessary thereto, including the following: -17- a. Conduct the day to day operations of the Company; b. Employ all personnel reasonably required to perform efficiently its duties hereunder, except personnel that may be employed by contractors and subcontractors engaged to perform work in connection with the Company, and pay wages and salaries of personnel working for the Company, who shall be employees of Operator. c. Supervise the receipt of gas, the gathering, processing, treating, compressing and related activities of that gas, the sale and delivery of residue gas owned by the Company, and liquid hydrocarbons, and the sale and delivery of other plant products, all in accordance with applicable contracts. d. Keep the Company free and clear of all liens and encumbrances on account of any claims arising out of operations hereunder. e. Make all reports and returns required to be made to any governmental body, state or federal, in connection with the Company or its operations. f. Call meetings of the Members at least once each calendar quarter (with the one occurring during April of each year to also be designated as the Annual Meeting of the Company) and at other times as it deems necessary and at times as a Member requests the calling of a meeting. Quarterly meetings may be waived by the unanimous agreement of the Parties. It shall be the duty of the Operator to notify, in writing, at least fourteen (14) days in advance of any meeting of the time, place, and agenda of the proposed meeting, except in the event of any emergency meeting, which may be held upon twenty four (24) hours notice. No changes to the agenda for any meeting may be made, by the Operator or any Party, later than seven (7) days before the meeting. g. Promptly pay and discharge all costs and expenses incurred in connection with the maintenance, repair, construction, expansion and operation of the Company, and to take advantage of trade discounts where available. h. Keep an accurate and itemized record of Company's accounts and of all operations of the Company, and report all expenditures made or incurred; i. Obtain necessary leases, easements, rights of way and permits for the Company; j. Enter into gas purchase and/or processing, treating, marketing, and transportation contracts, as well as other contracts which may be necessary for the operation of the Company. 6.4 Activities Requiring Approval. The Operator shall not, without the ----------------------------- -18- prior unanimous approval of the Members, incur any of the following expenditures or perform any of the following acts: a. Sell, or otherwise dispose of any materials, equipment or other property of the Company or Basin; provided, however, that Operator shall be authorized, in the ordinary course of business, to sell or dispose of materials, equipment or other Company's or Basin's property having an original cost of less than $10,000.00. The foregoing restrictions shall not apply to the sale by the Operator of gas, residue gas, and plant products of the Company; b. Make payment in excess of $10,000.00 in settlement or satisfaction of any claims for injury to or death of person, or for the loss of or damage to property and institution or defense of litigation involving the ownership, or arising out of the operation, of the Company's or Basin's assets; sums paid in any of those settlements or satisfactions shall be charged as expenses and paid by the Parties in the proportion of their Ownership Interests; c. After the Final Closing Date, incur or commit to incur capital expenditures for any single project for the Company exceeding $50,000.00, other than for capital expenditures previously approved pursuant to an AFE or for a Consenting Party under a Sole Risk Project as specified in Section 6.6; d. Before the Final Closing Date, incur or commit to incur any single capital expenditure for the Company or Basin exceeding $10,000 before the Final Closing Date, other than for capital expenditures approved in the Preliminary Cost Estimates attached as Exhibit S, or for other expenditures which are otherwise unanimously approved by the Members. e. Designation of the Company's or Basin's outside, independent auditor shall require unanimous approval of the Members. 6.5 Budgets. ------- a. On or before September 1st of each year, the Operator shall provide the Parties with an annual budget, using a projected income statement format, covering the monthly estimated revenue (by category) and operating expenses (by category) and covering the estimated annual capital expenditures chargeable to the Company and Basin for the twelve (12) month period ending on the 31st day of December of the following year. Each budget shall be subject to the unanimous approval of the Members. The Members will meet to approve the Budgets within 45 days after September 1st. Upon approval of the annual Budget, and notwithstanding any other provisions of this Agreement, the Operator shall thereafter have the full authority to perform all work and incur all expenditures provided in the approved budgets. If any budget is not approved prior to the beginning of the period for which that budget is to apply, then the Operator shall nevertheless have the authority to incur -19- normal day-to-day operating and maintenance expenses, but the Operator shall have no authority to incur capital or extraordinary expenditures except as otherwise provided herein, or as required for emergencies. The budgets for the year ending December 31, 1996 shall be agreed upon by the Parties at Final Closing. b. If the Operator reasonably anticipates that it will be required to exceed the total approved budget by more than ten percent (10%) in any given budget period, it shall notify the Members in writing, providing specification as to the reasons for the excess and seeking approval for a supplemental budget. That supplemental budget shall be subject to the same unanimous approval requirement under a., above, and subject to the other provisions specified therein. 6.6 Non Consent and Sole Risk Projects. ---------------------------------- a. Expenditures. Notwithstanding the foregoing, if: ------------ (i) any Party fails to pay its share of any approved capital expenditure hereunder, within the time otherwise required, (ii) any Party fails to make its contribution to the Working Capital Fund within the time specified in Section 6.8, or, (iii) any Party fails to make any other payments required for capital expenditures hereunder within the time required, then the Party(ies) not making the capital expenditure shall be considered a "non-consenting" Party. Upon making that capital expenditure, it is specifically provided that the non-consenting Party shall relinquish sixty percent (60%) of all income attributable to that Party's Ownership Interest in the Company and that income shall accrue to, be allocated to, and be distributed to the consenting Parties who participated in and made the expenditure (which shall be deemed a special allocation for tax purposes) until those Parties have recovered one hundred percent (100%) of that expenditure, plus interest thereon, accruing from the date the expenditure is made, at the rate of twenty percent (20%) per annum or the maximum rate of interest permitted by applicable law, whichever is lesser; at which time, all Parties will share in any subsequent income in accordance with each Party's respective Ownership Interest. Operator will establish and maintain proper accounts to implement the provisions of this paragraph, and shall furnish monthly statements of those accounts to the Parties. b. Sole Risk Project. ----------------- (i) If a capital expenditure proposed by a Party is not unanimously approved by the Members, then that item may be pursued as a Sole Risk Project. If a Sole Risk Project can be conducted by -20- one of the Parties separately and distinctly from and without harm to the Company or Basin operations (including capacity restraints which may affect gas gathering by the Company or Basin), then the Party ("Consenting Party") desiring to proceed with that Sole Risk Project may do so at its own cost, liability, and expenses and without the Company or the non-approving Party having any obligation with regard to the cost, liability, or expenses of that Sole Risk Project. If the Consenting Party proceeds with the Sole Risk Project, it will do so in its own name at its own cost and expense, and shall own that Sole Risk Project. (ii) If due to regulatory considerations, a Sole Risk Project must be conducted by Basin, in Basin's name, then the Company will proceed to conduct that Sole Risk Project, in Basin's name, and will maintain separate accounting for that Sole Risk Project. (iii) Until "Payout", as defined below, the Consenting Party shall be entitled to receive all profit attributable to that Sole Risk Project. Until Payout, the Consenting Party shall be responsible for and shall pay all expenses attributable to that Sole Risk Project including compensation to the Company for the use of any Company assets used by the Party for the Sole Risk Project (which compensation to the Company shall include, as appropriate, on a prorata basis a volumetric transportation charge, processing fees, and other charges that would be assessed to an unaffiliated, third party utilizing the Company facilities). Upon Payout, of a Sole Risk Project described under (i), above, the Sole Risk Project shall be conveyed to the Company or Basin, as directed by the Company, free and clear of all liens, encumbrances and adverse claims, and thereafter all costs and revenues attributable to that Sole Risk Project shall be administered in the same manner as other Company assets. Upon Payout of a Sole Risk Project described under (ii), above, that Sole Risk Project shall be considered as any other asset of Basin and all Members shall share therein in the same manner as they do with other Company assets. (iv) As used herein, "Payout" shall mean the date upon which the Consenting Party has obtained a before tax internal rate of return (excluding depreciation and interest) on the Sole Risk Project of 25%. To the extent a Sole Risk Project requires right of way owned by the Company or Basin, and to the extent partially assignable, Company or Basin, as applicable, will partially and non-exclusively assign the requisite right of way to the Consenting Party. 6.7 Capital Expenditure Billing. If a capital expenditure is approved --------------------------- by the Members, and as requested by the Operator, each Party shall contribute to the Company, on an "as needed" or "progress" basis, to the extent in conformance with the expenditure forecast contained in the approved AFE, its proportionate share of that expenditure. The Operator shall submit, on a monthly basis, to each Party, in writing, a capital cash contribution request -21- detailing the cash required by AFE number. Within twenty (20) working days after receipt of the capital cash contribution request, each Party shall make payment to the Operator. The Operator shall have the option to request capital cash contributions on the basis of (1) actual amounts for invoices received by the Operator and/or (2) projected amounts for invoices anticipated to be paid by the Operator in the following month. The capital cash contributions paid by each Party, including the Operator, which relate to projected amounts for invoices anticipated to be received by the Operator in the following month shall be deposited in the Company bank account until the time as the actual invoices are received by the Operator. 6.8 Working Capital Funds. (a) The Parties agree that as of the --------------------- Effective Date, MEC shall contribute to the MEC working capital fund an amount equal to $250,000.00, which amount constitutes all of the cash needs anticipated by the Parties prior to Final Closing Date, and all expenditures required under Section 2.1 from the Effective Date until the Final Closing Date shall be paid for from the sums contributed to the MEC working capital fund under this Section 6.8(a). The MEC working capital fund shall be established in a bank account upon which the Operator shall have the right to draw. Any balance in the MEC working capital fund on the Final Closing Date shall be transferred to the Working Capital Fund, and shall be subject to repayment to MEC under Section 6.8(c), below. (b) After the Final Closing Date, the Operator shall have the right to establish a Working Capital Fund for the benefit of the Company. Operator shall have the right to make cash calls to fund or replenish the Working Capital Fund to maintain a reserve of cash in an amount as prudently determined by the Operator taking into consideration estimated expenditures and revenues of the Company and subject to the limitations in Section 6.8(c) below. (c) After Final Closing, unless unanimously agreed to by the Members, this Working Capital Fund shall not exceed $50,000. At Final Closing, MarkWest shall pay to the Working Capital Fund all amounts expended from the MEC working capital fund, under Section 6.8(a), above, for activities under Section 2.1, (including amounts paid to third parties under that certain Engineering Consulting Letter Agreement between MarkWest Hydrocarbon Partners, Ltd., and Manistee Gas Limited Liability Company, dated February 9, 1996) which amounts shall be included in MarkWest's capital contribution in the Company and used in determining the Ownership Interest of MarkWest. Any balance in the Working Capital Fund in excess of $50,000 on the Final Closing Date, after the payment obligations of MarkWest under this Section 6.8(c), shall be reimbursed to MEC on the Final Closing Date. (e) At Final Closing, and thereafter as MarkWest acquires additional Ownership Interests in the Company, MarkWest will replace a proportionate share of the Working Capital Fund by its payment to the Working Capital Fund, and the replaced portion shall be returned to MEC. 6.9 Bank Accounts. All monies of the Company (and the pre-MEC ------------- -22- working capital fund under Section 6.8(a)) shall be deposited in, and the Company business transacted from independent, interest bearing Company bank account(s) as determined by the mutual agreement of the Parties, which account(s) shall be established to permit transactions only by the Operator. 6.10 Accounting Procedures. The Operator shall invoice and charge the --------------------- Company for expenses of the Company, and shall otherwise undertake the financial accounting of the Company according to the procedures set forth in the Accounting Procedures Exhibit attached hereto as Exhibit F. 6.11 Liquid Marketing Fees. All liquid marketing fees received by the --------------------- Company under the Gas Gathering, Treating and Processing Agreements entered into by the Company shall be remitted directly to the Operator to compensate the Operator for its services in performing those marketing activities. It is understood that the Overhead Fees payable under Exhibit F are exclusive of compensation to Operator for liquid marketing services. ARTICLE VII INSURANCE --------- 7.1 Insurance Coverage. Upon the Final Closing Date, the Operator shall ------------------ on behalf of, at the Company's expense (as a direct charge in accordance with Exhibit F) and at all times thereafter during the terms of this Agreement, carry insurance to protect the Company with reputable and financially sound insurance companies, authorized to do business in the State of Michigan. The Members shall review the insurance coverage annually and will revise as deemed necessary upon a majority vote. Operator shall initially seek to obtain the following coverage for the Company: (a) Worker's Compensation and Employer's Liability (i) Statutory Worker's Compensation for the state in which operations are conducted, the state in which the Operator is domiciled and the state(s) in which Operator's employees reside; (ii) Employer's Liability Limit: $1,000,000; and (iii) Policy must contain endorsement waiving underwriter's right of subrogation against the Operator and Company. (b) Comprehensive General Liability (Occurrence Form) (i) Limits of Liability: $1,000,000, each occurrence and aggregate, Combined Single Limit for Bodily Injury and Property Damage; (ii) Policy to include contractual liability, independent contractors and explosion, blowout and cratering; and (iii) Policy must contain endorsement waiving underwriter's right of subrogation against the Operator and each Party and naming the Operator and each Party as an Additional Insured. (c) Comprehensive Auto Liability -23- (i) Limits of Liability: $1,000,000 each occurrence and aggregate Combined Single Limit for Bodily Injury and Property Damage; (ii) Policy to include Owned, Hired and Non-Owned cars; and (iii) Policy must contain endorsement waiving underwriter's right of subrogation against the Operator and each Party and naming the Operator and each Party as an Additional Insured. (d) Umbrella Liability (Occurrence Form) (i) Limits of Liability: $10,000,000 each occurrence and aggregate for Bodily Injury and Property Damage' (ii) Policy must be following form coverage over the Comprehensive General Liability, Comprehensive Auto Liability and Employer's Liability; and (iii) Policy must contain endorsement waiving Underwriter's right of subrogation against the Operator and each Party and naming the Operator and each Party as an Additional Insured. (e) "All" Risk of physical loss, including, boiler and machinery coverage, for the replacement value of the Plant, compressor facilities and/or other facilities in excess of $1,000,000 included in this Company. (f) Other insurance as the Operator deems advisable and/or necessary subject to the approval of the Members. ARTICLE VIII PRIVILEGES OF PARTIES --------------------- 8.1 Inspections. Each Party and its representative, upon notification, ----------- shall have the right, at all reasonable hours, to inspect the Company's assets and operations, including access to perform environmental audits (provided those environmental audits shall not unreasonably interfere with the operations of the Company) and the Party performing the environmental audit shall do so at its sole cost, risk and expense. 8.2 Audits. (a) The Operator shall cause an annual audit of the ------ financial records of the Company to be performed by the Company's outside, independent auditor. The costs of that annual audit shall be considered a direct charge to the Company under the provisions of Exhibit F. (b) In addition to the annual audit, any Party may, upon written notice to the Operator, cause an audit to be performed with respect to any aspect of Company activities. That audit shall be performed at a time agreed upon by the Operator and the requesting Party, (or in the absence of an agreement, commencing within sixty (60) days after that written notice); provided, however, that in any event there shall be (i) no audits, excluding -24- the annual audit to be conducted by the Operator, (covering the same subject matter) conducted more frequently than once each twelve (12) months; (ii) no audit may cover a period greater than thirty-six (36) consecutive months; (iii) no audit (pertaining to the same subject matter) may cover a period that has been subject to a prior audit, and (iv) no audit may cover any time periods more than thirty-six (36) months preceding the date of the notice for the audit. The costs and expenses incurred by any auditor conducting an audit shall not be charged to the Company account, but shall be borne and paid by the Member(s) participating in the audit, unless that audit discloses exceptions exceeding $100,000.00 in the aggregate, in which case the Operator will pay the reasonable and necessary costs incurred by those Member(s) in conducting that audit. After a period of three (3) years all statements and records which have not been subject to an audit shall be deemed correct. ARTICLE IX TRANSFER OF OWNERSHIP INTERESTS ------------------------------- 9.1 Restrictions. Except as expressly provided in this Article, no ------------ Party may sell, exchange, encumber, hypothecate, assign, or otherwise dispose of (except as expressly permitted in this Agreement) all or any portion of its interest in the Company or its right to receive its prorata share of distributions of the Company; provided, each Party shall have the right, without the consent of any other Party, to mortgage, encumber, hypothecate and pledge its interest in the Company in connection with financing arrangements required of that Party to perform its obligations hereunder. Any transfer or other disposition in violation of this Article shall be deemed null and void, and shall have no legal effect. 9.2 Affiliate Transfers. In the event that a Party desires to transfer ------------------- all or any part of its undivided interest to an Affiliate of that Party, that transfer shall not be subject to the restrictions provided herein; provided that the assigning Party shall remain liable, together with the assignee, for the obligations of the assignee under this Agreement unless expressly released from that liability by all of the other Parties. No Party will transfer its interest to an Affiliate which is subject to the Natural Gas Act. As used herein, "Affiliate" means, with respect to any Person, (a) any other Person at the time directly or indirectly controlling, controlled by or under direct or indirect common control with such Person, (b) any other person of which such Person at the time owns, or has the right to acquire, directly or indirectly, twenty percent (20%) or more of any class of the capital stock or beneficial interest, (c) any other person which at the time owns, or has the right to acquire, directly or indirectly, twenty percent (20%) or more of any class of capital stock or beneficial interest of such Person, (d) any executive officer or director of such Person, (e) with respect to any partnership, joint venture or similar entity, any general partner thereof, and (f) when used with respect to an individual, shall include any member of such individual's immediate family or family trust. As used herein the term "Person" shall mean an individual or any corporation, firm, unincorporated organization, association, -25- partnership, limited liability company, trust (inter vivos or testamentary), estate of a deceased, insane or incompetent individual, business trust, joint stock company, joint venture or other organization, entity or business, whether acting in an individual, fiduciary of other capacity. 9.3 Sale of Individual Interests. Should any Party receive a bona fide ---------------------------- offer to purchase that Party's individual Ownership Interest in the Company, and if that Party is willing to accept that offer, then that Party shall submit notice of that offer to the other Parties. That notice shall include all details of the offer, and shall include a copy of the offer. The Parties receiving that offer shall have thirty (30) days in which to elect whether or not they will match the terms of that offer to purchase the interest of the Party submitting the offer. Should more than one Party elect to purchase the notifying Party's interest, they will purchase that interest proportionately based on their relative Ownership Interests at that time in the Company. ARTICLE X FORCE MAJEURE AND EMERGENCIES ----------------------------- 10.1 Conditions of Force Majeure. --------------------------- a. In the event that any Party hereto is rendered unable, wholly or in part, by force majeure to carry out its obligations under this Agreement, other than the obligation to make payment of amounts due hereunder, then effective upon that Party's giving notice and reasonable full particulars of the force majeure to the other Party hereto, the obligations of the Party giving the notice, so far as they are affected by the force majeure, shall be suspended during the continuance of the inability, and the cause of the force majeure, as far as possible, shall be remedied with all reasonable dispatch. The Party affected by force majeure conditions shall nevertheless perform its obligations to the full extent it is otherwise able. b. The term "force majeure" means any cause, or condition not reasonably within the control of the Party claiming suspension. c. The settlement of strikes, lockouts and other labor difficulty shall be entirely within the discretion of the Party having the difficulty. The above requirement that any force majeure shall be remedied with all reasonable dispatch shall not require the settlement of strikes, lockouts or other labor difficulty by acceding to the demands of opponents therein when that is inadvisable in the discretion of the Party having the difficulty. 10.2 Emergency Actions. In case of blow-out, explosion, fire, flood or ----------------- other sudden emergency, the Operator shall take steps and incur expenses, for the Company, as, in its opinion, are required to deal with the emergency and to safeguard life and property; provided, that the Operator shall, as promptly as possible, report the emergency to other Parties. -26- ARTICLE XI PARTIES OTHER ACTIVITIES ------------------------ 11.1 Other Business Activities. Outside of the Company Area, any Party, ------------------------- and its Affiliates, may engage in business activities of every nature and description, including those similar in nature to those of the Company, and neither the Company nor any Party shall have any rights by virtue of this Agreement in and to the independent activities of that Party, or the income or profits derived therefrom. Inside of the Company Area, any Party and its Affiliates may engage in business activities of every nature and description other than those which are set out in Section 1.1 as activities reserved exclusively to the Company. ARTICLE XII REPRESENTATIONS OF MEC ---------------------- As used herein, "to MEC's knowledge" means the actual knowledge of MEC, or its Members, following due inquiry. MEC represents and warrants to MarkWest, as of the date hereof, and except as disclosed on the Disclosure Schedule attached hereto as Exhibit P, that: 12.1 Warranty of Title. MEC warrants by, through and under MEC, that, as ----------------- of the date hereof it has, and at Final Closing, it will have good and defensible title to all portions of the Assets, free and clear of any and all adverse claims, encumbrances and liens, except Permitted Encumbrances, as defined herein. As used herein, "Permitted Encumbrances" shall mean: (a) the terms and conditions of the agreements, instruments or other documents creating or reserving to MEC its interest in the Assets, to the extent of record as of the date hereof; (b) all matters in the public records of the counties where the Assets are located, to the extent the same are otherwise valid and enforceable, excluding all deeds of trust and mortgages except for those granted to or assigned to or in favor of Bank of America Illinois, (c) encumbrances securing payments to mechanics and materialmen and encumbrances securing payments of taxes or assessments that are, in either case, not yet delinquent, or, if delinquent, that are being contested in good faith in the normal course of business and for which adequate reserve has been made, (d) all matters visible and apparent on the ground or that would be revealed by a true and correct survey, (e) easements, rights-of-way, servitudes, permits, surface leases, surface use restrictions, and other surface uses and impediments on, over, or in respect of any of the Assets, (f) any matters set forth in Section 12.1 of the Disclosure Schedule, (g) any of the obligations, terms, covenants or conditions of any of the contracts and agreements described on Exhibit C, attached, arising and accruing after the Final Closing Date , (h) all rights to consent by, required notices to, filings with, or other actions of governmental entities in connection with the sale or conveyance of any of the Assets which are to be contributed by MEC to the extent they are customarily obtained subsequent to sale or conveyance, (i) all rights reserved to or vested in any governmental, statutory or public authority to control or regulate in any manner any of the Assets to be contributed by MEC, and all applicable laws, -27- rules and order of governmental authorities, (j) all liens, encumbrances, security interests and rights of MEC's secured lender to the extent such are subordinated to the interests and rights of MarkWest under this Agreement pursuant to the Subordination Agreement attached as Exhibit H, and (k) any other liens, charges, encumbrances, agreements, contracts, instruments, obligations, defects, irregularities, or restrictions affecting any of the Assets to be contributed by MEC which individually, or in the aggregate, are not such as to interfere materially with the ownership, operation, value or use of such Assets. 12.2 Existence. MEC is a limited liability company duly organized, --------- validly existing and in good standing under the laws of the State of Michigan, and has authority to conduct business in the State of Michigan. 12.3 Power. MEC has the power to enter into and perform this Agreement ----- and the transactions contemplated hereby. 12.4 Authorization. The execution, delivery and performance of this ------------- Agreement and the transactions contemplated hereby have been duly and validly authorized by all requisite organizational action on the part of MEC. 12.5 Brokers. MEC has incurred no obligation or liability, contingent or ------- otherwise, for brokers' or finders' fees concerning the matters provided for in this Agreement for which MarkWest will have any responsibility or liability. 12.6 Litigation. There is no claim, demand, filing, investigation, suit ---------- investigation, suit or proceeding pending or, to MEC's knowledge, threatened, with respect to the Assets, or the ownership or operation thereof, whether or not related to periods before MEC's ownership thereof. To MEC's knowledge, there are no facts or circumstances that could reasonably be expected to give rise to any claim, demand, filing, investigation, suit or proceeding which would have a material adverse affect on the Assets. 12.7 ENVIRONMENTAL COMPLIANCE. FOR PURPOSES OF THIS AGREEMENT, ------------------------ "ENVIRONMENTAL LAWS" SHALL MEAN ALL APPLICABLE LAWS, INCLUDING WITHOUT LIMITATION, FEDERAL, STATE OR LOCAL LAWS, ORDINANCES, RULES, REGULATIONS, ORDERS OF COURTS OR GOVERNMENTAL AGENCIES OR AUTHORITIES RELATING TO THE PREVENTION, ABATEMENT OR ELIMINATION OF POLLUTION OR PROTECTION OF THE ENVIRONMENT (INCLUDING, WITHOUT LIMITATION, THE COMPREHENSIVE ENVIRONMENTAL RESPONSE COMPENSATION AND LIABILITY ACT OF 1980, THE SUPERFUND AMENDMENTS AND REAUTHORIZATION ACT OF 1987, THE RESOURCE CONSERVATION AND RECOVERY ACT OF 1976, THE HAZARDOUS AND SOLID WASTE AMENDMENT OF 1984, THE SAFE DRINKING WATER ACT, THE TOXIC SUBSTANCES CONTROL ACT, THE FEDERAL WATER POLLUTION CONTROL ACT AND THE HAZARDOUS MATERIALS TRANSPORTATION ACT), AND ANY OTHER LAWS RELATING TO POLLUTION OR PROTECTION OF THE ENVIRONMENT, OR TO THE MANUFACTURE, PROCESSING, DISTRIBUTION, USE, TREATMENT, HANDLING, STORAGE, DISPOSAL OR TRANSPORTATION OR POLLUTING SUBSTANCES (HEREAFTER DEFINED). FOR THE PURPOSES OF THIS AGREEMENT, POLLUTING SUBSTANCE MEANS ANY SOLID OR HAZARDOUS WASTE, HAZARDOUS SUBSTANCE, POLLUTANT, CONTAMINANT, OIL, PETROLEUM PRODUCT, CHEMICAL, COMMERCIAL PRODUCT OR OTHER SUBSTANCE (I) WHICH IS LISTED, REGULATED OR DESIGNATED AS TOXIC OR -28- HAZARDOUS (OR WORDS OF SIMILAR MEANING OR REGULATORY EFFECT) OR WITH RESPECT TO WHICH REMEDIATION OR CLEANUP OBLIGATIONS MAY BE IMPOSED UNDER ANY ENVIRONMENTAL LAW OR (II) EXPOSURE TO WHICH MAY POSE A SAFETY OR HEALTH HAZARD. EXCEPT AS TO MATTERS SET OUT IN THE WOODWARD-CLYDE REPORT: A. TO MEC'S KNOWLEDGE, MEC HOLDS IN GOOD STANDING ALL ENVIRONMENTAL AND HEALTH AND SAFETY PERMITS, LICENSES, APPROVALS, CONSENTS, CERTIFICATES AND OTHER AUTHORIZATIONS NECESSARY FOR THE OWNERSHIP OR OPERATION OF THE ASSETS ("ENVIRONMENTAL PERMITS"); B. TO MEC'S KNOWLEDGE, MEC, THE ASSETS AND THE OWNERSHIP AND OPERATION THEREOF ARE IN MATERIAL COMPLIANCE WITH ALL APPLICABLE ENVIRONMENTAL LAWS AND WITH ALL TERMS AND CONDITIONS OF ALL ENVIRONMENTAL PERMITS, AND ALL PRIOR INSTANCES OF NONCOMPLIANCE OCCURRING DURING THE PERIOD MEC, AND/OR ANY OF THE PARTIES COMPRISING MEC, HAVE OWNED THE ASSETS HAVE BEEN FULLY AND FINALLY RESOLVED TO THE SATISFACTION OF (I) ALL GOVERNMENTAL AUTHORITIES WITH JURISDICTION OVER SUCH MATTERS AND (II) AFFECTED LANDOWNERS; C. TO MEC'S KNOWLEDGE, NEITHER THE ASSETS NOR THE OWNERSHIP OR OPERATION THEREOF HAVE BEEN SUBJECT TO ANY ENVIRONMENTAL, TRESPASS, NUISANCE, HEALTH OR SAFETY CLAIM, DEMAND, FILING, INVESTIGATION, ADMINISTRATIVE PROCEEDING, ACTION, SUIT OR OTHER LEGAL PROCEEDING, WHETHER DIRECT, INDIRECT, CONTINGENT, PENDING, THREATENED OR OTHERWISE WHICH HAS NOT BEEN RESOLVED ("ENVIRONMENTAL CLAIMS"); D. TO MEC'S KNOWLEDGE, NO NOTICES OF ANY ENVIRONMENTAL CLAIM OR ANY VIOLATION OR NON-COMPLIANCE WITH ANY ENVIRONMENTAL PERMIT, ARISING FROM, BASED UPON, ASSOCIATED WITH OR RELATED TO THE ASSETS OR THE OWNERSHIP OR OPERATION THEREOF HAVE BEEN RECEIVED WHICH HAS NOT BEEN RESOLVED; E. TO MEC'S KNOWLEDGE, NO POLLUTING SUBSTANCE HAS BEEN HANDLED, MANAGED, STORED, TRANSPORTED, PROCESSED, TREATED, DISPOSED OF, RELEASED, OR ESCAPED, ON, IN, FROM, UNDER OR IN CONNECTION WITH THE ASSETS OR THE OWNERSHIP OR OPERATION THEREOF SUCH AS TO CAUSE A CONDITION OR CIRCUMSTANCE THAT COULD REASONABLY BE EXPECTED TO RESULT IN AN ENVIRONMENTAL CLAIM OR A VIOLATION OF ANY ENVIRONMENTAL LAW; F. TO MEC'S KNOWLEDGE, MEC HAS PROVIDED MARKWEST COPIES OF ALL ENVIRONMENTAL, HEALTH OR SAFETY REPORTS, SITE ASSESSMENTS, LABORATORY DATA OR OTHER STUDIES PREPARED BY OR ON BEHALF OF MEC, OR THE PARTIES COMPRISING MEC, OR ANY THIRD PARTY FOR ANY OF THE ASSETS; OR WHICH WERE PREPARED BY OR ON BEHALF OF ANY THIRD PARTY AND WHICH ARE IN THE CUSTODY OF MEC; G. TO MEC'S KNOWLEDGE, THERE ARE NO FACTS, CONDITIONS OR CIRCUMSTANCES THAT COULD REASONABLY BE EXPECTED TO GIVE RISE TO ANY ENVIRONMENTAL CLAIM. 12.8 Consents and Preferential Rights. MEC does not require or will --------------------------------- -29- have obtained by Final Closing the consent or approval of any third party or of any governmental authority to enter into this Agreement or to consummate the transactions contemplated by this Agreement, other than (i) required consents, which by their express terms, may not be unreasonably withheld, and (ii) consents and approvals of governmental authorities which are customary obtained after the consummation of a sale transaction. No party has, or claims any preferential rights to acquire any portions of the Assets except for those rights conferred under the terms of this Agreement. 12.9 Contracts. Except as described on Exhibit C, there are no contracts --------- or agreements materially affecting the Assets or the operation thereof, written or oral, which would bind the Company following Final Closing. With respect to the Contracts described on Exhibit C, MEC represents that neither it nor, to the best of its knowledge, any other party subject to or bound by those contracts is in a material violation or breach of any of the terms or conditions stated therein, that those Contracts are in full force and effect, and that those Contracts are assignable to Buyer. 12.10 Compliance with Laws and Permits. (a) Except as disclosed in the -------------------------------- Woodward-Clyde Reports described on Exhibit T, the Assets are currently being operated, and MEC and the Assets are, in material compliance with the provisions and requirements of all laws, rules, regulations, ordinances, orders, decisions and decrees of all governmental authorities having jurisdiction with respect to the Assets or the ownership or operation thereof, and all necessary governmental permits, licenses, approvals, consents, certificates and other authorizations with regard to the ownership and operation of the Assets are in effect and no violations exist in respect of such permits, licenses, approvals, consents, certificates or authorizations. (b) Except as disclosed on MEC's Disclosure Schedule, Exhibit P, Basin has been owned and operated in material compliance with all laws, rules, regulations, orders and certificates, including, without limitation, all laws, rules, regulations, orders of, and certificates issued by, the Michigan Public Service Commission, and of all local governmental authorities having jurisdiction. 12.11 Taxes. Except for taxes not yet due and payable and taxes otherwise ----- being contested in good faith, all ad valorem, property, production, severance, and other taxes based on or measured by the ownership of the Assets will be current (including the payment of any interest and penalties) by Final Closing. 12.12 Rights of Way. The entire and continuous length of the existing ------------- gathering and transmission pipelines of Basin and of MEC are covered by recorded rights of way, easements, permits, licenses or other instruments which (i) purport to be from the owners of the land covered thereby and purport to grant to Basin and Basin's successors and assigns, or to MEC and MEC's successors and assigns, as applicable (or to the applicable predecessors in title and their successors and assigns) the right (for so long as such right shall renewed and/or not be abandoned) to construct, operate and maintain those -30- pipelines in, over, under and across such land for the purpose of gathering and transporting natural gas and liquid hydrocarbons produced from such land and other lands and (ii) with respect to those owned by MEC, will be specifically assigned and conveyed by MEC to the Company at the Effective Date. 12.13 Accuracy of Representations. No representations or warranty by MEC --------------------------- in this Agreement or any agreement or document delivered by MEC pursuant to this agreement contains an untrue statement of a material fact or omits to state a material fact necessary to make the statements contained in any such representation or warranty, in light of the circumstances under which it was made, not misleading. There is no fact known to MEC that constitutes an adverse effect on the operation, value or use of any portion of Assets that has not been set forth in this Agreement. 12.14 Survival of MEC Representations and Warranties. The representations ---------------------------------------------- and warranties of MEC hereunder shall survive the Final Closing Date for a period of two (2) years, except for the special warranty of title which shall be perpetual in duration. ARTICLE XIII REPRESENTATIONS OF MARKWEST MarkWest represents and warrants to MEC that: 13.1 Existence. MarkWest is a limited liability company duly organized, --------- validly existing and in good standing under the laws of the State of Colorado, and as of the Effective Date will have authority to conduct business in the State of Michigan. 13.2 Power. MarkWest has the power to enter into and perform this ----- Agreement and the transactions contemplated hereby. 13.3 Authorization. The execution, delivery and performance of this ------------- Agreement and the transactions contemplated hereby have been duly and validly authorized by all requisite partnership action on the part of Buyer. 13.4 Brokers. MarkWest has incurred no obligation or liability, ------- contingent or otherwise, for brokers' or finders' fees concerning matters provided for in this Agreement. 13.5 Litigation. There is no litigation, pending or threatened, which ----------- would seek to prevent the consummation of the transactions contemplated hereunder. 13.6 No Financial Contingency. MarkWest's ability to Close the ------------------------ transactions and fund and perform its obligations hereunder is not contingent upon obtaining financing. 13.7 Consents. MarkWest does not require or will have obtained by Final --------- -31- Closing the consent or approval of any third party or of any governmental authority to enter into this Agreement or to consummate the transactions contemplated by this Agreement, other than (i) required consents, which by their express terms, may not be unreasonably withheld, and (ii) consents and approvals of governmental authorities which are customary obtained after the consummation of a sale transaction. 13.8 Contracts. Except as disclosed in writing to MEC, there are no --------- contracts or agreements materially affecting MarkWest or its assets, written or oral, which would bind the Company following Final Closing. 13.9 Survival of MarkWest Representations and Warranties. The --------------------------------------------------- representations and warranties of MarkWest hereunder shall survive the Final Closing Date for a period of two (2) years. ARTICLE XIV PRE-FINAL CLOSING OBLIGATIONS OF MEC 14.1 Quiet Period. From the date of this Agreement until the earlier of ------------ either Final Closing Date or the termination of this Agreement, MEC agrees that it shall not negotiate, either on a solicited or unsolicited basis, directly or indirectly, with any other person, firm or entity with regard to the sale of any portion of the Assets. 14.2 Access to Records and Due Diligence Review. Upon the execution of ------------------------------------------ this Agreement, MEC shall grant to MarkWest, reasonable access during normal business hours to the MEC's records and shall allow MarkWest to copy such information it deems necessary at MarkWest's sole expense concerning the Assets, and shall permit access to MEC's officers, employees, agents and consultants with knowledge of matters related to the Assets and shall permit access to all of the Assets. MarkWest shall have the right to conduct a due diligence review of the Assets and all matters related thereto, including, without limitation, confirmation of all representations contained herein and matters related to title, environmental conditions, physical conditions, contractual arrangements, regulatory matters, operating conditions, and other circumstances and conditions related to the construction, installation, ownership and operation of the Assets, provided however, that MarkWest shall be liable for and shall hold MEC harmless from all damages, claims and demands arising out of or caused by such examination. It is understood and agreed by the Parties however, that the failure of MarkWest's due diligence review to discover or disclose any defects in the Assets or in any of MEC's representations or MEC's special warranty of title shall not alter, eliminate reduce or diminish any of MEC's representations or warranty of title contained in this Agreement; provided, however, if MarkWest has actual knowledge, prior to Final Closing, that there is a material breach of any of MEC's representations or warranty of title, then by proceeding to Final Closing MarkWest shall be deemed to have waived any claim of damage or remedy hereunder arising from that breach. -32- 14.3 Operations. From and after execution hereof until the Effective ---------- Date MarkWest shall have the right to have a person designated by it to be present in the offices of MEC or upon the Assets for the purpose of observing the activities of MEC with regard to the Assets. ARTICLE XV OBLIGATIONS OF MARKWEST ----------------------- 15.1 Return of Data. MarkWest agrees that if this Agreement is -------------- terminated for any reason whatsoever, MarkWest shall, at MEC's request, promptly return to MEC all information and data furnished to MarkWest in connection with this Agreement and shall maintain confidentiality in connection therewith. ARTICLE XVI MEC'S CONDITIONS OF FINAL CLOSING --------------------------------- MEC's obligation to consummate the transactions provided for herein is subject to the satisfaction or waiver by MEC of the following conditions: 16.1 Representations. The representations and warranties of MarkWest --------------- contained herein shall be true and correct in all material respects on the date of Final Closing as though made on and as of that date. 16.2 Performance. MarkWest shall have performed in all material respects ----------- the obligations, covenants and agreements hereunder to be performed by it at or prior to the Final Closing. 16.3 Pending Matters. No suit, action or other proceeding by a third --------------- party or a governmental authority shall be pending or threatened which seeks substantial damages from MEC in connection with, or seeks to restrain, enjoin or otherwise prohibit the consummation of the transactions contemplated by this Agreement. 16.4 Lender's Consent. MEC shall have obtained the approval and consent ---------------- of its lender(s) to enter into and perform its obligations hereunder. 16.5 Section 2.1 AFE's. MarkWest and MEC shall have agreed upon the ----------------- AFE's for the activities to be performed by MarkWest under the terms of Section 2.1. 16.6 1996 Budgets. MarkWest and MEC shall have agreed upon the budgets ------------ for the year ending December 31, 1996 pursuant to the provisions of Section 6.5. 16.7 Receipt of Third Party Consents. MEC shall have received all ------------------------------- consents and approvals listed in Section 12.8 of the Disclosure Schedule. 16.8 Brown 19 Gas Plant. MPC shall have entered into, and assigned to the ------------------ Company, an agreement, reasonably satisfactory to MEC, with Manistee Gas -33- Limited Liability Company ("Manistee") providing that the facilities of the Brown 19 Gas Plant (as specified on Exhibit A) shall not initially be acquired by the Company, but shall remain the property of Manistee; and, that from and after the Effective Date, Manistee shall continue to operate the facilities of the Brown 19 Gas Plant for the benefit of the Company, which operations shall be conducted pursuant to the Brown 19 Gas Processing and Treating Agreement attached hereto as Exhibit J, and which shall be assigned to the Company at Closing. MEC shall have the right to require, and upon the request of the Company the obligation to require, Manistee to convey the portions of the Brown 19 facilities in accordance with the Option Agreement attached as Exhibit V, subject to the rights of the Company under Section 2.2(c), above. 16.9 Shell Agreement. The Company shall have entered into an agreement --------------- with Shell in the form attached as Exhibit Y. 16.10 Formation of the Company. The Parties shall have formed the Company ------------------------ and filed Articles of Organization with the Secretary of State of Michigan. 16.11 Reimbursement Agreement. MPC shall have entered into an agreement ----------------------- with the Company, reasonably satisfactory to MarkWest providing for MPC to reimburse the Company for an amount equal to 110% of all required costs and expenses, of any nature, incurred by MarkWest for lateral gathering, well production, surface and metering facilities installed on the Slocum No. 1-21 well by MarkWest; together with all remedial operations and work-overs conducted by MarkWest as necessary to have the Slocum No. 1-21 well ready and capable of production at the time that the Basin Extension is completed and ready to receive gas from that well. These amounts shall be reimbursed to the Company through the payment by MPC of a processing and treating fee surcharge under the Gas Gathering, Treating and Processing Agreement which MEC shall cause MPC to enter into with the Company in the form attached as Exhibit G. That surcharge will be calculated upon completion of those facilities to equal an amount estimated to repay those amounts in twelve months commencing with the first day of the month following the date upon which completion of the installation of those facilities occurs, and continuing until paid in full. If actual production indicates a change to the surcharge in order to obtain full repayment within that 12-month period, MPC shall have agreed to amend the surcharge as necessary. 16.12 General Conveyance and Assumption Agreement. The Company shall have ------------------------------------------- executed the General Conveyance and Assumption Agreement in form substantially similar to that attached hereto as Exhibit I to memorialize its assumption of the Assumed Liabilities, as defined in Article XIX. Should any of the foregoing conditions not be satisfied at Final Closing, or waived by MEC in writing, then MEC shall have no obligation to proceed with Final Closing and may cause this Agreement to be terminated pursuant to Article XXI, and in electing not to proceed to Final Closing, MEC shall have no further liability or obligation, of any nature, to MarkWest, or any of the parties comprising MarkWest hereunder; provided, the foregoing termination shall not -34- affect the obligations of any parties under the Letter Agreement dated September 29, 1995, and the guaranty of Michigan Gas Fund I and MPC, under letter of September 29, 1995, or under that certain Engineering Consulting Letter Agreement between MarkWest Hydrocarbon Partners, Ltd., and Manistee Gas Limited Liability Company, date February 9, 1996. ARTICLE XVII MARKWEST'S CONDITIONS OF FINAL CLOSING -------------------------------------- MarkWest's obligation to consummate the transactions provided for herein is subject to the satisfaction by MEC or waiver by MarkWest of the following conditions: 17.1 Representations. The representations and warranties of MEC --------------- contained herein shall be true and correct in all material respects on the date of Final Closing as though made on and as of that date. 17.2 Performance. MEC shall have performed in all material respects the ----------- obligations, covenants and agreements hereunder to be performed by it at or prior to the Final Closing. 17.3 Pending Matters. No suit, action, or other proceeding by a third --------------- party or a governmental authority shall be pending or threatened which seeks substantial damages from MarkWest in connection with, or seeks to restrain, enjoin or otherwise prohibit, the consummation of the transactions contemplated by this Agreement. 17.4 Oceana Drilling Program. MarkWest and Oceana Acquisition Company, ----------------------- L.L.C., ("Oceana) shall have entered into an agreement, in the form of Exhibit W. 17.5 Title to Assets. --------------- a. Title to all portions of the Assets (including the Company's and MarkWest's membership interests in Basin) shall be free and clear of all liens, encumbrances, and adverse claims of any nature arising by, through or under MEC, except for Permitted Encumbrances, and shall be conveyed to the Company in that condition. b. MEC shall have furnished MarkWest with a title insurance policy, insuring title to all portions of real property included within the Assets at a value equal to the deemed initial capital contribution of MEC, showing title in MEC and without exceptions other than for the Permitted Encumbrances, effective as of the Final Closing Date. c. MEC shall provide an assignment to the Company of all contracts and agreements related to the ownership, use or operation of the Assets, which are described on Exhibit C, pursuant to the form of assignment and assumption agreement attached hereto as Exhibit Q, including all gas purchase, sales, transportation and processing agreements. -35- 17.6 Permits. MEC shall assign to the Company all assignable permits, ------- licenses and certificates necessary or required to own and operate the Assets in accordance with all applicable laws, rules, statutes, regulations and orders. 17.7 Casualty Loss. There shall be no unremedied casualty loss ------------- materially affecting the Assets occurring between the date of this Agreement and the Final Closing Date. 17.8 Consumers Power Rights of Way. MEC shall deliver an executed copy ----------------------------- of the commitment letter in form and substance substantially as attached hereto as Exhibit R, from Consumers Power. 17.9 Lender's Consent. MarkWest shall have received written evidence of ---------------- the consent of MEC's secured lender(s) consenting to this transaction. 17.10 Shell Agreement. The Company shall have entered into an agreement --------------- with Shell in the form of Exhibit Y. 17.11 Subordination Agreements. The Company shall have received, from ------------------------ the secured lender of MPC and MEC a subordination agreement in the form attached as Exhibit H. 17.12 Brown 19 Gas Plant. MPC shall have entered into, and assigned to ------------------ the Company, an agreement, reasonably satisfactory to MarkWest, with Manistee Gas Limited Liability Company ("Manistee") providing that the facilities of the Brown 19 Gas Plant (as specified on Exhibit A) shall not initially be acquired by the Company, but shall remain the property of Manistee; and, that from and after the Effective Date, Manistee shall continue to operate the facilities of the Brown 19 Gas Plant for the benefit of the Company, which operations shall be conducted pursuant to the Brown 19 Gas Processing and Treating Agreement attached hereto as Exhibit J, which shall be assigned to the Company at Closing. MEC shall have the right to require, and upon the request of the Company, the obligation to require Manistee to convey the portions of the Brown 19 facilities in accordance with the Option Agreement attached as Exhibit V, subject to the rights of the Company under Section 2.2(c), above. 17.13 Section 2.1 AFE's. MarkWest and MEC shall have agreed upon the ----------------- AFE's for the activities to be performed by MarkWest under the terms of Section 2.1. 17.14 1996 Budgets. MarkWest and MEC shall have agreed upon the budgets ------------ for the year ending 1996 pursuant to the provisions of Section 6.5. 17.15 Gas Facilities Reimbursement Agreement. MPC shall have entered into -------------------------------------- an agreement with the Company in the form of Exhibit X. 17.16 Formation of the Company. The Parties shall have formed the Company ------------------------ and filed Articles of Organization with the Secretary of State of -36- Michigan. From time to time, should MEC determine that there are conditions to Final Closing that, despite the good faith diligent efforts of MEC, will not be able to be satisfied by Final Closing, and if MarkWest does not expressly waive that condition within five business days of written notification from MEC, in writing, then either Party, upon written notice to the other, may cause this Agreement to be terminated pursuant to Article XXI, and neither Party shall have any further liability or obligation, of any nature, to the other, or to any of the Parties comprising MEC; provided, the foregoing termination shall not affect the obligations of any parties under the Letter Agreement dated September 29, 1995, and the guaranty of Michigan Gas Fund I and MPC, under letter of September 29, 1995, or under that certain Engineering Consulting Letter Agreement between MarkWest Hydrocarbon Partners, Ltd., and Manistee Gas Limited Liability Company, date February 9, 1996. Should any of the foregoing conditions not be satisfied at Final Closing, or waived by MarkWest in writing, then MarkWest shall have no obligation to proceed to Final Closing and may cause this Agreement to be terminated pursuant to Article XXI, and in electing not to proceed to Final Closing, MarkWest shall have no further liability or obligation, of any nature, to MEC, hereunder, or any of the Parties comprising MEC; provided, the foregoing termination shall not affect the obligations of any parties under the Letter Agreement dated September 29, 1995, and the guaranty of Michigan Gas Fund I and MPC, under letter of September 29, 1995, or under that certain Engineering Consulting Letter Agreement between MarkWest Hydrocarbon Partners, Ltd., and Manistee Gas Limited Liability Company, date February 9, 1996. ARTICLE XVIII FINAL CLOSING 18.1 Time and Place of Final Closing. If the conditions to Final Closing ------------------------------- have been satisfied or waived, the consummation of the transactions contemplated hereby (the "Final Closing") shall be held on or before April 30, 1996, at the offices of MarkWest, Englewood, Colorado, or at such other location as mutually agreed. 18.2 Final Closing Obligations. At Final Closing: ------------------------- a. MEC shall execute, acknowledge and deliver the General Conveyance and Assumption Agreement, in the form attached hereto as Exhibit I, all of which together will convey title to the Assets to the Company (including the Company's 98% membership interest in Basin); together with such other forms of conveyance as may be required by governmental entities to effect the transfer of the Assets, and shall execute and deliver to MarkWest an assignment of MarkWest's 1.2% membership interest in Basin. MEC shall further deliver possession thereof to the Company, and shall further deliver copies of the Records to MarkWest as Operator; -37- b. MEC will deliver to MarkWest all items required to be furnished or supplied under MarkWest's Conditions of Final Closing; c. MEC shall pay MarkWest, or cause MarkWest to be paid, all amounts due to MarkWest under the repayment and repurchase obligations of Manistee contained in the Letter Agreement of September 29, 1995, in cash or other immediately available funds; and MarkWest shall transfer to MPC the title of all previously acquired oil and gas leaseholds, which were acquired by MarkWest pursuant to that Letter Agreement dated September 29, 1995; d. MarkWest will pay MEC the amounts required under Section 2.1(a)(ii); e. The Parties shall calculate the then effective Ownership Interests of the Parties; f. MarkWest will repay MEC for MarkWest's share of the amounts required to the Working Capital Fund under Section 6.8; and, g. MarkWest and MEC shall execute such other instruments and take such other action as may be necessary to carry out their respective obligations under this Agreement. ARTICLE XIX INDEMNIFICATION, LIABILITY AND CONFIDENTIALITY ---------------------------------------------- 19.1 Assumption of Liabilities. (a) At the Final Closing, the Company ------------------------- shall assume all of the Assumed Liabilities pursuant to the terms of the General Conveyance and Assumption Agreement. As used herein, the term "Assumed Liabilities" means any and all obligations, liabilities, debts, costs, expenses, liens, encumbrances, demands, claims, actions, losses and damages of any kind whatsoever affecting the Assets or any portion thereof (the "Obligations") including but not limited to all of the Obligations arising out of or connected with any of the contracts or agreements listed on Exhibit C; provided, the Company's assumption of Environmental Obligations, as defined below, shall be subject to the provisions of Section 19.2 below; and further provided, the Assumed Liabilities shall not include Obligations arising or related to the violation, breach or default by Basin under any applicable laws, rules, regulations, orders and certificates of all local governmental authorities having jurisdiction, including, without limitation, all laws, rules, regulations, orders of, and certificates issued by, the Michigan Public Service Commission, regardless of whether or not specified on MEC's Disclosure Schedule attached as Exhibit P, (herein the "Basin Obligations"), for which MEC shall be responsible in accordance with Section 19.3(b), below; nor shall Assumed Liabilities include any Obligations for which a party is responsible under the terms of Section 19.3(a), below. Further, Assumed Liabilities shall not include any Obligations relating to or arising from the matters disclosed -38- on Exhibit P which are marked with a single asterisk (*) or a double asterisk (**), which Obligations shall be subject to the provisions stated on Exhibit P, and to the extent that those Obligations are not assumed by the Company pursuant to the provisions of Exhibit P, they shall be called the "Retained Liabilities". MEC shall indemnify the Company against and hold the Company harmless from all Retained Liabilities pursuant to Section 19.3. (b) If the Company incurs Obligations resulting from Assumed Liabilities then as between MarkWest and MEC those Obligations shall be apportioned as of the applicable Ownership Interests of the parties at the time that the claim leading to the Obligations first arose. Accordingly in the event that the Company is required to make payments upon those obligations, then in determining distributable cash under Section 4.1, above, payment of those Obligations shall be allocated in accordance with those Ownership Interests; and, in the event there is insufficient cash available to satisfy those Obligations and if the Members voting in accordance with the provisions of this Agreement elect to advance the Company amounts to satisfy those Obligations then the Members shall advance those amounts in proportion to their Ownership Interests as they existed at the time that the claim first arose. 19.2 Environmental Indemnification. ----------------------------- a. MEC's Indemnification of Certain Disclosed Obligations. MEC hereby ------------------------------------------------------ agrees to indemnify and hold the Company and MarkWest harmless from and reimburse the Company and MarkWest for all Obligations arising from any noncompliance or required remediation under applicable Environmental Laws disclosed in the Woodward-Clyde Reports described on Exhibit T. b. Indemnification of Environmental Obligations. As used herein, an -------------------------------------------- "Environmental Obligation" is an Obligation resulting from acts or omissions, or conditions or circumstances occurring or existing before Final Closing (excluding, however, any Obligations arising solely and directly from the operations of Operator hereunder during the period from and after the Effective Date until the Final Closing Date), regardless of when asserted, that violates or could reasonably be expected to result in a violation of any Environmental Law (as defined in Section 12.7) and which are not disclosed in the Woodward-Clyde Reports described on Exhibit T. With regard to Environmental Obligations: i. The first $300,000 of expenditures by the Company related to Environmental Obligations shall be paid sixty percent (60%) by MarkWest and forty percent (40%) by MEC. It is provided that the difference in the amount paid by MarkWest and the amount it would have paid based upon the actual Ownership Interests of the Parties at the time of discovery of the Environmental Obligation shall be added to MarkWest's initial capital contribution and used in calculating the Ownership Interests of the Parties. ii. Amounts expended by the Company related to Environmental Obligations above the first $300,000 up to $1,500,000.00 shall be -39- paid by the Parties in proportion to their respective Ownership Interests existing at the time of discovery of the Environmental Obligation. iii. Amounts expended by the Company related to Environmental Obligations above the first $1,500,000 up to $5,000,000.00 shall be paid seventy percent (70%) by MEC and thirty percent (30%) by MarkWest. iv. With respect to amounts to be expended by the Company related to Environmental Obligations exceeding the first $5,000,000.00, the following shall apply: A. Those amounts shall be paid seventy percent (70%) by MEC and thirty percent (30%) by MarkWest; provided, however, B. MEC shall have the right, exercisable within 30 days following the discovery of Environmental Obligations which would reasonably be expected to result in expenditures exceeding the first $5,000,000.00, to purchase the Membership of MarkWest in the Company. If MEC exercises this option, then subject to the provisions of C., below, MEC shall within 90 days following its written notice of exercise, pay MarkWest an amount equal to all costs and expenses incurred by MarkWest in connection with the Company, including, without limitation, all of MarkWest's initial capital contribution; and, upon that payment MarkWest will convey its Membership Interest in the Company, free and clear of liens and encumbrances created by MarkWest. Upon that conveyance, MEC shall indemnify MarkWest against and hold MarkWest harmless from all Obligations (including without limitation, all Environmental Obligations) of the Company or otherwise related to the Assets regardless of when occurring or asserted. C. In the event that MEC exercises its purchase option under B., above, then MarkWest shall have 30 days following receipt of that election in which to agree, in writing, to pay sixty percent (60%) of the Environmental Obligations exceeding $5,000,000, with MEC paying forty percent (40%) thereof, without regard to the applicable Ownership Interests. Upon making that agreement, MEC's exercise of its purchase option under B., above, shall be deemed revoked and of no force and effect. v. The foregoing procedures with respect to Environmental Obligations shall apply -40- only to those Environmenta l Obligations discovered within two (2) years follow ing the Final Closing Date. Any Environmenta l Obligations discovered after that 2-year period shall be deemed an Obligation assumed by the Company. The provisions of this paragraph b., shall be applicable to all of the Assets; and, further, should the Company acquire the Brown 19 Gas Plant, shall be applicable to the Brown 19 Gas Plant. This Section 19.2 shall be -41- the sole and exclusive remedy for Environmental Obligations under this Agreement. 19.3 Breach of Representations, Warranties or Covenants. -------------------------------------------------- (a) As between the Parties, each Party shall indemnify and hold the other Party harmless from any and all Obligations (including reasonable attorney's and legal fees) arising out of or related to any breach of any representation, warranty or covenant hereunder of that Party (except for breaches which constitute Environmental Obligations, with respect to which Section 19.2 shall be the sole and exclusive remedy), subject to the survival periods set forth in Sections 12.14 and 13.9. With respect to Obligations arising under the contracts or agreements described on Exhibit C and which, if asserted, would constitute a breach of MEC's representations under Section 12.9, MEC shall be relieved of liability with respect to contracts or agreements on which MEC has obtained an estoppel certificate which is reasonably satisfactory to MarkWest in the form similar to that attached as Exhibit U. (b) MEC shall indemnify and hold MarkWest harmless from any and all Basin Obligations and Retained Liabilities (as such terms are defined in Section 19.1, above). (c) Notwithstanding the foregoing, neither Party shall be required to indemnify or reimburse the other Party for any single Obligation arising out of or related to any breach of any representation, warranty or covenant hereunder, or arising out of or related to a Basin Obligation, or a Retained Liability, unless the amount of that Obligation exceeds $5,000.00. 19.4 Procedures. If a claim arises or is made for which a Party intends ---------- to seek indemnity with respect thereto under this Article XIX, that Party shall promptly notify the Indemnifying Party of such claims. The Indemnifying Party shall have 30 days after receipt of such notice to undertake, conduct and control, through counsel of its own choosing and at its own expense, the settlement or defense thereof, -42- and the Indemnified Party shall cooperate with it in connection therewith; provided, however, that (a) the Indemnifying Party shall permit the Indemnified Party to participate in such settlement or defense through counsel chosen by such Indemnified Party, provided that the fees and expenses of such counsel shall be borne by such Indemnified Party and (b) the Indemnifying Party shall promptly assume and hold such Indemnified Party harmless from and against the full amount of any liability resulting therefrom. So long as the Indemnifying Party is reasonably contesting any such claim in good faith, the Indemnified Party shall not pay or settle any such claim. Notwithstanding the foregoing, the Indemnified Party shall have the right to pay or settle any such claim, provided -43- that in such event it shall waive any right to indemnity therefor by the Indemnifying Party for such claim. If the Indemnifying Party does not notify the Indemnified Party within 30 days after the receipt of the Indemnified Party's notice of a claim of indemnity hereunder that it elects to undertake the defense thereof, the Indemnified Party shall have the right to contest, settle or compromise the claim but shall not thereby waive any right to indemnity therefor pursuant to this Agreement. The Indemnifying Party shall not, except with the consent of the Indemnified Party, enter into any settlement that does not include as an unconditional term thereof the giving by the person or persons asserting such claim of unconditional release to all Indemnified Parties from all liability with -44- respect to such claim or consent to entry of any judgment. 19.5 Mitigation. Each Party entitled to indemnification hereunder or ---------- otherwise to damages in connection with the transactions contemplated in this Agreement shall take all reasonable steps to mitigate all losses, costs, expenses and damages after becoming aware of any event or circumstance that could reasonably be expected to give rise to any losses, costs, expenses and damages that are indemnifiable or recoverable hereunder or in connection herewith. 19.6 No Incidental or Consequential Damages. No party hereto shall be -------------------------------------- entitled to recover from any other party hereto for any Obligations, or otherwise, in an amount in excess of the actual damages suffered by such party. Each party waives any right to recover punitive, special, exemplary, incidental and consequential damages. 19.7 Limitation on Operator's Liability. The Operator shall manage and ---------------------------------- control the affairs of the Company in good faith and to the best of its ability, and in accordance with what a prudent operator under similar conditions would do, and shall use its best efforts to carry out the purposes of the Company and for the benefit of all of the Parties. The Operator shall not, however, have any liability to the Company or any Party, independent of its liability as a Party, because of any act or omission made in good faith in the absence of gross negligence or willful misconduct. 19.8 Confidentiality. Each Party, for itself and for its respective --------------- officers, partners, members, employees and representatives, agrees to keep proprietary information regarding the Company confidential. This proprietary information includes identity of customers, suppliers, producers, and markets, the terms of gas processing, gas purchase, gas transportation, marketing and sales contracts, results of operations, business plans, strategies and forecasts, together with other information deemed proprietary by the Members, including, without limiting the generality of the foregoing, drilling plans of any Party within the Dedication Area described in the Gas Gathering, Treating and Processing Agreement attached as Exhibit G. Despite the foregoing, proprietary information may be disclosed (i) to the extent required by applicable laws, regulations or court orders, or (ii) to the extent required in connection with a Party's efforts to obtain lending or financing related to its interest in the Company, or (iii) to a third party who is a potential equity investor in one of the Party's ownership in the Company (or to financial advisors engaged to locate such potential equity investors) upon obtaining from that third party a written agreement to keep information confidential and not to use that information for its own commercial benefit other than in connection with evaluating its potential investment. ARTICLE XX -45- ALTERNATIVE DISPUTE RESOLUTION ------------------------------ 20.1 Dispute Resolution. The Parties to this Agreement, agree that any ------------------ disputes arising hereunder shall be resolved by dispute resolution procedures which are alternatives to litigation in state or federal courts. Accordingly, the Parties agree that upon the occurrence of a dispute between them regarding any matter under this Agreement, representatives shall meet to negotiate in good faith to resolve the dispute. Should those representatives be unable to resolve the dispute within fifteen (15) days of the occurrence of the dispute, then the executive management of each Party shall meet to negotiate in good faith to resolve the dispute. Should the executive management representatives be unable to resolve the dispute within thirty (30) days following the occurrence of the dispute, the Parties shall attempt to determine other appropriate procedures for resolving that dispute, including further negotiation between the Parties, mediation, mini-trials, or arbitration. In the event the Parties are unable to agree upon the procedures to be utilized in resolving the dispute, then arbitration, as provided herein, shall be the deemed procedure. 20.2 Arbitration. All arbitration proceedings shall be conducted in ----------- accordance with the Commercial Arbitration Rules of the American Arbitration Association (AAA) and shall be conducted at the AAA Offices in Denver, Colorado. The Parties agree that the AAA procedures shall be modified to provide that an evidentiary hearing before the arbitrators shall be held within sixty (60) days following the date the matter is submitted to the AAA and that an award or other determination of the arbitrators shall be made in writing within fifteen (15) days following the conclusion of the evidentiary hearing. The Parties agree that the resolution of the dispute shall by the manner agreed upon or otherwise utilized (for instance, the award of arbitrators) be binding upon the Parties and no court action may be commenced with respect to that dispute. Provided, in the event of arbitration, the arbitration award may be reduced to a judgment in any court of competent jurisdiction. -46- ARTICLE XXI TERMINATION AND DISSOLUTION --------------------------- 21.1 Termination of this Agreement to Prior Final Closing. This ---------------------------------------------------- Agreement may terminated upon the following causes or conditions: (a) If a Party exercises any of its termination rights otherwise provided in this Agreement; or, (b) If Final Closing hereunder has not occurred by May 10, 1996. If this Agreement is terminated pursuant to the provisions hereof prior to Final Closing, then all of the operations of the Assets shall be transferred to MEC. MEC shall thereafter assume and be responsible for all obligations, liabilities and expenses of the related to the Assets arising before or after the date of termination, except for liabilities, claims, damages and losses arising solely and directly from the gross negligence or wilful misconduct of MarkWest; and, except for that assumption, neither Party shall have any further liabilities or obligations to the other; provided, however, the termination shall not affect the obligations of any parties under the Letter Agreement dated September 29, 1995, and the guarantee of Michigan Gas Fund I and MPC under letter of September 29, 1995, to make certain repayments to and repurchases from MarkWest, and under that certain Engineering Consulting Letter Agreement between MarkWest Hydrocarbon Partners, Ltd., and Manistee Gas Limited Liability Company, dated February 9, 1996. 21.2 Grounds for Dissolution of the Company. In addition to any -------------------------------------- dissolution of the Company provided for in any other provisions of this Agreement, the Company shall be terminated and dissolved upon the happening of any of the following events: (a) Expiration of the fixed term, as set forth in the Company's Articles of Organization; (b) Upon the unanimous written consent of all Members; (c) Upon the withdrawal, expulsion, bankruptcy, dissolution of a Member or occurrence of any other event which terminates the continued ownership of a Member if it results in only one remaining Member. 21.3 Termination of the Company After Final Closing. If the Company is ---------------------------------------------- dissolved or terminated, after Final Closing, pursuant to the provisions above, the Company shall cause a Statement of Intent to Dissolve to be filed with the Michigan Secretary of State and a liquidating agent shall be designated by the Members. That liquidating agent shall immediately commence to conclude the Company's affairs and liquidate. The liquidating agent, on behalf of the Company, shall engage the services of an independent investment banking firm or other expert, to obtain the highest possible price for the assets of the Company. Any Member shall have the right during this period to also seek potential purchasers of the Company's assets. The Company's assets shall be -47- distributed in payment of liabilities of the Company and to the Members in liquidation of the Company in the following order: (a) To creditors by the payment, or provision for payment, of the debts and liabilities of the Company (other than any loans or advances that may have been made by any of the Members to the Company) and the expenses of liquidation; (b) To the setting up of any reserves that the Members may deem reasonably necessary for any contingent or unforeseen liabilities or obligations of the Company. Such reserves shall be paid over by the Members to a bank or other institutional escrow agent to be held in an interest bearing account for the purpose of ultimately disbursing such reserves in payment of the aforementioned contingencies, and at the expiration of that period as the Members may deem advisable, to distribute the balance in the manner provided in this Section, and in the order named herein; (c) To the payment to Members in respect of their share of the profits and other compensation by way of income on their contributions; (d) To the payment to the Members of their respective capital accounts at the date of distribution; if any Owner's Capital Account is negative, that Member shall make a capital contribution so as to restore its capital account balance to zero (0), which contribution shall be distributed to Company creditors or to Members with positive capital account balances in accordance with the terms of this Agreement; and, (e) The balance, if any, shall be divided among the Members in accordance with their Ownership Interests. 21.4 Inadequate Assets. Should the assets of the Company be insufficient ----------------- to satisfy its debts, expenses, and liabilities then no Member shall have any liability with respect thereto (other than the restoration of negative capital account balances to zero) and no Member shall be required to make contributions to satisfy those debts, expenses and liabilities. In such event, the Members agree to comply with applicable statutes and laws regarding the filing of Articles of Dissolution, and no such Articles shall be filed unless the Company complies with all requirements thereof. ARTICLE XXII MISCELLANEOUS ------------- 22.1 Benefits. This Agreement shall be binding upon the Parties and -------- their legal representatives, successors and assigns. 22.2 Amendments. This Agreement is subject to amendment only by a ---------- written statement executed by all the Parties. 22.3 Notices. Delivery of any notice, decision, consent, waiver, ------- -48- direction, request, vote or other instrument or communication provided for under this Agreement may be effected by personal delivery, by registered, certified or express United States mail, postage prepaid, or by any recognized private courier or delivery service which is capable of providing verification of delivery and will do so upon request, or by facsimile transmission sent and received in legible form during regular business hours of the intended recipient; but no such notice shall be effective until it is in fact received at the address so provided for receipt of notices; and no notice given by facsimile shall be deemed received unless receipt in legible form is confirmed by the recipient and a record thereof maintained by the sender. Each Party, by written notice to all other Parties, shall specify its address and facsimile numbers for the receipt of notices. 22.4 Integration. This Agreement, together with the Exhibits and the ----------- Related Agreements specified above, embodies the entire agreement and understanding among the Parties and supersedes all prior agreements and understandings. 22.5 Applicable Law. THIS AGREEMENT AND THE RIGHTS OF THE PARTIES SHALL -------------- BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF MICHIGAN WITHOUT REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS. 22.6 Severability. In case any one or more of the provisions contained ------------ in this Agreement, or any application thereof, shall be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and any other application thereof shall not in any way be affected or impaired thereby. 22.7 Headnotes. Headnotes are used merely for reference purposes and do --------- not affect context in any manner. 22.8 Gender. Wherever applicable, the pronouns designating the masculine ------ or neuter gender shall equally apply to the feminine, neuter and masculine genders. Furthermore, whenever applicable within this Agreement, the singular shall include the plural. 22.9 Exhibits. The provisions of all Exhibits attached hereto are -------- incorporated herein and made a part of this Agreement. 22.10 Time of the Essence. Any and all activities of the Parties governed ------------------- by the terms of this Agreement shall be accomplished with the utmost expediency by the Parties hereto. -49- IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the day and year first above written. Michigan Energy Company, L.L.C. By: /s/ Michael V. Roncha ---------------------------- Michael V. Roncha, Manager and By: /s/ Robert L. Zorich ---------------------------- Robert L. Zorich, Manager MARKWEST MICHIGAN LLC By: MarkWest Hydrocarbon Partners, Ltd., its manager By: MarkWest Hydrocarbon, Inc., its general partner By: /s/ Arthur J. Denney ------------------------- Vice President FOR THE PURPOSES, AND ONLY FOR THE PURPOSES, OF SECTION 2.5: ------------------------- MARKWEST HYDROCARBON PARTNERS, LTD. By: MarkWest Hydrocarbon, Inc., its general partner By: /s/ Arthur J. Denney -------------------------- Vice President -50- LIST OF EXHIBITS EXHIBIT A BROWN 19 GAS PLANT EXHIBIT B REAL PROPERTY, EASEMENTS EXHIBIT C CONTRACTS EXHIBIT D FILER 1-10 EXPENSES EXHIBIT E TAX MATTERS PROCEDURES EXHIBIT F ACCOUNTING PROCEDURES EXHIBIT G GAS GATHERING, TREATING AND PROCESSING AGREEMENT Exhibit H SUBORDINATION AGREEMENT Exhibit I GENERAL CONVEYANCE, SPECIAL WARRANTY DEED AND ASSUMPTION AGREEMENT EXHIBIT J BROWN 19 GAS PROCESSING AND TREATING AGREEMENT EXHIBIT K -- no Exhibit K -- EXHIBIT L -- no Exhibit L -- EXHIBIT M BASIN PIPELINE ASSETS EXHIBIT N BASIN EXTENSION EXHIBIT O BASIN PIPELINE UPGRADES EXHIBIT P MEC DISCLOSURE SCHEDULE EXHIBIT Q FORM OF ASSIGNMENT EXHIBIT R CONSUMERS POWER OPTION AND COMMITMENT EXHIBIT S PRELIMINARY COST ESTIMATES EXHIBIT T WOODWARD-CLYDE REPORT EXHIBIT U ESTOPPEL CERTIFICATE EXHIBIT V BROWN 19 OPTION AGREEMENT EXHIBIT W DRILLING AGREEMENT -51- EXHIBIT X FACILITIES CONSTRUCTION REIMBURSEMENT AGREEMENT EXHIBIT Y SHELL AGREEMENT Exhibit C - Page 2 EXHIBIT A BROWN 19 PLANT ASSETS Generally, the Brown 19 Plant assets are spray painted red, with the adjacent connecting piping with production, the Basin Pipeline, those assets excluded from the Brown 19 Plant and MichCon fuel gas spray painted orange, blue, yellow and yellow-orange striped respectively. Brown 19 Plant Assets - --------------------- Amine Unit TEG Unit o. NGL Unit (shut down T.H. Russell refrigeration unit) o. Flare o. Used NGL and sulphur recovery units in bone yard Dow Amine System (Ludington) Dow Amine System used for parts (Ludington) Dow Clause unit (Ludington) Stock tank Programmable logic controller (Allen-Bradley) o. Controll Building o. Office/Warehouse Bldg. o. Inventory garage o. Electrical Bldg. (now for NGL unit) Instr. air bldg. Air packs, 4 at plant, 1 in truck Specifically Excluded from Brown 19 Assets - ------------------------------------------ Krause/Adamczak/flash gas compressor LoCat unit & sulphur purification unit * o. Acid gas injection compressor and acid gas piping o. Acid gas injection well, Miller-Lyman #1-18B o. Acid gas (Miller-Lyman #1-18B) pipeline o. Lake Orion System Amine System Mechanical recovery unit Large Building 40 x 60 x 115 Two well heads, 3000# *Purification unit not owned by MGLLC - Still owned by ARI Technologies (Dale Sands, contact) The piping breaks are as follows: 1. Brown 19 Plant/Basin Pipeline - red/blue Exhibit A - Page 1 A. Basin Pipeline Gas Pack a. 3" valve gas b. 2" valve air c. 2" valve fuel d. 1" and 2" valves - flare B. Sour NGL Storage a. (4) 4" x 6" relief valves on storage tanks to flare b. (4) 2" valves - flash gas c. 2" valve - blowdown to flare d. 2" valve - truck loadout to flare e. 1" valve - sour NGL filter vapor return dump line (truck loadout area) 2. Brown 19 Plant/Production - red/orange A. Adamczak Gas Pack a. 1" union - flare b. 2" valve - air c. (2) 2" valves - fuel d. 2" valve - inlet gas blowdown to flare e. 2" valve - outlet gas to Brown 19 (out of service) 3. Brown 19 Plant/Excluded from Brown 19 Plant - red/yellow A. Krause-Adamczak-Flash Gas Compressor a. 2" valve - discharge gas on compressor skid in building b. (2) 3" 90's before flare header tie-in for flare gas c. 2" valve - fuel inside building d. 2" valve - air under grating inside building e. 3" valve - Brown 19 Plant flash gas compressor, outside f. 1" valve - compressor liquid dump to Brown 19 Plant stock tank B. Acid Gas Compressor a. (2) 3" valves - upstream of pressure control valve (plus bypass) on acid gas downstream from still reflux accumulator, inside building a. (2) 3" valves - upstream of pressure control valve (plus bypass) on acid gas downstream from still reflux accumulator, Exhibit A - Page 2 inside building b. 4" valve - acid gas to flare, inside building, near 3. B. a., above c. 1" nipple - on Brown 19 flare header weldolet - for 2" suction safety relief and 1" drip tank vent, outside d. 1" nipple - on Brown 19 flare header weldolet - for 1" compressor relief valve and 1" blowdown valve, outside e. 2" valve - fuel to engine, on compressor skid f. 2" valve - compressor purge, in building g. 1" valve - knock out purge, in building h. 1" valve - drip tank pressurizing, in building i. 2" valve - air, in building j. 1" nipple - compressor liquid dump to slop tank weldolet, in amine building C. LoCat Unit a. 2" coupling - fuel gas, downstream of pressure regulator in piperack on ground b. 2" valve - air, in piperack D. All spare or unused equipment, facilities and supplies located at or near the Plant site and in the portion commonly known as the "Boneyard"; excluding, however, the Lake Orion NGL skid. Exhibit A - Page 3 Exhibit E TAX MATTERS AND PROCEDURES Section 1.1 Tax Definitions. Capitalized words and phrases used in --------------- this Agreement have the following meanings: 1. "Adjusted Capital Account Deficit" means, with respect to any Partner, the deficit balance, if any, in such Partner's Capital Account as of the end of the relevant Fiscal Year, after giving effect to the following adjustments: a. Credit to such Capital Account any amounts which such Partner is obligated to restore pursuant to any provision of this Agreement or is deemed to be obligated to restore pursuant to the penultimate sentences of Regs. (S) 1.704-2(g)(1) and 1.704-2(i)(5); and b. Debit to such Capital Account the items described in (S)(S) 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5) and 1.704- 1(b)(2)(ii)(d)(6) of the Regulations. The foregoing definition of Adjusted Capital Account Deficit is intended to comply with the provisions of (S) 1.704-1(b)(2)(ii)(d) of the Regulations and shall be interpreted consistently therewith. 2. "Affiliate" means, with respect to any Person, (i) any Person directly or indirectly controlling, controlled by or under common control with such Person, (ii) any Person owning or controlling ten percent (10%) or more of the outstanding voting interests of such Person, (iii) any officer, director, or general partner of such Person, or (iv) any Person who is an officer, director, general partner, trustee, or holder of ten percent (10%) or more of the voting interests of any Person described in clauses (i) through (iii) of this sentence. For purposes of this definition, the term "controls," "is controlled by," or "is under common control with" shall mean the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person or entity, whether through the ownership of voting securities, by contract or otherwise. 3. "Agreement" means the Participation and Operating Agreement as amended from time to time, to which this Exhibit is attached. Words such as "herein," "hereinafter," "hereof," "hereto," and "hereunder," refer to this Agreement as a whole, unless the context otherwise requires. 4. "Bankruptcy" means, with respect to any Person, a "Voluntary Bankruptcy" or an "Involuntary Bankruptcy." A "Voluntary Bankruptcy" means, with respect to any Person, the inability of such Person generally to pay its debts as such debts become due, or an admission in writing by such Person of its inability to pay its debts generally or a general assignment by such Person for the benefit of creditors; the filing of any petition or answer by such Person seeking to adjudicate it a bankrupt or insolvent, Exhibit E - Page 1 or seeking for itself any liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of such Person or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking, consenting to, or acquiescing in the entry of an order for relief or the appointment of a receiver, trustee, custodian or other similar official for such Person or for any substantial part of its property; or corporate action taken by such Person to authorize any of the actions set forth above. An "Involuntary Bankruptcy" means, with respect to any Person, without the consent or acquiescence of such Person, the entering of an order for relief or approving a petition for relief or reorganization or any other petition seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or other similar relief under any present or future bankruptcy, insolvency or similar statute, law or regulation, or the filing of any such petition against such Person which petition shall not be dismissed within ninety (90) days, or, without the consent or acquiescence of such Person, the entering of an order appointing a trustee, custodian, receiver, or liquidator of such Person or of all or any substantial part of the property of such Person which order shall not be dismissed within sixty (60) days. 5. "Capital Account" means, with respect to any Partner, the Capital Account maintained for such Person in accordance with the following provisions: a. To each Person's Capital Account there shall be credited such Person's Capital Contributions, such Person's distributive share of Profits and any items in the nature of income or gain which are allocated pursuant to Sections 2.2, 2.3 or 2.4 hereof, and the amount of any Tax Partnership liabilities assumed by such Person or which are secured by any Property distributed to such Person. b. To each Person's Capital Account there shall be debited the amount of cash and the Gross Asset Value of any Property distributed to such Person pursuant to any provision of this Agreement, such Person's distributive share of Losses and any items in the nature of expenses or losses which are allocated pursuant to Sections 2.2, 2.3 or 2.4 hereof, and the amount of any liabilities of such Person assumed by the Tax Partnership or which are secured by any property contributed by such Person to the Tax Partnership. c. In the event all or a portion of an interest in the Tax Partnership is transferred in accordance with the terms of this Agreement, the transferee shall succeed to the Capital Account of the transferor to the extent it relates to the transferred interest. d. In determining the amount of any liability for purposes of this Agreement, there shall be taken into account Code (S) 752(c) and any other applicable provisions of the Code and Regulations. The foregoing provisions and the other provisions of this Agreement Exhibit E - Page 2 relating to the maintenance of Capital Accounts are intended to comply with Regs. (S) 1.704-1(b), and shall be interpreted and applied in a manner consistent with such Regulations. 6. "Capital Contributions" means, with respect to any Partner, the amount of money and the initial Gross Asset Value of any property (other than money) contributed to the Tax Partnership with respect to the interest in the Tax Partnership held by such Person. The principal amount of a promissory note which is not readily traded on an established securities market and which is contributed to the Tax Partnership by the maker of the note (or a Person related to the maker of the note within the meaning of Regs. (S) 1.704- 1(b)(2)(ii)(c)) shall not be included in the Capital Account of any Person until the Tax Partnership makes a taxable disposition of the note or until (and to the extent) principal payments are made on the note, all in accordance with Regs. (S) 1.704-1(b)(2)(iv) (d)(2). 7. "Code" means the Internal Revenue Code of 1986, as amended from time to time (or any corresponding provisions of succeeding law). 8. "Tax Partnership Minimum Gain" has the meaning set forth in (S)(S) 1.704- 2(b)(2) and 1.704-2(d) of the Regulations. 9. "Depreciation" means, for each Fiscal Year, an amount equal to the depreciation, amortization, or other cost recovery deduction allowable with respect to an asset for such Fiscal Year, except that if the Gross Asset Value of an asset differs from its adjusted basis for federal income tax purposes at the beginning of such Fiscal Year, Depreciation shall be an amount which bears the same ratio to such beginning Gross Asset Value as the federal income tax depreciation, amortization, or other cost recovery deduction for such Fiscal Year bears to such beginning adjusted tax basis; provided, however, that if the adjusted basis for federal income tax purposes of an asset at the beginning of such Fiscal Year is zero, Depreciation shall be determined with reference to such beginning Gross Asset Value using any reasonable method selected by the Operator. 10. "Fiscal Year" means (i) the period commencing on the effective date of this Agreement and ending on December 31; (ii) any subsequent twelve (12) month period commencing on January 1 and ending on December 31, or (iii) any portion of the period described in clause (ii) for which the Tax Partnership is required to allocate Profits, Losses and other items of Tax Partnership income, gain, loss or deduction pursuant to Section 2 hereof. 11. "Gross Asset Value" means, with respect to any asset, the asset's adjusted basis for federal income tax purposes, except as follows: a. The initial Gross Asset Value of any asset contributed by a Partner to the Tax Partnership shall be the gross fair market value of such Exhibit E - Page 3 asset, as determined by the contributing Partner. b. The Gross Asset Values of all Tax Partnership assets shall be adjusted to equal their respective gross fair market values, as determined by the Operator, as of the following times: (1) the acquisition of an additional interest in the Tax Partnership by any new or existing Partner in exchange for more than a de minimis Capital Contribution; (2) the distribution by the Tax Partnership to a Partner of more than a de minimis amount of Property as consideration for an interest in the Tax Partnership; and (3) the liquidation of the Tax Partnership within the meaning of Regs. (S) 1.704-1(b)(2)(ii)(g): provided, however, that adjustments pursuant to clauses (1) and (2) above shall be made only if the Operator reasonably determines that such adjustments are necessary or appropriate to reflect the relative economic interests of the Partners in the Tax Partnership; c. The Gross Asset Value of any Tax Partnership asset distributed to any Partner shall be adjusted to equal the gross fair market value of such asset on the date of distribution as determined by the distributee and the Operator; and d. The Gross Asset Values of Tax Partnership assets shall be increased (or decreased) to reflect any adjustments to the adjusted basis of such assets pursuant to Code (S) 734(b) or Code (S) 743(b), but only to the extent that such adjustments are taken into account in determining Capital Accounts pursuant to Regs. (S) 1.704-1(b)(2)(iv)(m) and pursuant to this Agreement; provided, however, that Gross Asset Values shall not be adjusted pursuant to this Section to the extent the Operator determines that an adjustment pursuant to paragraph 11(b), above, is necessary or appropriate in connection with a transaction that would otherwise result in an adjustment pursuant to this paragraph (d). If the Gross Asset Value of an asset has been determined or adjusted pursuant to paragraphs (a) or (b), above, or pursuant to this paragraph (d), such Gross Asset Value shall thereafter be adjusted by the Depreciation taken into account with respect to such asset for purposes of computing Profits and Losses. 12. "Partner Nonrecourse Debt" has the meaning set forth in (S) 1.704-2(b)(4) of the Regulations. 13. "Partner Nonrecourse Debt Minimum Gain" means an amount, with respect to each Partner Nonrecourse Debt, equal to the Tax Partnership Minimum Gain that would result if such Partner Nonrecourse Debt were treated as a Nonrecourse Liability, determined in accordance with (S) 1.704-2(i)(3) of the Regulations. 14. "Partner Nonrecourse Deductions" has the meaning set forth in (S)(S) 1.704- 2(i)(1) and 1.704-2(i)(2) of the Regulations. Exhibit E - Page 4 15. "Nonrecourse Deductions" has the meaning set forth in (S) 1.704-2(b)(1) of the Regulations. 16. "Nonrecourse Liability" has the meaning set forth in (S) 1.704-2(b)(3) of the Regulations. 17. "Ownership Interest" means a Party's ownership interest in the Tax Partnership based upon that Party's ownership interest in the Company. 18. "Partner" means a Party to the Participation Agreement to which this Exhibit is attached. 19. "Profits" and "Losses" means, for each Fiscal Year, an amount equal to the Tax Partnership's taxable income or loss for such Fiscal Year, determined in accordance with Code (S) 703(a) (for this purpose, all items of income, gain, loss, or deduction required to be stated separately pursuant to Code (S) 703(a)(1) shall be included in taxable income or loss), with the following adjustments: a. Any income of the Tax Partnership that is exempt from federal income tax and not otherwise taken into account in computing Profits or Losses pursuant to this Section shall be added to such taxable income or loss; b. Any expenditures of the Tax Partnership described in Code (S) 705(a)(2)(B) or treated as Code (S) 705(a)(2)(B) expenditures pursuant to Regs. (S) 1.704-1(b)(2)(iv)(i), and not otherwise taken into account in - computing Profits or Losses pursuant to this Section shall be subtracted from such taxable income or loss; c. In the event the Gross Asset Value of any Tax Partnership asset is adjusted pursuant to paragraphs 11(b) and (c) hereof, the amount of such adjustment shall be taken into account as gain or loss from the disposition of such asset for purposes of computing Profits or Losses; d. Gain or loss resulting from any with respect to which gain or loss is recognized for federal income tax purposes shall be computed by reference to the Gross Asset Value of the property disposed of, notwithstanding that the adjusted tax basis of such property differs from its Gross Asset Value; e. In lieu of the depreciation, amortization, and other cost recovery deductions taken into account in computing such taxable income or loss, there shall be taken into account Depreciation for such Fiscal Year, computed in accordance with paragraph 9, above; f. To the extent an adjustment to the adjusted tax basis of any Tax Partnership asset pursuant to Code (S) 734(b) or Code (S) 743(b) is required pursuant to Regs. (S) 1.704-1(b)(2)(iv)(m)(4) to be taken into account in determining Capital Accounts as a result of a distribution other than in Exhibit E - Page 5 complete liquidation of the Tax Partnership, the amount of such adjustment shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases the basis of the asset) from the disposition of the asset and shall be taken into account for purposes of computing Profits or Losses; and 20. "Regulations" or "Regs." means the Income Tax Regulations, including Temporary Regulations, promulgated under the Code, as such regulations may be amended from time to time (including corresponding provisions of succeeding regulations). 21. "Regulatory Allocations" has the meaning set forth in Section 2.4 hereof. 22. "Tax Matters Partner" shall be the Operator. The Tax Matters Partner shall represent the Tax Partnership in all tax matters as provided in Code (S) 6221 through 6231. 23. "Transfer" and "Transferred" means the passage of a legal or equitable interest in an Ownership Interest pursuant to a sale, exchange, gift, assignment, pledge, hypothecation, foreclosure or other conveyance, disposition or encumbrance, and including without limitation the passage of a legal or equitable interest in the Ownership Interest by judicial order, bequest, devise, intestate succession or other operation of law. "Transfer" means, as a noun, any voluntary or involuntary transfer, sale, or other disposition and, as a verb, voluntarily or involuntarily to transfer, sell, or otherwise dispose of." 2.1 Profits. Subject to the limitations and rules set forth in Section ------- 2.3, 2.4, and 2.5, Profits for each Fiscal Year shall be allocated among the Partners based upon the Ownership Interest of the Parties. 2.2 Allocations of Losses. Subject to the special allocations, --------------------- limitations, and rules set forth in Sections 2.3, 2.4, and 2.5, Losses occurring in any Fiscal Year shall be allocated to the Partners based upon the Ownership Interests of the Parties. 2.2.1 Allocations of Losses Creating Deficit Capital Accounts. The losses ------------------------------------------------------- allocated herein shall not exceed the maximum amount of Losses that can be so allocated without causing any Partner to have an Adjusted Capital Account Deficit at the end of any fiscal year. In the event some, but not all, of the Partners would have Adjusted Capital Account Deficits as a consequence of allocation of Losses pursuant to Section 2.1 hereof, the limitations set forth in this Section 2.2.1 shall be applied on a Partner by Partner basis so as to allocate the maximum permissible Losses to each Partner under (S) 1.704- 1(b)(2)(ii)(d) of the Regulations. 2.3 Special Allocations. The following special allocations shall be ------------------- made in the following order: Exhibit E - Page 6 2.3.1 Minimum Gain Chargeback. Except as otherwise provided in (S) 1.704- ----------------------- 2(f) of the Regulations, notwithstanding any other provision of this Section 2, if there is a net decrease in Tax Partnership Minimum Gain during any Fiscal Year, each Partner shall be specially allocated items of Tax Partnership income and gain for such Fiscal Year (and, if necessary, subsequent Fiscal Years) in an amount equal to such Person's share of the net decrease in Tax Partnership Minimum Gain, determined in accordance with Regs. (S) 1.704-2(g). Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each Partner pursuant thereto. The items to be so allocated shall be determined in accordance with (S)(S) 1.704-2(f)(6) and 1.704-2(j)(2) of the Regulations. This Section 2.3.1 is intended to comply with the minimum gain chargeback requirement in (S) 1.704-2(f) of the Regulations and shall be interpreted consistently therewith. 2.3.2 Partner Minimum Gain Chargeback. Except as otherwise provided in ------------------------------- (S) 1.704-2(i)(4) of the Regulations, notwithstanding any other provision of this Section 2, if there is a net decrease in Partner Nonrecourse Debt Minimum Gain attributable to a Partner Nonrecourse Debt during any Tax Partnership Fiscal Year, each Person who has a share of the Partner Nonrecourse Debt Minimum Gain attributable to such Partner Nonrecourse Debt, determined in accordance with (S) 1.704-2(i)(5) of the Regulations, shall be specially allocated items of Partner income and gain for such Fiscal Year (and, if necessary, subsequent Fiscal Years) in an amount equal to such Person's share of the net decrease in Partner Nonrecourse Debt Minimum Gain attributable to such Partner Nonrecourse Debt, determined in accordance with Regs. (S) 1.704-2(i)(4). Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each Partner pursuant thereto. The items to be so allocated shall be determined in accordance with (S)(S) 1.704-2(i)(4) and 1.704-2(j)(2) of the Regulations. This Section 2.3.2 is intended to comply with the minimum gain chargeback requirement in (S) 1.704-2(i)(4) of the Regulations and shall be interpreted consistently therewith. 2.3.3 Qualified Income Offset. In the event any Partner unexpectedly ----------------------- receives any adjustments, allocations, or distributions described in (S)(S) 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5) or (S) 1.704-1(b)(2)(ii)(d)(6) of the Regulations, items of Tax Partnership income and gain shall be specially allocated to each such Partner in an amount and manner sufficient to eliminate, to the extent required by the Regulations, the Adjusted Capital Account Deficit of such Partner as quickly as possible, provided that an allocation pursuant to this Section 2.3.3 shall be made only if and to the extent that such Partner would have an Adjusted Capital Account Deficit after all other allocations provided for in this Section 2 have been tentatively made as if this Section 2.3.3 were not in the Agreement. 2.3.4 (S) 754 Adjustments. To the extent an adjustment to the adjusted ------------------- tax basis of any Tax Partnership asset pursuant to Code (S) 734(b) or Code (S) 743(b) is required, pursuant to Regs. (S) 1.704-1(b)(2)(iv)(m)(2) or Regs. (S) 1.704-1(b)(2)(iv)(m)(4), to be taken into account in determining Capital Accounts as the result of a distribution to a Partner in complete liquidation of its interest in the Tax Partnership, the amount of such adjustment to Exhibit E - Page 7 Capital Accounts shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis) and such gain or loss shall be specially allocated to the Partners in accordance with their interests in the Tax Partnership in the event that Regs. (S) 1.704-1(b)(2)(iv)(m)(2) applies, or to the Partner to whom such distribution was made in the event that Regs. (S) 1.704-1(b)(2)(iv)(m)(4) applies. 2.4 Curative Allocations. The allocations set forth in Sections 2.2 and -------------------- 2.3 hereof (the "Regulatory Allocations") are intended to comply with certain requirements of the Regulations. It is the intent of the Partners that, to the extent possible, all Regulatory Allocations shall be offset either with other Regulatory Allocations or with special allocations of other items of Tax Partnership income, gain, loss or deduction pursuant to this Section 2.4 (in the current Fiscal Year, or in subsequent Fiscal Years, if necessary). Therefore, notwithstanding any other provision of this Section 2 (other than the Regulatory Allocations), the Operator shall make such offsetting special allocations of Tax Partnership income, gain, loss or deduction in whatever manner it determines appropriate (in the current Fiscal Year, or in subsequent Fiscal Years, if necessary) so that, after such offsetting allocations are made, each Partner's Capital Account balance is, to the extent possible, equal to the Capital Account balance such Partner would have had if the Regulatory Allocations were not part of the Agreement and all Tax Partnership items were allocated pursuant to Sections 2.1, and 2.2. 2.5 Other Allocation Rules. For purposes of determining the Profits, ---------------------- Losses, or any other items allocable to any period, Profits, Losses, and any such other items shall be determined on a daily, monthly, or other basis, as determined by the Partner using any permissible method under Code (S) 706 and the Regulations thereunder. 2.6 Tax Allocations. --------------- 2.6.1 In accordance with Code (S) 704(c) and the Regulations thereunder, income, gain, loss, and deduction with respect to any property contributed to the capital of the Tax Partnership shall, solely for tax purposes, be allocated among the Partners so as to take account of any variation between the adjusted basis of such property to the Tax Partnership for federal income tax purposes and its initial Gross Asset Value (computed in accordance with Section 2.2 hereof). 2.6.2 If the Gross Asset Value of any Tax Partnership asset is adjusted pursuant to Section 2.2 hereof, subsequent allocations of income, gain, loss, and deduction with respect to such asset shall take account of any variation between the adjusted basis of such asset for federal income tax purposes and its Gross Asset Value in the same manner as under Code (S) 704(c) and the Regulations thereunder. 2.6.3 Any elections or other decisions relating to the allocations in this Section 2.6 shall be made by the Operator in any manner that reasonably Exhibit E - Page 8 reflects the purpose and intention of this Agreement. Allocations pursuant to this Section 2.6 are solely for purposes of federal, state, and local taxes and shall not affect, or in any way be taken into account in computing, any Person's Capital Account or share of Profits, Losses, other items, or distributions pursuant to any provisions of this Agreement. 2.7 Compliance With Certain Requirements of Regulations; Deficit Capital -------------------------------------------------------------------- Accounts. In the event the Tax Partnership is "liquidated" within the meaning - -------- of Regs. (S) 1.704-1(b)(2)(ii)(g), (a) distributions shall be made pursuant to this Section 2.7 to the Partners who have positive Capital Accounts in compliance with Regs. (S) 1.704-1(b)(2)(ii)(b)(2). If any Partner has a deficit balance in its Capital Account (after giving effect to all contributions, distributions and allocations for all taxable years, including the year during which such liquidation occurs) such Partner shall have no obligation to make any contribution to the capital of the Tax Partnership solely for the purpose of eliminating the deficit balance, and such deficit shall not be considered a debt owed to the Tax Partnership or any other person; provided, the foregoing shall not relieve any Partner from amounts otherwise due under the provisions of the Agreement or under the Operating Agreement attached to the Agreement. In the discretion of the Operator, a pro rata portion of the distributions that would otherwise be made to the Partners pursuant to this Agreement may be: 2.7.1 distributed to a trust established for the benefit of the Partners for the purposes of liquidating Tax Partnership assets, collecting amounts owed to the Tax Partnership, and paying any contingent or unforeseen liabilities or obligations of the Tax Partnership or of the Partners arising out of or in connection with the Tax Partnership. The assets of any such trust shall be distributed to the Partners from time to time, in the reasonable discretion of the Operator, in the same proportions as the amount distributed to such trust by the Tax Partnership would otherwise have been distributed to the Partners pursuant to this Agreement; or 2.7.2 withheld to provide a reasonable reserve for Tax Partnership liabilities (contingent or otherwise) and to reflect the unrealized portion of any installment obligations owed to the Tax Partnership, provided that such withheld amounts shall be distributed to the Partners as soon as practicable. 2.8 Method. The Tax Partnership shall keep its accounts using the ------ accrual method of accounting. 2.9 Take-in-Kind. Where any Party has retained the right to take his ------------ share of production in-kind and during the taxable year such Party actually exercises such right, any revenue associated with such production from the sale of such production by such Party shall be accounted for separately by that Party. 2.10 Partnership Items and Audits. ---------------------------- 2.10.1 Tax Matters Partner. The parties hereto agree that MarkWest shall ------------------- Exhibit E - Page 9 act in the capacity of Tax Matters Partner. MarkWest, as Tax Matters Partner, agrees to use its best efforts to comply with its duties and responsibilities as set forth in the Code of this Exhibit but, in doing so, shall incur no liability to any other Party for its actions as Tax Matters Partner, including, but not limited to liability for any additional taxes, interest, or penalties owed by any Party due to adjustment of partnership items at the Tax Partnership level. 2.10.2 Consistency. No Party shall knowingly treat a partnership item on ----------- its federal income tax return in a manner inconsistent with the treatment of such item on the Tax Partnership's federal income tax return filed by MarkWest without first giving reasonable advance notice of such intended action (including the proposed treatment of such partnership items) to the other parties. 2.10.3 Communication. The Parties shall furnish Tax Matters Partners with ------------- such information including, without limitation, information specified in Section 6230(e) of the Code, as it may reasonably request to permit it to provide the Internal Revenue Service with sufficient information to allow proper notice to the Parties in accordance with Section 6223 of the Code. The parties shall also furnish to each other copies of all correspondence with the Internal Revenue Service or the Department of Treasury regarding any aspect of any partnership items or the Tax Partnership's tax returns. The Tax Matters Partner shall keep such Party informed of all administrative and judicial proceedings for the adjustment at the Tax Partnership level of partnership items in accordance with Section 6223(g) of the Code. 2.10.4 Extension of Limitation Periods. The Tax Matters Partner shall not ------------------------------- enter into any extension of the period of limitations for making assessments with respect to partnership items, as provided under Section 6229 of the Code, without first giving reasonable advance notice to all other Parties of such intended action and obtaining their unanimous written consent. 2.10.5 Settlement Negotiations. ----------------------- (a) No Party shall enter into settlement negotiations with the Internal Revenue Service or the Department of Treasury with respect to the federal income tax treatment of partnership items without first giving reasonable notice of such intended action (including any proposal for settlement) to the other Parties. No Parties other than the Tax Matters Partner, as provided herein, shall enter into any settlement agreement which binds or purports to bind the Tax Partnership, or any other Party without their written concurrence. Any Party who enters into a settlement agreement with the Internal Revenue Service or the Department of the Treasury with respect to any partnership items shall immediately notify the other Parties of such settlement agreement and its terms. (b) The Tax Matters Partner shall not enter into settlement negotiations with respect to tax treatment of partnership items without first giving reasonable advance notice of such intended action (including any Exhibit E - Page 10 proposal for settlement) to the other Parties. The Tax Matters Partner shall not bind any other Party to a settlement agreement without obtaining the written concurrence of such Party who would be bound by such agreement. 2.10.6 Requests for Administrative Adjustments and Judicial Proceedings. ---------------------------------------------------------------- The Tax Matters Partner shall not file on behalf of the Tax Partnership (a) a request for an administrative adjustment of any partnership item under Section 6227(b) of the Internal Revenue Code, (b) a petition for readjustment of partnership items under Section 6226(a) of the Code, or (c) a petition for an adjustment with respect to partnership items under Section 6228(a) of the Code without first giving reasonable advance notice to all other Parties and securing their written consent. If the requisite approval for filing a petition for readjustment of partnership items under Section 6226(a) of the Code is secured, the Tax Matters Partner shall file the petition within 90 days after the date on which a notice of final partnership administrative adjustment is mailed to the Tax Matters Partner in a court competent jurisdiction approved in writing by the Parties. If the requisite approval for filing a petition for an adjustment with respect to partnership items under Section 6228(a) of the Code is secured, the Tax Matters Partner shall file a petition within the time period specified in Section 6228(a)(2)(A) of the Code in a court of competent jurisdiction approved in writing by the Parties. No Party (including the Tax Matters Partner) shall individually file (a) a request for an administrative adjustment of partnership items under Section 6227(a) of the Code, (b) a petition for readjustment of partnership items under Section 6626(b) of the Code, or (c) petition for an adjustment under Section 6228 of the Code (or under any other section of the Code) with respect to any partnership item or other tax matters involving the Tax Partnership without first giving reasonable advance notice of such intended action and the nature of the contemplated proceeding (including the proposed treatment of the partnership items and the proposed court, if applicable) to the other Parties. 2.10.7 Fees and Expenses. The Tax Matters Partner shall have the right to ----------------- engage legal counsel, certified public accountants, or others with respect to Tax Partnership level tax audits or contests without the prior written consent of the other parties. Any Party may engage legal counsel, certified public accountants, or others on its own behalf and at its sole cost and expense. Any reasonable item of expense with respect to such matters, including but not limited to fees and expenses for legal counsel, certified public accountants, and others which the Tax Matters Partner incurs in connection with any Tax Partnership level audit, assessment, litigation, or other proceeding regarding any partnership item, shall constitute proper charges under the Agreement and shall be borne by the Parties as any other operating expense under the Agreement. 2.10.8 Other Income Based Taxes. The provisions of this Article shall ------------------------ apply for state and local income tax purposes (and for other taxes computed Exhibit E - Page 11 with respect to income) to the extent similar to Code Section 6221 through 6233 are applicable to such taxes. 2.11.1 Termination. The Tax Partnership shall terminate upon: (a) the ----------- withdrawal, dissolution, bankruptcy or insolvency of any Party; (b) the termination of this Agreement; (c) the unanimous consent of the Parties; or (d) as provided by Law. 2.11.2 Procedure Upon Termination. Upon termination of the Tax -------------------------- Partnership, the capital accounts shall be updated and the properties of the Tax Partnership shall be deemed to have been sold at their fair market value determined by using daily market prices for production and in accordance with an independent appraisal for other assets, and the unrealized gains or loss from such deemed sale shall be credited or charged to the Parties' capital accounts. 2.11.3 Deemed Distribution and Recontribution. Notwithstanding any other -------------------------------------- provisions of this Agreement, in the event the Tax Partnership is liquidated within the meaning of Regs. (S) 1.704-1(b)(2)(ii)(g) but no Liquidating Event has occurred, the Property shall not be liquidated, the Tax Partnership's liabilities shall not be paid or discharged, and the Tax Partnership's affairs shall not be wound up. Instead, solely for federal income tax purposes, the Tax Partnership shall be deemed to have distributed the Property in kind to the Partners, who shall be deemed to have assumed and taken subject to all Tax Partnership liabilities, all in accordance with their respective Capital Accounts. Immediately thereafter, the Partners shall be deemed to have recontributed the Property in kind to the Tax Partnership which shall be deemed to have assumed and taken subject to all such liabilities. 2.12 Survival. The provisions of this Exhibit regarding partnership -------- items and audits, including but not limited to the obligation to pay fees and expenses, shall survive the termination of the Agreement, the Tax Partnership and the termination of any Party's interest under the Agreement or the Tax Partnership and shall remain binding on the Parties thereto for a period of time necessary to resolve with the Internal Revenue Service or the Department of the Treasury any and all matters regarding the federal income taxation of the Tax partnership for the applicable tax year. Exhibit E - Page 12 Exhibit F ACCOUNTING PROCEDURES I. DEFINITIONS "Company Property" shall mean the real and personal property subject to the Agreement to which this Accounting Procedure is attached. "Company Operations" shall mean all operations necessary or proper for the development, operation, protection and maintenance of the Company Property. "Company Account" shall mean the account (identified separately from the Operator's non-Company Property accounts) showing the charges paid and credits received in the conduct of the Company Operations which are to be shared by the Parties. "Operator" shall mean the Party designated to conduct the Company Operations, and is the same as the Operator referred to in the body of this Agreement. "Non-Operators" shall mean the other Parties other than the Operator. "Parties" shall mean Operator and Non-Operators. "Supervisors" shall mean those employees whose primary function in Company Operations is the direct supervision of other employees and/or contract labor directly employed on the Company Property in a field operating capacity. "Technical Employees" shall mean those employees having special and specific engineering, geological or other professional skills, and whose primary function in Company Operations is the handling of specific operating conditions and problems for the benefit of the Company Property. "Personal Expenses" shall mean travel and other reasonable reimbursable expenses of Operator's employees incurred in connection with the Company Operations. "Material" shall mean personal property, equipment or supplies acquired or held for use on the Company Property. "Controllable Material" shall mean Material which at the time is so classified in the Material Classification Manual as most recently recommended by the Council of Petroleum Accountants Societies. Exhibit F - Page 1 II. DIRECT CHARGES Operator shall charge the Company Account with the following items: 1. Rentals Rentals and lease payments paid by Operator for the Company Operations. 2. Labor A. (1) Salaries and wages of Operator's field employees directly employed on the Company Property in the conduct of Company Operations. (2) Salaries of Supervisors in the field directly employed on the Company Property in the conduct of Company Operations. (3) Salary of all employees located in the State of Michigan and directly responsible to the Company. B. (i) Operator's cost of holiday, vacation, sickness and disability benefits and other customary allowances paid to employees whose salaries and wages are chargeable to the Company Account; (ii) expenditures or contributions made pursuant to assessments imposed by governmental authority which are applicable to Operator's costs; (iii) Operator's current costs of established plans for employees' group medical and life insurance, hospitalization, pension retirement, stock purchase, thrift, bonus, and other benefit plans of a like nature, applicable to Operator's labor cost are chargeable to the Company Account. The costs under this Paragraph 2B will be charged on a "percentage assessment" of the amount of salaries and wages chargeable to the Company Account under Paragraph 2A of this Section II. The rate shall be based on the Operator's verifiable cost experience and unanimously approved by the Members in the Annual Operating Budget. During the first year of operation the percentage assessment will be thirty-five percent (35%). C. Reimbursable Personal Expenses of those employees whose salaries and wages are chargeable to the Company Account under Paragraph 2A of this Section II. 3. Employee Relocation Proportionate share of expenses involved in relocating employee's to the Company or moving an employee within the Company as set forth in Operator's relocation policy based upon amount of time Exhibit F - Page 2 that employee will be directly engaged in conduct of Company business. 4. Material Material purchased or furnished by Operator for use on the Company Property as provided under Section IV. Only such Material shall be purchased for or transferred to the Company Property as may be required for immediate use and is reasonably practical and consistent with efficient and economical operations. The accumulation of surplus stocks shall be avoided. 5. Transportation and Travel Transportation and Material necessary for the Company Operations but subject to the following limitations: A. If Material is moved to the Company Property from the Operator's warehouse or other properties, no charge shall be made to the Company Account for a distance greater than the distance from the nearest reliable supply store where like material is normally available or railway receiving point nearest the Company Property unless agreed to by the Parties. Travel expenses of Operator's employees while directly engaged on Company business. 6. Services The cost of contract services (including gas treating), equipment and utilities provided by outside sources. The cost and expenses of professional consultant services and contract services of technical personnel directly engaged on the Company Property. 7. Damages and Losses to Company Property. All costs or expenses necessary for the repair or replacement of Company Property made necessary because of damages or losses incurred by fire, flood, storm, theft, accident, or other cause, except those resulting from Operator's gross negligence or willful misconduct. Operator shall furnish Non-Operator written notice of damages or losses incurred as soon as practicable after a report thereof has been received by Operator. Exhibit F - Page 3 8. Legal Expense Subject to the restrictions set out in Section 5.4 of the Agreement to which this Accounting Procedure is attached, expenses of handling, investigating and settling litigation or claims, discharging of liens, payment of judgments and amounts paid for settlement of claims incurred in or resulting from Company Operations under this Agreement or necessary to protect or recover the Company Property, as well as outside legal expenses in connection with contract preparations and negotiations in connection with Company Operations. 9. Taxes All taxes of every kind and nature (other than income taxes and taxes covered by the labor burden under 2.B., above) assessed or levied upon or in connection with the Company Property, the operation thereof, or the production therefrom, and which taxes have been paid by the Operator for the benefit of the Parties. 10. Insurance Net premiums paid for insurance required to be carried for the Company Operations for the protection of the Parties. 11. Abandonment and Reclamation Costs incurred for abandonment of the Company Property, including costs required by governmental or other regulatory authority. 12. Communications Cost of acquiring, leasing, installing, operating, repairing and maintaining communication systems, or area networks, including radio and microwave facilities and telecopiers, telephones and computers directly serving the Company Property. In the event communication facilities/systems serving the Company Property are Operator owned, charges to the Company Property shall for those facilities/systems shall be direct charges hereunder. 13. Other Expenditures Any other expenditure not covered or dealt with in the foregoing provisions of this Section II, or in Section III, and which is of direct benefit to the Company Property and is incurred by the Operator in the necessary and proper conduct of the Company Operations. Chart Integration is a direct charge. III. OVERHEAD Exhibit F - Page 4 1. Administrative and General Overhead - Company Operations: During the initial twelve (12) month period following the Effective Date of the Agreement to which this Exhibit is attached, Operator shall charge the Company Account an amount equal to $35,000.00 per month as overhead (which shall be deemed ---------- to cover all expenses other than Direct Charges hereunder; and thereafter Operator shall charge the Company Account an amount equal to $30,000.00 per month as overhead, which monthly amount ---------- shall be subject to adjustment as provided below. 2. Overhead - Adjustments The overhead rates shall be adjusted as of the 1st day of April each year commencing upon the second April following the effective date of the agreement to which this Exhibit is attached. The adjustment shall be computed by multiplying the rate currently in effect by the percentage increase or decrease in the average weekly earnings of crude petroleum and gas production workers for the last calendar year compared to the calendar year preceding as shown by the index of average weekly earnings of crude petroleum and gas fields production workers as published by the United States Department of Labor, Bureau of Labor Statistics. The adjusted rate shall be the rates currently in use, plus or minus the computed adjustment. IV. PRICING OF COMPANY ACCOUNT MATERIAL PURCHASES, TRANSFERS AND DISPOSITIONS Operator is responsible for Company Account Material and shall make proper and timely charges and credits for all Material movements affecting the Company Property. Operator shall provide all Material for use on the Company Property; however, at Operator's option, that Material may be supplied by a non-operator. Operator shall make timely disposition of idle and/or surplus Material, that disposal being made either through sale to Operator or Non-Operator, division in kind, or sale to outsiders. Operator may purchase, but shall be under no obligation to purchase, interest of Non-Operators in surplus condition A or B Material. The disposal of surplus Controllable Material, having an original cost in excess of Twenty-five Thousand Dollars $25,000.00 shall be subject to agreement by the Parties. ----------- 1. Purchases Material purchased shall be charged at the price paid by Operator after deduction of all discounts received. In case of Material found to be defective or returned to Vendor for any other reasons, credit shall be passed to the Company Account when adjustment has Exhibit F - Page 5 been received by the Operator. 2. Transfers and Dispositions Material furnished to the Company Property and Material transferred from the Company Property or disposed of by the Parties shall be priced on the following basis, exclusive of cash discounts: A. New Material (Condition A) (1) All Material shall be priced at the current new price as invoiced, plus transportation costs, if applicable. (2) Unused new Material, moved from the Company Property shall be priced in accordance with A(1), above. B. Good Used Material (Condition B) (1) Material moved to the Company Property (a) At seventy-five percent (75%) of current new price, as determined by Paragraph A. (2) Material used on and moved from the Company Property (a) At seventy-five percent (75%) of current new price, as determined by Paragraph A, if Material was originally charged to the Company Account as new Material or (b) At sixty-five percent (65%) of current new price, as determined by Paragraph A, if Material was originally charged to the Company Account as used Material. (3) Material not used on and moved from the Company Property (a) At seventy-five percent (75%) of current new price as determined by Paragraph A. The cost of reconditioning, if any, shall be absorbed by the Party receiving the property. C. Other Used Material (1) Condition C Material which is not in sound and serviceable condition and not suitable for its original function until after reconditioning shall be priced at fifty percent (50%) of current new price as determined by Paragraph A. The cost of reconditioning shall be charged to the receiving property, provided Condition C Exhibit F - Page 6 value plus cost of reconditioning does not exceed Condition B value. (2) Condition D Material, excluding junk, no longer suitable for its original purpose, but usable for some other purpose shall be price on a basis commensurate with its use. Operator may dispose of Condition D Material under procedures normally used by Operator without prior approval of Non-Operators. (3) Condition E Junk shall be price at prevailing prices. Operator may dispose of Condition E Material under procedures normally utilized by Operator without prior approval of Non-Operators. D. Obsolete Material Material which is serviceable and usable for its original function but condition and/or value of such Material is not equivalent to that which would justify a price as provided above may be specially priced as agreed to by the Parties. Such price should result in the Joint Account being charged with the value of the service rendered by such Material. 3. Warranty of Material Furnished by Operator Operator does not warrant the Material furnished. In case of defective Material, credit shall not be passed to the Company Account until adjustment has been received by Operator from the manufacturers or their agents. V. INVENTORIES The Operator shall maintain detailed records of Controllable Material, as well as inventories of feedstock, plant products and of exchange balances. 1. In order to minimize the costs tied up in parts inventory while also avoiding operations interruptions, the Operator will be responsible for preparing a detail of parts deemed essential for the operation of the facility. Operator shall inform Non- Operators annually of the value of the inventory to be maintained during the ensuing year. Purchases of inventoriable items made in order to keep the parts inventory at the previously approved level will be expensed and charged as incurred. Exhibit F - Page 7 2. Periodic Inventories, Notice and Representation Physical inventories shall be taken by Operator of the Company Account Controllable Material as determined are necessary. Written notice of intention to take inventory shall be given by Operator at least thirty (30) days before any inventory is to begin so that Non-operators may be represented when any inventory is taken. Written election by Non-operators to not be represented at an inventory shall bind Non-operators to accept the inventory taken by Operator. 3. Reconciliation and Adjustment of Inventories Adjustment to the Company Account resulting from the reconciliation of a physical inventory shall be made in the month following the taking of that physical inventory. Inventory adjustments will be made by Operator to the Company Account for overages and shortages, but, Operator shall be held accountable only for shortages due to lack of reasonable diligence. 4. Special Inventories Special inventories may be taken whenever there is any sale, change of interest, or change of Operator in the Company Property. A special inventory may be taken at the request of any Party but not more often than once every two (2) years. The cost of any special inventory shall be the sole responsibility of the requesting Party. It shall be the duty of the Party selling to notify all other Parties as quickly as possible after the transfer of interest takes place. In those cases, both the MEC and the purchaser shall be governed by that inventory. In cases involving a change of Operator, all Parties shall be governed by that inventory. 5. Expense of Conducting Inventories A. The expense of conducting periodic inventories shall not be charged to the Company Account unless agreed to by the Parties. B. The expense of conducting special inventories shall be charged to the Parties requesting the inventories, except inventories required due to change of Operator, shall be charged to the Company Account. Exhibit F - Page 8 EXHIBIT I GENERAL CONVEYANCE, SPECIAL WARRANTY DEED AND ASSUMPTION AGREEMENT KNOW ALL MEN BY THESE PRESENTS: THIS GENERAL CONVEYANCE AND SPECIAL WARRANTY DEED (referred to hereinafter as "Conveyance"), effective as of 7:00 A.M., Mountain time, as of the date hereof, (referred to as "Effective Time"), from MEC, (referred to hereinafter as "Assignor"), to WEST SHORE PROCESSING COMPANY, LLC, A MICHIGAN LIMITED LIABILITY COMPANY, 5613 DTC Parkway, Suite 400, Englewood, Colorado 80111, (referred to hereinafter as "Assignee"). W I T N E S S E T H: - - - - - - - - - - FOR Ten Dollars and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Assignor hereby GRANTS, SELLS, TRANSFERS, BARGAINS, CONVEYS and ASSIGNS to Assignee, all of the following right, title and interest of Assignor in and to the following assets (such right, title and interest in and to the following being referred to herein as the "Assets"): a. A 98% membership interest in Basin Pipeline Limited Liability Company ("Basin"), it being understood that Basin owns all pipeline facilities, and all related equipment, machinery, supplies, pipelines, facilities, easements, certificates, licenses, rights of way, surface leases and agreements, permits and other properties, real or personal, necessary to ownership and operation thereof, used in connection therewith or appurtenant thereto as owned as of the Agreement, as defined below, including, without limitation, those facilities and properties described on Exhibit M, attached hereto and made a part hereof. b. All personal property and equipment, and fixtures located on or appurtenant to the assets described in paragraph a., above, or used in connection therewith. c. All accounts receivable attributable to the assets described in paragraphs a. and b., above accruing on or after the Effective Time; provided, Assignor retains the right to all revenues attributable to the Assets prior to the Effective Time, even if received after the Effective Time, including, all rights to refunds or rebates of sales taxes related to the Assets prior to the Effective Time, even if received after the Effective Time. d. All records, maps, data, files, test results, and other information in Assignor's possession related to the portions of the Assets described above (the "Records"). Exhibit I - Page 1 e. All real property, rights-of-way, easements, surface agreements, licenses and permits related to or used in connection with the ownership, operation and maintenance of the portions of the Assets described above, including those as more fully described on Exhibit B, attached hereto and made a part hereof, including an easement from Manistee Gas Limited Liability Company ("Manistee") to the Assignee providing access across, ingress to and egress from the lands of Manistee related to the Brown 19 gas plant for the purposes of permitting Assignee access to the facilities acquired from Basin and which are located on the lands utilized by the Brown 19 Gas Plant. f. Those portions of the Brown 19 Gas Plant specifically designated on Exhibit A. g. All contracts and agreements pertaining to the portions of the Assets described above, to the extent described on Exhibit C, attached hereto and made a part hereof. All properties, real, personal or mixed, and rights (contractual or otherwise) included hereinabove are sometimes referred to hereinafter as the "Assets". TO HAVE AND TO HOLD the Assets forever subject to the following terms and conditions: 1. Observance of Laws. This Conveyance is subject to all applicable ------------------ laws, ordinances, rules, and regulations affecting the Assets. 2. Successors and Assigns. The terms, covenants, and conditions hereof ---------------------- bind and inure to the benefit of the parties hereto and their respective successors and assigns. 3. Authority. Assignor represents that (i) it has the full authority --------- to execute this Conveyance, (ii) this Conveyance is enforceable in accordance with its terms. 4. Participation, Ownership and Operating Agreement. This Conveyance ------------------------------------------------ is made expressly subject to and in accordance with the terms and conditions of that certain Participation, Ownership and Operating Agreement between Assignor and MarkWest Michigan LLC, dated ___________ __, 1996 (the "Agreement"), and all representations, warranties, covenants, indemnities and obligations of the parties under the Agreement shall survive the execution and delivery of this Conveyance in accordance with the terms of the Agreement. 5. Further Assurances. The parties agree to execute any and all other ------------------ instruments reasonably required to effectuate and consummate the transactions between them as contemplated by this Conveyance and by the Agreement to Acquire. 6. Warranty of Title. Assignor shall and hereby specially warrants ----------------- Exhibit I - Page 2 title to the Assets and will defend Assignee against all claims whatsoever made against any or all of the Assets arising by, through or under Assignor, but not otherwise. 7. Assumption of Obligations. Assignee hereby assumes all of the ------------------------- Assumed Liabilities, as defined herein. As used herein, the term "Assumed Liabilities" means any and all obligations, liabilities, debts, costs, expenses, liens, encumbrances, demands, claims, actions, losses and damages of any kind whatsoever affecting the Assets or any portion thereof (the "Obligations") including but not limited to all of the Obligations arising out of or connected with any of the contracts or agreements listed on Exhibit C to the Agreement; provided, as between the parties comprising the Company, the Company's assumption of Environmental Obligations, as defined in the Agreement shall be subject to the provisions of the Agreement. THE PARTIES AGREE THAT, TO THE EXTENT REQUIRED TO BE OPERATIVE, THE DISCLAIMERS OF CERTAIN WARRANTIES CONTAINED HEREIN "CONSPICUOUS" DISCLAIMERS FOR THE PURPOSES OF ANY APPLICABLE LAW, RULE OR ORDER. THIS CONVEYANCE IS MADE AND ACCEPTED UPON THE UNDERSTANDING AND AGREEMENT THAT ALL TANGIBLE PERSONAL PROPERTY, MACHINERY, FIXTURES, EQUIPMENT AND MATERIALS CONVEYED HEREBY ARE SOLD AND ASSIGNED AND ACCEPTED BY ASSIGNEE, IN THEIR "WHERE IS, AS IS" CONDITION WITHOUT ANY WARRANTIES WHATSOEVER, EXPRESS OR IMPLIED OR STATUTORY, OF MARKETABILITY, QUALITY, CONDITION, MERCHANTABILITY AND/OR FITNESS FOR A PARTICULARLY PURPOSE OR USE, ALL OF WHICH ARE EXPRESSLY DISCLAIMED. EXECUTED this _____ day of __________, 1996. By:_____________________________ Title: Manager Exhibit I - Page 3 THE STATE OF ________ ) ) COUNTY OF __________ ) The foregoing instrument was acknowledged before me this ____ day of ___________, 1996, by ____________________________, the _______________Manager of MEC. Witness my Hand and Official Seal. My Commission expires: _______________________ ___________________________________ Notary Public Exhibit I - Page 4 EXHIBIT M BASIN PIPELINE ASSETS Generally, the Basin Pipeline assets are spray painted blue, with the adjacent connecting piping with production, the Brown 19 Plant, those assets excluded from the Brown 19 Plant and MichCon fuel gas spray painted orange, red, yellow and yellow-orange striped respectively. Notwithstanding any failure to correctly paint assets, it is the intention that the Basin Pipeline Assets include all properties, equipment, facilities, machinery, supplies, rights or way, easements, permits, contract, certificates and licenses, and all other realty, personalty or mixed property, wherever located, owned by Basin as of the date of this Agreement, including, without limitation, the following: Basin Pipeline Assets - --------------------- Victory Compressor Station Peterson Compressor Station . Basin Pipeline . Slug catcher, filter unit and gas pack at Brown 19 location . Sour liquids storage at Brown 19 location . Flare trailer PC, monitor & keyboard and printer for SCADA in Brown 19 control room (Gateway 2000 and Epson) SCADA System RTU 3310 in Brown 19 control room Dedicated modem RTU 3310's at Murray State and Lakeland Radios (6 handheld, 4 base units) batteries and chargers Vehicle tool boxes and tools and inventory . Portable flare 7 air packs (Murray State, Lakeland, Victory, pumper's trucks, John's & Brian's trucks 3 portable H\2\S monitors . 20 MMSCFD Gas Pack The piping breaks are as follows: 1. Production/Basin Pipeline - orange/blue A. Lakeland a. 3" safety shutoff valve in building b. (2) 1" valve to Lakeland flare on pig launcher B. Olsen a. 3" valve upstream of meter run outside building C. Wierbowski Exhibit M - Page 1 a. 3" valve upstream of meter run outside building D. Peterson Well (Dynamic Development) at Peterson Compressor Station a. 2" valve - Peterson well gas in meter run area b. 2" valve - Peterson compressor (Basin Pipeline) dehydrator water dump into Peterson well treater c. 2" valve - Peterson compressor (Basin Pipeline) fuel gas to Peterson well treater downstream of meter run d. 2" ball check valve - Peterson well treater vent to Peterson compressor (Basin Pipeline) flare E. Abrahamson at Peterson Compressor Station a. 3" valve upstream of meter run F. Billows a. 3" valve upstream of meter outside of building G. Stolberg (with Lunde) a. 3" valve upstream of meter outside building H. Lunde (with Stolberg) a. 3" valve tieing into line that is downstream of Stolberg (Basin's) meter (downstream of Ominmex's meter) I. Welnerts (Miller Bros.) a. 3" shutoff valve upstream of meter outside building j. Murray State a. 4" flange downstream from meter outside building b. 1/2" valve of 3/8" tubing from corrosion inhibitor tank 2. Basin Pipeline/Brown 19 Plant - blue/red A. Basin Pipeline Gas Pack a. 3" valve gas b. 2" valve air c. 2" valve fuel d. 1" and 2" valves - flare B. Sour NGL Storage Exhibit M - Page 2 a. (4) 4" x 6" relief valves on storage tanks to flare b. (4) 2" valves - flash gas c. 2" valve - blowdown to flare d. 2" valve - truck loadout to flare e. 1" valve - sour NGL filter vapor return dump line (truck loadout area) 3. Basin Pipeline/MichCon - blue/yellow-orange striped A. Peterson Compressor a. 2" valve downstream from MichCon's valving set B. Victory Compressors a. 2" flange at downstream edge of MichCon's valving set Exhibit M - Page 3 EX-10.8 11 SECOND AMENDED AND RESTATED AGREEMENT SECOND AMENDED AND RESTATED OPERATING AGREEMENT FOR BASIN PIPELINE L.L.C. A Michigan Limited Liability Company THIS SECOND AMENDED AND RESTATED OPERATING AGREEMENT (this "Operating Agreement") is made and entered into as of May 2, 1996 by and among Basin Pipeline L.L.C, a Michigan Limited Liability Company (the "Company"), and the persons executing this Operating Agreement as members of the Company and all of those who shall hereafter be admitted as members (individually, a "Member" and collectively, the "Members") who agree as follows: RECITALS: A. Pursuant to Articles of Organization filed with the Michigan Department of Commerce on June 16, 1993 (the "Articles"), the Company was organized as a limited liability company under the laws of the State of Michigan. B. Dwain M. Immel, Hi P Limited Partnership and Montana BC Limited (the "Original Members"), the original Members of the Company, executed and delivered the Operating Agreement (the "Original Agreement") dated October 27, 1993 providing for the operation of the Company. C. Effective December 1, 1993, Michigan Gas Fund I (the "Preferred Member") was admitted as a Member of the Company. D. Effective December , 1993, the Original Agreement was amended and restated by the Members by that Amended and Restated Operating Agreement (the "First Amendment"). E. Effective as of May 2, 1996, the Original Common Members and the Preferred Member no longer owned any membership interest in the Company and the Members executing this Operating Agreement (the "New Members") were the sole Members of the Company. F. Simultaneously with the execution of this Operating Agreement, Member Michigan Energy Company, L.L.C. ("MEC') and Member MarkWest Michigan, LLC ("MarkWest") entered into that Participation, Ownership and Operating Agreement (the "Participation Agreement") whereby Member West Shore Processing Company, LLC ("West Shore") was organized and the terms of its ownership and operation were set out and whereby Mark West was designated as its "Operator" in accordance with the terms thereof. Certain terms and provisions of the Participation Agreement are incorporated herein by the references thereto contained in this Operating Agreement and in the manner prescribed herein. G. The Members desire to amend and restate the Original Agreement, as amended and restated by the First Amendment in order to evidence admission of the New Members as Members of the Company and make certain additional changes thereto. In consideration of the foregoing and of the mutual agreements, provisions and covenants herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and in order to effect the intentions of the Members as set forth above, the Members hereby agree to amend and restate the Original Agreement, as amended and restated by the First Amendment as follows: ARTICLE I ORGANIZATION ------------ 1.1 Formation. The Company has been organized as a Michigan Limited ---------- Liability Company under and pursuant to the Michigan Limited Liability Company Act, being Act No. 23, Public Acts of 1993 (the "Act"), by the filing of the Articles with the Department of Commerce of the State of Michigan as required by the Act. 1.2 Name. The name of the Company shall be Basin Pipeline L.L.C. The ----- Company may also conduct its business under one or more assumed names. 1.3 Purposes. The purposes of the Company are to engage in any activity --------- for which Limited Liability Companies may be formed under the Act, including, but not limited to, the construction and operation of a pipeline gathering system in Michigan pursuant to authority granted under 1929 PA 9, as amended (MCL 483.109). The Company shall have all the powers necessary or convenient to effect any purpose for which it is formed, including all powers granted by the Act. 1.4 Duration. The Company shall continue in existence for the period fixed --------- in the Articles for the duration of the Company or until the Company shall be sooner dissolved and its affairs wound up in accordance with the Act or this Operating Agreement. 1.5 Registered Office and Resident Agent. The Registered Office and ------------------------------------- Resident Agent of the Company shall be as designated in the initial Articles or any amendment thereof. The Registered Office and/or Resident Agent may be changed from time to time. Any such change shall be made in accordance with the Act. If the Resident Agent shall ever resign, the Company shall promptly appoint a successor. 1.6 Intention for Company. The Members have formed the Company as a ---------------------- Limited Liability Company under and pursuant to the Act. The Members specifically intend and agree that the Company not be a partnership (including, a limited partnership) or any other venture, but a Limited Liability Company under and pursuant to the Act. No Member or Manager shall be construed to be a partner in the Company or a partner of any other Member, Manager or person -2- and the Articles, this Operating Agreement and the relationships created thereby and arising therefrom shall not be construed to suggest otherwise. 1.7 Effective Date. (the "Effective Date"). --------------- This Operating Agreement shall be effective as of May 2, 1996 ARTICLE II BOOKS, RECORDS AND ACCOUNTING ----------------------------- 2.1 Books and Records. The Company shall maintain complete and accurate ------------------ books and records of the Company's business and affairs as required by the Act and such books and records shall be kept at the Company's Registered Office. 2.2 Fiscal Year: Accounting. The Company's fiscal year shall be the ------------------------ calendar year. The particular accounting methods and principles to be followed by the Company shall be selected by the Manager from time to time. 2.3 Reports. The Manager shall provide reports concerning the financial -------- condition and results of operation of the Company and the Capital Accounts of the Members to the Members in the time, manner and form as provided in the Participation Agreement. 2.4 Member's Accounts. Separate capital accounts for each Member shall be ------------------ maintained by the Company in accordance with the applicable provisions of the Participation Agreement. ARTICLE III CAPITAL CONTRIBUTIONS --------------------- 3.1 Initial Capital. The agreed value of the capital of the Company to ---------------- be credited to each Member on the Effective Date is set forth on the attached Exhibit A. The Sharing Ratios (herein so called) of the Members in the Company as of the Effective Date shall be as set forth on Exhibit A hereto. Any additional Member (other than an assignee of a membership interest who has been admitted as a Member), who shall be admitted only upon the approval of all Members shall make the capital contribution set forth in an Admission Agreement. No interest shall accrue on any capital contribution and no Member shall have any right to withdraw or to be repaid any capital contribution except as provided in this Operating Agreement. 3.2 Additional Contributions. In addition to the initial capital ------------------------- contributions heretofore made by the Members additional contributions shall be governed by the applicable provisions of the Participation Agreement and the obligations of the members for additional contributions and remedies for failures to make such as may be specified in the Participation Agreement ARTICLE IV ALLOCATIONS AND DISTRIBUTIONS ----------------------------- -3- 4.1 Allocations. ------------ (a) Profits and losses shall be determined and allocated to the Members consistent with the provisions of the Participation Agreement. (b) All items of income, gain, loss, deduction or credit of the Company, shall be allocated to and shared by the Members in accordance with their respective Sharing Ratios. 4.2 Distributions. All distributions shall be made in conformance with -------------- distribution provisions set out in Section 4.1 and other applicable Sections of the Participation Agreement. ARTICLE V DISPOSITION OF MEMBERSHIP INTERESTS ----------------------------------- 5.1 General. MEC And MarkWest shall each have the right to dispose of or -------- transfer their respective membership interests in the Company and to cause West Shore, on their respective behalves, to dispose of portions of West Shore's membership interests in the Company in amounts of interest proportionate to their respective ownership interests in West Shore and on terms equivalent to those set out in Article IX of the Participation Agreement governing transfer and dispositions by MEC and MarkWest of their interest in West Shore. 5.2 Admission of Substitute Members. A permitted transferee of a -------------------------------- membership interest shall be admitted as a subtitute Member and shall be entiltled to all the rights and powers of the assignor. ARTICLE VI MEETING AND REPRESENTATIONS OF MEMBERS -------------------------------------- 6.1 Voting. voting all matters requiring a vote of the Members shall be ------- governed by the voting procedures set out in Section 5.2 of the Participation Agreement. MEC and Mark West shall each be entitled to vote their respectives membership interests. The designated Operator of West Shore shallbe entitled to vote the West Shores membership interest, provided, however, that any such vote shall be exercised in conformance with an appropriate vote of the Members of West Shore in accordance with the voting procedures under the Participation Agreement. 6.2 Required Vote. Unless a greater vote is required by the Act, the -------------- Articles or would be required under the Participation Agreement had the vote been with regard to the same or similar issue the affirmative vote or consent of a majority of the Sharing Ratios of all the Members entitled to vote or consent on such matter shall be required. For purposes of this Agreement, any reference to a majority of Members or majority of remaining Members shall be defined as those Members holding a majority of the Sharing Ratios of the Members or remaining Members if applicable. -4- 6.3 Meetings. An annual meeting of Members for the transaction of such --------- business as may properly come before the Meeting, shall be held at such place, on such date and at such time as the annual meeting of the Members of West Shore. Special meetings of Members for any proper purpose or purposes may be called at any time by the Manager or any Member. The Company shall deliver or mail written notice stating the date, time, place and purposes of any meeting to each Member entitled to vote at the meeting. Such notice shall be given not less than five (5), no more than sixty (60) days before the date of the meeting. All meetings of the Members shall be presided over by a Chairperson who shall be a representative or a Member so designated by the Manager. 6.4 Consent. Any action required or permitted to be taken at an annual -------- or special meeting of the Members may be taken without a meeting, without prior notice, and without a vote, if consents in writing, setting forth the action so taken are signed by the Members having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all membership interests entitled to vote on the action were present and voted. Every written consent shall bear the date and signature of each Member who signs the consent. Prompt notice of the taking of action without a meeting by less than unanimous written consent shall be given to all Members who have not consented in writing to such action. 6.5 Representations and Warranties. Each Member, and in the case of an ------------------------------- organization, the person(s) executing the Company Agreement on behalf of the organization, hereby represents and warrants to the Company and each other Member that: (a) if the Member is an organization, that it is duly organized, validly existing and in good standing under the laws of its state of organization and that it has full organizational power to execute and agree to this Operating Agreement to perform its obligations hereunder; (b) that the Member is acquiring its interest in the Company for the Member's own account as an investment and without an intent to distribute the interest; (c) the Member acknowledges that the interests in the Company have not been registered under the Securities Act of 1933 or any state securities laws, and may not be resold or transferred by the Member without appropriate registration or the availability of an exemption from such requirements. ARTICLE VII MANAGEMENT ---------- 7.1 Management of Business. The Company shall be managed by one (1) ----------------------- person ("Manager"). The Manager shall be the party serving, from time to time, as Operator under the terms of the Participation Agreement. The terms, duties, compensation and benefits, if any, of the Manager not provided for herein shall be determined by the Members. The Manager shall serve at the will and pleasure of the Members. 7.2 Powers of Manager. The Manager shall have the same powers and ------------------ authority with respect to the Company and its assets as were granted to the Operator of West Shore with respect to West Shore and its assets pursuant to Section 5.3 of the Participation Agreement. Likewise, the Manager's authority shall be limited in the same manner as the authority of the Operator is -5- limited in Section 5.4 of the Participation Agreement and elsewhere in the Participation Agreement. 7.3 Standard of Care: Liability. Manager shall discharge its duties as a ---------------------------- manager in good faith, with the care an ordinarily prudent person in a like position would exercise under similar circumstances, and in a manner it reasonably believes to be in the best interests of the Company. Manager shall not be liable for any monetary damages to the Company for any breach of such duties except for receipt of a financial benefit to which Manager is not entitled; voting for or assenting to a distribution to Members in violation of this Operating Agreement or the Act; or a knowing violation of the law. 7.4 Other Activities of Members. Except as similar activities would have ---------------------------- been prohibited for parties or members under the terms and provisions of the Participation Agreement, any Member or Manager may, without notice to or consent from any other Member, engage and invest in other business ventures or properties of any nature, including, without limitation, all aspects of the hydrocarbon and mineral business, and the pipeline transportation and marketing business, whether or not competitive with the business of the Company. No Member or Manager shall, by virtue of the Articles or this Operating Agreement, have any right or interest in the other Member's or Manager's ventures or investments, or in the income and profits therefrom. 7.5 Tax Matters Member. The Members shall designate one of their number as ------------------ the tax matters member of the Company pursuant to (s)6231 (a)(7) of the Code. Any Member designated as tax matter shall take suchaction as may be nececssary to cause each other Members to become a noticememmber within the meaning of (s)6223 of Code. Any Member who is designated tax matter member may not take any action contemplated by (s)(s)6222 through 6232 of the Code without the consent of the Manager, if any. Until changed by the Company, the tax matters member is West Shore. ARTICLE VIII EXCULPATION OF LIABILITY; INDEMNIFICATION ----------------------------------------- 8.1 Exculpation of Liability. Unless other,vise provided by law or ------------------------- expressly assumed, a person who is a Member or Manager, or both, shall not be liable for the acts, debts or liabilities of the Company. 8.2 Indemnification. It is intended that all matters of indemnification ---------------- and allocation of liabilities and obligations among MEC, MarkWest and the Company shall be treated in the same manner as prescribed under Sections 19.2 through 19.6 of the Participation Agreement and in the same manner such matters would have been treated had the applicable liabilities and obligations related to that portion of the Assets (as defined in the Participation Agreement) other than membership interests in the Company (i.e. Basin Pipeline L.L.C.). The provisions of Section 19.2(a) of the Participation Agreement regarding indemnification and holding harmless of West Shore and MarkWest by MEC shall apply to the cumulative Obligations (as defined in the Participation Agreement) of the type covered by Section 19.2(a) of both the Company as well as West Shore and shall apply to indemnification and holding harmless of the Company as welt -6- as West Shore. The provisions of Section 19.2(b) of the Participation Agreement allocating "Environmental Obligations" (as defined in the Participation Agreement) of "the Company" (i.e. West Shore) among MEC and MarkWest are intended to and shall hereafter apply to the cumulative Environment Obligations of both West Shore and the Company. The provisions of Sections 19.2(b)(iv)(B) and(C) shall likewise apply in such a manner that MEC's option to purchase the membership interests of Mark West in West Shore shall also include the right of MEC to purchase Mark West's membership interest in the Company for no additional consideration. ARTICLE IX DISSOLUTION AND WINDING UP -------------------------- 9.1 Dissolution. The Company shall dissolve and its affairs shall be ------------ wound up on the first to occur of the following events: (a) at any time specified in the Articles or this Operating Agreement; (b) upon the happening of any event specified in the Articles or this Operating Agreement; (c) by the unanimous consent of all of the Members; or (d) upon the expulsion, withdrawal, bankruptcy, or dissolution of a Member. 9.2 Winding Up and Liquidation. Upon dissolution of the Company, the --------------------------- Company's affairs shall be wound up in the same manner as and consistent with that set out in Section 21.3 of the Participation Agreement. ARTICLE X MISCELLANEOUS PROVISIONS ------------------------ 10.1 Terms. Nouns and pronouns will be deemed to refer to the masculine, ------ feminine, neuter, singular and plural, as the identity of the person or persons, firm or corporation may in the context require. 10.2 Article Headings. The Article headings contained in this Operating ----------------- Agreement has been inserted only as a matter of convenience and for reference, and in no way shall be construed to define, limit or describe the scope or intent of any provision of this Operating Agreement. 10.3 Counterparts. This Operating Agreement may be executed in several ------------- counterparts, each of which will be deemed an original but all of which will constitute one and the same. 10.4 Severability. The invalidity or unenforceability of any particular ------------- provision of this Operating Agreement shall not affect the other provisions hereof, and this Operating Agreement shall be construed in all respects as if such invalid or unenforceable provisions were ommitted. -7- 10.7 Binding Effect. Subject to the provisions of this Operating Agreement --------------- relating to transferability, this Operating Agreement will be binding upon and shall inure to the benefit of the parties, and their distributees, heirs, successors and assings. 10.8 Governing Law. This Operating Agreement is being executed and ------------- delivered in the State of Michigan and shall be government by, construed and enforced in accordance with the laws of the State of Michigan. IN WITNESS WHEREOF, The parties hereto make and execute this Operating Agreement on the dates set forth, to be effective on the date first above written. THE COMPANY: Date: May 2 1996 ---------- BASIN PIPELINE L.L.C By West Shores Processing Company, LLC, its manager, By Mark West Michigan, LLC, its opertor, By Mark West Hydrocarbon Partners, Ltd., its manager, Mark West Hydrocarbon, Inc., its general manager By: /s/ Arthur J. Denney Name: Arthur J. Denney Title: Vice President -------------- MEMBERS: Date: May 2 1996 ---------- WEST SHORES PROCESSING COMPANY, LLC By Mark West Michigan, LLC, its operator, By Mark West Hydrocarbon Partners, Ltd., its manager, by Mark West Hydrocarbon, Inc., its general manager BY: /s/ Arthur J. Denney Name: Arthur J. Denney Title: Vice President -------------- Date: May 2 1996 ---------- MARKWEST MICHIGAN, LLC, By Mark West Hydrocarbon Partners, Ltd., its manager, By Mark West Hydrocarbon, Inc., its general partner By: /s/ Arthur J. Denney Name: Arthur J. Denney ---------------- Title:Vice President -------------- -8- MICHIGAN ENERGY COMPANY, L.L.C. Date: May 2, 1996 BY: /s/ Michael V. Ronca Michael V. Ronca, Manager BY: /s/ Robert L. Zorich Robert L. Zorich, Manager -9- Member - ------ West Shore Processing Company, LLC MarkWest Michigan, LLC Michigan Energy Company, L.L.C. TOTAL EXHIBIT A Capital $98.0O $1.20 $ .80 ------- $100.00 Sharing Ratio 98.0% ------------- 1.2% 0.8% 100.00% -1- EX-10.9 12 SUBORDINATION AGREEMENT EXHIBIT H SUBORDINATION AGREEMENT ----------------------- THIS SUBORDINATION AGREEMENT ("Agreement") is entered into as of the 2nd ------------- day of May, 1996, among MarkWest Michigan LLC, a Colorado limited liability company ("MarkWest"), Bank of America Illinois, an Illinois banking corporation ------------- (including any Transferee, "Bank"), West Shore Processing Company, L.L.C., a -------- Michigan limited liability company ("West Shore"), Basin Pipeline L.L.C., a --------------- Michigan limited liability company ("Basin"; Basin and West Shore sometimes --------- being referred to collectively as the "Companies"), and Michigan Energy Company, ------------- L.L.C., a Michigan limited liability company ("MEC") ------- RECITALS: --------- A. Michigan Production Company, L.L.C. ("MPC") is now indebted or may in ------- the future become indebted to the Bank, which indebtedness is now or may in the future become secured, as provided in the Credit Agreement (defined below), by mortgages, assignments of proceeds and/or production, security agreements, and financing statements encumbering and granting the Bank a lien in its favor as to the oil and gas leaseholds, lands and other interests described on Attachment A, ------------- attached hereto and made a part hereof (the "MPC Assets") ------------- B. MEC, which is on the date hereof the owner of a majority of the outstanding membership interests in West Shore (subject to the right of MarkWest to acquire up to 60% of the membership interests in West Shore), which in turn is owner of a majority of the outstanding membership interests of Basin, is now indebted to the Bank or may in the future become indebted to the Bank pursuant to the Credit Agreement. C. The indebtedness of MPC and MEC from time to time owing to the Bank is guaranteed by the Companies pursuant to certain secured guaranties of even date herewith delivered pursuant to the Credit Agreement and, as provided in the Credit Agreement, is secured by, among other things, mortgages, assignments of proceeds and/or production, security agreements, deeds of trust and financing statements encumbering the assets now or hereafter owned by the Companies and by MEC's ownership interest in the Companies, including without limitation, (i) the assets contributed by MEC to West Shore under that certain Participation, Ownership and Operating Agreement for West Shore Processing Company, L.L.C., between MEC and MarkWest, dated as of May 2, 1996 ("West Shore Agreement"), (ii) ------------------------- the assets of Basin subject to that certain Amended and Restated Operating Agreement for Basin Pipeline L.L.C., between MEC, West Shore and MarkWest, dated as of May 2, 1996 ("Basin ------- Agreement"; the Basin Agreement and the West Shore Agreement being referred to - ----------- herein collectively as the "Operating Agreements"), and (iii) the membership ------------------------ interests of MEC in West Shore and Basin. D. Under the Operating Agreements, MarkWest will acquire from time to time certain additional membership interests in West Shore (the membership interests in West Shore and Basin being referred to as "LLC Units"). ------------- E. West Shore does or will own certain assets including assets contributed by MEC under the West Shore Agreement, and certain Gas Gathering, Treating and Processing Agreements, now or hereafter entered into, between West Shore and MPC pertaining to gas produced from the MPC Assets ("Gas Agreements") ------------------ and which are to or may in the future become subject to liens in favor of the Bank. F. The obligation of MarkWest to proceed to "Final Closing" (as defined in the West Shore Agreement) is conditioned on, among other things, the granting of the subordination by the Bank herein. AGREEMENT --------- NOW, THEREFORE, in consideration of the foregoing, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties to this Agreement hereby agree as follows: 1. Certain Definitions. As used in this Agreement, the terms set forth -------------------- below in this Section 1 shall have the meanings provided below: --------- "Bankruptcy Code" means 11 U.S.C. (S) 101 et seq., as from time to time ----------------- -------- hereafter amended, and any successor or similar statute. "Bank Obligations" means the indebtedness and other obligations of MEC, MPC ------------------ and the Companies to the Bank pursuant to the Credit Agreement, the Guarantees and the other Loan Documents, it being understood that the term "Bank Obligations" does not include the LSNRC Obligations. "Company Assets" means, collectively, the assets, rights and properties of ---------------- West Shore and Basin (other than LLC Units). "Credit Agreement" means that certain Amended and Restated Credit Agreement ------------------ of even date herewith among MEC, MPC and the Bank, as the same may be amended, restated, modified or supplemented from time to time in accordance with its terms. - 2 - "Energy Company's Share" shall have the meaning provided in the Secured ------------------------ Guaranty as in effect on the date hereof, and as hereafter amended from time to time with the consent of MarkWest. "Gas Agreements" is defined in the fifth recital. ---------------- -------------- "Loan Documents" shall have the meaning provided in the Credit Agreement as ---------------- in effect on the date hereof, and as hereafter amended from time to time with the consent of MarkWest. "LSNRC Obligations" means the obligations of the MEC and MPC to LaSalle ------------------- Street Natural Resources Corporation pursuant to the Agreement Concerning NPI Interests and Preferred LLC Interests of even date herewith among MEC, MPC, the Bank and LaSalle Street Natural Resources Corporation. "Person" means and includes an individual, a partnership, a joint venture, -------- a corporation, a trust, an unincorporated organization and a government or any department or agency thereof. "Transferee" means the Bank's successors, the assigns of any of the Bank ------------ Obligations or of any Liens on any of the Company Assets or any LLC Units owned by MEC, and any transferee of any interest in any Company Assets or LLC Units owned by MEC acquired by, through or under any foreclosure proceeding or other exercise of remedies by the Bank or any such successor or assign. 2. Subordination and Related Provisions. ------------------------------------- 2.1 Subordination to MarkWest Interests. (a) The Bank acknowledges ------------------------------------ that, the interests in the LLC Units which may be acquired from time to time by MarkWest pursuant to the West Shore Agreement are to be acquired free and clear of all liens, including the liens in favor of the Bank pursuant to the Loan Documents. In furtherance of the foregoing, the Bank hereby covenants and agrees that, to the extent and in the manner hereinafter set forth in this Section 2, ---------- all liens on the Company Assets and the LLC Units securing the Bank Obligations are hereby expressly made subordinate and subject as provided in this Section 2 --------- to the MarkWest Interests, to the extent that such rights and interests have, from time to time, accrued in favor of MarkWest and been paid for or granted pursuant to capital contributions made by MarkWest in accordance with the terms of the Operating Agreements. The "MarkWest Interests" means all of the -------------------- following, but without duplication: (i) MarkWest's interest from time to time in the LLC Units; (ii) an undivided beneficial percentage interest in the Company Assets equal to the percentage of the LLC Units owned directly and indirectly by MarkWest; and (iii) Mark West's rights and interests under the West Shore Agreement and the Basin Agreement (including, without limitation, rights to receive payments, distributions and indemnities). The MarkWest Interest - 3 - shall be calculated and determined pursuant to the West Shore Agreement and without regard to, and free of the burden of, the obligations of MEC, MPC and any other obligor to the Bank. (b) The Bank hereby covenants and agrees that it shall execute and deliver such documents and instruments as may be reasonably necessary to release, or at any election by MarkWest and any Other Lender (as defined in Section 8 below) to --------- assign to the Other Lenders, to the extent of the MarkWest Interests, the liens in favor of the Bank encumbering the Company Assets and the LLC Interests securing the Bank Obligations; provided, that the Bank shall not be required to --------- execute and deliver releases (i) on more than one occasion during any calendar month or (ii) on more than 17 occasions in the aggregate during the period commencing on the date hereof and ending on the earlier of (x) September 1, 1997 and (y) the date on which MarkWest has made its entire maximum contribution to the Companies under the Operating Agreements. (c) The agreements of the Bank under this Agreement shall be binding upon the Bank including each Transferee. The Bank shall cause each of the Loan Documents executed by West Shore or Basin or encumbering any Company Asset or LLC Unit to contain a provision expressly subjecting such Loan Document to the terms of this Subordination Agreement. Without limiting the foregoing provisions of this Section 2.1, the Bank further agrees as follows: ------------ (i) No foreclosure, or transfer in lieu thereof, of any interest in any Company Asset shall be made by the Bank if such foreclosure or transfer in lieu thereof would cause a suspension or termination of any governmental permit, license or right necessary for the operation of any Company Asset of Basin until any required governmental consent, approval or replacement permit, license or right has been obtained. (ii) If the Bank shall acquire any interest in Company Assets it shall hold such undivided interest, in the case of assets owned by Basin, as a tenant in common (in the case of real property interests) or as a co-owner (in the case of personal property interests) with Basin (or any successor or assign of the remaining portion of West Shore's interest in such Company Assets), and in the case of assets owned by West Shore, as a tenant in common (in the case of real property interests) or as a co-owner (in the case of personal property interests) with MarkWest (or any successor or assign of the remaining portion of MarkWest's interest in such Company Assets), subject to all of the terms of the West Shore Agreement, and each of the parties hereto hereby absolutely waives any right to seek or obtain a partition of any of such Company Assets. The foregoing shall not be construed to modify any provision of Section 21.3 of the West Shore ------------ Agreement. - 4 - (iii) No foreclosure, or transfer in lieu thereof, of any interest in any Company Asset shall be made by the Bank until (A) it contemporaneously initiates actions to enforce its liens on all collateral (other than the Company Assets) securing the obligations of MEC, MPC and all other obligors to the Bank (the "Other Collateral") and (B) it has given notice to MarkWest and the Other - ------------------- Lenders of its intent to foreclose. The Bank shall also have the right to release portions of the Other Collateral from its liens. (iv) If the condition in Section 2.1(c)(iii) has been satisfied and ------------------- the Bank commences a foreclosure action against any Company Asset, then it agrees to foreclose only upon Energy Company's Share of such asset (determined as of the date of the foreclosure), which interest in such asset shall be subject in all events to MarkWest's right to earn interests pursuant to the West Shore Agreement. The West Shore Agreement contains provisions that provide for the physical operation and management of the Company Assets, as well as the Companies, to be controlled by the manager of West Shore (initially MarkWest) and the parties expressly acknowledge and agree that the intent of this section is that after any foreclosure by the Bank, (1) the Bank shall not receive or be entitled to any interest in the LLC Units or the Company Assets that exceeds Energy Company's Share thereof and (2) any LLC Units received by the Bank in such foreclosure shall remain subject to the terms of the Operating Agreements. 2.2 Subordination to Gas Agreements. -------------------------------- (a) The Bank hereby covenants and agrees that, to the extent and in the manner hereinafter set forth in this Section 2, any and all liens and ---------- security interests encumbering the MPC Assets in favor of the Bank shall be expressly subordinate to the rights and interests of West Shore under the Gas Agreements. In furtherance of the foregoing, the Bank agrees that a foreclosure by the Bank upon the MPC Assets shall not operate to terminate the Gas Agreements, which shall remain in full force and effect with respect to the MPC Assets, in accordance with their respective terms and conditions. (b) The Bank hereby covenants and agrees that it shall execute and deliver such documents and instruments as may be reasonably necessary to reflect and give effect to the subordination set forth in the foregoing subsection ---------- 2.2(a). - ------- 2.3 Effect of Bankruptcy. In the event of (a) any insolvency or --------------------- bankruptcy case or proceeding, or any receivership, liquidation, reorganization or other similar case or proceeding in connection therewith, relative to MEC, West Shore or Basin, or to - 5 - the properties or assets of either of them, or the rejection of the Operating Agreements as executory contracts in any such proceeding or (b) any liquidation, dissolution or other winding-up of MEC or West Shore, whether voluntary or involuntary and whether or not involving insolvency or bankruptcy, or (c) any assignment for the benefit of creditors or any other marshaling of assets or liabilities of MEC or West Shore, then and in any such event the Operating Agreements and the Gas Agreements shall continue in full force and effect and shall not be terminated as a result of any foreclosure by the Bank on any Company Assets or LLC Interests securing the Bank Obligations. 2.4 Payments to be Held in Trust. MarkWest and the Bank hereby agree ----------------------------- that in the event that either of them shall receive any payment or distribution of assets of any Company of any kind or character in respect of the Bank Obligations or the MarkWest Interests in excess of (a) in the case of MarkWest, the portion of such payment or distribution represented by the MarkWest Interests or otherwise payable or distributable to MarkWest for any reason, under the terms of the Operating Agreements, or (b) in the case of the Bank, the portion of such payment or distribution represented by Energy Company's Share therein as pledged to the Bank or otherwise payable or distributable to the Bank for any reason under the terms of the Operating Agreements, then and in such event the party receiving such excess payment or distribution shall be deemed to have received such excess amount in trust for the party entitled thereto, and shall pay over or deliver such excess amount forthwith to the party entitled thereto, in the same form in which the payment or distribution was made. 2.5. Obligations of Borrowers and Companies Unconditional. Nothing ----------------------------------------------------- contained in this Section 2 or elsewhere in this Agreement is intended to or shall impair, as between the Borrowers and the Companies, and their creditors other than the Bank, the obligations of the Borrower and the Companies to the Bank to pay the Bank Obligations as and when the same shall become due and payable in accordance with their terms, or to affect the relative rights of the Bank and creditors of the Borrowers and the Companies other than MarkWest, nor shall anything herein prevent the Bank from exercising all remedies otherwise permitted by applicable law upon the happening of an Event of Default under the Credit Agreement, subject to the rights, if any, under this Section 2 of --------- MarkWest with respect to assets, whether in cash, property or securities, of the Companies received upon the exercise of any such remedy. Nothing contained in this Section 2 or elsewhere in this Agreement --------- shall affect the obligation of the Borrowers and the Companies to make, or prevent any of the Borrowers or the Companies from making at any time, payment of the Bank Obligations. The fact that a failure to make payment on account of the Bank Obligations - 6 - results from any provision of this Section 2 shall not be construed as --------- preventing the occurrence or continuance of an Event of Default under the Credit Agreement. 2.6. Bank Entitled to Assume Payments Not Prohibited in -------------------------------------------------- Absence of Notice. The Bank shall not at any time be charged with knowledge of - ------------------ the existence of any facts which would prohibit the making of any payment to it, unless and until the Bank shall have received written notice thereof at its principal office from the Companies or from MarkWest thereof; and prior to the receipt of any such written notice the Bank shall be entitled to assume conclusively that no such facts exist, without, however, limiting any such rights of MarkWest under this Section 2 to recover from the Bank any payment --------- made to the Bank which it is not entitled under this Section 2 to retain. --------- 2.7. Distribution of Companies' Cash. In furtherance of the terms of -------------------------------- Section 2.1 above, it is hereby agreed among the Companies, MEC, MarkWest and - ----------- the Bank that under the Operating Agreements and the Loan Documents, the Companies shall be required to distribute, all available cash to their members in accordance with the West Shore Agreement. 2.8. Additional Liens. West Shore and Basin each hereby agree to grant ----------------- to the Lender from time to time liens and security interests in all newly arising, acquired or constructed Company Assets ("New Assets") pursuant to -------------- documents supplementary to or in the form of the Loan Documents executed by West Shore and Basin contemporaneously with this Agreement. MarkWest expressly consents to the granting of such additional liens and security interests, with the understanding that such additional liens and security interests shall be subject to the terms of this Agreement. The Bank hereby similarly acknowledges that pursuant to credit agreements with the Other Lenders, the Other Lenders may be granted additional liens and security interests in New Assets by West Shore or Basin. The Bank expressly consents to the granting of such additional liens and security interests provided that they shall be subject to the terms of this Agreement. 3. Waiver. Each Company hereby waives presentment, demand for payment, ------- notice of protest and all other demands and notices in connection with the delivery, acceptance, performance or enforcement hereof. 4. No Disposition. The Bank will not sell, assign, pledge, encumber or --------------- otherwise dispose of any of the Bank Obligations owed to it unless such sale, assignment, pledge, encumbrance or disposition is made expressly subject to this Agreement. 5. Amendments to MarkWest Documents. No provision of either of the --------------------------------- Operating Agreements shall, without the prior written - 7 - consent of the Bank, be amended, supplemented, modified or waived in any respect. 6. Successors, Assigns, Beneficiaries. This Agreement is being entered ----------------------------------- into for the benefit of, and shall be binding upon and inure to the benefit of MarkWest, the Bank, the Companies, and their respective successors and assigns. This Agreement shall remain in full force and effect so long as any Operating Agreement remains in effect. It is expressly understood that this Agreement is being entered into for the additional benefit of the Other Lenders from time to time. 7. Notices; Amendments. All notices pursuant to this Agreement shall -------------------- be addressed and delivered in the manner provided in the Credit Agreement. No amendment, waiver or modification of any term of this Agreement shall be effective unless made in accordance with the Credit Agreement. 8. MarkWest Financing. To the extent required to enable MarkWest to ------------------- obtain financing with respect to its obligations regarding West Shore and/or Basin, the Bank will enter into mutually satisfactory intercreditor agreements and other documents as may be reasonably required by MarkWest's lender(s) (the "Other Lenders") consistent with the terms of this Agreement. The Other Lenders - ---------------- will (a) from time to time enter into Subordination Agreements containing reciprocal terms and conditions to this Agreement (or otherwise agree, in a separate agreement, satisfactory in form and substance to the Bank, to be bound by and to affirmatively assume identical duties and obligations in respect of the MarkWest Interests as the Bank has done in respect of Energy Company's Share of the LLC Units and the Company Assets), (b) be entitled to receive liens and security interests in the LLC Units and the Company Assets on the same terms and conditions as liens and security interests in the LLC Units and the Company Assets have been granted to the Bank, and (c) be entitled to receive limited recourse guaranties from Basin and West Shore in respect of MarkWest's obligations to such Other Lenders on the same terms and conditions as the guaranties made by Basin and West Shore in favor of the Bank. 9. Governing Law. This Agreement shall be governed by and construed in -------------- accordance with the laws of the State of Michigan, without regard to the conflict of laws principles of such State. 10. Equitable Remedies. The rights of the Bank, MarkWest and the Other ------------------- Lenders pursuant to this Agreement shall be enforceable in any foreclosure proceeding commenced with regard to any LLC Units or any Company Asset and shall entitle the parties hereto to any and all equitable remedies appropriate to protect their rights under this Agreement. 8 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered as of the date first above written. MARKWEST MICHIGAN LLC, a Colorado limited liability company By: MarkWest Hydrocarbon Partners, Ltd., its Manager By: MarkWest Hydrocarbon, Inc., its General Partner By: /s/ Arthur J. Denney Name: Arthur J. Denney Title: Vice President BASIN PIPELINE L.L.C., a Michigan limited liability company By: MarkWest Michigan LLC, its Manager By: MarkWest Hydrocarbon Partners, Ltd., its Manager By: MarkWest Hydrocarbon, Inc., its General Partner By: /s/ Arthur J. Denney Name: Arthur J. Denney Title: Vice President WESTSHORE PROCESSING COMPANY, L.L.C., a Michigan limited liability company By: MarkWest Michigan LLC, its Operator By: MarkWest Hydrocarbon Partners, Ltd., its Manager By: MarkWest Hydrocarbon, Inc., its General Partner By: /s/ Arthur J. Denney Name: Arthur J. Denney Title: Vice President MICHIGAN ENERGY COMPANY, L..L.C., a Michigan limited liability company By: /s/ Michael V. Ronca Name: Michael V. Ronca Title: Manager By: /s/ Michael V. Ronca Name: Robert L. Zorich Title: Manager BANK OF AMERICA ILLINOIS By: /s/ John H. Homier Name: Title: STATE OF TEXAS (S) (S) COUNTY OF HARRIS (S) The foregoing instrument was acknowledged before me on this the 2nd day of May, 1996, by Arthur J. Denney, the Vice President of MarkWest Hydrocarbon, Inc., the General Partner of MarkWest Hydrocarbons Partners, Ltd., the Manager of MarkWest Michigan LLC, a Colorado limited liability company, on behalf of said company. Note: Notary Stamp appears on original /s/ Mary Josephine Gordon NOTARY PUBLIC, State of Texas Mary Josephine Gordon (printed name) My commission expires: STATE OF TEXAS (S) (S) COUNTY OF HARRIS (S) The foregoing instrument was acknowledged before me on this the 2nd day of May, 1996, by Arthur J. Denney, the Vice President of MarkWest Hydrocarbon, Inc., the General Partner of MarkWest Hydrocarbons Partners, Ltd., the Manager of MarkWest Michigan LLC, the Manager of Basin Pipeline L.L.C., a Michigan limited liability company, on behalf of said company. Note: Notary stamp appears on original /s/ Mary Josephine Gordon NOTARY PUBLIC, State of Texas Mary Josephine Gordon (printed name) My commission expires: STATE OF TEXAS (S) (S) COUNTY OF HARRIS (S) The foregoing instrument was acknowledged before me on this the 2nd day of May, 1996, by Arthur J. Denney, the Vice President of MarkWest Hydrocarbon, Inc., the General Partner of MarkWest Hydrocarbons Partners, Ltd., the Manager of MarkWest Michigan LLC, the Operator of Westshore Processing Company, a Michigan limited liability company, on behalf of said company. Note: Notary stamp appears on original /s/ Mary Josephine Gordon NOTARY PUBLIC, State of Texas Mary Josephine Gordon (printed name) My commission expires: STATE OF TEXAS (S) (S) COUNTY OF HARRIS (S) The foregoing instrument was acknowledged before me on this the _______ day of May, 1996, by Michael V. Ronca and Robert L. Zorich, the Managers of Michigan Energy Company, L.L.C., a Michigan limited liability company, on behalf of said company. NOTARY PUBLIC, State of Texas (printed name) My commission expires: Attachment A EX-10.10 13 GAS TREATING AND PROCESSING AGREEMENT EXHIBIT Y GAS TREATING AND PROCESSING AGREEMENT BETWEEN WEST SHORE PROCESSING COMPANY, LLC AND SHELL OFFSHORE, INC. May 1, 1996 GAS TREATING AND PROCESSING AGREEMENT TABLE OF CONTENTS ----------------- Article I - Definitions.................................. 1 Article II - Scope and Term.............................. 6 Article III - Facilities................................. 7 Article IV - Quantity.................................... 8 Article V - Deliver of Gas............................... 12 Article VI-Quality....................................... 13 Article VII - Meters and Computation of Volumes.......... 15 Article VIII - Treating Products and NGL Plant Products.. 18 Article IX - Allocation and Plant Thermal Reduction...... 19 Article X - Consideration Due SOI........................ 21 Article XI - Natural Gas Liquid Recovery................. 23 Article XII - Billing and Payment........................ 25 Article XIII - Redelivery of Gas to West Shore........... 26 Article XIV -Unprofitability and Preferential Rights..... 27 Article XV - Payment of Royalty and Taxes................ 30 Article XVI - Laws, Regulations and Force Majeure........ 30 Article XVII - Miscellaneous............................. 32 Exhibit A................................................ 36 Exhibit B - Wells Producing SOI-Owned Gas................ 37 Exhibit C - Wells Producing West Shore Gas............... 38 Exhibit D - Lease........................................ 39
Draft of April 30, 1996 GAS TREATING AND PROCESSING AGREEMENT THIS GAS TREATING AND PROCESSING AGREEMENT "AGREEMENT") made and entered into this day of , 1996, by and between WEST SHORE PROCESSING COMPANY, LLC, hereinafter designated as "West Shore" and SHELL OFFSHORE, INC., hereinafter referred to as "SOI". WITNESSETH WHEREAS, SOI owns and operates the Treating Plant (as defined below) in Manistee County, Michigan, for the purpose of removing certain gas contaminants from gas produced from the Manistee area; and WHEREAS, West Shore owns or controls a sour gas pipeline extending from the Ludington, Michigan area to the West Shore facility in Section 19 of Brown Township, Manistee County, Michigan; and WHEREAS, West Shore owns or controls the treating and processing rights of certain sour gas being transported in said pipeline; and WHEREAS, West Shore desires that such gas be treated for the removal of certain gas contaminants, and desires to have SOI provide these Services to West Shore in accordance with this Agreement. NOW, THEREFORE, in consideration of the premises and of other valuable considerations and of the agreements and covenants hereinafter contained, the parties hereto agree as follows: ARTICLE I DEFINITIONS For all purposes of this Agreement, the terms and expressions herein used are defined as follows: 1.1 "Accounting Period" means a period of one month, commencing at seven (7) o'clock a.m. local time on the first day of a calendar month and ending at seven (7) o'clock a.m. local time on the first day of the next succeeding month. 1 1.2 "ACID GAS" shall mean carbon dioxide (C02), hydrogen sulfide (H2s) and any other gases containing sulfur, such as mercaptans and carbonyl sulfide (COS). 1.3 "ACTUAL DOWNTIME PERCENTAGE" shall mean the amount of time, in hours, during any given period of time, in hours, during which the Treating Plant is not operational or otherwise not capable of receiving and treating the full First Priority Capacity of West Shore in accordance with this Agreement, expressed as a percentage. In determining the amount of downtime, downtime due to (a) conditions of force majeure described in Sections 16.2 (i) and (iii), but not conditions of force majeure described in section 16.2(ii), (b) activities necessary for expanding the plant capacity, or (c) activities related to restoring plant capacity pursuant to Section 4.3 shall be excluded. During each calendar year, SOI shall be permitted up to a maximum of 10 days of downtime for catalyst change out which days shall not be included as time during which the Treating Plant is not operational in calculating downtime hereunder. 1.4 "BTU" (British Thermal Unit) shall mean the quantity of heat required to raise the temperature of one (1) pound of pure water one (1) degree on the Fahrenheit temperature scale (i.e. from 58.5 degrees to 59.5 degrees). 1.5 "DIRECT EXPENSES" shall mean all necessary and reasonable expenses incurred by SOI at the Treating Plant location associated with the operation, maintenance and repair of Treating Plant. Direct Expenses shall include, but not be limited to, salaries, wages and expenses of Treating Plant employees, including costs of holiday, vacation, sickness and disability expenses; actual costs of employee benefits; the costs of material, equipment and supplies used at the Treating Plant; and the cost of outside contract services, utilities and equipment rental. 1.6 "PRIMARY TERM" Shall have the meaning given such term in section 2.3. 1.7 "EXPANDED CAPACITY" Shall have the meaning given such term in Section 4.7(a). 1.8 "EXPANSION RATIO" Shall have the meaning given such term in Section 4.7 (b). 1.9 "SLUG CATCHER" Shall have the meaning given such term in Section 6.1(a). 1.10 "TREATING PLANT FUEL" Shall have the meaning given 2 such term in Section 9.2 (b). 1.11 "PLANT THERMAL REDUCTION" Shall have the meaning given such term in Section 9.2. 1.12 "THEORETICAL TOTAL GROSS HEATING VALUE" Shall have the meaning given such term in Section 9.2(a). 1.13 "THEORETICAL VOLUME OF RESIDUE GAS" Shall have the meaning given such term in Section 9.4. 1.14 "THEORETICAL FUEL" Shall have the meaning given such term in Section 9.4. 1.15 "BASE TREATING FEE" Shall have the meaning given such term in Section 10.1. 1.16 "INDEX" Shall have the meaning given such term in Section 10.1(b). 1.17 "MAKEUP PAYMENT" Shall have the meaning given such term in Section 14.1. 1.18 "THEORETICAL YEARLY TREATING REVENUE" Shall have the meaning given such term in Section 14.1(b). 1.19 "UNECONOMIC" Shall have the meaning given such term in Section 14.2 (a). 1.20 "FIRST POINT OF DELIVERY" Shall mean the centerline of the upstream flange of the block valve located at the interconnection of West Shore's pipeline with the inlet facilities of the Treating Plant. 1.21 "FIRST PRIORITY CAPACITY" Shall mean capacity at the Treating Plant for receiving, treating and redelivering West Shore Gas in accordance with the specifications of this Agreement, which capacity shall be available to West Shore at all times except for conditions of force majeure. First Priority Capacity granted to West Shore is subject to SOI's right to use unutilized portions as provided in Article IV, below. 1.22 "GAS" Shall mean all or any portion of the hydrocarbons and concomitant material delivered to SOI's Treating Plant, as hereinafter defined. "WEST SHORE GAS" shall mean all Gas owned or controlled by West Shore. "SOI- OWNED GAS" shall mean all Gas attributable to oil and gas leasehold working interests owned bY SOI. "THIRD-PARTY GAS" shall mean all Gas owned or controlled by 3 parties other than West Shore or SOI. 1.23 "GROSS HEATING VALUE" means the number of BTU's produced by the combustion, at a constant pressure, of the amount of the Gas which would occupy a volume of one (1) Cubic Foot at a temperature of sixty degrees Fahrenheit (60 degrees f), if saturated with water vapor and under a pressure equivalent to that of thirty (30) inches of mercury at thirty-two degrees Fahrenheit (32 degrees f) and under standard gravitational force (acceleration 980.665 centimeters per second squared) with air of the same temperature and pressure as the Gas, when the products of combustion are cooled to the initial temperature of the Gas and air and when the water formed by combustion is condensed to the liquid state. 1.24 "MCF" shall mean one thousand (1,000) standard cubic feet of Gas. 1.25 "MMBTU" shall mean one million (1,000,000) BTUs. 1.26 "MMCF" shall mean one million (1,000,000) standard cubic feet of Gas. 1.27 "NGL PLANT" shall mean the natural gas liquids plant to be installed by West Shore and shall include facilities for the recovery of natural gas liquids, depropanization, liquid storage, truck loading and hydrocarbon liquid treating if required. 1.28 "NGL PLANT PRODUCTS" means finished commercial products and other products, or any mixtures thereof, other than Residue Gas, which is from time to time extracted or separated from the Treated Gas processed in the NGL plant, including, but not limited to ethane, propane, iso-butane, normal butane, and natural gasoline. 1.29 "PIPELINE" shall mean the sour gas gathering line extending from the Ludington, Michigan area to the West Shore-operated facilities located in Section 19, Township 22 North, Range 15 West of Manistee County, Michigan, and any extensions theretO. 1.30 "RESIDUE GAS" means Gas, expressed in MMBTU's, remaining after the extraction from the Treated Gas of NGL Plant Products, and after consumption of NGL Plant Fuel, and after other Unmeasured Gas Uses and Losses incident to or occasioned by the treating and processing of Gas hereunder. 1.31 "RESIDUE GAS DELIVERY POINT" means the point(s) at which the Residue Gas is delivered by SOI at the tailgate of the NGL 4 Plant. 1.32 "SCRUBBER LIQUIDS" shall mean any liquids recovered by SOI from Gas entering the Treating Plant prior to treating by use of conventional mechanical separation equipment. 1.33 "STANDARD CUBIC FOOT" shall mean the quantity of Gas which would occupy one (1) cubic foot at a base temperature of sixty degrees Fahrenheit (60 degrees f) and at a pressure base of fourteen and sixty-five hundredths (14.65) pounds per square inch absolute. Whenever the bases of pressure and temperature differ from the above standard, conversion of the volume from these conditions to the standard conditions shall be made in accordance with the Ideal Gas Laws. 1.34 "SULFUR NET BACK PRICE" shall equal the difference, if any, during any 12-month calendar year of (1) the Sulfur Rail Price per long ton multiplied by the number of sulfur long tons sold, minus (2) trucking costs and other costs directly attributable to the aforementioned sulfur so that the foregoing calculation results in a net price at the Treating Plant for the sulfur. 1.35 "SULFUR RAIL PRICE" shall be defined as the net price received by SOI for sulfur at the rail loading facilities. 1.36 "THERMAL CONTENT" for Gas means the product of the measured volume in dry MCF's and the Gross Heating Value in dry BTU's per MCF, adjusted to the same pressure base; for NGL Plant Products means the product of the gross heat of combustion per gallon (BTU per gallon, fuel as ideal gas) multiplied by the total gallons of the product stream. Numerical values for gross heat of combustion per gallon shall be those published in the Standard Table of Physical Constants of Paraffin Hydrocarbons in GPA Publication 2145-93, as revised. 1.37 "TREATED GAS" shall mean that portion of Gas delivered to the Treating Plant which remains after removal of Scrubber Liquids, if any, removal of Acid Gas, extraction of Treating Products, consumption as fuel in the Treating Plant ("Plant Fuel"), and after any unavoidable flare or loss of Treating Products or Gas. 1.38 "TREATED GAS DELIVERY POINT" shall mean the point or points at or near the outlet of the Treating Plant at which, prior to the installation of the NGL Plant, Treated Gas is redelivered to West Shore or West Shore's designee, and at which, after installation of the NGL Plant, Treated Gas is delivered to the NGL Plant. 5 1.39 "TREATING PLANT" shall mean the Sulfur Plant and associated facilities presently owned by SOI, located in Section 23, Township 22 North, Range 16 West in western Manistee County, Michigan. 1.40 "TREATING PRODUCTS" shall mean all sulfur and carbon dioxide contained in the Gas which are removed therefrom by treating in the Treating Plant. 1.41 "UNMEASURED GAS USES AND LOSSES" means any Gas used, lost or not otherwise accounted for in the Treating Plant or the NGL Plant incident to the operation of the Treating Plant or the NGL Plant, including volumes of Gas released through relief valves, ruptured pipelines or vessels, blow down of vessels, etc. ARTICLE II SCOPE AND TERM 2.1 This Agreement supersedes, and shall replace in their entirety all prior or existing contracts between the parties relating to the treating and/or processing of West Shore's Gas by SOI at the Treating Plant, and upon completion of the NGL Plant installation, that certain agreement between the SOI and West Shore's predecessor-in-interest dated April 1, 1995, providing for the processing of West Shore Gas at SOI's Kalkaska plant. 2.2 Delivery of Gas hereunder by West Shore shall commence as promptly as is reasonably possible after the completion of the installation of the facilities provided for in Article III hereof. 2.3 This Agreement shall be effective as of , 1996, and shall remain in full force and effect for fifteen (15) years following the first day of the month of initial delivery of Gas by West Shore to SOI for treating (the "Primary Term"), subject to the rights of termination as herein provided. After the Primary Term, this Agreement shall remain in effect from year to year thereafter unless terminated by either party's giving six months' prior written notice, or unless terminated as provided hereinafter. 2.4 If West Shore is unable to deliver Gas to SO1 for treating at the Treating Plant by June 1, 1997, then at either party's option, this Agreement may be terminated upon written notice to the other party prior to July 1, 1997 and West Shore shall reimburse SOI, within thirty days' of receipt of an itemized invoice, for all capital and Direct Expenses incurred by SOI, after 6 January 1, 1996, in modifying the Treating Plant to the extent reasonably required to treat West Shore's Gas. 2.5 The indemnity provisions of Articles 5.1 and 17.1 shall survive any termination of this Agreement. ARTICLE III FACILITIES 3.1 West Shore or West Shore's designee, at its sole expense, shall provide, operate and maintain the Pipeline and all facilities necessary to separate, gather, condition for transporting and deliver to the First Point of Delivery the Gas covered hereby, including, the pipeline facilities necessary to deliver Gas from the Brown 19 Gas Plant to SOI's Treating Plant. Details of the tie-in between West Shore's facilities and the Treating Plant such as schedule, engineering design, construction responsibility, and minimum operating pressures shall be agreed upon by both parties. Any capital expenditures (including the purchase and installation of metering and sampling equipment) or Direct Expenses incurred by SOI which are directly attributable to the tie-in of the West Shore's facilities shall be paid by West Shore at one hundred percent of SOI's actual cost. SOI will provide West Shore with an estimate of costs for any tie- in work which proposed work and cost estimate shall conform to standards generally accepted in the industry. The pipeline connecting West Shore to SOI will be owned and operated by West Shore or its affiliate. SOI will own all facilities downstream of the upstream flange of the block valve located at the terminus of that pipeline, which shall include the metering facilities described in Article VII, subject to West Shore's reimbursement obligations under Section 7.1. In addition, West Shore will install and operate, on West Shore's property, all separation equipment required to deliver Gas meeting the specifications contained in this Agreement; and SOI will provide West Shore, at no cost to West Shore, with an easement in the area of SOI's Treating Plant site at which West Shore may install slug catchers or other facilities to reduce or eliminate the delivery of liquids to SOI. 3.2 SOI, or its designee, at its sole expense, shall provide, operate and maintain all facilities necessary to treat and dehydrate West Shore's Gas after delivery thereof by West Shore to SOI at the First Point of Delivery, and SOI shall redeliver the resulting Treated Gas attributable to West Shore's Gas (i) before the installation of the NGL Plant, to West Shore, or West Shore's designee, at the Treated Gas Delivery Point, and (ii) after the 7 installation of the NGL Plant, to the NGL Plant at the Treated Gas Delivery Point for processing under the terms hereof. ARTICLE IV QUANTITY 4.1 The designated design treating capacity of the Treating Plant is 35 MMcf per day when treating Gas containing approximately 2.0% H2S with a designed sulfur recovery capacity of twenty-five (25) long tons per day.Presently, the Treating Plant is not capable of meeting design capacity performance without additional modifications, and current operating capacity is approximately 12.5 long tons per day of sulfur recovery. 4.2 Notwithstanding the above, SOI hereby agrees to provide West Shore First Priority Capacity equal to the lesser of (i) thirty (30) MMcfD (21.4 long tons per day of sulfur capacity), subject to increases under Section 4.7, below, or (ii) the capacity of the Treating Plant, subject to increases under Section 4.7, below, until this Agreement is terminated. That First Priority Capacity shall have a higher priority than any other Gas received by SOI for treating at the Treating Plant; provided the First Priority Capacity shall be subordinate to SOI-Owned Gas production from wells described on Exhibit "B", limited to the greater of five (5) Mmcf/d of SOI-Owned Gas production or 6 long tons per day of sulfur recovered from that Gas production. As SOI's production from wells described on Exhibit "B" declines, the resulting available capacity shall first be allocated to West Shore until West Shore has the full First Priority Capacity described above (subject to SOI's rights as to unutilized First Priority Capacity under Section 4.4, below). 4.3 Upon written notice from West Shore substantiating to SOI's reasonable satisfaction that West Shore requires the Treating Plant capacity to be restored to its design capacities specified in 4.1, above, SOI shall exercise good faith efforts to restore at its sole expense, within six (6) months following receipt of that notice, the actual treating capacity of the Treating Plant to treat a minimum of thirty-five (35) MMcf/d of Gas (meeting the specifications in Article VI), subject to the provisions below. Should the hydrogen sulfide content of West Shore's Gas exceed two percent (2.0%), the treating capacity shall be redefined as the product of (1) thirty-five (35) MMcf/d, and (2) a fraction, the numerator of which is two percent (2%) and denominator of which shall be the actual hydrogen sulfide content of West Shore's Gas, expressed as a percentage. 8 4.4 During any period that West Shore is not utilizing its full First Priority Capacity for treating Gas at the Treating Plant, SOI shall have the right to use any portion of the unutilized First Priority Capacity for treating SOI-Owned Gas or Third-Party Gas by providing written notice to West Shore of its intention to use a portion of the unutilized First Priority Capacity, stating the quantity to be used. SOI's right to use unutilized First Priority Capacity of West Shore shall be subject to the recall of that First Priority Capacity upon 72 hours advance notice by West Shore; provided, West Shore covenants with SOI and represents to SOI that it will not recall First Priority Capacity in quantities greater than that required for the quantity of proven deliverability of West Shore Gas then available from wells connected to the wellhead facilities of West Shore and as necessary to fulfill contractual arrangements to which it is, from time to time, a party. 4.5 During any period of time in which the Treating Plant is partially shut down for any reason or in the event the Treating Plant is not able to treat all of the Gas delivered (both from SOI, West Shore and/or Third-Party Gas) SOI- Owned Gas shall be given the highest priority in the use of Treating Plant capacity up to a maximum of the greater of (i) five (5) MMcf/d of Gas production or (ii) the equivalent of six (6) long tons per day of sulfur. West Shore's First Priority Capacity shall be given second highest priority of the Treating Plant capacity. All other Gas, including SOI-Owned Gas in excess of five (5) MMcf/d of Gas production or the equivalent of six (6) long tons per day of sulfur shall be subordinate to the First Priority Capacity of West Shore. 4.6 West Shore agrees that all Gas from wells listed on the attached Exhibit C, (other than Antrim formation gas and gas that does not require treating), which is owned or controlled by West Shore, will be transported in the Pipeline and will be delivered to the Treating Plant for treating for the term of this Agreement; and during periods when the Pipeline is transporting Gas in quantities substantially equal to its capacity, then West Shore may deliver Gas volumes to the Treating Plant equivalent to the volumes produced from the wells listed on Exhibit C, without regard to source. The sale or transfer of any wells owned by West Shore and described on Exhibit C shall be made expressly subject to the terms of this Agreement. Further, and notwithstanding anything contained in this Agreement to the contrary, the treating of Antrim formation gas is not included within this Agreement. West Shore shall have the right to add to this Agreement (by providing SOI with an amended Exhibit C reflecting such additional wells) at any time during the term of this Agreement and at the terms of this Agreement any additional wells producing West Shore Gas. 9 4.7 (a) At any time during the term of this Agreement, West Shore may request that SOI expand, or SOI may determine to expand by providing written notice of such request or determination to the other party (in either case, such notice shall be referred to herein as the "Expansion Notice"), the Treating Plant in order to treat Gas at a rate in excess of [CONFIDENTIAL TREATMENT REQUESTED],and SOI will expand the Treating Plant up to a capacity equal to the then existing capacity plus the additional amount of capacity requested in such Expansion Notice Any capacity in excess of [CONFIDENTIAL TREATMENT REQUESTED] shall be referred to as "Expanded Capacity", and capacity up to [CONFIDENTIAL TREATMENT REQUESTED] shall be referred to as "Base Capacity". At the time that West Shore or SOI provides Expansion Notice to the other party, SOI and West Shore will each identify all wells for which such expansion is required and the treating fees under which the gas will be treated. This provision for expansion of the Treating Plant shall not expire upon its application but may be exercised from time to time for additional expansions in increments as set forth in an Expansion Notice provided by either party, and the remaining provisions of this Section 4.7 shall likewise apply to each such additional expansion modified as applicable to such additional expansion in accordance with the terms hereof. (b) Before commencing that expansion but not more than 120 days from the date of West Shore's or SOI's Expansion Notice, SOI will (i) provide West Shore with a detailed estimate of the total costs to be incurred in providing that Expanded Capacity referred to in the Expansion Notice, (ii) (A) provide West Shore with an election as to whether or not SOI will participate in up to 55% of those costs to the extent related to Expanded Capacity to treat all Gas other than SOI-Owned Gas ("Expansion Ratio"), if West Shore is the party providing the Expansion Notice, or (B) provide West Shore with an option, exercisable within 30 days from the date of notification of estimated total costs, as to whether or not West Shore will participate in up to 1 minus the Expansion Ratio of those costs to the extent related to Expanded Capacity to treat all Gas other than SOI-Owned Gas, if SOI is the party providing the Expansion Notice; provided further, if West Shore elects not to participate in an expansion, SOI may participate in 100% of the Treating Plant expansion and (iii) in the case of any Expansion Notice submitted by West Shore, obtain from West Shore written confirmation to proceed with the expansion. In all events, SOI will pay 100% of the costs related to the Expanded Capacity to be utilized for SOI-Owned Gas. (c) In addition to the treating fees described in Article X, West Shore will pay to SOI in thirty-six (36) equal monthly payments a fee which will allow the recovery of [CONFIDENTIAL TREATMENT REQUESTED] of the actual capital and Direct Expenses incurred by SOI in the expansion, for which West Shore is 10 responsible based upon (b), above. Such payments shall begin on the first day of the calendar month following the date upon which the Expanded Capacity is available to West Shore. After West Shore has completed its thirty-six month payment obligation, West Shore will cease paying SOI for reimbursement of expansion expenses and will then pay only the treating fees described in Article X. To secure payment of these expenses, upon the written request of SOI, West Shore will provide a third party guarantee or letter of credit acceptable to SOI in advance of SOI incurring the subject expense. At West Shore's discretion, West Shore may elect to directly fund its proportionate share of the actual capital and Direct Expenses, for which it is responsible, associated with this expansion. Should West Shore choose this option, SOI will furnish West Shore an estimate of the total initial cost expected to be associated with said expansion and West Shore will furnish SOI, before the beginning of each month, with a certified check for one hundred percent of the total estimated expansion costs, for which West Shore is responsible, to be incurred in that month. SOI will apply any overpayment from one month to amounts due for the next succeeding month, and West Shore will make up any shortfalls in those costs in a month in the payment for the next succeeding month. (d) SOI shall retain one hundred percent of the ownership of the Treating Plant and payment of these expenses shall not entitle West Shore to any ownership interest whatsoever in the Treating Plant. (e) If SOI elects not to participate in the expansion, then in addition to payments for the recovery of SOI's actual capital and Direct Expenses, West Shore shall continue to pay a treating fee as specified in Article X. Should SOI in good faith incur additional operating expenses as a result of the Treating Plant expansion to handle additional West Shore Gas, West Shore agrees to reimburse SOI for those incremental unrecovered expenses in addition to paying all treating fees specified in Article X. The monthly incremental operating expense shall not exceed five cents per MCF of incremental capacity plus escalation as calculated in accordance with Article X. (f) If West Shore Gas deliveries from the wells listed on Exhibit C decreases below the First Priority Capacity described in Section 4.2, then West Shore may add additional wells to this Agreement, and until the aggregate of deliveries from the wells listed on Exhibit C together with deliveries from such new wells exceeds the First Priority Capacity, then the Gas from those new wells will be added under the terms of section 4.4 and 4.6 and shall be deemed to use the Base Capacity and not the Expanded Capacity. 11 (g) If either party not initiating an Expansion Notice elects to participate in such Expanded Capacity of the expansion under 4.7(b)(ii), above, then with respect to all volumes delivered to the Treating Plant from the additional wells attributable to such Expanded Capacity identified herein under 4.7 (a) and for any subsequent well, whether owned or controlled by SOI or West Shore, for which the Gas is treated at the Treating Plant and for which the Expanded Capacity is required, either initially or at any time thereafter, to treat any portion of the Gas produced from such subsequent well, the following shall be allocated to SOl in a proportion equal to the Expansion Ratio and to West Shore in a proportion equal to 1 minus the Expansion Ratio.: i. The incremental operating costs attributable to operating all of the Expanded Capacity (which, in the case of West Shore, shall be in lieu of any volumetric treating fees for West Shore Gas utilizing the Expanded Capacity); ii. The treating revenues received by either SOI or West Shore for Gas which is being treated utilizing the Expanded Capacity, excluding, however, SOl-Owned Gas on which West Shore will not participate in revenues. (h) At the completion of construction of said Expanded Capacity, the term of this Agreement shall be extended to the greater of (i) ten (10) years following the date that the said expansion is completed, or (ii) the expiration of the otherwise effective Primary Term under Section 2.3. (i) SOI and West Shore agree that neither party shall contract to utilize the Expanded Capacity to treat Gas at the Treating Plant under a contract in which the full compensation is not derived solely from treating fees. ARTICLE V DELIVERY OF GAS 5.1 The Gas to be treated and processed hereunder shall be delivered by West Shore to SOI at the First Point of Delivery for the sole account of West Shore. West Shore represents and warrants that it owns and/or has the right to have treated and processed all Gas delivered by West Shore to the First Point of Delivery and to recover remove and sell any and all extractable or recoverable components, including Treating Products, NGL Plant Products, and 12 Scrubber Liquids, as are contained in the Gas delivered by West Shore. If the right or title of West Shore is involved in any claim, action or litigation, West Shore shall indemnify SOI against any loss, damage, claim, suit, judgment, liability, cost and expense (including reasonable attorneys' fees) and other costs of litigation in connection with such claims and actions, and further, SOI may refuse to accept deliveries of the affected Gas from West Shore until said right or title issue is cleared to SOI's reasonable satisfaction, or until West Shore provides a bond or other surety reasonably acceptable to SOI to protect SOI. 5.2 Until installation of the NGL Plant, West Shore shall deliver the Gas at a pressure sufficient to overcome the operating pressure of the pipeline system receiving the Gas; however, in no event shall such delivery pressure exceed the maximum allowable operating pressure of the system receiving the Gas. Subject to the provisions of Articles IV and VI hereof, and except as otherwise provided herein, SOI shall accept delivery of West Shore's Gas from West Shore at the First Point of Delivery for treating hereunder. 5.3 After the installation of the NGL Plant, West Shore shall deliver the Gas at a pressure sufficient to operate the NGL plant, but in no event shall West Shore deliver the Gas at a pressure of less than 700 psig or shall such delivery pressure exceed the maximum allowable operating pressure of the system receiving the Gas. West Shore shall install as part of the NGL Plant sufficient gas compression equipment to overcome the operating pressure of the pipeline system receiving the Gas. ARTICLE VI QUALITY 6.1 West Shore's Gas delivered hereunder shall be as produced in its natural state except that said Gas shall be of such quality as to meet the following quality specifications, and except for compositional changes due to the operation of the separation equipment of West Shore required under Article III, and due to dehydration of the Gas before delivery: (a) Be commercially free of liquid hydrocarbons and liquid water that can be removed with ordinary mechanical separators at a location no further upstream of the Treating Plant than the Brown 19 facility. More specifically, West Shore shall continue to operate and maintain the liquid separation facilities ("Slug Catcher") at the Brown 19 Facility or another facility chosen by West Shore; 13 (b) Be commercially free of grease, dust, gum, gum forming constituents, and other foreign substances, gasoline and other solid and/or liquid matter that can be removed with ordinary field separators; (c) Contain not more than three percent (3.0%)by volume hydrogen sulfide; (d) Contain not more than five percent (5.0%) by volume carbon dioxide (it being understood however, that the designated capacity under Section 4.1 can only be guaranteed when West Shore's Gas contains not more than three and six tenths percent (3.6%) by volume carbon dioxide; provided, that SOI will make available all portions of West Shore's First Priority Capacity that it is otherwise able to provide when West Shore's Gas exceeds three and six tenths percent (3.6%) by volume carbon dioxide); (e) Contain not more than one-tenth of one percent (0.1%) by volume oxygen; (f) Contain a Gross Heating Value of at least 1000 BTUs per standard cubic foot at 14.65 psia dry; (g) Contain not more than one thousand (1000) parts per million by weight total sulfur, excluding sulfur contained in hydrogen sulfide; (h) Have a temperature not exceeding one hundred twenty degrees Fahrenheit ( 120 degrees F); and (i) Not contain any solid-forming component in a concentration which could cause the formation of solid material at any point in the Treating Plant which in turn could result in an impairment to the operation of the Treating Plant. 6.2 The delivery of any liquids by West Shore to SO1 may cause SOI to incur significant costs for the recovery and disposal of such liquids. If any Scrubber Liquids are recovered from West Shore's Gas stream, SOI may, at its option, dispose of those liquids and bill West Shore for the disposal costs, or require West Shore to dispose of those liquids. If after providing West Shore thirty (30) days notice that the Gas delivered by West Shore contains nonconforming amounts of liquid hydrocarbons, SOI may refuse to accept some or all of West Shore's Gas, at no cost to SOI, until (a) SOI is able, at its discretion, to blend the liquids delivered by West Shore into its own oil facilities, and/or (b) West Shore has remedied, to SOI's reasonable satisfaction, the situation that caused the delivery of such liquids. In the event 14 of such refusal by SOI to accept Gas, West Shore shall not be relieved of any of its financial obligations hereinafter described in this Agreement, including the obligation to pay a fixed monthly treating fee as hereinafter described in Article 10.1. 6.3 SOI shall have the option from time to time to accept Gas even if the above quality specifications are not met; provided, however, that such acceptance shall not operate as a waiver of such quality specifications and SOI may decline to accept Gas which at any time does not meet such specifications. It is further provided, that SOI shall not cease receiving West Shore Gas that fails to conform to any of the specifications set forth in Section 6.1 unless SOI also ceases to receive all other Gas which does not meet the specifications set forth in Section 6.1. ARTICLE VII METER AND COMPUTATION OF VOLUMES 7.1 West Shore shall reimburse SOI for its actual, documented, out of pocket expenses incurred in acquiring and installing the measuring equipment and a continuous sapling device or a chromatograph as required for the accurate measurement of the volume and heating content of West Shore's Gas delivered for treating hereunder. Where available, SOI shall use "Good Used Material" in SOI's inventory, and will charge West Shore for such material at seventy-five percent (75%) of current new price of that material, plus the cost of reconditioning, if any. SOI or SOI's designee shall maintain and operate, or cause to be maintained and operated, at no cost or expense to West Shore, that measuring equipment. 7.2 In addition to the metering equipment referenced in Section 7.1, SOI shall install, operate and maintain, or cause to be installed, operated and maintained, a suitable meter or meters and/or other necessary equipment for the purpose of measuring the following: (a) The volume of each type of Treating Product recovered from West Shores Gas and from Gas delivered to the Treating Plant from other sources. (b) The volume, heating content and composition of Gas delivered to the Treating Plant from sources other than West Shore. 7.3 SOI's measurement equipment shall be used in determining the total Treating Plant Fuel and PTR (as defined in Article IX 15 hereof) in treating West Shore's Gas hereunder. 7.4 In the event of Treating Plant or Pipeline emergency conditions and/or circumstances which, in the sole judgment of SOI, necessitate venting or flaring or cause other losses of West Shore's Gas delivered hereunder, the volume of West Shore's Gas so vented, flared, or otherwise lost shall be reasonably estimated by SOI. West Shore shall not be entitled to any compensation for any of its Gas lost under these circumstances but SOI shall not charge any volumetric treating fee for treating such Gas. 7.5 a. The volume of West Shore's Gas delivered for treating hereunder, the total volume of Gas delivered from all sources to SOI's Treating Plant and the total volume of Gas consumed as Treating Plant fuel shall be measured by orifice meters of standard make and manufacture, producing a permanent record. Said orifice meters shall be installed and operated, and computations shall be made, as prescribed in Gas Measurement Committee Report No. 3 of the American Gas Association, as such report may be amended or revised from time to time. b. The unit of volume shall be one (1) cubic foot of Gas at a base temperature of sixty degrees Fahrenheit (60 degrees F) and at a pressure base of fourteen and sixty-five hundredths (14.65) pounds per square inch absolute. Whenever the bases of pressure and temperature differ from the above standard, conversion of the volume from these conditions to the standard conditions shall be made in accordance with the Ideal Gas Laws. c. Temperature shall be determined by use of a recording thermometer so installed that it may continuously record the temperature of Gas passing through the meters, or the temperature of the Gas shall be measured by a temperature transmitter or a resistance temperature device (RTD) and the value inputted on a continual basis into a flow computer for use in the computation of the Gas flow. d. The specific gravity shall be determined in the same manner as gross heating value of West Shore's Gas as specified in Article 7.4. e. Corrections for deviation from Ideal Gas Laws shall be made for all Gas metered hereunder. Such corrections shall be made by use of the American Gas Association Manual for the Determination of Supercompressibility Factors for Natural Gas (PAR) Project NX-t9) as the same may be amended or revised from time to time. f. The accuracy of all measuring equipment specified in 16 this Agreement shall be verified at least once each calendar month. Each party shall have the right to be present at the time of any installing, reading, cleaning, changing, repairing, inspecting, testing, calibrating, or adjusting done in connection with the other's measuring equipment used in any measuring required hereunder. If, after twenty-four (24) hours notice, the other party fails to have a representative present, the results of the test shall be considered accurate until the next tests are made. All tests of West Shore's measuring equipment shall be made at West Shore's sole expense and all tests of SOI's measuring equipment shall be made at SOI's sole expense, except that any party requesting additional tests shall bear the sole expense of any such additional tests where the results of such additional tests show any inaccuracies in the measuring equipment tested to be one percent (1%) or less. g. If at any time any of the measuring or testing equipment is found to be out of service or registering inaccurately in any percentage, it shall be adjusted at once to register accurately, within the limits prescribed by the manufacturer. If such equipment is out of service or inaccurate by an amount exceeding one percent (1%) at a reading corresponding to the average rate of flow for the period since the last preceding test, the previous readings of such equipment shall be disregarded for any period definitely known or agreed upon, or for a period of one-half of the time elapsed since the last test of the measuring equipment affected, not to exceed sixteen (16) days. The volume of Gas measured during such period shall be estimated by (a) using the data recorded by any check measuring equipment, if installed, and registering accurately, or if not installed or not registering accurately, (b) by correcting the error if the percentage of error is ascertainable by calibration, test, or mathematical calculation, or if neither such method is feasible, (c) by estimating the quantity or quality measured, based upon deliveries under similar conditions during a period when the equipment was registering accurately. No correction shall be required for recorded inaccuracies of one percent (1%) or less. h. At all times during business hours, West Shore and SOI shall have the right to inspect equipment installed or furnished by the other and the charts and other measurement or testing data of the other. However, the reading, calibration and adjustment of SOI's measuring equipment and changing of the associated charts shall only be performed by SOI. Likewise, the reading, calibration and adjustment of West Shore's Gas measuring equipment and changing of the associated charts shall only be performed by West Shore. i. SO1 and West Shore shall preserve all original test 17 data, charts, and other similar records in their possession for a period of at least two (2) years, or longer if required by law or regulation. 7.6 a. The Gross Heating Value of West Shore's Gas shall be determined each calendar month by continuous sampler or continuous gas chromatography. SOI shall compute, or cause to be computed, the Gross Heating Value of West Shore's Gas from chromatographic analysis of a sample of its Gas. The result shall be applied to West Shore's Gas deliveries for the calendar month when the sample is taken; provided, however, that upon request of West Shore, SOI shall take a second duplicate sample and furnish same to West Shore as a check on the Gross Heating Value of West Shore's Gas. Gross Heating Value so determined shall be corrected from the condition of testing to the actual water vapor content of West Shore's Gas as delivered. For purposes of this Agreement, hydrogen sulfide shall have a Gross Heating Value of zero. b. In the event of a dispute between the parties as to the composition of West Shore's Gas as determined in accordance herewith, another sample shall be taken immediately and sent to an independent testing laboratory acceptable to both parties for determination of the composition of West Shore's Gas in accordance herewith. The results of that laboratory testing will be binding on both parties for the month for which the sample was taken. ARTICLE VIII TREATING PRODUCTS AND NGL PLANT PRODUCTS 8.1 Subject to the following, title to West Shore's Gas and the resulting Treated Gas and Residue Gas shall remain with West Shore upon delivery of such Gas to SOI at the First Point of Delivery. Title to any Treating Products and Scrubber Liquids shall pass to SOI upon delivery of West Shore's Gas at the First Point of Delivery. Title to all NGL Plant Products attributable to West Shore's Gas shall remain with West Shore. 8.2 Should carbon dioxide ever be recovered as a Treating Product, title to such carbon dioxide shall pass to SOI upon delivery of West Shore's Gas at the First Point of Delivery and West Shore will be entitled to no compensation for said carbon dioxide. 8.3 Determinations of the hydrogen sulfide content of West Shore's Gas shall be made by SOI at SOI's sole cost and expense monthly by gas chromatography or by any other method mutually agreed upon by the parties for testing Gas for hydrogen sulfide 18 content. The quantity of sulfur resulting from the recovery of hydrogen sulfide attributable to Gas delivered to the Treating Plant by West Shore at the First Point Of Delivery shall be determined by multiplying the total quantity of sulfur recovered and saved in the Treating Plant each month by a fraction, the numerator of which is the quantity of hydrogen sulfide in the Gas delivered to the Treating Plant by West Shore, and the denominator of which is the total quantity of hydrogen sulfide contained in all Gas delivered to the Treating Plant from all sources. 8.4 SOI shall give West Shore reasonable notice of tests to determine hydrogen sulfide content so that West Shore may witness such tests if it so desires. 8.5 All sulfur recovered from West Shore's Gas shall be retained and marketed by SOI. In the event that the Sulfur Net Back Price, determined over any 12-month calendar year beginning January 1, 1997, should be a negative amount, West Shore shall reimburse SOI for the net negative amount of the Sulfur Net Back Price determined for that particular 12-month calendar year. If the Sulfur Net Back Price over any 2 consecutive year period is negative, then in addition to reimbursing SOI for that Sulfur Net Back Price, West Shore shall also commence paying SOI a marketing fee of $5.00 per long ton of sulfur for as long as the Sulfur Net Back Price continues to be a negative amount. 8.6 All NGL Plant Products shall be delivered to West Shore, or for West Shore's account at the outlet of the NGL Plant Product recovery facilities at the NGL Plant. ARTICLE IX ALLOCATION AND PLANT THERMAL REDUCTION 9.1 The Treated Gas, as determined by measurement at the Treated Gas Delivery Point, shall be allocated among the various producers delivering Gas to SOI by multiplying the total actual measured Thermal Content of Gas remaining after treating all Gas delivered to SOI by a fraction, the numerator of which is the Thermal Content of West Shore's Gas delivered at the First Point of Delivery and the denominator of which is the Thermal Content of all Gas, including West Shore's Gas, delivered to SOI during the same period. 9.2 It is recognized that there will be a reduction in Gas volumes and associated MMBTUs in the Gas delivered to SOI attributable to the processing of the Treated Gas for NGL Plant Product recovery, and attributable to the use of such Gas as 19 Treating Plant Fuel and NGL Plant Fuel, the flaring of such Gas, and other uses of such Gas incident to or occasioned by treating and processing of the Gas and the extraction of Scrubber Liquids, if any. Said reduction in Gas volumes and associated MMBTUs, herein called Plant Thermal Reduction ("PTR"), shall be accounted for (except with respect to Scrubber Liquids) on a monthly basis, and shall be calculated and allocated to each party furnishing Gas to the Treating Plant and NGL Plant in accordance with the following: a. That portion of an individual NGL Plant Product at the NGL Plant which is attributable to each Gas stream shall be determined by multiplying the total volume, expressed in gallons, of each individual NGL Plant Product recovered in the NGL Plant during such Accounting Period by a fraction, the numerator of which shall be the "Theoretical total Gross Heating Value" of that NGL Plant Product contained in West Shore's Gas entering the Treating Plant which is delivered during the Accounting Period, and the denominator of which shall be the "Theoretical total Gross Heating Value" of that NGL Plant Product contained in each Gas stream delivered to the NGL Plant during such Accounting Period. The "Theoretical total Gross Heating Value" of an NGL Plant Product in any stream of Gas shall be calculated by multiplying the Gross Heating Value of that NGL Plant Product determined from chromatographic analysis by the quantity of NGL Plant Product in that Gas stream. b. The PTR shall be separately calculated as to each Gas stream delivered to the First Point of Delivery (including West Shore's Gas Stream) and shall be the sum of the following: i. The Thermal Content of the NGL Plant Products allocated to the Gas stream; plus ii. The Thermal Content of each Gas stream consumed as Treating Plant Fuel, as defined in Section 9.4 in treating such Gas and the Thermal Content of each Gas stream consumed as NGL Plant Fuel as defined in Section 9.5. in processing such Gas.; plus iii. The Thermal Content of each Gas stream consumed as Unmeasured Gas Uses and Losses in treating and processing such Gas. 9.3 The Residue Gas, as determined by measurement at the Residue Gas Delivery Point, shall be allocated among the various parties delivering Gas to SOI by multiplying the total actual measured Thermal Content of Residue Gas by a fraction, the numerator of which is the "Theoretical Volume of Residue Gas" remaining from each Gas stream and the denominator of which is the "Theoretical Volume of Residue Gas" remaining from all Gas, 2O including West Shore's Gas, delivered to the NGL Plant during the Accounting Period. The "Theoretical Volume of Residue Gas" shall be determined by subtracting the PTR, as determined above, from the Thermal Content determined at the First Point of Delivery. 9.4 The total fuel used in all Treating Plant treating and related operations ("Treating Plant Fuel") shall be measured. Whenever practical, SOI shall use Residue Gas for fuel. The quantity of Treating Plant Fuel attributable each Gas stream shall be determined by multiplying the total fuel actually used by a fraction, the numerator of which is the total Theoretical Fuel attributable to the deliveries from such Gas and the denominator of which is the "Theoretical Fuel" attributable to production or deliveries from all Gas treated at the. Treating Plant. The Theoretical Fuel for each Gas or liquid stream is the product of (i) the applicable fuel factor for all operations requiring fuel involved in treating the particular stream and (ii) the particular stream production rate. SOI, shall determined by sound engineering estimates performed by SOI on an annual basis, (i) the applicable fuel factor, and (ii) the operations for which fuel shall be allocated (the operations for which fuel is currently being allocated include separator preheating, sour gas treating, oil treating, produced water disposal, gas dehydration, and compression). Promptly after making its determination, SOI shall furnish West Shore with written statements specifying the applicable fuel factor and the operations requiring fuel, together with its basis for those determinations. Since separator pre- heating, oil treating, produced water disposal and compression (excluding compression used in the NGL Plant operations) are not included in this Agreement, fuel shall not be allocated for Gas delivered by West Shore. 9.5 The total fuel used in all NGL Plant operations ("NGL Plant Fuel") shall be measured. The quantity of NGL Plant Fuel attributable to each Gas stream shall be determined by multiplying the Thermal Content of the NGL Plant Fuel used by a fraction, the numerator of which is the Thermal Content of each Gas stream at the First Point of Delivery which is further processed at the NGL Plant and the denominator of which is the Thermal Content of all Gas delivered at the First Point of Delivery, which is further processed at the NGL Plant. ARTICLE X CONSIDERATION DUE SOI 10.1 (a) West Shore shall pay SOI a monthly treating fee ("Base Treating Fee") of [CONFIDENTIAL TREATMENT REQUESTED]. The Base 21 Treating Fee shall commence upon the delivery of Gas from West Shore to the First Point of Delivery. The first month in which the Base Treating Fee shall apply will be adjusted on a prorata basis to the days utilized during the month. (b) The Base Treating Fee shall be subject to annual adjustment beginning April 1, 1997, and on each April 1, thereafter. The Base Treating Fee shall be adjusted in proportion to the change in the "Average Weekly Earnings of Crude Petroleum and Gas Production Workers" ("Index") for the previous calendar year as compared to the Index for the calendar year of 1995, as published by the United States Department of Labor, Bureau of Labor Statistics. If the resulting fee is less than the fee for the previous year, then the fee for the previous year shall be used. 10.2 In addition to the Base Treating Fee specified in Article 10.1, West Shore will pay SOI a volumetric treating fee of [CONFIDENTIAL TREATMENT REQUESTED] for the West Shore Gas stream delivered to the Treating Plant. This volumetric fee, as well as all incremental fees subsequently described in this Article shall be subject to annual adjustment beginning April 1, 1997, and on each April 1, thereafter. Those fees shall be adjusted in proportion to the change in the "Average Weekly Earnings of Crude Petroleum and Gas Production Workers" ("Index") for the previous calendar year as compared to the Index for the calendar year of 1995, as published by the United States Department of Labor, Bureau of Labor Statistics. If the resulting fee(s) is less than the fee(s) for the previous year, then the fee(s) for the previous year shall be used. If, at any time, West Shore's Gas deliveries averaged over the number of days SOI operated its Treating Plant during a calendar month exceed [CONFIDENTIAL TREATMENT REQUESTED] then the volumetric treating fee for the incremental volume shall be reduced from [CONFIDENTIAL TREATMENT REQUESTED] to [CONFIDENTIAL TREATMENT REQUESTED] for that particular month. (Example: At [CONFIDENTIAL TREATMENT REQUESTED], the treating fee paid would be [CONFIDENTIAL TREATMENT REQUESTED] for the first [CONFIDENTIAL TREATMENT REQUESTED] and [CONFIDENTIAL TREATMENT REQUESTED] for the remaining [CONFIDENTIAL TREATMENT REQUESTED]. Furthermore, should West Shore's Gas deliveries averaged over the number of days SOI operated its Treating Plant during a calendar month exceed [CONFIDENTIAL TREATMENT REQUESTED], then the volumetric treating fee for the incremental volume over [CONFIDENTIAL TREATMENT REQUESTED] shall be reduced from [CONFIDENTIAL TREATMENT REQUESTED] to [CONFIDENTIAL TREATMENT REQUESTED] for that particular month. Example: At [CONFIDENTIAL TREATMENT REQUESTED], the treating fee paid would be [CONFIDENTIAL TREATMENT REQUESTED] for the first [CONFIDENTIAL TREATMENT REQUESTED] for the second [CONFIDENTIAL TREATMENT REQUESTED] and [CONFIDENTIAL TREATMENT REQUESTED] for the remaining [CONFIDENTIAL TREATMENT REQUESTED]. 10.3 Should SOI commence charging any third party treating fees less than [CONFIDENTIAL TREATMENT REQUESTED], then, effective on the date upon which SOI commences that fee and for so long as that fee is in effect, the Base Fee hereunder shall be reduced by an amount equal 22 to [CONFIDENTIAL TREATMENT REQUESTED] of the otherwise applicable Base Fee for each [CONDIDENTIAL TREATMENT REQUESTED] that the lowest third party treating fee is below [CONFIDENTIAL TREATMENT REQUESTED]. 10.4 (a) In the event the Treating Plant experiences Actual Downtime Percentage, during any month, of 5% or more, SOI shall reduce the Base Treating Fee for that month by the Actual Downtime Percentage of the Treating Plant. The foregoing reduction shall not be effective during any period in which reductions under paragraph (b) below are applicable. (b) In the event the Treating Plant experiences Actual Downtime Percentage, exceeding the amounts specified in the following table, averaged over any six (6) continuous fixed calendar month period, then the Base Treating Fee and the volumetric treating fees, above, shall be reduced by the corresponding percentage, retroactive to the beginning of that 6-month period, and within 10 days of the determination that the Actual Downtime Percentage exceeded those allowances, SOI shall refund to West Shore the fees representing the following reductions:
Actual Downtime Percentage Reduction in Fees - --------------------------- ----------------- 10% to 14.99% [CONFIDENTIAL TREATMENT REQUESTED] 15% to 19.99% [CONFIDENTIAL TREATMENT REQUESTED] 20% or greater [CONFIDENTIAL TREATMENT REQUESTED]
Once a refund has been paid for any 6-month period, the foregoing shall not be applied to require the payment of any additional refunds for a period of 6 months following the end of the period for which the refund was made. ARTICLE XI NATURAL GAS LIQUID RECOVERY 11.1 West Shore will install the NGL Plant at SOI's Treating Plant site on land leased to West Shore by SOI under a long term contract mutually acceptable to both parties, and with a lease payment of $10.00 per year in the form substantially similar to that form in Exhibit D, and which shall be coterminous with this Agreement. The NGL Plant will be constructed under West Shore's supervision; provided, SOI shall have approval of all design and construction specifications, which approval shall not be unreasonably withheld. SOI hereby grants West Shore rights of ingress to and egress from the NGL Plant site across SOI's lands as necessary for all construction, pipeline, maintenance, operation and related activities in connection with the NGL Plant. West Shore shall indemnify and hold SOI harmless against any loss, 23 damage, claim, suit, liability, judgment and expense, including attorneys' fees, and other costs of litigation arising out of injury or death of persons or damage to or loss of property or environment arising out of or in connection with exercise of such rights of ingress and egress. SOI will be allowed to recover the costs of any employees or contractors employed by SOI related to the design and construction of the NGL plant. 11.2 The NGL Plant will be owned by West Shore and SOI will operate the NGL Plant. West Shore shall reimburse SOI for only the reasonable, incremental direct operating and direct regulatory expenses actually incurred by SOI and which are directly associated with the operation of NGL Plant and which are allocated to Treated Gas delivered to the NGL Plant by West Shore, plus 12% of those expenses to compensate SOI for its related overhead expenses. SOI will operate the NGL Plant in accordance with prudent oilfield operating standards consistent with good industry practice. 11.3 During any given month, SOI shall be granted daily processing capacity in the NGL Plant during such month equal to its deliverability from the wells listed on Exhibit B, not to exceed [CONFIDENTIAL TREATMENT REQUESTED]; and, SOI shall not be charged any processing fee on that Gas, but will be responsible for its proportionate share of the operating expenses in connection with operating the NGL Plant. 11.4 SOI acknowledges that certain upgrades and modifications to its Treating Plant will be paid for or the costs thereof reimbursed by West Shore. That arrangement, together with the availability of processing at the NGL Plant to be installed by West Shore, at West Shore's cost, provides significant consideration and value to SOI. In recognition thereof, SOI agrees to pay West Shore a surcharge of [CONFIDENTIAL TREATMENT REQUESTED] per gallon of propanes, butanes and pentanes (or combinations or isomers thereof) contained in that Treated Gas that is not subsequently delivered to West Shore for processing at the NGL Plant, excluding, however, SOI-Owned Gas produced from wells described on Exhibit B, and West Shore Gas that West Shore elects not to have processed in the NGL Plant. 11.5 SO1 and West Shore agree that West Shore shall have the right to market all NGL Plant Products recovered from the NGL Plant, including NGL Plant Products allocated to SOI or to other producers. West Shore agrees that the NGL Plant Products allocated to SOI or to other producers will be sold not more than 45 days after the last day of the month in which the Products were produced and at market prices not less than those at which West Shore's NGL Plant Products are sold. West Shore will remit the proceeds received for the sale of SOI's allocated NGL Plant Products to SOI within 45 days after the last day of the month in which said Plant 24 Products were produced. ARTICLE XII BILLING AND PAYMENT 12.1 On or about the twentieth (20th) day of each calendar month, SOI shall send a statement to West Shore via U.S. mail, overnight mail or telecopy, at SOI's discretion, detailing the charges specified in Article X and any additional fees or amounts owing for the prior month. West Shore shall pay SOI the amount billed in that statement within fifteen (15) days of receipt of the statement. All such payments shall be made in the form of immediately available funds directed to a bank account designated by SOI. 12.2 West Shore shall have the right at all reasonable and mutually agreeable times to examine the books, records, and charts of S0I to the extent necessary to verify the accuracy of any statement, charge or computation made under or pursuant to any provisions of this Agreement. 12.3 Should West Shore fail to pay any undisputed amount of any statement sent by SOI as herein provided by the time such payment is due, a late payment charge equal to one and one-half percent (1.5%) per month of the undisputed amount of the statement, net of taxes, not compounded, shall be added to the statement and shall be payable by West Shore. In the event said late payment charges exceed the maximum allowed under the laws of the State of Michigan, the late payment charge shall be reduced to the maximum amount allowed under the laws of the State of Michigan. 12.4 Should West Shore fail to pay any undisputed amount of any statement sent by SOI as herein provided by the time such payment is due, SOI in its sole discretion may, if such undisputed amount remains unpaid for a period of thirty days after written notice of said failure to pay is given to West Shore, terminate this Agreement, or suspend further service to West Shore, or both. 12.5 If West Shore finds at any time within twenty-four (24) months after the date of any statement rendered to it by SOI that it has been overcharged in the amount billed in such statement, and if said overcharged amount has been previously paid by West Shore, the overcharged amount, if verified by SOI, shall be refunded to West Shore within thirty (30) days. If SOI finds at any time within twenty-four (24) months after the date of any statement rendered to West Shore by SOI that there has been an undercharge in 25 the amount billed to West Shore in such statement, SOI may submit a statement for such undercharged amount, and West Shore, upon verifying the same, shall pay such amount within thirty (30) days. Should West Shore determine within twenty- four (24) months after a statement is rendered that there has been an undercharge in the amount billed to West Shore by SOI, or should SOI determine within twenty-four (24) months after a statement is rendered that there has been an overcharge in the amount billed to West Shore, the party discovering the error shall bring such error to the attention of the other party for further handling. Billing statements shall be deemed accurate if not challenged by either party within twenty-four (24) months after the statement is rendered. ARTICLE XIII REDELIVERY OF GAS TO WEST SHORE 13.1 In addition to treating and dehydrating West Shore's Gas, SOI shall redeliver, or cause to be redelivered, to West Shore, or West Shore's designee, (i) before the installation of the NGL Plant, at the Treated- Gas Delivery Point, and (ii) after the installation of the NGL Plant, at the Residue Gas Delivery Point, a quantity of Gas containing MMBTUs equivalent to the MMBTUs contained in West Shore's Gas delivered to SOI at the First Point of Delivery, less West Shore's proportionate share of PTR, as specified in Article IX hereof. 13.2 The Treated Gas redelivered by SOI to West Shore at the Treated Gas Delivery Point shall be of such quality as to meet the following quality specifications: (a) Be commercially free of liquid hydrocarbons and liquid water, and not contain more than five (5) pounds of water vapor per MMcf; (b) Be commercially free of grease, dust, gum, gum forming constituents, and other foreign substances, gasoline and other solid and/or liquid matter that can be removed with ordinary field separators; (c) Contain not more than one-quarter grain hydrogen sulfide; (d) Contain not more than one and eight tenths percent(1.8%) by volume carbon dioxide; (e) Contain not more than one-tenth of one percent (0.1%) by volume oxygen; provided that West Shore's Gas delivered to the 26 Treating Plant conformed to the specification contained in Section 6. 1 (E); (f) Contain a Gross Heating Value of at least 1000 BTUs per standard cubic foot at 14.65 psia dry; (g) Contain not more than five(5) grains of total sulfur per 100 cubic feet; (h) Have a temperature not exceeding one hundred twenty degrees Fahrenheit ( 120 degrees F); 13.3 The Residue Gas redelivered by SO1 to West Shore at the Residue Gas Delivery Point shall be of such quality as to meet the quality specifications set forth above. 13.4 SOI shall redeliver the Treated Gas at a pressure sufficient to overcome the operating pressure of the facilities receiving the Treated Gas at the Treated Gas Delivery Point; however, in no event shall such delivery pressure exceed the maximum allowable operating pressure of the system receiving the Gas; provided, SOI shall have no obligation to compress the Gas to effect delivery other than to operate and maintain compression and other equipment associated with the installation of the NGL Plant. ARTICLE XIV UNPROFITABILITY AND PREFERENTIAL RIGHTS 14.1 (a) Beginning in the calendar year 2000, should the yearly Direct Expenses incurred by SOI to operate the Treating Plant exceed the yearly revenue derived from all treating fees received by SOI, whether from West Shore or from any other person, then SOI shall have the right, but not the obligation, to bill West Shore for an amount equal to West Shore's prorata share (based on the proportion that West Shore Gas delivered to the Treating Plant bears to the total of all Gas delivered to Treating Plant) of the difference in SOI's Direct Expenses and SOI's treating revenue ("Makeup Payment") for that calendar year. (b) In determining SOI's treating revenue for purposes of calculating the Makeup Payment, SOI shall use the otherwise applicable Base Treating Fees and volumetric treating fees provided for in this Agreement to calculate the treating revenues with respect to all West Shore Gas and with respect to all Gas other than West Shore's Gas as if such Gas were covered by a single Base Treating Fee and volumetric treating fees substantially equivalent to those in this Agreement applied to each individual 27 producer, without regard to whether the Gas treated was West Shore's Gas, SOI- Owned Gas or Third-Party Gas, and without regard to any actual reductions to those fees resulting from Actual Downtime Percentages exceeding the limitations in this Agreement. This shall herein be defined as the "Theoretical Yearly Treating Revenue". Provided, however, if Third-Party Gas and SOI-owned Gas deliveries together average 15,000 Mcf per day or less, then the combined Base Treating Fee and volumetric treating fees for the Third-Party Gas, in determining the Theoretical Yearly Treating Revenue, will be assumed to be $.228 per Mcf. The following is an example of the calculation of Theoretical Yearly Treating Revenue, assuming West Shore Gas deliveries of 25,000 Mcf per day, and SOI-Owned Gas and Third-Party Gas deliveries of 5,000 Mcf per day: Theoretical Yearly Treating Revenue = West Shore Revenue + Other Gas Revenue West Shore Revenue = [CONFIDENTIAL TREATMENT REQUESTED] Other Gas Revenue = [CONFIDENTIAL TREATMENT REQUESTED] Theoretical Yearly Treating Revenue = [CONFIDENTIAL TREATMENT REQUESTED] (c) Notwithstanding the actual expenses and revenues, in no event will SO1 have the right to bill West Shore, nor shall West Shore have any obligation for Makeup Payments for more than any two years within any consecutive five year period. (d) Makeup Payments hereunder shall be due within thirty days of receipt of SOI's invoice by West Shore and shall be subject to the same conditions specified in Article XII. 14.2 In addition to SOI's rights under 14.1 above, should the volume of all gas delivered to the Treating Plant be less than [CONFIDENTIAL TREATMENT REQUESTED], averaged over any six (6) continuous month period, then SOI shall have the right to charge West Shore a treating fee such that if that treating fee were applied to all Gas delivered to the Treating Plant, SOI would derive operating revenues equal to [CONFIDENTIAL TREATMENT REQUESTED] the actual direct operating expenses of the Treating Plant. That treating fee will continue in effect for as long as the volume of all Gas delivered to the Treating Plant is less than [CONFIDENTIAL TREATMENT REQUESTED], averaged over any six (6) continuous month 28 period; provided, West Shore shall have the right, upon 60 days advance written notice, during any time that such treating fee is being charged hereunder, to terminate this Agreement. 14.3 Should SOI decide to sell the Treating Plant to an unaffiliated company at any time during the term of this Agreement and should SOI receive a bona fide offer to purchase the Treating Plant on terms that it is willing to accept, it shall provide written notice thereof to West Shore specifying the purchase price and other terms and conditions offered by that third party, including a true and correct copy of the written offer. West Shore shall have the right to purchase the Treating Plant by agreeing to match the terms and conditions offered by such third party. West Shore shall notify SOI in writing of its decision to purchase the Treating Plant within thirty (30) days of receipt of written notice from SOI. Should West Shore decline to purchase the Treating Plant, SOI shall have the option, but not the obligation, to sell the Treating Plant to the party which made that offer on terms and conditions no less favorable to SOI than those contained in the written notice to West Shore. Should SOI elect not to sell to such third party, the right of first refusal granted West Shore herein shall be applicable to any offer thereafter. Should West Shore elect to purchase the Treating Plant, the purchase price otherwise specified in the third party offer will be reduced by an amount equal to the sun of (i) the lesser of (x) the amount of Base Fees paid by West Shore hereunder as of that date, not to exceed $1,500,000 or (y) the total of all direct capital and Direct Expenses incurred by SOI in restoring the Base Capacity of the Treating Plant under Section 4.3, plus (ii) all payments made by West Shore for Expanded Capacity under 4.7, as of the date of West Shore's purchase, and upon that purchase all repayment obligations under Section 4.7 shall be deemed extinguished. 14.4 Upon any sale of the Treating Plant to West Shore under this Article, this Agreement shall terminate. Upon any sale, or other transfer or disposition, of the Treating Plant to any party other than West Shore, this Agreement shall continue in full force and effect, shall bind the purchaser thereof, and SOI agrees that such transfer shall include the express adoption and ratification of this Agreement by the assignee or transferee of SOI and SOI shall be released from all obligations relating to or arising hereunder. 14.5 At any time after the expiration of four (4) years following initial deliveries under this Agreement, should West Shore determine in that it is economically unprofitable to continue having its Gas treated by SOI hereunder, West Shore shall notify SOI of this fact (which notification shall include reasonable documentation to substantiate West Shore's claim of economic 29 unprofitability) and this Agreement shall be terminated 120 days from such notification. The availability of lower treating fees from other treaters of Gas shall not be a condition which would give West Shore the right to assert its rights under this Section 14.5. 14.6 Upon request by West Shore, SOI shall obtain hazard and property insurance coverage for the Treating Plant; provided that West Shore shall reimburse SOI for premiums attributable to such coverage. In the event of a catastrophic loss to the Treating Plant, SOI shall be obligated to restore the Treating Plant to its original condition (immediately prior to such catastrophic loss); provided however, SOI shall have no obligation to restore the Treating Plant if West Shore failed to request that SOI obtain hazard and property insurance coverage as described above. ARTICLE XV PAYMENT OF ROYALTY AND TAXES 15.1 SOI shall not be responsible for the payment of any monies due or calculated on the production of West Shore's Gas and/or on the Treating Products derived therefrom. West Shore shall retain sole responsibility for making any such payments due to lessors, royalty owners, overriding royalty owners, production payment owners, etc. 15.2 SOI shall. not be responsible for payment of any severance, gathering or equivalent taxes due on the production, severance and handling of the Gas delivered by West Shore for treating hereunder, nor any severance or similar taxes due on West Shore's share of Treating Products derived from West Shore's Gas. West Shore shall retain sole responsibility for payment of any such taxes. 15.3 Should any taxes (other than state or federal income taxes, or the Michigan single business tax), fees, assessments, etc., be imposed upon SOI subsequent to the signing of this Agreement which are directly attributable to SOI's treating of West Shore's Gas, then SOI shall invoice West Shore for and West Shore agrees to pay all such taxes, fees, etc. in accordance with all terms and conditions contained in Article XII hereunder. ARTICLE XVI LAWS, REGULATIONS AND FORCE MAJEURE 16.1 This Agreement shall be subject to all valid and applicable laws, orders, rules and regulations made by duly 30 constituted governmental authorities having jurisdiction TO THE EXTENT SUCH LAWS ARE NOT PREEMPTED BY OTHER APPLICABLE LAWS. THIS AGREEMENT AND THE LEGAL RELATIONS BETWEEN THE PARTIES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF MICHIGAN. 16.2 In the event any party hereto is rendered unable, wholly or in part, by force majeure to perform its obligations under this Agreement, other than to make any payments or accounting required hereunder, then the obligations of such party, insofar as they are affected by such force majeure, shall be suspended during the continuance of any inability so caused, but for no longer period, and such cause shall, so far as possible, be remedied with reasonable dispatch. In the event SOI is rendered unable by force majeure to perform its obligations to West Shore under this Agreement, West Shore shall not be obligated to pay for treating services during the continuance of any inability so caused, but for no longer period. The term "force majeure" as employed herein shall mean: (i) acts of God; acts of the public enemy; wars; blockades; insurrections; strikes or differences with workmen; riots; disorders; epidemics; landslides; lightning; earthquakes; fires; storms; floods; washouts; arrests and restraints; civil disturbances; explosions; freezing of wells or lines of pipe; requisitions, directives, diversions, embargoes, priorities or expropriations of government or governmental authorities, legal or de facto, whether purporting to act under some constitution, decree, law or otherwise; failure of pipelines or other carriers to transport or furnish facilities for transportation; rules and regulations with regard to transportation by common carriers; (ii) failures, disruptions, or breakdowns of machinery or of facilities of production, manufacture, transportation, distribution and consumption (including, but not by way of limitation, SOI's Treating Plant); breakage or accident to machinery or lines of pipe; the necessity for making repairs, alterations, enlargements or connections to machinery, facilities or lines of pipe; and, (iii) without limitation by enumeration, any other cause or causes, whether of the kind enumerated or otherwise, not reasonably within the control of the party claiming suspension, the term "force majeure" shall likewise include (a) in those instances where any party hereto is required to obtain servitudes, rights of-way grants, permits or licenses to enable such party to fulfill its obligations hereunder, the inability of such party to acquire or the delays on the part 31 of such party in acquiring, at reasonable cost and after the exercise of reasonable diligence, such servitudes, rights-of-way grants, permits or licenses; and (b) in those instances where any party hereto is required to furnish materials and supplies for the purpose of constructing or maintaining facilities or is required to secure permits or permissions from any governmental agency to enable such party to fulfill its obligations hereunder, the inability of such party to acquire, or the delays on the part of such party in acquiring, at reasonable cost and after the exercise of reasonable diligence, such materials and supplies, permits and permissions. It is understood and agreed that the settlement of strikes or lockouts shall be entirely within the discretion of the party having the difficulty and that the above requirement that any force majeure shall be remedied with all reasonable dispatch shall not require the settlement of strikes or lockouts by acceding to the demands of the opposition when such course is inadvisable in the discretion of the party having the difficulty. In the event that SOI claims suspension of its performance hereunder for a period exceeding 30 consecutive days, then, notwithstanding the provisions of Section 10.4, the Base Fee under Article X shall be suspended for all times following that 30-day period until the force majeure condition is remedied and SOI recommences the performance of its obligations. ARTICLE XVII MISCELLANEOUS 17.1 From and after the First Point of Delivery and prior to the Treated Gas Delivery Point, SOI shall indemnify and hold West Shore harmless against any loss, damage, claim, suit, liability, judgment and expense, including attorneys' fees, and other costs of litigation arising out of injury or death of person(s) or damage to or loss of property or the environment resulting from the operations conducted by or on the behalf of SOI. Prior to the First Point of Delivery and from and after the Treated Gas Delivery Point, West Shore shall indemnify and hold SOI harmless against any loss, damage, claim, suit, liability, judgment and expense, including attorneys fees, and other cost of litigation arising out of injury or death of person or damage to or loss of property or the environment resulting from the operations conducted by or on behalf West Shore, including, expressly, operations conducted by SOI, except to the extent arising from the wilful misconduct or gross negligence of SOI. 32 17.2 SOI shall have the right of ingress and egress to and from the premises of West Shore for all purposes necessary or convenient to the performance of this Agreement, insofar as West Shore has the authority to grant such rights. West Shore shall have the right of ingress and egress to and from the premises of SOI for all purposes necessary or convenient to the performance of this Agreement, insofar as SOI has the authority to grant such rights. 17.3 All notices and correspondence from West Shore to SOI on matters pertaining to this Agreement shall be addressed to: SHELL OFFSHORE, INC. P. 0. BOX 576 HOUSTON, TX 77001 or to such other address as may be designated hereafter in writing by SOI; and all correspondence on matters pertaining to this Agreement from SOI to West Shore shall be addressed to West Shore at: WEST SHORE PROCESSING COMPANY, LLC 5613 DTC PARKWAY, SUITE 400 ENGLEWOOD, COLORADO 80111 or to such other address as may be designated hereafter in writing by West Shore. 17.4 This Agreement shall extend to and be binding upon the parties hereto, their successors and assigns, and the rights and obligations of any party hereunder may be assigned or conveyed in whole or in undivided part and from time to time, (subject to the provisions of this Agreement) but all such assignments and conveyances shall be made expressly subject to this Agreement. No assignment or conveyance of, nor succession to, a party's interest hereunder shall affect or bind the other party until such time as the other party shall have been furnished, at its address given above, with a copy of any document or documents (recorded, if applicable) evidencing same. If the interests of West Shore are assigned in part, then all successors of West Shore, and West Shore if it still owns any interest, shall designate a single party to receive all billing herein and otherwise give and receive notice and correspondence and shall act under this Agreement according to the majority vote, by ownership interest, of West Shore and its successors. 17.5 Nothing in this Agreement shall prevent SOI or West Shore from contracting with any third parties to treat their Gas in the 33 Treating Plant in its existing configuration. Furthermore, subject to the provisions of Section 4.7, nothing in this Agreement shall restrict SOI's or West Shore's ability to expand, or cause to be expanded, the capacity of the Treating Plant in order to treat Third-Party Gas. Provided however, such contracts to treat Third-Party Gas shall be subordinate to West Shore's First Priority Capacity, subject to SOI's rights to use unutilized First Priority Capacity under Section 4.4. 17.6 The obligations under this Agreement are intended to be separate and not joint or collective, and nothing in this Agreement shall ever be construed as creating a partnership or Joint venture. Each party shall be responsible only for its own obligations as set out in this Agreement and shall be liable only for its proportionate share of the costs and expenses as above stipulated. 17.7 No waiver by either party hereto of any one or more defaults by the other in the performance of any of the provisions of this Agreement shall operate or be construed as a waiver of any future default or defaults whether of a like or different character. 17.8 This Agreement constitutes the entire agreement between the parties hereto pertaining to the subject matter hereof and supersedes all prior agreements, understandings, negotiations and discussions, whether oral or written, of the parties, and there are no other agreements between the parties in connection with the subject matter hereof. No supplement, modification or waiver of this Agreement shall be binding unless duly executed in writing by the party to be bound thereby. IN TESTIMONY WHEREOF, this Agreement is executed by the parties hereto to be effective as of the date first above enumerated. WEST SHORE PROCESSING COMPANY, LLC By: Michigan Production Company LLC, its member By: Title: Manager By: Michigan Energy Company LLC, its member By: Title: MANAGER 34 SHELL OFFSHORE, INC. BY: Title: 35 EXHIBIT A This exhibit left intentionally blank. 36 EXHIBIT "B" WELLS PRODUCING SOI-OWNED GAS 1. Bahr 4-24 2. Bahr 5-24 3. Gauthier 1-14 4. Kamaloski 4-23 5. Lutheran Homes 2-27 6. Manistee 1-27 7. Manistee 3-23 8. Manistee 3-27 9. McNeil 5-13A 10. Michigan State Manistee 1-25 11. Olson 2-13 12. Olson-Webb 2-23 13. PCA 10-24 14. PCA Gillespie 5-23A 15. Reid 1-23 16. Ryder 1-24
EXHIBIT "C" WELLS CONTROLLED BY WEST SHORE PROCESSING, LLC 1. Adamczak # 1-24 2. Murray-State # 1-8 3. Lakeland Association, et al. # 1-32 well 4. Lakeland Association, et al. # 1-33 well 5. Lakeland Association, et al. #2-33A well 6. Claybanks 2 Unit (gas) 7. Isley 1-22 8. Miller-Fox 1-11 9. Schultz 2-22 10. Slocurn 1-21 11. Dykstra 1-8 12. Bailey 1-24 13. Dow (Lunde 5-27) 14. Dow (Williams-Fugere 2-18) 15. Dow (Olsen 3-18) 16. Dow (Weinert 1.6) 17. Dow (Weinert 1-31) 18. Dow (Abrahamson 3-7) 19. Dow (Stolberg 1-25) 20. Dow (Stolberg 2-25) 21. Dow (Stolberg 3-25) 22. Dow (Miller 5-13) 23. Dow (Malstrom-Wms. 1-13) 24. Dow (Billow-Wrege 6-13 ) 25. Dow Wierzbowski 5-13)
EXHIBIT D LEASE dated ,1996 between SHELL OFFSHORE, INC. as Lessor and WEST SHORE PROCESSING COMPANY, LLC as Lessee Affecting premises in Manistee County, Michigan 39 LEASE ----- LEASE, dated as of ______, 1996, between SHELL WESTERN EXPLORATION & PRODUCTION, INC. , ( "Lessor" ), and WEST SHORE PROCESSING COMPANY, LLC, a limited liability company, ("Lessee"). 1. THE DEMISED PREMISES AND LEASE TERM ----------------------------------------- In consideration of the Rent hereinafter reserved and the terms, covenants and conditions set forth in this Lease to be observed and performed by Lessee, Lessor hereby demises and leases to Lessee, and Lessee hereby rents and takes from Lessor, the following property (collectively hereinafter referred to as the "Demised Premises"): (a) all the land (the "Land") described in Exhibit A hereto, but excluding the buildings and improvements thereon (the "Improvements"); and (b) all rights of way or of use, servitudes, licenses, tenements, appurtenances and easements now or hereafter belonging or pertaining to the Land; TO HAVE AND TO HOLD the Demised Premises unto Lessee, and the permitted successors and assigns of Lessee, upon and subject to all of the terms, covenants and conditions herein contained, for a term (the "Lease Term") commencing on the date hereof and expiring upon the expiration, cancellation or termination of that certain Gas Treating and Processing Agreement between Lessor and Lessee dated , 1996, unless the Lease Term shall sooner terminate pursuant to any of the conditional limitations or other provisions of this Lease. 2. Rent ------- Lessee covenants to pay to Lessor as a net minimum rent (the "Fixed Rent") during the Lease Term $10.00 per annum. The Fixed Rent shall be payable in advance in equal annual installments commencing on the date hereof and continuing each anniversary of said date during the Lease Term. The first installment of Fixed Rent shall be paid simultaneously with the execution of this Lease. Each date on which Fixed Rent is payable hereunder is hereinafter referred to as a "Rent Payment Date". 3. USE OF DEMISED PREMISES -------------------------- Lessee covenants that the Demised Premises shall be used solely for the purposes of constructing, installing, operating, maintaining, repairing, enlarging and owning a natural gas liquids extraction plant and related facilities necessary or useful in connection therewith. Lessee shall not do or permit any act or thing which is contrary to any applicable laws. Lessee shall not do or suffer any waste, damage, disfigurement or injury to the Demised Premises. Lessee shall not permit the spilling, discharge, release, deposit or placement on the Demised Premises or any part thereof, whether in containers or other impoundments, of any substance which is a hazardous or toxic substance within the meaning of any applicable environmental law. 4. CONDITION OF DEMISED PREMISES ---------------------------------- Lessee represents that Lessee has examined and is fully familiar with the physical condition of the Demised Premises, the Improvements thereon, the sidewalks and structures adjoining the same, subsurface conditions, and uses thereof. Lessee accepts the same, without recourse to Lessor, in the condition and state in which they now are, and agrees that the Demised Premises complies in all respects with all requirements of this Lease. Lessor makes no representation or warranty, express or implied in fact or by law, as to the nature or condition of the Demised Premises, or its fitness or availability for any particular use, or the income from or expenses of operation of the Demised Premises. 5. CONSTRUCTION OF NGL PLANT ------------------------------ After the commencement of the Lease Term, Lessee shall have the right to construct, develop and complete on the Demised Premises a new natural gas extraction plant and related facilities (the NGL Plant). The NGL Plant shall be constructed in accordance with the terms of the Gas Treating and Processing Agreement between Lessor and Lessee. Title to the NGL Plant shall be and remain in Lessee. 6. COMPLIANCE WITH LAWS ------------------------- Lessee, at all times during the Lease Term and at Lessee's expense, promptly and diligently shall comply with all applicable laws. 7. Liens -------- Lessee shall not directly or indirectly create or permit to be created or to remain, and shall discharge, any mortgage, lien, security interest, encumbrance or charge on, pledge of or conditional sale or other retention agreement with respect to the Demised Premises or any part thereof, Lessee's interest therein, other than Deeds of Trust, if any, in connection with Lessee's financing of the NGL Plant; liens not yet payable, or payable without the addition of any fine, penalty, interest or cost for nonpayment, or being contested; and the liens of mechanics, materialmen, suppliers or vendors, or right thereto, incurred in the ordinary course of business for sums which under the terms of the related contract are not at the time due, provided that adequate provision for the payment thereof shall have been made. 8. UTILITY SERVICES -------------------- Lessee shall pay all charges for all public or private utility services and all sprinkler systems and protection services at any time rendered to or in connection with the Demised Premises or any part thereof; shall comply with all contracts relating to any such services; and shall do all other things required for the maintenance and continuance of all such services. 9. INDEMNIFICATION ------------------- Lessee hereby agrees to indemnify and hold harmless Lessor from any and all causes of action, claims and demands of any kind or character asserted by other parties for damages resulting from use of the Demised Premises or operations on the Demised Premises by or on behalf of Lessee, including any environmental cleanup requirements which may be imposed by any governmental agency having jurisdiction over the Demised Premises, except to the extent arising from or related to the gross negligence or wilful misconduct of Lessor. This indemnity shall survive the termination of this Lease. 10. QUIET ENJOYMENT -------------------- Lessor covenants that so long as Lessee is not in default hereunder in the payment of any Rent or compliance with or the performance of any of the terms, covenants or conditions of this Lease on Lessee's part to be complied with or performed, Lessee shall not be hindered or molested by Lessor in Lessee's enjoyment of the Demised Premises. 11. EVENTS OF DEFAULT AND TERMINATION -------------------------------------- If any one or more of the following events ("Events of Default") shall occur: (a) if Lessee shall fail to pay any Fixed Rent when as the same becomes due and payable; or (b) if Lessee shall fail to comply with or perform any term, covenant or condition herein, and such failure shall continue for more than thirty days after Lessee receives notice of such failure, regardless of the source of such notice; then, and in any such Event of Default, regardless of the pendency of any proceeding which has or might have the effect of preventing Lessee from complying with the terms, covenants or conditions of this Lease, Lessor, at any time thereafter may give a written termination notice to Lessee, and on the date specified in such notice this Lease shall terminate and the Lease Term shall expire and terminate by limitation, and all rights of Lessee under this Lease shall cease, unless before such date (i) all arrears of Rent and all costs and expenses, including reasonable attorneys' fees, incurred by or on behalf of Lessor hereunder, shall have been paid by Lessee, and (ii) all other defaults at the time existing under this Lease shall have been fully remedied to the satisfaction of Lessor. Lessee shall reimburse Lessor for all costs and expenses, including reasonable attorneys' fees, incurred by or on behalf of Lessor occasioned by or in connection with any default by Lessee under this Lease. 12. ASSIGNMENT AND SUBLETTING ------------------------------ Lessee expressly covenants that Lessee shall not voluntarily or involuntarily assign, encumber, mortgage or otherwise transfer this Lease, or sublet the Demised Premises or any part thereof, or suffer or permit the Demised Premises or any part thereof to be used or occupied by others, by operation of law or otherwise, without the prior written consent of Lessor in each instance which consent shall not be unreasonably withheld. 13. NOTICES ------------ All notices, demands, elections and other communications desired or required to be delivered or given under this Lease shall be in writing, and shall be deemed to have been delivered and given when delivered by hand, or on the third business day after the same have been mailed by first class registered or certified mail, postage prepaid, enclosed in a securely sealed envelop addressed to the party to which the same is to be delivered or given at such party's address as set forth in this Lease or at such other address as said party shall have designated in writing in accordance with Section 17.3 of the Agreement to which this Lease is attached. 14. REMOVAL OF PROPERTY AND RESTORATION --------------------------------------- At any and all times during the term of this Lease, Lessee shall have the right, and within 180 days of termination of this Lease Lessee shall have the obligation, to remove any or all property placed, constructed or installed on the Demised Premises by or on behalf of Lessee. Upon such removal of property, Lessee shall fill and level all excavations and restore the Demised Premises to the condition they were in on the effective date hereof. 15. MISCELLANEOUS ------------------ All rights, powers and remedies provided herein may be exercised only to the extent that the exercise thereof does not violate any applicable law, and are intended to be limited to the extent necessary so that they will not render this Lease invalid, unenforceable or not entitled to be recorded under any applicable law. If any term, covenant or condition of this Lease shall be held to be invalid, illegal or unenforceable, the validity of the other terms, covenants and conditions of this Lease shall in no way be affected thereby. Lessor and Lessee agree that a memorandum of this Lease, but not this Lease, may be recorded by Lessee, at Lessee's expense. The headings in this Lease are for purposes of reference only and shall not limit or define the meaning hereof. This Lease may be changed or modified only by an instrument in writing signed by the party against which enforcement of such change or modification is sought. IN WITNESS WHEREOF, Lessor and Lessee have executed this Lease as of the date first above written. WESTSHORE PROCESSING COMPANY, LLC By: Michigan Production Company LLC, its member By: Title: Manager By: Michigan Energy Company LLC, its member By: Title: Manager SHELL OFFSHORE, INC. By: Title: EXHIBIT A THE DEMISED PREMISES -------------------- That area of land located within the Manistee Sulfur Plant denoted as Location 1 or Location 2 on the attached drawing. EX-10.11 14 GAS GATHERING, TREATING AND PROCESSING AGREEMENT GAS GATHERING, TREATING AND PROCESSING AGREEMENT THIS AGREEMENT is made and entered into this 2nd day of May, 1996; by and between OCEANA ACQUISITION COMPANY, L.L.C., hereinafter referred to as "Producer", and WEST SHORE PROCESSING COMPANY, LLC. RECITALS: A. Producer owns and holds or may own or hold certain valid and subsisting oil and gas lease(s) or interests therein, covering lands situated and being within the Dedication Area; and B. Producer desires to have gathered, treated and processed the gas which may hereafter be produced from wells now or hereafter located within the Dedication Area; and C. Processor operates, or has contracted with third parties to operate, gas gathering, treating and processing related facilities and desires to gather, treat and process that gas for the purpose of extracting liquid and liquefiable hydrocarbon products therefrom. NOW, THEREFORE, in consideration of the mutual covenants contained herein, Producer and Processor agree as follows: ARTICLE I DEFINITIONS ----------- The following definitions of terms shall apply for all purposes of this Agreement: 1.1 "Accounting Period" means a period of one month, commencing at seven (7) o'clock a.m. local time on the first day of a calendar month and ending at seven (7) o'clock a.m. local time on the first day of the next succeeding month. 1.2 "Basin" means Basin Pipeline Limited Liability Company, an affiliate of West Shore Processing Company, LLC. 1.3 "BTU" means British Thermal Unit and is the amount of Page - 1 heat required to raise the temperature of one (1) pound of pure water from fifty-nine degrees Fahrenheit (59 degrees F) to sixty degrees Fahrenheit (60 degrees F); and, "MMBTU" means one million British Thermal Units. 1.4 "Cubic Foot" or "Cubic Feet" means the volume of gas contained in one cubic foot of space at a standard pressure base of fourteen-and-sixty-five- hundredths (14.65) pounds per square inch absolute (psia) and a standard temperature base of sixty degrees Fahrenheit (60 degrees F). 1.5 "Dedication Area" means initially Manistee, Mason and Oceana Counties, Michigan; and, at such time as Processor has extended its facilities into Muskegon County, Michigan, then that county shall be included in the Dedication Area effective as of the date upon which Processor gives Producer notice that it has facilities in that county capable of receiving gas; provided, however, with respect to Muskegon County, only as to wells, lands and leases not then dedicated to other gatherers, treaters and processors. 1.6 "Gross Heating Value" means the number of BTU's produced by the combustion, at a constant pressure, of the amount of the gas which would occupy a volume of one (1) Cubic Foot at a temperature of sixty degrees Fahrenheit (60 degrees F), if saturated with water vapor and under a pressure equivalent to that of thirty (30) inches of mercury at thirty-two degrees Fahrenheit (32 degrees F) and under standard gravitational force (acceleration 980.665 centimeters per second squared) with air of the same temperature and pressure as the gas, when the products of combustion are cooled to the initial temperature of the gas and air and when the water formed by combustion is condensed to the liquid state. 1.7 "Inlet Volume" means the aggregate volume of gas measured at the Receipt Point. 1.8 "Liquid Hydrocarbons" is used herein to refer to liquefiable hydrocarbons present in the vapor phase in the gas stream and to refer to hydrocarbons in a liquid state after the extraction by the Plant from the gas stream, but shall in either case mean natural gasoline (pentane plus heavier hydrocarbons), butanes, propane and ethane (including such incidental methane as may be extracted from the gas under normal operation of processing Page - 2 facilities). 1.9 "MCF" means one-thousand (1,000) Cubic Feet and "BCF" means one billion cubic feet. 1.10 "Pipeline Drip" means condensate and liquefied hydrocarbons which separate from Producer's gas in the pipeline facilities of Processor. 1.11 "Plant" means Processor's gas plant (or the processing and treating facilities of third parties with whom Processor contracts for services applicable to Producer's gas) and Processor's gathering system behind the plant, now or hereafter existing, including without limitation, all tanks, equipment, pipe, valves, and material of any kind, including appropriate gas and liquid measurement facilities, pipeline gathering and compression facilities, storage, shipping, dehydration, gas treating and delivery facilities for Plant Products; all structures located, or to be located, on the site(s) at which the compression, treating and processing facilities of Processor are now or hereafter located; all easements pertaining to the site(s) and operation of those facilities; and any and all facilities located, or to be located, on or away from the site(s) deemed by Processor to be necessary for its performance under this Agreement. 1.12 "Plant BTU Reduction" or "PBR" means the sum of the gas used as Plant Fuel, Unmeasured Gas Uses and Losses, and the BTU equivalent of the Plant Products as determined in accordance with Article V. 1.13 "Plant Delivery Point" means the point(s) at which Producer's share of the Residue Gas is delivered by Processor to Producer at the tailgate of the Plant, as described on Schedule II. Measurement facilities at the Plant Delivery Point shall be installed, maintained, and operated by Processor, or its designee, at its sole cost, risk, and expense. 1.14 "Plant Fuel" means all gas, expressed in BTU's, utilized by Processor as fuel in the Plant. 1.15 "Plant Products" means finished commercial products and other products, or any mixtures thereof, other than Residue Gas, which Processor from time to time extracts or separates from gas Page - 3 processed in the Plant, including, but not limited to ethane, propane, iso- butane, normal butane, and natural gasoline. 1.16 "Processing" means the activities extraction and recovery of Plant Products. relating to the 1.17 "Processor" means West Shore Processing Company, LLC, and its affiliate, Basin Pipeline Limited Liability Company. 1.18 "Receipt Point" means the point(s) where gas is delivered by Producer to Processor for gathering, treating and processing in the Plant. Measurement facilities at the Receipt Point shall be installed, maintained, and operated by Processor, or its designee, under the terms hereof. 1.19 "Residue Gas" means gas, expressed in MMBTU's, remaining after the extraction of Liquid Hydrocarbons, Plant Fuel, sulfur, hydrogen sulfide and carbon dioxide, and after other Unmeasured Gas Uses and Losses incident to or occasioned by the treating, gathering and processing of gas and redelivery to Producer. The portion of the Residue Gas attributable to Producer's gas is to be delivered to Producer at the Plant Delivery Point. 1.20 "Subordinated Liens" means liens in favor of that Producer's secured creditors which liens are subject to and subordinate to the rights of Processor under this Agreement in a manner acceptable to Processor. 1.21 "Thermal Content" for gas means the product of the measured volume in dry MCF's and the Gross Heating Value in dry BTU's per MCF, adjusted to the same pressure base; for Plant Products means the product of the gross heat of combustion per gallon multiplied by the total gallons of the product stream. Numerical values for gross heat per gallon shall be those published in the Standard Table of Physical Constants of Paraffin Hydrocarbons in GPA Publication 2145-93, as revised. 1.22 "Treating" means the activities relating to the removal of hydrogen sulfide and carbon dioxide from the gas. 1.23 "Unmeasured Gas Uses and Losses" means any gas used, lost or not otherwise accounted for in the gas plant incident to the operation of the gas plant and gas lost in Processor's Page - 4 gathering system (to the extent not allocable to specific receipt points, including Producer's), including volumes of gas released through relief valves, ruptured pipelines, blow down of vessels, etc., and fuel for gathering system compressors which for each compressor shall be reasonably allocated on a Thermal Content basis to the receipt points, including Producer's served by such compressor. ARTICLE II COMMITMENT, RECEIPT AND DELIVERY CONDITIONS ------------------------------------------- 2.1 Subject to the other provisions of this Agreement, Producer commits to this Agreement: a. all gas attributable to the interests of Producer in the leases described in Schedule I; and, b. all of Producer's interests hereafter acquired by Producer, whether acquired directly or earned under farming or similar agreements covering lands within the Dedication Area; c. Provided, however, this Agreement shall not pertain to any gas production attributable to interests of Producer which contains less than fifteen (15) grains of hydrogen sulfide per 100 cubic feet and less than --- two (2) mol percent carbon dioxide. Producer agrees that the foregoing dedication shall be a covenant running with the land and that any assignment, sale or other transfer of all or a portion of Producer's interests shall include and be subject to the dedication under this Agreement, and that Producer shall cause any purchaser, assignee or other transferee of any portion of those interests to ratify this Agreement and to expressly assume and agree to the terms hereof to the extent of the portion of those interests acquired from Producer by that party. Producer also agrees that should Producer subsequently grant any security interest (whether by pledge, collateral assignment, mortgage, deed of trust, or other instrument) in those interests, such security interest shall be granted expressly subject to the foregoing dedication and to Processor's rights and obligations under this Agreement. At Processor's request, Producer agrees to execute a recording memorandum of this Agreement, in the form attached hereto as Schedule III, to give notice of Producer's Page - 5 dedication hereunder. 2.2 a. Subject to the other provisions hereof, Producer agrees to deliver to Processor, and Processor agrees to receive from Producer, at the Receipt Point(s), as designated by Processor, and gather, treat and process at the Plant all of the gas now or hereafter produced attributable to Producer's interests in the lease(s) covered by this Agreement (which specifically excludes any gas production attributable to interests of Producer which contains less than fifteen (15) grains of hydrogen sulfide per 100 cubic feet and less than two (2) --- mol percent carbon dioxide. Notwithstanding that Receipt Points are to be designated by Processor, Producer shall have the right to notify Processor, at anytime and from time to time, that Producer intends to drill additional well(s) in the Dedication Area which will not be served by then existing Receipt Point(s). Within 14 days after receipt of that notice, Processor will designate the Receipt Point(s) for those additional well(s). The purpose of that notice and designation is to enable Producer to complete its economic projections for the new wells before commencing drilling. Processor agrees to designate those new Receipt Point(s) along its gathering lines in a manner that will enable Producer to construct its lateral gathering lines for the new wells across the shortest practicable and most economically practicable route, taking into account operational considerations of Processor. Processor agrees to give due consideration to recommendations of Producer but shall not be bound by those recommendations. b. Producer shall be responsible for arranging for all gathering services and the installation of all facilities necessary to cause the gas hereunder to be delivered to Processor at the Receipt Point(s); provided, however, notwithstanding the foregoing, Producer and Processor may enter into a mutually agreeable arrangement under which Processor will install and pay for some or all of those facilities subject to subsequent reimbursement by Producer. Nothing in the foregoing is intended to impose any obligation on Producer in favor of Processor to produce gas from any of Producer's wells or connect any of Producer's wells within the Dedication Area to Processor's facilities (provided, however, Producer may not deliver gas from these wells or connect those wells to any other party). Without limiting the scope of the foregoing sentence, Producer may, in its sole discretion, elect not to produce gas from any well and elect not to connect any well to Page - 6 Processor's facilities at any time that Producer, in its sole discretion, believes that such well is or has become incapable of producing in paying quantities; provided, upon making that election, Producer may not deliver gas from those wells or connect those wells to any other party. 2.3 a. Processor will accept gas delivered by Producer at the Receipt Points, in compliance with this Agreement, produced from all wells on the leases and lands covered by this Agreement. Producer shall reimburse Processor for all actual costs (together with overhead at the rate of 15%) incurred by Processor in installing metering facilities at each Receipt Point. Notwithstanding that reimbursement, Processor shall at all times own the metering facilities installed by Processor. b. Producer shall notify Processor of the estimated spud and completion dates for wells to be drilled on lands within the Dedication Area and committed under this Agreement. 2.4 Prior to initial deliveries of gas from a well dedicated hereunder, Producer shall furnish to Processor reasonable documentation showing the ownership of the relevant operating rights. Promptly after Producer receives an assignment of any interests in existing wells which are, or by virtue of that acquisition become subject to the terms of this Agreement, Producer will provide notification of that acquisition to Processor together with a copy of the assignment or other instruments conveying those interests to Producer; and, upon recording of those instruments, Producer will provide Processor a copy of the recorded instrument showing the recording information. Upon acquisition of any such additional interests, Schedule I hereto shall be deemed amended to include those interests and the parties shall execute appropriate documents to evidence that amendment, including additional recording memoranda. With respect to oil and gas leasehold interests acquired by Producer within the Dedication Area, upon the earlier of (i) Producer's transfer of all of its interests in any oil and gas leasehold within the Dedication Area, or (ii) upon Producer obtaining a permit to drill on that leasehold, Producer will provide Processor with information regarding Producer's ownership in that leasehold. 2.5 Producer agrees to install, at its sole cost and expense, whatever separators, heaters, dehydration equipment and other usual Page - 7 lease facilities as may be deemed prudent by Producer to separate crude oil, free water and condensate from the gas and necessary to meet the quality specifications below; provided, however, any separation equipment to be installed by Producer which shall handle gas to be delivered hereunder shall be only conventional mechanical type field separators of a type then commonly used in the industry. Producer shall have the right to install compression facilities upstream of each Receipt Point. Any wellhead compression installed by Producer shall be operated in a manner that does not adversely affect Processor's measurement facilities. Producer shall make reasonable efforts to supply gas from Producer's wells at a uniform rate of flow. 2.6 a. Gas delivered by Producer to Processor at each Receipt Point shall: 1) be commercially free from dust, gum, gum-forming constituents, condensate, diluent, and other liquids and solids which may become separated from the gas; 2) contain less than ten parts per million (10 ppm) by volume of oxygen, and Producer shall make every effort to keep gas free from oxygen; 3) have a temperature less than one hundred twenty degrees Fahrenheit (120 degrees F); 4) not contain measurable quantities of mercury; 5) have a minimum Gross Heating Value of not less than i0-~0 BTU per Cubic Foot; 6) contain not more than five (5) pounds of water vapor per million Cubic Feet. b. Further, the composite of all gas delivered by Producer at all Receipt Points shall: 1) contain not more than two (2) mol percent of hydrogen sulfide; 2) contain not more than 500 ppm (weight) of total COS, CS2: and mercaptans; 3) contain less than three percent (3%) by volume of nitrogen; 4) contain less than six percent (6%) by volume carbon dioxide; and less than seven percent (7%) by volume of total acid gases (carbon dioxide and hydrogen sulfide; Page - 8 2.7 In the event the gas tendered by Producer to Processor should fail to meet any one or more of the above specifications from time to time, then either Processor or Producer may treat the gas to bring it within specifications. If neither elects to treat, Processor can cease receiving the non-conforming gas from Producer so long as such conditions exist. Processor, at its option, may take receipt of such non-conforming gas, and such receipt shall not be construed as a waiver or change of standards for future gas volumes. In the event Processor rejects any non-conforming gas on any day, Processor shall notify Producer in writing immediately upon rejecting such gas, and Producer shall have ninety (90) days to bring the non-conforming gas into compliance. Until Producer brings that non-conforming gas into compliance, Producer agrees that it will cease deliveries of the gas containing the highest concentration of hydrogen sulfide as necessary to bring the composite of all gas delivered by Producer into compliance. if Producer is unable to bring that non-conforming gas into compliance within the ninety (90) day period, and Processor continues to elect to reject the non-conforming gas, then Processor shall determine the treating facilities deemed necessary to cause the gas to conform to the specifications and Producer will pay Processor a mutually agreeable treating fee for that additional treatment which shall be in addition to the otherwise applicable fees hereunder. 2.8 Producer shall deliver gas hereunder to Processor at the Receipt Point(s) at a pressure sufficient to cause that gas to enter Processor's facilities, as the pressure therein may exist from time to time, but not to exceed a pressure of 1200 psig. Producer agrees to compress its gas prior to delivery hereunder, as necessary, in order to affect the delivery of that gas to Processor. ARTICLE III MEASUREMENT FACILITIES ---------------------- 3.1 All gas measurement equipment installations shall be of standard make and be furnished, installed, operated, and maintained by Processor in accordance with the published specifications of the American Gas Association (AGA). Producer or others having Producer's consent may, at its option and expense, install and operate meters to check processor's meter(s) provided such meter Page - 9 installation in no way interferes with the operation of Processor's meter. Any check meters installed by Producer shall be located upstream of Processor's meters. Processor shall have access to such check measuring equipment at all reasonable hours, but the reading, calibration and adjusting thereof shall be done only by the Producer. 3.2 The computation of all gas volumes measured shall be based on the latest factors published by the AGA corrected to a base pressure of fourteen- and-sixty-five-hundredths (14.65) psia and a base temperature of sixty degrees Fahrenheit (60 degrees F). The assumed atmospheric pressure shall be 14.-- psia, regardless of actual atmospheric pressure at which the gas is measured. The flowing temperature shall be measured by an industry accepted recording device, and said temperature measurement shall be used to correct gas volumes as measured in Article !!I hereof. Corrections for supercompressibility deviation from Boyle's Law shall be made for all gas metered hereunder. Such corrections shall be made by use of the AGA Manual for the Determination of Super Compressibility Factors for Natural Gas (PAR Project NX-19), as amended. The Reynold's Number Factor and Expansion Correction Factor shall each be assumed to be one (1). The specific gravity of the gas shall be determined by chromatographic analysis or any other method adopted as standard by the Gas Processor's Association (GPA). 3.3 In the event a meter is out of service, or registering inaccurately, the volume of gas delivered hereunder shall be calculated in the following order: (i) by correcting the error if the percentage of error is ascertainable by calibration, test, or mathematical calculations, or in the absence of (i), (ii) by using the registration of any check meter or meters if installed and accurately registering, or, in the absence of both (i) and (ii), then, (iii) by estimating the quantity of delivery by deliveries during periods of similar conditions when the meter was registering accurately. 3.4 Representative determinations for Liquid Hydrocarbon content shall be made at the Receipt Point by chromatographic analysis, or by some other mutually acceptable method adopted by the parties for testing Producer's gas for fractional analysis and Liquid Hydrocarbon content. The chromatographic analysis shall be utilized in the determination of the Liquid Hydrocarbons Page - 10 composition and shall be used as the basis for allocating Plant Products to the different Receipt Points. The Gross Heating Value of the Inlet Volume shall be determined periodically by test samples obtained from the various wells. Gross Heating Value of Residue Gas shall be that determined by the receiving pipelines at the tailgate of the Plant. 3.5 Processor shall take or have taken for it, a representative sample of the Plant Products to be obtained from the truck, tank car, or pipeline deliveries during each calendar month and shall analyze or cause to be analyzed such samples. The analysis of the individual samples shall be used to determine the components of the Plant Products delivered. 3.6 Each party hereto shall have access at all reasonable hours to all facilities and data which are related to gas measurement, Gross Heating Value determination, product composition determination, gas sampling and gas gravity determination, along with all facilities utilized and data to determine Plant Products quantities in the Plant or sold therefrom. 3.7 Processor shall verify the accuracy of its measuring equipment monthly, or more often if deemed necessary by Processor. Processor shall give Producer reasonable prior notice of any check or adjustment of any measuring equipment. 3.8 Each party shall have the right to be present for any installing, reading, cleaning, changing, repairing, testing, calibrating and/or adjusting of either party's measuring equipment used in measuring deliveries hereunder. The records from each party's measuring equipment shall remain the property of the party owning such measuring equipment, but, upon request, each party will submit to the other all records and/or charts, together with calculations therefrom, for inspection and verification, subject to return within thirty (30) days after receipt thereof. 3.9 If either party shall notify the other that it desires a special test on any measuring equipment the parties shall cooperate to secure a prompt verification of the accuracy of such equipment. If, upon test, any measuring equipment is found to be in error by not more than two percent (2%), previous recordings of such equipment shall be considered correct in computing deliveries hereunder, but if such equipment shall be found to be inaccurate by Page - 11 an amount exceeding two percent (2%), at a recording rate corresponding to the average rate of flow for the period since the last preceding test, then any preceding recordings of such equipment shall be corrected to zero error for any period which is known definitely or agreed upon; if the period is not known or definitely agreed upon, such correction shall be for a period extending up to one-half (1/2) of the time elapsed since the date of last test, but not to exceed a correction period of forty-five (45) days. Any measuring equipment found to be in error shall be corrected to read accurately. If any such test indicates that no inaccuracy of more than two percent (2%) exists, then the party requesting such test shall reimburse the testing party for all its costs in connection with such test within fifteen (15) days following receipt of a detailed invoice setting forth such costs. 3.10 Each party shall preserve for a period of two (2) years all test data, charts, and other similar records for auditing. Thereafter, same shall be conclusively deemed true and correct. ARTICLE IV OPERATION OF THE PLANT ---------------------- 4.1 Processor has prior contracts and agreements, and in the future may obtain other contracts and agreements, with other parties to gather, treat and process at the Plant all of the other parties' gas delivered to Processor at the various other receipt points. If during the term of this Agreement, the gas available from all sources for gathering, treating and processing exceeds the Plant capacity, Processor shall only be obligated to receive gas ratably from each receipt point delivering gas to the Plant. ARTICLE V ALLOCATION OF LIQUID HYDROCARBONS AND RESIDUE GAS; FEES ------------------------------------------------------- 5.1 a. For the services provided herein, Processor shall receive compensation equal to a fee payable by Producer, of (Confidential Treatment Requested) of Producer's gas delivered to Processor, measured at the Page - 12 Receipt Point(s), which fee shall be inclusive of all transportation charges incurred by Processor in transporting Producers' gas on the pipeline of Basin. b. (Confidential Treatment Requested) of the compensation specified in 5.1 a., above, as adjusted herein, shall be adjusted on an annual basis in proportion to the percentage change, from the preceding year, in the Producer Price Index for oil and gas field services (SIC 138) as published by the Department of Labor. The compensation adjustment shall be made effective upon January 1st of each year and shall reflect the percentage change in the foregoing index as it existed for January of the immediately preceding year from the index for January for the second immediately preceding year. In no event will the compensation, as adjusted, be less than (Confidential Treatment Requested). c. For each Accounting Period, Processor shall (i) pay to Producer an amount equal to (Confidential Treatment Requested) of the Net Sales Price per gallon, times the gallons of individual Plant Product recovered by Processor and attributable to Producer's gas processed at the Plant and allocated to each Receipt Point, minus the fee payable to Processor under Section 5.1, a., and 5.1, b., above; and (ii) shall deliver (Confidential Treatment Requested) of the Residue Gas attributable to Producer's gas processed at the Plant and allocated to each Receipt Point to the Plant Delivery Point for the account of Producer. d. Plant Products shall be sold by Processor's marketing department. The "Net Sales Price" per gallon of each individual Plant Product allocated to Producer's gas shall be the weighted average of the net price per gallon received by Processor for the total volume of each individual Plant Product sold from Processor's Plant, in arms-length transactions, during the Accounting Period. Such Net Sales Price may include a deduction from the actual gross sales price of such Plant Produces of the actual third party cost of pipeline, truck or rail transportation, terminating fees, fractionation outside the Plant, truck or tank car rentals and taxes (excluding income taxes) and actual third party marketing costs and similar costs and expenses as incurred by the Processor to determine a net price for such sale, and further less a marketing fee to be retained by Processor of (Confidential Treatment Requested) per gallon of Plant Products attributable to Producer. 5.2 That portion of an individual Plant Product at Page - 13 Processor's Plant which is attributable to Producer shall be determined by multiplying the total volume, expressed in gallons, of each individual Plant Product recovered in the Plant during such Accounting Period by a fraction, the numerator of which shall be the "Theoretical total Gross Heating Value" of that Plant Product contained in Producer's gas delivered during the Accounting Period, and the denominator of which shall be the "Theoretical total Gross Heating Value" of that Plant Product contained in all gas supplying the Plant during such Accounting Period. The "Theoretical total Gross Heating Value" of a Plant Product in any stream of gas shall be calculated by multiplying the Gross Heating Value of that Plant Product determined from the chromatographic analysis specified in Article III by the quantity of gas in that gas stream. 5.3 The PBR shall be separately calculated as to each receipt point (including Producer's) and shall be the sum of the following: a. The Thermal Content of the Plant Products allocated to the gas stream from such receipt point; plus b. The Thermal Content of Producer's gas consumed as Plant Fuel in treating, gathering and processing such gas, which shall be determined by multiplying the Thermal Content of the Plant Fuel used in such Accounting Period by a fraction, the numerator of which is the Thermal Content of Producer's Inlet Volume and the denominator of which is the Thermal Content of all gas inlet volumes, including Producer's, received by Processor from all parties delivering gas to the Processor; plus c. The Thermal Content of Producer's gas consumed as Unmeasured Gas Uses and Losses in gathering, treating and processing Producer's gas. 5.4 The Residue Gas, as determined by measurement at the Plant Delivery Point, shall be allocated among the various producers delivering gas to Processor by multiplying the total actual measured Thermal Content of gas remaining after gathering, treating and processing from all gas delivered to Processor by a fraction, the numerator of which is the "Theoretical Volume of Residue Gas" remaining from Producer's gas and the denominator of which is the "Theoretical Volume of Residue Gas" remaining from all gas, including Producer's gas, delivered to Processor during the Accounting Period. The "Theoretical Volume of Residue Gas" shall Page - 14 be determined by subtracting the PBR, as determined above, from the Thermal content determined at such receipt point attributable to the applicable volumes of gas delivered to Processor. 5.5 Producer will inform Processor of the amount of gas to be delivered by Producer at each Receipt Point, in accordance with Processor's Nomination Procedures, attached hereto as Schedule IV. If Producer nominates gas volumes in a greater or lesser amount than Producer's actual deliveries at the Receipt Point(s), then a condition of imbalance shall exist. A Positive Imbalance shall exist in those cases where the Producer's deliveries are in excess of the volumes nominated by Producer or Producer's designee. A Negative Imbalance shall exist in those cases where the Producer's deliveries are less than the volumes nominated by Producer or Producer's designee. Processor and Producer shall work to minimize any imbalance and agree to exchange pertinent information in writing in good faith in an attempt to minimize the imbalance. As soon as possible Processor shall provide Producer written notice that Producer has a condition of imbalance during any Accounting Period, and Producer shall take immediate corrective action to conform Producer's nominations to Producer's physical flows. ARTICLE VI ROYALTY AND TAXES ----------------- 6.1 Producer agrees to account for and pay all the royalties due on the gas delivered under this Agreement in strict accordance with the provisions of those leases or agreements creating those royalties. 6.2 Producer shall pay all gross production, severance, and similar taxes levied against or with respect to gas delivered under this Agreement. The Processor shall under no circumstances become liable for those taxes, unless designated to remit those taxes on behalf of Producer by any duly constituted jurisdictional agency having authority to impose such obligations on Processor, in which event the amount of those taxes remitted by Processor on Producer's behalf shall be deducted from the amounts otherwise due Producer hereunder. ARTICLE VII Page - 15 TERM ---- 7.1 Subject to Section 7.2, this Agreement shall remain in full force and effect for a primary term of twenty (20) years following the date of initial deliveries hereunder, and thereafter for the life of the leases from time to time covered hereby. 7.2 If, the continued receipt of all or any portion of Producer's gas renders Processor's operations hereunder unprofitable to Processor, in Processor's sole judgment, it shall have the right to notify Producer of that circumstance, which notice shall include sufficient documentation to substantiate the claim of unprofitability. The parties shall then meet to discuss the course of such unprofitability and to determine if a good faith solution can be reached. Absent a viable good faith solution, this Agreement shall be terminated upon sixty (60) days following the date of Processor's written notice of unprofitability. As used hereunder, Processor's operations hereunder are unprofitable if Processor's revenues attributable to that portion of Producer's gas at issue do not exceed the expenses of operating Processor's facilities attributable to portion of Producer's gas. Upon a termination under this Section 7.2, Processor will (i) make settlement for gas already delivered, and (ii) release all wells and lands from the terms hereof and will execute and deliver to Producer a recordable memorandum of that termination. ARTICLE VIII STATEMENTS AND PAYMENTS ----------------------- 8.1 Payment shall be made by Processor to Producer of the Net Sales Price for Plant Products, less the fees due Processor under Section 5.1, not later than the last day of each month for Producer's gas received during the preceding Accounting Period, and at the time payment is made a statement showing full details of the account shall be transmitted to Producer. Further, the deduction of fees owed by Producer to Processor, under Section 5.1, from the Net Sales Price for Plant Products attributable to Producer's gas shall not relieve Producer for the liability to Processor for those fees, and should the full amount of those fees not be recovered from the Net Sales Price for Plant Products attributable to Producer's gas, then Producer shall pay Processor the deficiency within ten (10) days following receipt of Processor's statement. Page - 16 8.2 Either party, upon thirty (30) days prior written notice, shall have the right, at reasonable times during business hours but no more frequently than once each calendar year, at its expense, to examine the books and records of the other party to the extent necessary to audit and verify the accuracy of any statement, charge or computation made under or pursuant to this Agreement. The scope of such audit shall be limited to the twenty-four (24) month period prior to the month in which such audit commences; provided, no audit may include any time period subject to a prior audit hereunder and no audit may occur more frequently than once each six (6) months. All statements, allocations, measurements and payments made in any period prior to the twenty-four (24) months preceding such month shall be conclusively deemed true and correct. The party conducting the audit shall have six (6) months after commencement of the audit in which to submit a written claim, with supporting detail, for adjustments. Should any audit conducted by Producer disclose required adjustments exceeding $75,000, then Processor shall reimburse Producer for its reasonable and necessary third party costs incurred in performing that audit. ARTICLE IX RIGHTS-OF-WAY ------------- 9.1 Producer hereby grants to Processor, insofar as Producer has the right to do so, all requisite easements, and rights-of-way over, across, and under the lands or the leases covered hereunder, with full right of ingress and egress for the purpose of constructing and operating gas pipelines, meter stations, and other equipment necessary for convenience of carrying out the terms of this Agreement and Processor's obligations hereunder. All lines and other equipment placed by Processor in, on or under said land shall remain the property of Processor and may be removed at any time. In the exercise of its rights under this Section 9.1, Processor shall comply with all laws and with the terms and conditions of leases, licenses and easements binding on Producer (to the extent disclosed to Processor) with respect to those lands. ARTICLE X NOTIFICATION ------------ 10.1 Any notice or other communication provided for in this Agreement shall be given in writing and shall be considered as duly delivered when either mailed certified, return receipt requested, Page - 17 postage prepaid by United States mail, by delivery service (with confirmation) or sent via facsimile transmission (with confirmation), addressed to the party to whom such notice is given as follows: Producer: Oceana Acquisition Company, L.L.C. 1100 Louisana Suite 3150 Houston, Texas 77002 Ph. (713) 659-6100 Fax(713)659-6130 Processor: West Shore Processing Company LLC 5613 DTC Parkway, Suite 400 Englewood, Colorado 80111 ATTN: Ph. (303) 290-8700 Fax. (303) 290-8769 Notice shall be effective when received, except notice sent by mail shall be deemed received three (3) days after mailing. Either party may change its address for notice purposes by written notice to that effect. ARTICLE XI LIABILITY AND WARRANTIES ------------------------ 11.1 As between the parties hereto, Producer, or its designee shall be in control and possession of the gas hereunder until such gas is delivered at the Receipt Point and as to the Residue Gas, after it is redelivered at the Plant Delivery Point. Processor shall be in control and possession of the gas delivered hereunder from the time such gas is delivered at the Receipt Point and as to the Residue Gas, until it is returned to Producer at the Plant Delivery Point. 11.2 Processor hereby covenants and agrees with Producer that except to the extent caused by Producer's gross negligence or willful misconduct, Processor shall protect, defend, indemnify and hold harmless Producer and its affiliates, the contractors, sub-contractors, agents or representatives of Producer and its affiliates, and the directors, managers, officers or employees of Producer, its affiliates or the contractors, subcontractors, agents or representatives of same (hereinafter referred to as "Producer Indemnified Parties") from, against and in respect of any and all Page - 18 Losses (as hereinafter defined) incurred by any Producer Indemnified Party to the extent such Losses arise from or are related to: (a) processor's ownership and operation of its facilities from and after the Receipt Point; and (b) Processor's possession and control of Producer's gas. 11.3 Producer hereby covenants and agrees with Processor that except to the extent caused by Processor's gross negligence or willful misconduct, Producer shall protect, defend, indemnify and hold harmless Processor and its affiliates, the contractors, sub-contractors, agents or representatives of Processor and its affiliates, and the directors, managers, officers or employees of Processor, its affiliates or the contractors, subcontractors, agents or representatives of same (hereinafter referred to as the "Processor Indemnified Parties") from, against and in respect of any and all Losses incurred by any Processor Indemnified Party to the extent such Losses arise from or are related to: (a) Producer's possession and control of the gas prior to the Receipt Point(s) and as to the gas returned to Producer, after the Plant Delivery Point; and (b) Producer's ownership and operation of its facilities before the Receipt Point. 11.4 For the purposes of this Article XI, "Loss(es)" shall mean any actual loss, cost, expense, liability, damage, demand, suit, sanction, claim, settlement, judgment, lien, fine, penalty, interest of every kind and character (including reasonable fees and expenses of attorneys, technical experts and expert witnesses reasonably incident to same) which are suffered by indemnified Parties (as herein defined), or any third parties, and any expenses incurred in enforcing this indemnity provision, incurred by, imposed upon or rendered against one or more of the applicable Indemnified Parties, on account of injuries (including death) to any person or damage to or destruction of any property, sustained or alleged to have been sustained in connection with or arising out of or incidental to the matters for which the Indemnifying Party has indemnified the applicable Indemnified Parties, and whether based on contract, tort or pursuant to any then existing laws, rules or regulations of any governmental body having jurisdiction with respect thereto, and regardless of whether the Losses are foreseeable or unforeseeable or founded in whole or in part upon the (i) breach of contract or (ii) the sole, joint, concurrent contributory or comparative (a) negligence, (b) breach of legal duty other than those expressly imposed under this agreement or (c) Page - 19 strict liability of one or more of the Producer Indemnified Parties or Processor Indemnified Parties, including, but not limited to, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, the Resource Conservation and Recovery Act of 1976, as amended, the Toxic Substances Control Act, and other federal and state equivalents. Despite the foregoing to the contrary, Loss(es) shall not include consequential, indirect, prospective, punitive or exemplary damages as between Producer and Processor. 11.5 Procedure. The indemnifications contained in this Article XI. shall ---------- be implemented as follows: (A) Notice of Claim. The party seeking indemnification under the terms of ---------------- this Agreement ("indemnified Party") shall submit a written "Claim Notice" to the other party ("indemnifying Party") which, to be effective, must state: (i) the amount of each Loss claimed by an Indemnified Party, (ii) the basis for such claim, with supporting documentation, (iii) a list identifying to the extent reasonably possible each separate item of Loss for which payment is so claimed. The amount claimed shall be paid by such Indemnifying Party as and to, and only to, the extent required herein within thirty (30) days after receipt of the Claim Notice or after the amount of such payment has been finally established, whichever last occurs. (B) Claims Involving Litigation. Within thirty (30) days after notification ---------------------------- to any indemnified Party with respect to any claim or legal action or other matters that may result in a Loss for which indemnification may be sought under this Article XI., but in any event in time sufficient for the indemnifying Party to contest any action, claim, proceeding or other matter that has become the subject of proceedings before any court or tribunal, such Indemnified Party shall give written notice of such claim, legal action or other matter to the Indemnifying Party and, at the request of such Indemnifying Party, shall furnish the Indemnifying Party or its counsel with copies of all pleadings and other information with respect to such claim, legal action or other matter. The failure to provide that notice within the time specified shall not relieve an Indemnifying Party of its indemnity obligations hereunder except to the extent of any Losses which are attributable to that delay. Upon the election of the Indemnifying Party made within sixty (60) days after receipt of such notice, to Page - 20 the indemnifying Party, Indemnifying Party shall have the right to assume control of such claim, legal action or other matter (to the extent only that such claim, legal action or other matter relates to a Loss for which the Indemnifying Party is liable), including the determination of all appropriate actions, the negotiation of settlements on behalf of the Indemnified Party, and the conduct of litigation through attorneys of the Indemnifying Party's choice, provided, however, that no such settlement can result in any liability or cost to the Indemnified Party for which it is entitled to be indemnified hereunder without its consent. If the Indemnifying Party elects to assume control, (i) any expense incurred by the Indemnified Party thereafter for investigation or defense of the matter shall be borne by the Indemnified Party and (ii) the Indemnified Party shall give all reasonable information and assistance, other than pecuniary, that the Indemnifying Party shall deem necessary to the proper defense of such claim, legal action, or other matter. In the absence of such an election, the Indemnified Party will use good faith efforts to defend, at the Indemnifying Party's expense any claim, legal action or other matter to which such other party's indemnification under this Article XI. applies until the Indemnifying Party assumes such defense, and, if the indemnifying Party fails to assume such defense within the time period provided above, settle the same in the Indemnified Party's reasonable discretion at the Indemnifying Party's expense. 11.6 In no event will either party be liable to the other party hereunder for consequential, prospective, indirect, punitive or exemplary damages as between Producer and Processor. 11.7 Producer warrants and represents that it has good title to and/or the full right to deliver, for the purposes stated herein, all gas (including all Liquid Hydrocarbons contained therein) delivered hereunder and that all gas delivered hereunder will be free from all adverse claims, encumbrances and liens of any nature, and Producer will defend and indemnify Processor against all claims of any nature arising as a result of Producer's breach of the foregoing warranty. Title to all Liquid Hydrocarbons recovered by Processor shall be in Processor, and except for those Liquid Hydrocarbons, title to Producer's gas shall remain in Producer. 11.8 Processor agrees that it will allow no liens or other Page - 21 adverse claims, including liens to secure payment of taxes, to attach to the gas delivered and redelivered hereunder, and warrants that the Residue Gas delivered to Producer at the Plant Delivery Point will be as free from all liens and other adverse claims, including liens to secure payment of taxes (except with respect to production taxes, ad valorem taxes, conservation taxes, severance taxes applicable to Producer's Gas, and taxes based upon production of Producer's gas, Producer remains responsible and for which Processor has no liability) as was the gas delivered by Producer at the Receipt Point. ARTICLE XII LAWS, REGULATIONS AND FORCE MAJEURE ----------------------------------- 12.1 This Agreement shall be subject to all applicable state, federal and local laws, rules and regulations, and the parties hereto shall be entitled to regard all such laws, rules and regulations as valid, and may act in accordance therewith until such time as the same may be invalidated by final judgment in a court of competent jurisdiction. 12.2 The term "Force Majeure" means any cause, or condition (other than financial inability) not reasonably within the control of the party claiming suspension and which by the exercise of due diligence, such party is unable to prevent or overcome. A party claiming Force Majeure shall give prompt notice to the other party specifying the cause and anticipated period of Force Majeure and the plans of the affected party to remedy the condition of Force Majeure. 12.3 In the event either Producer or Processor is rendered unable, wholly or in part, by Force Majeure, to carry out its obligations under this Agreement, other than to make any payments due hereunder, it is agreed that upon such party's giving notice and reasonable full particulars of such Force Majeure in writing or by telegraph to the other parties affected within a reasonable time after the occurrence of the cause relied on, then the obligations of the party giving such notice, so far as they are affected by such Force Majeure shall be suspended during the continuance of the inability, and the cause of the Force Majeure, as far as possible, shall be remedied with all reasonable dispatch. Notwithstanding the foregoing, if a Force Majeure condition results in any well or wells being shut-in or production therefrom being curtailed for any Page - 22 period of 15 consecutive months, Producer shall be entitled to notify Processor, in writing, that it elects to have such well(s) released from this Agreement, and if that notice is received before the Force Majeure condition is remedied, then each of the well(s) designated in that notice shall be released from this Agreement. 12.4 The settlement of strikes, lockouts, and other labor difficulty shall be entirely within the discretion of the party having the difficulty. The above requirement that any Force Majeure shall be remedied with all reasonable dispatch shall not require the settlement of strikes, lockouts, or other labor difficulty by acceding to the demands of opponents therein when that is inadvisable in the discretion of the party having the difficulty. ARTICLE XIII INSPECTION ---------- 13.1 Each party hereto shall have the right to witness any measuring, testing, sampling, analysis or other operation required for settlement hereunder. The parties shall designate in writing the person to be notified in connection with the operation of this Section 13.1. Such written designation shall include the name, address and telephone number of the person to be notified. Adequate notice shall be given to allow such witness to be present. 13.2 Upon written request, each party shall furnish to the other party all meter charts and/or measurement data obtained from electronic gas measurement devices and other records relating to settlements to be made hereunder. All such items shall be returned to the party supplying them within sixty (60) days of receipt. The books and records of each party, insofar as they pertain to settlement hereunder, shall be open and available to the other party at all reasonable hours. All statements rendered to Producer by Processor during any calendar year shall be conclusively presumed true and correct after twenty-four (24) months following the end of any such calendar year, unless within the said twenty-four (24) month period Producer takes written exception thereto and makes claim on Processor for adjustment. Failure on the part of Producer to make claim on Processor for adjustment within such period shall establish the correctness thereof and preclude the filing of exceptions thereto or making of claims for adjustment Page - 23 thereof. ARTICLE XIV RESERVATIONS OF PRODUCER ------------------------ 14.1 Producer reserves the right to withhold from delivery any gas as the lessee is required to deliver to its lessors under the terms of the lease(s) subject to this Agreement or to other parties under other contractual agreements. 14.2 Producer has the right to use sufficient gas for the development and/or operation on Producer's premises, together with similar properties of Producer in the immediate vicinity, including the use of gas for drilling, workover and production operations, and compressor fuel. 14.3 Producer has the right to pool, communitize and unitize, and to dissolve units, communitized areas and depool, the lands, leases and properties covered hereby with other lands, leases, and properties of Producer or others located in the field in which the premises covered hereby are located; and all of Producer's interest in such pool, units or areas, and all of Producer's gas produced therefrom attributable to the interest of Producer committed hereto, shall be covered by this Agreement, provided that the exercise of such right by Producer shall not diminish Processor's rights nor increase its obligations with respect to Producer's new interest in the gas produced from the lands covered hereby. 14.4 Producer may, at any time, without liability to Processor, clean out, rework, deepen, abandon or otherwise perform operations on any well(s) on Producer's leases, or may use any efficient, modern or improved method for the production of gas; provided however, that before any well(s) are taken out of service for any reason, Producer agrees to first shut-off the well(s) connection with Processor's facilities. 14.5 Producer may relinquish or surrender any lease that Producer does not desire to maintain. Producer may use conventional separation equipment prior to the Receipt Points. ARTICLE XV PRODUCER'S REPRESENTATIVE ------------------------- Page - 24 15.1 To the extent Producer's rights hereunder now or hereafter may be owned by more than one party or to the extent a third party owning an interest in a well covered hereby ratifies this Agreement, Producer will appoint a Representative with respect to all matters under this Agreement, including but not limited to the following: a. To give and receive all notices; b. To receive all payments; c. To make and witness any tests to be made of the gas and measuring equipment and adjustments to such equipment; d. To obtain, execute and, deliver to Processor such division order title opinions and division orders as may be required by Processor hereunder; and e. To comply with the requirements, rules and regulations of any duly constituted authority having jurisdiction. f. To nominate and schedule deliveries of gas to downstream markets, as applicable. 15.2 Processor may act, and shall be fully protected in acting, in reliance upon any and all representations and acts of that Representative on behalf of Producer as fully and with the same effect as though Producer had made or performed those. Producer may change any Representative from time to time by delivery of written notice of change and designation of Representative to Processor, provided that any such new Representative shall be the same party as designated by all Producers under this Agreement. The Representative so designated shall have and may exercise all power and authority therein granted with like effect as though named as such Representative herein in the first instance. ARTICLE XVI MISCELLANEOUS ------------- 16.1 The failure of any party hereto to exercise any right granted hereunder shall not impair nor be deemed a waiver of such party's privilege of exercising such right at any subsequent time or times. 16.2 This Agreement shall extend to and inure to the benefit of and be binding upon the parties hereto, their respective successors and assigns, including affiliates and subsidiaries, on Page - 25 and after the effective date of this Agreement. No assignment shall be binding on either of the parties hereto, other than the party selling, transferring, assigning or conveying its interests in the properties covered by this Agreement, until the first day of the month following the date a certified copy of the instrument evidencing such sale, transfer, assignment or conveyance has been delivered to the other party. 16.3 Nothing herein contained shall be deemed to constitute the parties hereto to be a partnership, mining partnership, joint venture or an association and each shall be deemed to act herein and in connection with performance of this Agreement for itself, and not for the other, and no party hereto shall be liable, or responsible for any acts of the other by virtue of the relationship created under this Agreement. 16.4 Insofar as it may have the right to do so, each party shall allow any other party, its agents and employees, access to and the right of ingress and egress upon the lands or property of the other party relating to plants and pipelines herein referred to, for the purpose of carrying out any provisions hereof, including the taking of samples, making of tests and witnessing thereof. While any party, its agents or employees, is upon the property of another party hereto, the entering party shall hold the other party whole and harmless for all losses, damages and liabilities resulting from or arising out of such entry, except to the extent occasioned by the negligence of such other party, its agents or employees. 16.5 This Agreement shall be deemed to be a contract made under the laws of the State of Michigan and for all purposes shall be construed in accordance with the laws of said State without regard to choice of law principles. 16.6 Any dispute arising under this Agreement which cannot be resolved by the parties by good faith negotiations within thirty (30) days following the assertion of the dispute, shall be resolved by binding arbitration to be conducted by and in accordance with the Commercial Arbitration Rules of the American Arbitration Association. All arbitration hearings shall be conducted in Denver, Colorado. Any award of the arbitrator may be reduced to a judgment in any court of competent jurisdiction. Page - 26 16.7 This Agreement, including all Schedules contains the entire agreement of the parties hereto with respect to the matters addressed herein and shall be amended only by an instrument in writing signed by both parties. IN WITNESS WHEREOF, this Agreement may be executed in any number of counterparts, each of which shall be considered an original. PRODUCER: OCEANA ACQUISITION COMPANY, L.L.C. By: /s/ Michael V. Ronca Name: Michael V. Ronca Title: Manager PROCESSOR: WEST SHORE PROCESSING COMPANY, LLC By: MarkWest Michigan LLC, its Manager By: MarkWest Hydrocarbon Partners, Ltd., its manager By: MarkWest Hydrocarbon, Inc., its general partner By: /s/ Arthur J. Denney Name: Arthur J. Denney Title: Vice President Page - 27 THE STATE OF TEXAS COUNTY OF HARRIS The foregoing instrument was acknowledged before me this the 2nd day of May 1996, by Michael Ronea the Manager of Oceana Acquisition Company, L.L.C Witness my hand and official seal. My Commission expires: 2/13/97 /s/ Bronia E. Koch Notary Public THE STATE OF TEXAS COUNTY OF HARRIS The foregoing instrument was acknowledged before me this the 2nd day of May 1996, by Arthur J. Denney, the Vice President of MarkWest Hydrocarbon, Inc., as general partner of MarkWest Hydrocarbon Partners, Ltd, as manager of MarkWest Michigan LLC. Witness my hand and official seal. My Commission expires: 2/13/97 Notary Public /s/ Bronia E. Koch Page - 28 SCHEDULE I Attached to and made a part of Gas Gathering, Treating and Processing Agreement, dated May 2, 1996, between OCEANA ACQUISITION COMPANY, L.L.C., Producer, and WEST SHORE PROCESSING COMPANY, LLC. DEDICATED LEASES AND LANDS -------------------------- Page - 29 SCHEDULE II Attached to and made a part of Gas Gathering, Treating and Processing Agreement, dated May 2, 1996, between OCEANA ACQUISITION COMPANY, L.L.C., Producer, and WEST SHORE PROCESSING COMPANY, LLC. PLANT DELIVERY POINTS --------------------- 1. The interconnection of the MichCon Dry Header at the Brown 19 gas treating plant. 2. The tailgate of Shell Western E & P, Inc.'s Kalkaska gas processing facility. 3. The tailgate of Processor's NGL extraction plant to be located in the vicinity of Shell Western E & P, Inc.'s Shell 23 Treating Plant. Page - 30 SCHEDULE III RECORDING MEMORANDUM OF GAS GATHERING & PROCESSING AGREEMENT KNOW ALL MEN BY THESE PRESENTS That OCEANA ACQUISITION COMPANY, L.L.C., (Producer), with offices at____________ _________, and WEST SHORE PROCESSING COMPANY LLC, (Processor), with offices at 5613 DTC Parkway, Suite 400, Englewood, Colorado 80111, have entered into that certain Gas Gathering, Treating and Processing Agreement dated____________, 1996, under which Producer has committed to its performance. Of its obligations to Processor certain leases 'and lands, as described on Exhibit A, attached hereto, and, further, that Producer agrees that the foregoing dedication shall be a covenant running with those leases and lands, and that any assignment, sale or other transfer of all or a portion of Producer's interests thereunder shall include and be subject to the dedication under the Gas Gathering, Treating and Processing Agreement referred to herein. In witness whereof, the parties hereto have executed this instrument effective as of________________, 1996. PRODUCER: OCEANA ACQUISITION COMPANY, L.L.C. By: Name: Title: PROCESSOR: WEST SHORE PROCESSING COMPANY, LLC By: MarkWest Michigan LLC, its Manager By: MarkWest Hydrocarbon Partners, Ltd., its manager By: MarkWest Hydrocarbon, Inc., its general partner By: Name: Title: Page - 31 THE STATE OF COUNTY OF the The foregoing instrument was acknowledged before me this_____day of_______1996, by_____________the___________________of OCEANA ACQUISITION COMPANY., L.L.C. Witness my hand and official seal. My Commission expires: Notary Public STATE OF COLORADO COUNTY OF ARAPAHOE The foregoing instrument was acknowledged before me this _____day of_________1996, by_____________________________the_________________ of MarkWest Hydrocarbon, inc., as general partner of MarkWest Hydrocarbon Partners, Ltd, as manager of MarkWest Michigan LLC. Witness my hand and official seal. My Commission expires: Notary Public Page 32 SCHEDULE IV NOMINATION PROCEDURES - --------------------- Pursuant to the terms of this Agreement, the Nomination Procedures detailed in this Schedule IV will be utilized to cover all nominations made by Producer on Processor's system. All nominations must be made by Producer or Producer's designee. Processor and Producer agree to minimize imbalances and sustain the flow of gas on the system. Should transporters receiving Producer's Gas revise their requirements, the parties agree to meet and negotiate upon changes to the Nomination Procedures herein as are reasonably required. MONTHLY SCHEDULING OF GAS - ------------------------- By 1:00 P.M. (MT), at least five (5) business days prior to the start of each Accounting Period or initial delivery of Gas, Producer will inform Processor's Gas Control Department ("GCD") of the amount of Gas to be delivered by Producer at each Receipt Point and of Producer's nomination for Gas to be delivered at the Plant Delivery Point. Such nomination shall be submitted to Processor by facsimile in a form acceptable to Processor. Incomplete nominations will not be accepted. By 1:00 P.M. (MT), four (4) business days prior to the start of each Accounting Period or initial delivery of Gas, Processor will notify Producer if the nomination from Producer specified above is different from the volume that Processor will confirm at the Plant Delivery Point on behalf of Producer. Processor will use its best efforts to work closely with Producer to arrive at a confirmed nomination that best estimates Producer's current production. Processor will not be required to confirm any nomination that is greater or less than Processor's estimate of Producer's Gas availability. If, following the initial nomination, Processor determines, using the best information available, including, but not limited to, measurement charts, electronically transmitted data from EFM's, and pipeline confirmations, that Producer should adjust its nominations, then Processor will notify Producer and Producer will be required to adjust nominations in accordance with Processor's request. Both Page - 33 parties will use their best efforts to keep Producer's Gas position in balance while maintaining Gas flow, including without limitation, such periodic reporting of relevant data as may be required to timely adjust nominations. DAILY SCHEDULING OF GAS - ----------------------- Daily nomination changes must be conveyed by facsimile to Processor's GCD on a completed nomination request form, or such other form acceptable to Processor, by 9:30 A.M. (MT) on the business day prior to the effective date of said nomination. Processor will not be required to confirm any daily nomination that is greater or less than Processor's estimate of Producer's availability for that particular day, except as may be necessary to correct any imbalance which may be determined to exist at that time. Producer will promptly advise Processor when Producer's gas availability, gas resale market(s) or other dispositions of Producer's Gas are interrupted or curtailed and Producer shall change its nominations accordingly. AUTHORIZATION FOR WELLHEAD TURN-ONS - ----------------------------------- Producer must request and receive authorization from Processor's GCD prior to new wells being turned on by Producer to produce into the system. Producer, or its designee, shall provide Processor's GCD an entitlement percentage (working interests and other controlled interests) for each new well at least two (2) business days prior to the turn-on date. Authorization for each well will be provided by Processor's GCD, by facsimile or telephone as agreed upon by Processor's GCD and Producer. The entitlement percentage provided by Producer, or its designee, shall remain in effect for the entire Accounting Period. Any changes to the entitlement percentage must be received by Processor in writing at least ten (10) business days prior to the start date of the next Accounting Period. Page - 34 COMMUNICATION WITH PROCESSOR'S GAS CONTROL DEPARTMENT - ----------------------------------------------------- Communication with Processor's GCD should be directed as follows: West Shore Processing Company, L.L.C. c/o MarkWest Michigan LLC 5613 DTC Parkway, Suite 400 Englewood, Colorado 80111 Telephone: (303) 290-8700 Facsimile: (303) 290-8769 Page - 35 RECORDING MEMORANDUM OF GAS GATHERING & PRO KNOW ALL MEN BY THESE PRESENTS That OCEANA ACQUISITION COMPANY, L.L.C., (Producer), with offices at 1100 ---- Louisiana, Suite 3150, Houston, Texas 77002 and WEST SHORE PROCESSING COMPANY - ------------------------------------------- LLC, (Processor), with offices at 5613 DTC Parkway, Suite 400, Englewood, Colorado 80111, have entered into that certain Gas Gathering, Treating and Processing Agreement dated May 2, 1996, under which Producer has committed to ----- its performance of its obligations to Processor certain leases and lands, as described on Exhibit A, attached hereto, and, further, that Producer agrees that the foregoing dedication shall be a covenant running with those leases and lands, and that any assignment, sale or other transfer of all or a portion of Producer's interests thereunder shall include and be subject to the dedication under the Gas Gathering, Treating and Processing Agreement referred to herein. In witness whereof, the parties hereto have executed this instrument effective as of May 2, 1996. ----- PRODUCER: OCEANA ACQUISITION COMPANY, L.L.C. By: Name: Michael V. Ronca Title: Manager ------- PROCESSOR: WEST SHORE PROCESSING COMPANY, LLC By: MarkWest Michigan LLC, its Manager By: MarkWest Hydrocarbon Partners, Ltd., its manager By: MarkWest Hydrocarbon, Inc., its general partner By: Name: Arthur J. Denney ---------------- Title: Vice President --------------- Page - 36 EX-10.12 15 GAS GATHERING, TREATING AND PROCESSING AGREEMENT GAS GATHERING, TREATING AND PROCESSING AGREEMENT THIS AGREEMENT is made and entered into this 2nd day of May, 1996, by and between MICHIGAN PRODUCTION COMPANY, L.L.C., May referred to as "Producer", and WEST SHORE PROCESSING COMPANY, LLC. RECITALS: A. Producer owns and holds or may own or hold certain valid and subsisting oil and gas lease(s) or interests therein, covering lands situated and being within the Dedication Area; and B. Producer desires to have gathered, treated and processed the gas which may hereafter be produced from its wells now or hereafter located within the Dedication Area; and C. Processor operates, or has contracted with third parties to operate, gas gathering, treating and processing related facilities and desires to gather, treat and process that gas for the purpose of extracting liquid and liquefiable hydrocarbon products therefrom. NOW, THEREFORE, in consideration of the mutual covenants contained herein, Producer and Processor agree as follows: ARTICLE I DEFINITIONS ----------- The following definitions of terms shall apply for all purposes of this Agreement: 1.1 "Accounting Period" means a period of one month, commencing at seven (7) o'clock a.m. local time on the first day of a calendar month and ending at seven (7) o'clock a.m. local time on the first day of the next succeeding month. 1.2 "Basin" means Basin Pipeline Limited Liability Company, an affiliate of West Shore Processing Company, LLC. 1.3 "BTU" means British Thermal Unit and is the amount of heat required to raise the temperature of one (1) pound of pure water from fifty-nine degrees Fahrenheit (59 degrees F) to sixty degrees Fahrenheit (60 degrees F); and, "MMBTU" means one million British Thermal Units. 1.4 "Cubic Foot" or "Cubic Feet" means the volume of gas contained in one cubic foot of space at a standard pressure base of fourteen-and-sixty-five- hundredths (14.65) pounds per square inch absolute (psia) and a standard temperature base of sixty degrees Fahrenheit (60 degrees F). 1.5 "Dedication Area" means initially Manistee, Mason and Oceana Page - 1 Counties, Michigan; and, at such time as Processor has extended its facilities into Muskegon County, Michigan, then that county shall be included in the Dedication Area effective as of the date upon which Processor gives Producer notice that it has facilities in that county capable of receiving gas; provided, however, with respect to Muskegon County, only as to wells, lands and leases not then dedicated to other gatherers, treaters and processors. 1.6 "Gross Heating Value" means the number of BTU's produced by the combustion, at a constant pressure, of the amount of the gas which would occupy a volume of one (1) Cubic Foot at a temperature of sixty degrees Fahrenheit (60 degrees F), if saturated with water vapor and under a pressure equivalent to that of thirty (30) inches of mercury at thirty-two degrees Fahrenheit (32 degrees F) and under standard gravitational force (acceleration 980.665 centimeters per second squared) with air of the same temperature and pressure as the gas, when the products of combustion are cooled to the initial temperature of the gas and air and when the water formed by combustion is condensed to the liquid state. 1.7 "Inlet Volume" means the aggregate volume of gas measured at the Receipt Point. 1.8 "Liquid Hydrocarbons" is used herein to refer to liquefiable hydrocarbons present in the vapor phase in the gas stream and to refer to hydrocarbons in a liquid state after the extraction by the Plant from the gas stream, but shall in either case mean natural gasoline (pentane plus heavier hydrocarbons), butanes, propane and ethane (including such incidental methane as may be extracted from the gas under normal operation of processing facilities). 1.9 "MCF" means one-thousand (1,000) Cubic Feet and "BCF" means one billion cubic feet. 1.10 "Pipeline Drip" means condensate and liquified hydrocarbons which separate from Producer's gas in the pipeline facilities of Processor. 1.11 "Plant" means Processor's gas plant (or the processing and treating facilities of third parties with whom Processor contracts for services applicable to Producer's gas) and Processor's gathering system behind the plant, now or hereafter existing, including without limitation, all tanks, equipment, pipe, valves, and material of any kind, including appropriate gas and liquid measurement facilities, pipeline gathering and compression facilities, storage, shipping, dehydration, gas treating and delivery facilities for Plant Products; all structures located, or to be located, on the site(s) at which the compression, treating and processing facilities of Processor are now or hereafter located; all easements pertaining to the site(s) and operation of those facilities; and any and all facilities located, or to be located, on or away from the site(s) deemed by Processor to be necessary for its performance under this Agreement. 1.12 "Plant BTU Reduction" or "PBR" means the sum of the gas used as Plant Fuel, Unmeasured Gas Uses and Losses, and the BTU equivalent of the Plant Page - 2 Products as determined in accordance with Article V. 1.13 "Plant Delivery Point" means the point(s) at which Producer's share of the Residue Gas is delivered by Processor to Producer at the tailgate of the Plant, as described on Schedule II. Measurement facilities at the Plant Delivery Point shall be installed, maintained, and operated by Processor, or its designee, at its sole cost, risk, and expense. 1.14 "Plant Fuel" means all gas, expressed in BTU's, utilized by Processor as fuel in the Plant. 1.15 "Plant Products" means finished commercial products and other products, or any mixtures thereof, other than Residue Gas, which Processor from time to time extracts or separates from gas processed in the Plant, including, but not limited to ethane, propane, iso-butane, normal butane, and natural gasoline. 1.16 "Processing" means the activities relating to the extraction and recovery of Plant Products. 1.17 "Processor" means WEST SHORE PROCESSING COMPANY, LLC, AND ITS AFFILIATE, BASIN PIPELINE LIMITED LIABILITY COMPANY. 1.18 "Receipt Point" means the point(s) where gas is delivered by Producer to Processor for gathering, treating and processing in the Plant. Measurement facilities at the Receipt Point shall be installed, maintained, and operated by Processor, or its designee, under the terms hereof. 1.19 "Residue Gas" means gas, expressed in MMBTU's, remaining after the extraction of Liquid Hydrocarbons, Plant Fuel, sulfur, hydrogen sulfide and carbon dioxide, and after other Unmeasured Gas Uses and Losses incident to or occasioned by the treating, gathering and processing of gas and redelivery to Producer. The portion of the Residue Gas attributable to Producer's gas is to be delivered to Producer at the Plant Delivery Point. 1.20 "Subordinated Liens" means liens in favor of that Producer's secured creditors which liens are subject to and subordinate to the rights of Processor under this Agreement in a manner acceptable to Processor. 1.21 "Thermal Content" for gas means the product of the measured volume in dry MCF's and the Gross Heating Value in dry BTU's per MCF, adjusted to the same pressure base; for Plant Products means the product of the gross heat of combustion per gallon multiplied by the total gallons of the product stream. Numerical values for gross heat per gallon shall be those published in the Standard Table of Physical Constants of Paraffin Hydrocarbons in GPA Publication 2145-93, as revised. 1.22 "Treating" means the activities relating to the removal of hydrogen sulfide and carbon dioxide from the gas. Page - 3 1.23 "Unmeasured Gas Uses and Losses" means any gas used, lost or not otherwise accounted for in the gas plant incident to the operation of the gas plant and gas lost in Processor's gathering system (to the extent not allocable to specific receipt points, including Producer's), including volumes of gas released through relief valves, ruptured pipelines, blow down of vessels, etc., and fuel for gathering system compressors which for each compressor shall be reasonably allocated on a Thermal Content basis to the receipt points, including Producer's served by such compressor. ARTICLE II COMMITMENT, RECEIPT AND DELIVERY CONDITIONS ------------------------------------------- 2.1 Subject to the other provisions of this Agreement, Producer commits to this Agreement: a. all gas attributable to the interests of Producer in the leases described in Schedule I; and, b. all of Producer's interests hereafter acquired by Producer, whether acquired directly or earned under farmin or similar agreements covering lands within the Dedication Area; c. Provided, however, this Agreement shall not pertain to any gas production attributable to interests of Producer which contains less than fifteen (15) grains of hydrogen sulfide per 100 cubic feet and less than two (2) mol percent carbon dioxide. Producer agrees that the foregoing dedication shall be a covenant running with the land and that any assignment, sale or other transfer of all or a portion of Producer's interests shall include and be subject to the dedication under this Agreement, and that Producer shall cause any purchaser, assignee or other transferee of any portion of those interests to ratify this Agreement and to expressly assume and agree to the terms hereof to the extent of the portion of those interests acquired from Producer by that party. Producer also agrees that should Producer subsequently grant any security interest (whether by pledge, collateral assignment, mortgage, deed of trust, or other instrument) in those interests, such security interest shall be granted expressly subject to the foregoing dedication and to Processor's rights and obligations under this Agreement. At Processor's request, Producer agrees to execute a recording memorandum of this Agreement, in the form attached hereto as Schedule III, to give notice of Producer's dedication hereunder. 2.2 a. Subject to the other provisions hereof, Producer agrees to deliver to Processor, and Processor agrees to receive from Producer, at the Receipt Point(s), as designated by Processor, and gather, treat and process at the Plant all of the gas now or hereafter produced attributable to Producer's interests in the lease(s) covered by this Agreement (which specifically excludes any gas production attributable to interests of Producer which contains less than fifteen (15) grains of hydrogen sulfide per 100 cubic feet and less than two (2) mol percent carbon dioxide. Notwithstanding that Receipt Page - 4 Points are to be designated by Processor, Producer shall have the right to notify Processor, at anytime and from time to time, that Producer intends to drill additional well(s) in the Dedication Area which will not be served by then existing Receipt Point(s). Within 14 days after receipt of that notice, Processor will designate the Receipt Point(s) for those additional well(s). The purpose of that notice and designation is to enable Producer to complete its economic projections for the new wells before commencing drilling. Processor agrees to designate those new Receipt Point(s) along its gathering lines in a manner that will enable Producer to construct its lateral gathering lines for the new wells across the shortest practicable and most economically practicable route, taking into account operational considerations of Processor. Processor agrees to give due consideration to recommendations of Producer but shall not be bound by those recommendations. b. Producer shall be responsible for arranging for all gathering services and the installation of all facilities necessary to cause the gas hereunder to be delivered to Processor at the Receipt Point(s); provided, however, notwithstanding the foregoing, Producer and Processor may enter into a mutually agreeable arrangement under which Processor will install and pay for some or all of those facilities subject to subsequent reimbursement by Producer. Nothing in the foregoing is intended to impose any obligation on Producer in favor of Processor to produce gas from any of Producer's wells or connect any of Producer's wells within the Dedication Area to Processor's facilities (provided, however, Producer may not deliver gas from those wells or connect those wells to any other party). Without limiting the scope of the foregoing sentence, Producer may, in its sole discretion, elect not to produce gas from any well and elect not to connect any well to Processor's facilities at any time that Producer, in its sole discretion, believes that such well is or has become incapable of producing in paying quantities; provided, upon making that election, Producer may not deliver gas from those wells or connect those wells to any other party. c. Beginning at the execution of this Agreement and continuing for four (4) years following the completion of the Claybanks Area Gathering System (defined below), Processor agrees to reimburse Producer for a portion of the costs incurred by Producer in connection with installing Gathering Facilities hereunder based upon the lesser amount determined by the following formulae ("Reimbursement"): (Confidential Treatment Requested) or (Confidential Treatment Requested) PROVIDED, HOWEVER, in no event will Processor, regardless of the foregoing calculation, ever be required to make a total Reimbursement to Producer in an amount greater than (Confidential Treatment Requested) of the total Miles multiplied by (Confidential Treatment Requested) multiplied by Inches for any Gathering Facilities paid for by Producer. Additionally, Processor shall have no further obligations to Page - 5 make any Reimbursements after four (4) years from the date of completion of the Claybanks Area Gathering System. Where, Gathering Facilities: Means the facilities required to be installed by Producer at Producer's expense under 2.2, b., above, and shall include the Claybanks Area Gathering System. Claybanks Area Gathering System: Means the sour gas gathering system which will connect the following wells to the Plant: Slocum #1-21, Bailey #1-24, Isley #1-32, Schultz #1-22, Claybanks 2A, Jonseck, Claybanks 2 Unit, Claybanks 11 Miller-Fox and the Dykstra #1-8. Miles: Means the number of miles (based on survey) comprising the Gathering Facilities, and extensions thereof, to the extent that Producer has paid for those Gathering Facilities and extensions. Production Per Well: Means the average daily production rate (Mmcf) from each well connected to the Gathering Facilities for which the Reimbursement is being calculated (including new wells connected after the completion of the Gathering System, without duplication), calculated one (1) year following initial deliveries from that well, divided by 1 Mmcf. Inches: Means the weighted average of the nominal inside diameter (inches) of the Gathering Facilities for which the Reimbursement is being calculated. Recoverable Gas Reserves: The estimated recoverable gas reserves (Bcf), as determined by Gary S. Way or another mutually acceptable petroleum engineering firm, from each well connected to the Gathering Facilities for which the Reimbursement is be being calculated, determined one (1) year following initial deliveries from each well, divided by 1 Bcf d. Upon the expiration of one (1) year following the first day of the first month after each well hereunder is connected to the Plant through Gathering Facilities paid for by Producer, Processor and Producer will determine, the Reimbursement due, if any, in accordance with paragraph c, above. The payment of the Reimbursement shall be made within 60 days following Page - 6 the date upon which the calculation of the Reimbursement is determined. Upon the payment of a Reimbursement, Producer will convey, to Basin, the gathering pipelines installed by it (and all related rights of way) during the calendar year for which the Reimbursement is made, and will be made free and clear of all liens, encumbrances and adverse claims, other than the Subordinated Liens. In no event will any Reimbursement calculation include Production Per Well attributable to any well from which the Production Per Well was included in a prior Reimbursement Calculation. 2.3 a. Processor will accept gas delivered by Producer at the Receipt Points, in compliance with this Agreement, produced from all wells on the leases and lands covered by this Agreement. Producer shall reimburse Processor for all actual costs (together with overhead at the rate of 15%) incurred by Processor in installing metering facilities at each Receipt Point. Notwithstanding that reimbursement, Processor shall at all times own the metering facilities installed by Processor. b. Producer shall notify Processor of the estimated spud and completion dates for wells to be drilled on lands within the Dedication Area and committed under this Agreement. 2.4 Prior to initial deliveries of gas from a well dedicated hereunder, Producer shall furnish to Processor reasonable documentation showing the ownership of the relevant operating rights. Promptly after Producer receives an assignment of any interests in existing wells which are, or by virtue of that acquisition become subject to the terms of this Agreement, Producer will provide notification of that acquisition to Processor together with a copy of the assignment or other instruments conveying those interests to Producer; and, upon recording of those instruments, Producer will provide Processor a copy of the recorded instrument showing the recording information. Upon acquisition of any such additional interests, Schedule I hereto shall be deemed amended to include those interests and the parties shall execute appropriate documents to evidence that amendment, including additional recording memoranda. With respect to oil and gas leasehold interests acquired by Producer within the Dedication Area, upon the earlier of (i) Producer's transfer of all of its interests in any oil and gas leasehold within the Dedication Area, or (ii) upon Producer obtaining a permit to drill on that leasehold, Producer will provide Processor with information regarding Producer's ownership in that leasehold. 2.5 Producer agrees to install, at its sole cost and expense, whatever separators, heaters, dehydration equipment and other usual lease facilities as may be deemed prudent by Producer to separate crude oil, free water and condensate from the gas and necessary to meet the quality specifications below; provided, however, any separation equipment to be installed by Producer which shall handle gas to be delivered hereunder shall be only conventional mechanical type field separators of a type then commonly used in the industry. Producer shall have the right to install compression facilities upstream of each Receipt Point. Any wellhead compression installed by Producer shall be operated in a manner that does not adversely affect Processor's measurement facilities. Producer shall make reasonable efforts to supply gas from Page - 7 Producer's wells at a uniform rate of flow. 2.6 a. Gas delivered by Producer to Processor at each Receipt Point shall: 1) be commercially free from dust, gum, gum-forming constituents, condensate, diluent, and other liquids and solids which may become separated from the gas; 2) contain less than ten parts per million (10 ppm) by volume of oxygen, and Producer shall make every effort to keep gas free from oxygen; 3) have a temperature less than one hundred twenty degrees Fahrenheit (120 degrees F); 4) not contain measurable quantities of mercury; 5) have a minimum Gross Heating Value of not less than 1050 BTU per Cubic Foot; 6) contain not more than five (5) pounds of water vapor per million Cubic Feet. b. Further, the composite of all gas delivered by Producer at all Receipt Points shall: 1) contain not more than two (2) mol percent of hydrogen sulfide; 2) contain not more than 500 ppm (weight) of total COS, CS2 and mercaptans; 3) contain less than three percent (3%) by volume of nitrogen; 4) contain not more than five percent (5%) by volume carbon dioxide. 2.7 In the event the gas tendered by Producer to Processor should fail to meet any one or more of the above specifications from time to time, then either Processor or Producer may treat the gas to bring it within specifications. If neither elects to treat, Processor can cease receiving the non-conforming gas from Producer so long as such conditions exist. Processor, at its option, may take receipt of such non-conforming gas, and such receipt shall not be construed as a waiver or change of standards for future gas volumes. In the event Processor rejects any non-conforming gas on any day, Processor shall notify Producer in writing immediately upon rejecting such gas, and Producer shall have ninety (90) days to bring the non-conforming gas into compliance. Until Producer brings that non-conforming gas into compliance, Producer agrees that it will cease deliveries of the gas containing the highest concentration of hydrogen sulfide and/or carbon dioxide as necessary to bring the composite of all gas delivered by Producer into compliance. If Producer is unable to bring that non-conforming gas into compliance within the ninety (90) day period, and Processor continues to elect to reject the non-conforming gas, then Processor shall determine the treating facilities deemed necessary to cause the gas to conform to the specifications and Producer will pay Processor a mutually agreeable treating fee for that additional treatment which shall be in addition to the otherwise applicable fees hereunder. 2.8 Producer shall deliver gas hereunder to Processor at the Receipt Point(s) at a pressure sufficient to cause that gas to enter Processor's Page - 8 facilities, as the pressure therein may exist from time to time, but not to exceed a pressure of 1200 psig. Producer agrees to compress its gas prior to delivery hereunder, as necessary, in order to affect the delivery of that gas to Processor. ARTICLE III MEASUREMENT FACILITIES ---------------------- 3.1 All gas measurement equipment installations shall be of standard make and be furnished, installed, operated, and maintained by Processor in accordance with the published specifications of the American Gas Association (AGA). Producer or others having Producer's consent may, at its option and expense, install and operate meters to check Processor's meter(s) provided such meter installation in no way interferes with the operation of Processor's meter. Any check meters installed by Producer shall be located upstream of Processor's meters. Processor shall have access to such check measuring equipment at all reasonable hours, but the reading, calibration and adjusting thereof shall be done only by the Producer. 3.2 The computation of all gas volumes measured shall be based on the latest factors published by the AGA corrected to a base pressure of fourteen-and-sixty-five-hundredths (14.65) psia and a base temperature of sixty degrees Fahrenheit (60oF). The assumed atmospheric pressure shall be 14.___ psia, regardless of actual atmospheric pressure at which the gas is measured. The flowing temperature shall be measured by an industry accepted recording device, and said temperature measurement shall be used to correct gas volumes as measured in Article III hereof. Corrections for supercompressibility deviation from Boyle's Law shall be made for all gas metered hereunder. Such corrections shall be made by use of the AGA Manual for the Determination of Super Compressibility Factors for Natural Gas (PAR Project NX-19), as amended. The Reynold's Number Factor and Expansion Correction Factor shall each be assumed to be one (1). The specific gravity of the gas shall be determined by chromatographic analysis or any other method adopted as standard by the Gas Processor's Association (GPA). 3.3 In the event a meter is out of service, or registering inaccurately, the volume of gas delivered hereunder shall be calculated in the following order: (i) by correcting the error if the percentage of error is ascertainable by calibration, test, or mathematical calculations, or in the absence of (i), (ii) by using the registration of any check meter or meters if installed and accurately registering, or, in the absence of both (i) and (ii), then, (iii) by estimating the quantity of delivery by deliveries during periods of similar conditions when the meter was registering accurately. 3.4 Representative determinations for Liquid Hydrocarbon content shall be made at the Receipt Point by chromatographic analysis, or by some other mutually acceptable method adopted by the parties for testing Producer's gas for fractional analysis and Liquid Hydrocarbon content. The chromatographic Page - 9 analysis shall be utilized in the determination of the Liquid Hydrocarbons composition and shall be used as the basis for allocating Plant Products to the different Receipt Points. The Gross Heating Value of the Inlet Volume shall be determined periodically by test samples obtained from the various wells. Gross Heating Value of Residue Gas shall be that determined by the receiving pipelines at the tailgate of the Plant. 3.5 Processor shall take or have taken for it, a representative sample of the Plant Products to be obtained from the truck, tank car, or pipeline deliveries during each calendar month and shall analyze or cause to be analyzed such samples. The analysis of the individual samples shall be used to determine the components of the Plant Products delivered. 3.6 Each party hereto shall have access at all reasonable hours to all facilities and data which are related to gas measurement, Gross Heating Value determination, product composition determination, gas sampling and gas gravity determination, along with all facilities utilized and data to determine Plant Products quantities in the Plant or sold therefrom. 3.7 Processor shall verify the accuracy of its measuring equipment monthly, or more often if deemed necessary by Processor. Processor shall give Producer reasonable prior notice of any check or adjustment of any measuring equipment. 3.8 Each party shall have the right to be present for any installing, reading, cleaning, changing, repairing, testing, calibrating and/or adjusting of either party's measuring equipment used in measuring deliveries hereunder. The records from each party's measuring equipment shall remain the property of the party owning such measuring equipment, but, upon request, each party will submit to the other all records and/or charts, together with calculations therefrom, for inspection and verification, subject to return within thirty (30) days after receipt thereof. 3.9 If either party shall notify the other that it desires a special test on any measuring equipment, the parties shall cooperate to secure a prompt verification of the accuracy of such equipment. If, upon test, any measuring equipment is found to be in error by not more than two percent (2%), previous recordings of such equipment shall be considered correct in computing deliveries hereunder, but if such equipment shall be found to be inaccurate by an amount exceeding two percent (2%), at a recording rate corresponding to the average rate of flow for the period since the last preceding test, then any preceding recordings of such equipment shall be corrected to zero error for any period which is known definitely or agreed upon; if the period is not known or definitely agreed upon, such correction shall be for a period extending up to one-half ( 1/2) of the time elapsed since the date of last test, but not to exceed a correction period of forty-five (45) days. Any measuring equipment found to be in error shall be corrected to read accurately. If any such test indicates that no inaccuracy of more than two percent (2%) exists, then the party requesting such test shall reimburse the testing party for all its costs in connection with such test within fifteen (15) days following receipt of a Page - 10 detailed invoice setting forth such costs. 3.10 Each party shall preserve for a period of two (2) years all test data, charts, and other similar records for auditing. Thereafter, same shall be conclusively deemed true and correct. ARTICLE IV OPERATION OF THE PLANT ---------------------- 4.1 Processor has prior contracts and agreements, and in the future may obtain other contracts and agreements, with other parties to gather, treat and process at the Plant all of the other parties' gas delivered to Processor at the various other receipt points. If during the term of this Agreement, the gas available from all sources for gathering, treating and processing exceeds the Plant capacity, Processor shall only be obligated to receive gas ratably based upon the volumes of gas deliverable from the wells connected to each receipt point delivering gas to the Plant. 4.2 If the production of any well hereunder is curtailed as a result of Processor's ratable takes under Section 4.1, and if that curtailment is to a level below 80% of either (i) that well's allowable rate of production as set by the regulatory authority having jurisdiction, or (ii) that well's physical deliverability, for more than six (6) months during any 12 consecutive month period, then Producer may give Processor written notice of Producer's election to have that well released from the terms of this Agreement. If Processor has not commenced activities (as evidenced by, without limitation, right of way acquisition, engineering studies, permit applications and similar activities), within 30 days following receipt of Producer's notice, to expand its system or to otherwise avoid those curtailments, then at the expiration of that 30-day period Processor will release such wells of Producer from the terms of this Agreement as necessary to eliminate the requirement for curtailments under the provisions of this Article IV; provided, however, no well shall be released hereunder if that well is connected to gathering facilities for which Processor made Reimbursements to Producer within the preceding twelve (12) months; and, further, provided, upon releasing any wells hereunder, Processor shall have no further obligation to make Reimbursements to Producer with respect to the gathering facilities to which the released well was connected. ARTICLE V ---------- ALLOCATION OF LIQUID HYDROCARBONS AND RESIDUE GAS; -------------------------------------------------- FEES ---- 5.1 a. For the services provided herein, Processor shall receive compensation equal to a fee payable by Producer, of (Confidential Treatment Requested) of Producer's gas delivered to Processor, measured at the Receipt Point(s), which fee shall be inclusive of all transportation charges incurred by Processor in transporting Producers' gas on the pipeline of Basin. Page - 11 b. (Confidential Treatment Requested) of the compensation specified in 5.1 a., above, as adjusted herein, shall be adjusted on an annual basis in proportion to the percentage change, from the preceding year, in the Producer Price Index for oil and gas field services (SIC 138) as published by the Department of Labor. The compensation adjustment shall be made effective upon January 1st of each year and shall reflect the percentage change in the foregoing index as it existed for January of the immediately preceding year from the index for January for the second immediately preceding year. In no event will the compensation, as adjusted, be less than (Confidential Treatment Requested). c. For each Accounting Period, Processor shall (i) pay to Producer an amount equal to (Confidential Treatment Requested) of the Net Sales Price per gallon, times the gallons of individual Plant Product recovered by Processor and attributable to Producer's gas processed at the Plant and allocated to each Receipt Point, minus the fee payable to Processor under Section 5.1, a., and 5.1, b., above; plus (ii) an amount equal to (Confidential Treatment Requested) of the Net Sales Price per gallon, times the gallons of Pipeline Drip attributable to Producer's gas, after the first (Confidential Treatment Requested) of value derived from the Pipeline Drip attributable to Producer's gas each year (it being understood that the first (Confidential Treatment Requested) of value derived each year from that Pipeline Drip shall belong to Processor); and (iii) shall deliver One Hundred percent of the Residue Gas attributable to Producer's gas processed at the Plant and allocated to each Receipt Point to the Plant Delivery Point for the account of Producer. d. Plant Products shall be sold by Processor's marketing department. The "Net Sales Price" per gallon of each individual Plant Product allocated to Producer's gas shall be the weighted average of the net price per gallon received by Processor for the total volume of each individual Plant Product sold from Processor's Plant, in arms-length transactions, during the Accounting Period. Such Net Sales Price may include a deduction from the actual gross sales price of such Plant Products of the actual third party cost of pipeline, truck or rail transportation, terminaling fees, fractionation outside the Plant, truck or tank car rentals and taxes (excluding income taxes) and actual third party marketing costs and similar costs and expenses as incurred by the Processor to determine a net price for such sale, and further less a marketing fee to be retained by Processor of (Confidential Treatment Requested) per gallon of Plant Products attributable to Producer. e. Notwithstanding the foregoing, the fees to be charged, the payment for Net Sales Price per gallon, and the amount of Residue Gas delivered with respect to Producer's gas produced from the presently existing wells described on Schedule V will be as specified on that Schedule V. f. Upon completion of the Claybanks Area Gathering System, if the Claybanks Area Gathering System was paid for by MarkWest Michigan LLC (pursuant to Section 2.3 of the Participation, Ownership and Operating Agreement for West Shore Processing Company, L.L.C.), then in addition to the foregoing fees, Producer shall pay a surcharge as determined herein. Processor shall notify Producer of the total costs incurred in constructing and installing the Page - 12 Claybanks Area Gathering System. Processor shall recover those total costs, together with interest accruing thereon at the rate of (Confidential Treatment Requested), through a processing and treating fee surcharge on all gas delivered hereunder, and measured at the Receipt Point(s), calculated to permit Processor to recover those total costs, and all accrued interest, within two years following the completion of the Claybanks Area Gathering System. g. In addition to the foregoing fees, Producer will also pay Processor any surcharges required to be paid under the Gas Facilities Construction Agreement between Processor and Producer of even date herewith. 5.2 That portion of an individual Plant Product at Processor's Plant which is attributable to Producer shall be determined by multiplying the total volume, expressed in gallons, of each individual Plant Product recovered in the Plant during such Accounting Period by a fraction, the numerator of which shall be the "Theoretical total Gross Heating Value" of that Plant Product contained in Producer's gas delivered during the Accounting Period, and the denominator of which shall be the "Theoretical total Gross Heating Value" of that Plant Product contained in all gas supplying the Plant during such Accounting Period. The "Theoretical total Gross Heating Value" of a Plant Product in any stream of gas shall be calculated by multiplying the Gross Heating Value of that Plant Product determined from the chromatographic analysis specified in Article III by the quantity of gas in that gas stream. 5.3 The PBR shall be separately calculated as to each receipt point (including Producer's) and shall be the sum of the following: a. The Thermal Content of the Plant Products allocated to the gas stream from such receipt point; plus b. The Thermal Content of Producer's gas consumed as Plant Fuel in treating, gathering and processing such gas, which shall be determined by multiplying the Thermal Content of the Plant Fuel used in such Accounting Period by a fraction, the numerator of which is the Thermal Content of Producer's Inlet Volume and the denominator of which is the Thermal Content of all gas inlet volumes, including Producer's, received by Processor from all parties delivering gas to the Processor; plus c. The Thermal Content of Producer's gas consumed as Unmeasured Gas Uses and Losses in gathering, treating and processing Producer's gas. 5.4 The Residue Gas, as determined by measurement at the Plant Delivery Point, shall be allocated among the various producers delivering gas to Processor by multiplying the total actual measured Thermal Content of gas remaining after gathering, treating and processing from all gas delivered to Processor by a fraction, the numerator of which is the "Theoretical Volume of Residue Gas" remaining from Producer's gas and the denominator of which is the "Theoretical Volume of Residue Gas" remaining from all gas, including Producer's gas, delivered to Processor during the Accounting Period. The "Theoretical Volume of Residue Gas" shall be determined by subtracting the PBR, Page - 13 as determined above, from the Thermal content determined at such receipt point attributable to the applicable volumes of gas delivered to Processor. 5.5 Producer will inform Processor of the amount of gas to be delivered by Producer at each Receipt Point, in accordance with Processor's Nomination Procedures, attached hereto as Schedule IV. If Producer nominates gas volumes in a greater or lesser amount than Producer's actual deliveries at the Receipt Point(s), then a condition of imbalance shall exist. A Positive Imbalance shall exist in those cases where the Producer's deliveries are in excess of the volumes nominated by Producer or Producer's designee. A Negative Imbalance shall exist in those cases where the Producer's deliveries are less than the volumes nominated by Producer or Producer's designee. Processor and Producer shall work to minimize any imbalance and agree to exchange pertinent information in writing in good faith in an attempt to minimize the imbalance. As soon as possible Processor shall provide Producer written notice that Producer has a condition of imbalance during any Accounting Period, and Producer shall take immediate corrective action to conform Producer's nominations to Producer's physical flows. ARTICLE VI ---------- ROYALTY AND TAXES ----------------- 6.1 Producer agrees to account for and pay all the royalties due on the gas delivered under this Agreement in strict accordance with the provisions of those leases or agreements creating those royalties. 6.2 Producer shall pay all gross production, severance, and similar taxes levied against or with respect to gas delivered under this Agreement. The Processor shall under no circumstances become liable for those taxes, unless designated to remit those taxes on behalf of Producer by any duly constituted jurisdictional agency having authority to impose such obligations on Processor, in which event the amount of those taxes remitted by Processor on Producer's behalf shall be deducted from the amounts otherwise due Producer hereunder. ARTICLE VII TERM ---- 7.1 Subject to Section 7.2, this Agreement shall remain in full force and effect for a primary term of twenty (20) years following the date of initial deliveries hereunder, and thereafter for the life of the leases from time to time covered hereby. 7.2 If, the continued receipt of all or any portion of Producer's gas renders Processor's operations hereunder unprofitable to Processor, in Processor's sole judgement, it shall have the right to notify Producer of that circumstance, which notice shall include sufficient documentation to substantiate the claim of unprofitability. The parties shall then meet to Page - 14 discuss the course of such unprofitability and to determine if a good faith solution can be reached. Absent a viable good faith solution, this Agreement shall be terminated upon sixty (60) days following the date of Processor's written notice of unprofitability. As used hereunder, Processor's operations hereunder are unprofitable if Processor's revenues attributable to that portion of Producer's gas at issue do not exceed the expenses of operating Processor's facilities attributable to portion of Producer's gas. Upon a termination under this Section 7.2, Processor will (i) make settlement for gas already delivered, and (ii) release all wells and lands from the terms hereof and will execute and deliver to Producer a recordable memorandum of that termination. ARTICLE VIII STATEMENTS AND PAYMENTS ----------------------- 8.1 Payment shall be made by Processor to Producer of the Net Sales Price for Plant Products, and Pipeline Drip, less the fees due Processor under Section 5.1, not later than the last day of each month for Producer's gas received during the preceding Accounting Period, and at the time payment is made a statement showing full details of the account shall be transmitted to Producer. Further, the deduction of fees owed by Producer to Processor, under Section 5.1, from the Net Sales Price for Plant Products attributable to Producer's gas shall not relieve Producer for the liability to Processor for those fees, and should the full amount of those fees not be recovered from the Net Sales Price for Plant Products attributable to Producer's gas, then Producer shall pay Processor the deficiency within ten (10) days following receipt of Processor's statement. 8.2 Either party, upon thirty (30) days prior written notice, shall have the right, at reasonable times during business hours but no more frequently than once each calendar year, at its expense, to examine the books and records of the other party to the extent necessary to audit and verify the accuracy of any statement, charge or computation made under or pursuant to this Agreement. The scope of such audit shall be limited to the twenty-four (24) month period prior to the month in which such audit commences; provided, no audit may include any time period subject to a prior audit hereunder and no audit may occur more frequently than once each six (6) months. All statements, allocations, measurements and payments made in any period prior to the twenty-four (24) months preceding such month shall be conclusively deemed true and correct. The party conducting the audit shall have six (6) months after commencement of the audit in which to submit a written claim, with supporting detail, for adjustments. Should any audit conducted by Producer disclose required adjustments exceeding $75,000, then Processor shall reimburse Producer for its reasonable and necessary third party costs incurred in performing that audit. ARTICLE IX RIGHTS-OF-WAY ------------- 9.1 Producer hereby grants to Processor, insofar as Producer has the right to do so, all requisite easements, and rights-of-way over, across, and Page - 15 under the lands or the leases covered hereunder, with full right of ingress and egress for the purpose of constructing and operating gas pipelines, meter stations, and other equipment necessary for convenience of carrying out the terms of this Agreement and Processor's obligations hereunder. All lines and other equipment placed by Processor in, on or under said land shall remain the property of Processor and may be removed at any time. In the exercise of its rights under this Section 9.1, Processor shall comply with all laws and with the terms and conditions of leases, licenses and easements binding on Producer (to the extent disclosed to Processor) with respect to those lands. ARTICLE X NOTIFICATION ------------ 10.1 Any notice or other communication provided for in this Agreement shall be given in writing and shall be considered as duly delivered when either mailed certified, return receipt requested, postage prepaid by United States mail, by delivery service (with confirmation) or sent via facsimile transmission (with confirmation), addressed to the party to whom such notice is given as follows: Page - 16 Producer: Michigan Production Company, L.L.C. 1100 Louisiana, Suite 3150 Houston, Texas 77002 Ph. (713) 659-6100 Fax. (713) 659-6130 Processor: West Shore Processing Company LLC 5613 DTC Parkway, Suite 400 Englewood, Colorado 80111 ATTN: Ph. (303) 290-8700 Fax. (303) 290-8769 Notice shall be effective when received, except notice sent by mail shall be deemed received three (3) days after mailing. Either party may change its address for notice purposes by written notice to that effect. ARTICLE XI LIABILITY AND WARRANTIES ------------------------ 11.1 As between the parties hereto, Producer, or its designee shall be in control and possession of the gas hereunder until such gas is delivered at the Receipt Point and as to the Residue Gas, after it is redelivered at the Plant Delivery Point. Processor shall be in control and possession of the gas delivered hereunder from the time such gas is delivered at the Receipt Point and as to the Residue Gas, until it is returned to Producer at the Plant Delivery Point. 11.2 Processor hereby covenants and agrees with Producer that except to the extent caused by Producer's gross negligence or willful misconduct, Processor shall protect, defend, indemnify and hold harmless Producer and its affiliates, the contractors, sub-contractors, agents or representatives of Producer and its affiliates, and the directors, managers, officers or employees of Producer, its affiliates or the contractors, subcontractors, agents or representatives of same (hereinafter referred to as "Producer Indemnified Parties") from, against and in respect of any and all Losses (as hereinafter defined) incurred by any Producer Indemnified Party to the extent such Losses arise from or are related to: (a) Processor's ownership and operation of its facilities from and after the Receipt Point; and (b) Processor's possession and control of Producer's gas. 11.3 Producer hereby covenants and agrees with Processor that except to the extent caused by Processor's gross negligence or willful misconduct, Producer shall protect, defend, indemnify and hold harmless Processor and its affiliates, the contractors, sub-contractors, agents or representatives of Processor and its affiliates, and the directors, managers, officers or employees of Processor, its affiliates or the contractors, subcontractors, agents or representatives of same (hereinafter referred to as the "Processor Page - 17 Indemnified Parties") from, against and in respect of any and all Losses incurred by any Processor Indemnified Party to the extent such Losses arise from or are related to: (a) Producer's possession and control of the gas prior to the Receipt Point(s) and as to the gas returned to Producer, after the Plant Delivery Point; and (b) Producer's ownership and operation of its facilities before the Receipt Point. 11.4 For the purposes of this Article XI, "Loss(es)" shall mean any actual loss, cost, expense, liability, damage, demand, suit, sanction, claim, settlement, judgement, lien, fine, penalty, interest of every kind and character (including reasonable fees and expenses of attorneys, technical experts and expert witnesses reasonably incident to same) which are suffered by Indemnified Parties (as herein defined), or any third parties, and any expenses incurred in enforcing this indemnity provision, incurred by, imposed upon or rendered against one or more of the applicable Indemnified Parties, on account of injuries (including death) to any person or damage to or destruction of any property, sustained or alleged to have been sustained in connection with or arising out of or incidental to the matters for which the Indemnifying Party has indemnified the applicable Indemnified Parties, and whether based on contract, tort or pursuant to any then existing laws, rules or regulations of any governmental body having jurisdiction with respect thereto, and regardless of whether the Losses are foreseeable or unforeseeable or founded in whole or in part upon the (i) breach of contract or (ii) the sole, joint, concurrent contributory or comparative (a) negligence, (b) breach of legal duty other than those expressly imposed under this agreement or (c) strict liability of one or more of the Producer Indemnified Parties or Processor Indemnified Parties, including, but not limited to, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, the Resource Conservation and Recovery Act of 1976, as amended, the Toxic Substances Control Act, and other federal and state equivalents. Despite the foregoing to the contrary, Loss(es) shall not include consequential, indirect, prospective, punitive or exemplary damages as between Producer and Processor. 11.5 Procedure. The indemnifications contained in this Article XI. shall --------- be implemented as follows: (A) Notice of Claim. The party seeking indemnification under the terms --------------- of this Agreement ("Indemnified Party") shall submit a written "Claim Notice" to the other party ("Indemnifying Party") which, to be effective, must state: (i) the amount of each Loss claimed by an Indemnified Party, (ii) the basis for such claim, with supporting documentation, (iii) a list identifying to the extent reasonably possible each separate item of Loss for which payment is so claimed. The amount claimed shall be paid by such Indemnifying Party as and to, and only to, the extent required herein within thirty (30) days after receipt of the Claim Notice or after the amount of such payment has been finally established, whichever last occurs. (B) Claims Involving Litigation. Within thirty (30) days after --------------------------- notification to any Indemnified Party with respect to any claim or legal action Page - 18 or other matters that may result in a Loss for which indemnification may be sought under this Article XI., but in any event in time sufficient for the Indemnifying Party to contest any action, claim, proceeding or other matter that has become the subject of proceedings before any court or tribunal, such Indemnified Party shall give written notice of such claim, legal action or other matter to the Indemnifying Party and, at the request of such Indemnifying Party, shall furnish the Indemnifying Party or its counsel with copies of all pleadings and other information with respect to such claim, legal action or other matter. The failure to provide that notice within the time specified shall not relieve an Indemnifying Party of its indemnity obligations hereunder except to the extent of any Losses which are attributable to that delay. Upon the election of the Indemnifying Party made within sixty (60) days after receipt of such notice, to the Indemnifying Party, Indemnifying Party shall have the right to assume control of such claim, legal action or other matter (to the extent only that such claim, legal action or other matter relates to a Loss for which the Indemnifying Party is liable), including the determination of all appropriate actions, the negotiation of settlements on behalf of the Indemnified Party, and the conduct of litigation through attorneys of the Indemnifying Party's choice, provided, however, that no such settlement can result in any liability or cost to the Indemnified Party for which it is entitled to be indemnified hereunder without its consent. If the Indemnifying Party elects to assume control, (i) any expense incurred by the Indemnified Party thereafter for investigation or defense of the matter shall be borne by the Indemnified Party and (ii) the Indemnified Party shall give all reasonable information and assistance, other than pecuniary, that the Indemnifying Party shall deem necessary to the proper defense of such claim, legal action, or other matter. In the absence of such an election, the Indemnified Party will use good faith efforts to defend, at the Indemnifying Party's expense any claim, legal action or other matter to which such other party's indemnification under this Article XI. applies until the Indemnifying Party assumes such defense, and, if the Indemnifying Party fails to assume such defense within the time period provided above, settle the same in the Indemnified Party's reasonable discretion at the Indemnifying Party's expense. 11.6 In no event will either party be liable to the other party hereunder for consequential, prospective, indirect, punitive or exemplary damages as between Producer and Processor. 11.7 Producer warrants and represents that it has good title to and/or the full right to deliver, for the purposes stated herein, all gas (including all Liquid Hydrocarbons contained therein) delivered hereunder and that all gas delivered hereunder will be free from all adverse claims, encumbrances and liens of any nature, and Producer will defend and indemnify Processor against all claims of any nature arising as a result of Producer's breach of the foregoing warranty. Title to all Liquid Hydrocarbons recovered by Processor shall be in Processor, and except for those Liquid Hydrocarbons, title to Producer's gas shall remain in Producer. 11.8 Processor agrees that it will allow no liens or other adverse claims, including liens to secure payment of taxes, to attach to the gas Page - 19 delivered and redelivered hereunder, and warrants that the Residue Gas delivered to Producer at the Plant Delivery Point will be as free from all liens and other adverse claims, including liens to secure payment of taxes (except with respect to production taxes, ad valorem taxes, conservation taxes, severance taxes applicable to Producer's Gas, and taxes based upon production of Producer's gas, Producer remains responsible and for which Processor has no liability) as was the gas delivered by Producer at the Receipt Point. ARTICLE XII LAWS, REGULATIONS AND FORCE MAJEURE ----------------------------------- 12.1 This Agreement shall be subject to all applicable state, federal and local laws, rules and regulations, and the parties hereto shall be entitled to regard all such laws, rules and regulations as valid, and may act in accordance therewith until such time as the same may be invalidated by final judgement in a court of competent jurisdiction. 12.2 The term "Force Majeure" means any cause, or condition (other than financial inability) not reasonably within the control of the party claiming suspension and which by the exercise of due diligence, such party is unable to prevent or overcome. A party claiming Force Majeure shall give prompt notice to the other party specifying the cause and anticipated period of Force Majeure and the plans of the affected party to remedy the Force Majeure condition. 12.3 In the event either Producer or Processor is rendered unable, wholly or in part, by Force Majeure, to carry out its obligations under this Agreement, other than to make any payments due hereunder, it is agreed that upon such party's giving notice and reasonable full particulars of such Force Majeure in writing or by telegraph to the other parties affected within a reasonable time after the occurrence of the cause relied on, then the obligations of the party giving such notice, so far as they are affected by such Force Majeure shall be suspended during the continuance of the inability, and the cause of the Force Majeure, as far as possible, shall be remedied with all reasonable dispatch. Notwithstanding the foregoing, if a Force Majeure condition results in any well or wells being shut-in or production therefrom being curtailed for any period of 15 consecutive months, Producer shall be entitled to notify Processor, in writing, that it elects to have such well(s) released from this Agreement, and if that notice is received before the Force Majeure condition is remedied, then each of the well(s) designated in that notice shall be released from this Agreement. 12.4 The settlement of strikes, lockouts, and other labor difficulty shall be entirely within the discretion of the party having the difficulty. The above requirement that any Force Majeure shall be remedied with all reasonable dispatch shall not require the settlement of strikes, lockouts, or other labor difficulty by acceding to the demands of opponents therein when that is inadvisable in the discretion of the party having the difficulty. ARTICLE XIII Page - 20 INSPECTION ---------- 13.1 Each party hereto shall have the right to witness any measuring, testing, sampling, analysis or other operation required for settlement hereunder. The parties shall designate in writing the person to be notified in connection with the operation of this Section 13.1. Such written designation shall include the name, address and telephone number of the person to be notified. Adequate notice shall be given to allow such witness to be present. 13.2 Upon written request, each party shall furnish to the other party all meter charts and/or measurement data obtained from electronic gas measurement devices and other records relating to settlements to be made hereunder. All such items shall be returned to the party supplying them within sixty (60) days of receipt. The books and records of each party, insofar as they pertain to settlement hereunder, shall be open and available to the other party at all reasonable hours. All statements rendered to Producer by Processor during any calendar year shall be conclusively presumed true and correct after twenty- four (24) months following the end of any such calendar year, unless within the said twenty-four (24) month period Producer takes written exception thereto and makes claim on Processor for adjustment. Failure on the part of Producer to make claim on Processor for adjustment within such period shall establish the correctness thereof and preclude the filing of exceptions thereto or making of claims for adjustment thereof. ARTICLE XIV RESERVATIONS OF PRODUCER ------------------------ 14.1 Producer reserves the right to withhold from delivery any gas as the lessee is required to deliver to its lessors under the terms of the lease(s) subject to this Agreement. 14.2 Producer has the right to use sufficient gas for the development and/or operation on Producer's premises, together with similar properties of Producer in the immediate vicinity, including the use of gas for drilling, workover, gas lift, reinjection, pressure maintenance and other production operations of Producer within the Dedication Area, and compressor fuel. 14.3 Producer has the right to pool, communitize and unitize, and to dissolve units, communitized areas and depool, the lands, leases and properties covered hereby with other lands, leases, and properties of Producer or others located in the field in which the premises covered hereby are located; and all of Producer's interest in such pool, units or areas, and all of Producer's gas produced therefrom attributable to the interest of Producer committed hereto, shall be covered by this Agreement, provided that the exercise of such right by Producer shall not diminish Processor's rights nor increase its obligations with respect to Producer's new interest in the gas produced from the lands covered hereby. 14.4 Producer may, at any time, without liability to Processor, clean out, rework, deepen, abandon or otherwise perform operations on any well(s) on Page - 21 Producer's leases, or may use any efficient, modern or improved method for the production of gas; provided however, that before any well(s) are taken out of service for any reason, Producer agrees to first shut-off the well(s) connection with Processor's facilities. 14.5 Producer may relinquish or surrender any lease that Producer does not desire to maintain. Producer may use conventional separation equipment prior to the Receipt Points. ARTICLE XV PRODUCER'S REPRESENTATIVE ------------------------- 15.1 To the extent Producer's rights hereunder now or hereafter may be owned by more than one party or to the extent a third party owning an interest in a well covered hereby ratifies this Agreement, Producer will appoint a Representative with respect to all matters under this Agreement, including but not limited to the following: a. To give and receive all notices; b. To receive all payments; c. To make and witness any tests to be made of the gas and measuring equipment and adjustments to such equipment; d. To obtain, execute and, deliver to Processor such division order title opinions and division orders as may be required by Processor hereunder; and e. To comply with the requirements, rules and regulations of any duly constituted authority having jurisdiction. f. To nominate and schedule deliveries of gas to downstream markets, as applicable. 15.2 Processor may act, and shall be fully protected in acting, in reliance upon any and all representations and acts of that Representative on behalf of Producer as fully and with the same effect as though Producer had made or performed those. Producer may change any Representative from time to time by delivery of written notice of change and designation of Representative to Processor, provided that any such new Representative shall be the same party as designated by all Producers under this Agreement. The Representative so designated shall have and may exercise all power and authority therein granted with like effect as though named as such Representative herein in the first instance. ARTICLE XVI MISCELLANEOUS ------------- 16.1 The failure of any party hereto to exercise any right granted hereunder shall not impair nor be deemed a waiver of such party's privilege of exercising such right at any subsequent time or times. 16.2 This Agreement shall extend to and inure to the benefit of and be binding upon the parties hereto, their respective successors and assigns, Page - 22 including affiliates and subsidiaries, on and after the effective date of this Agreement. No assignment shall be binding on either of the parties hereto, other than the party selling, transferring, assigning or conveying its interests in the properties covered by this Agreement, until the first day of the month following the date a certified copy of the instrument evidencing such sale, transfer, assignment or conveyance has been delivered to the other party. 16.3 Nothing herein contained shall be deemed to constitute the parties hereto to be a partnership, mining partnership, joint venture or an association and each shall be deemed to act herein and in connection with performance of this Agreement for itself, and not for the other, and no party hereto shall be liable, or responsible for any acts of the other by virtue of the relationship created under this Agreement. 16.4 Insofar as it may have the right to do so, each party shall allow any other party, its agents and employees, access to and the right of ingress and egress upon the lands or property of the other party relating to plants and pipelines herein referred to, for the purpose of carrying out any provisions hereof, including the taking of samples, making of tests and witnessing thereof. While any party, its agents or employees, is upon the property of another party hereto, the entering party shall hold the other party whole and harmless for all losses, damages and liabilities resulting from or arising out of such entry, except to the extent occasioned by the negligence of such other party, its agents or employees. 16.5 This Agreement shall be deemed to be a contract made under the laws of the State of Michigan and for all purposes shall be construed in accordance with the laws of said State without regard to choice of law principles. 16.6 Any dispute arising under this Agreement which cannot be resolved by the parties by good faith negotiations within thirty (30) days following the assertion of the dispute, shall be resolved by binding arbitration to be conducted by and in accordance with the Commercial Arbitration Rules of the American Arbitration Association. All arbitration hearings shall be conducted in Denver, Colorado. Any award of the arbitrator may be reduced to a judgment in any court of competent jurisdiction. 16.7 This Agreement, including all Schedules contains the entire agreement of the parties hereto with respect to the matters addressed herein and shall be amended only by an instrument in writing signed by both parties. IN WITNESS WHEREOF, this Agreement may be executed in any number of counterparts, each of which shall be considered an original. PRODUCER: MICHIGAN PRODUCTION COMPANY, L.L.C. By: /s/ Robert L. Zorich ------------------------- Name: Robert L. Zorich ----------------------- Title: Manager ---------------------- Page - 23 PROCESSOR: WEST SHORE PROCESSING COMPANY, LLC By: MarkWest Michigan LLC, its Manager By: MarkWest Hydrocarbon Partners, Ltd., its manager By: MarkWest Hydrocarbon, Inc., its general partner By: /s/ Arthur J. Denney ------------------------ Name: Arthur J. Denney ---------------------- Title: Vice President --------------------- Page - 24 THE STATE OF TEXAS COUNTY OF HARRIS The foregoing instrument was acknowledged before me this 2nd day of May, 1996, by Robert Zorich the Manager of Michigan Production Company, L.L.C. Witness my hand and official seal. My Commission expires: 2/13/97 /s/ Bronia E. Koch Notary Public STATE OF TEXAS COUNTY OF HARRIS The foregoing instrument was acknowledged before me this 2nd day of May, 1996, by Arthur Denny, the Vice President of MarkWest Hydrocarbon, Inc., as general partner of MarkWest Hydrocarbon Partners, Ltd, as manager of MarkWest Michigan LLC. Witness my hand and official seal. My Commission expires: 2/13/97 /s/ Bronia E. Koch Notary Public Page - 25 SCHEDULE I Attached to and made a part of Gas Gathering, Treating and Processing Agreement, dated May 2, 1996, between MICHIGAN PRODUCTION COMPANY, L.L.C., Producer, and WEST SHORE PROCESSING COMPANY, LLC. DEDICATED LEASES AND LANDS -------------------------- Page - 26 SCHEDULE II Attached to and made a part of Gas Gathering & Processing Agreement, dated May 2, 1996, between MICHIGAN PRODUCTION COMPANY, L.L.C., Producer, and WEST SHORE PROCESSING COMPANY LLC. PLANT DELIVERY POINTS --------------------- 1. The interconnection of the MichCon Dry Header at the Brown 19 gas treating plant. 2. The tailgate of Shell Western E & P, Inc.'s Kalkaska gas processing facility. 3. The tailgate of Processor's NGL extraction plant to be located in the vicinity of Shell Western E & P, Inc.'s Shell 23 Treating Plant. Page - 27 SCHEDULE III RECORDING MEMORANDUM OF GAS GATHERING & PROCESSING AGREEMENT KNOW ALL MEN BY THESE PRESENTS That MICHIGAN PRODUCTION COMPANY, L.L.C., (Producer), with offices at _________________________________________, and WEST SHORE PROCESSING COMPANY LLC, (Processor), with offices at 5613 DTC Parkway, Suite 400, Englewood, Colorado 80111, have entered into that certain Gas Gathering, Treating and Processing Agreement dated ___________________________, 1996, under which Producer has committed to its performance of its obligations to Processor certain leases and lands, as described on Exhibit A, attached hereto, and, further, that Producer agrees that the foregoing dedication shall be a covenant running with those leases and lands, and that any assignment, sale or other transfer of all or a portion of Producer's interests thereunder shall include and be subject to the dedication under the Gas Gathering, Treating and Processing Agreement referred to herein. In witness whereof, the parties hereto have executed this instrument effective as of ____________________, 1996. PRODUCER: MICHIGAN PRODUCTION COMPANY, L.L.C. By:_________________________ Name:_______________________ Title:______________________ PROCESSOR: WEST SHORE PROCESSING COMPANY, LLC By: MarkWest Michigan LLC, its Manager By: MarkWest Hydrocarbon Partners, Ltd., its manager By: MarkWest Hydrocarbon, Inc., its general partner By:_________________________ Name:_______________________ Title:______________________ Page - 28 THE STATE OF COUNTY OF The foregoing instrument was acknowledged before me this ______ day of _______________, 1996, by ________________________ the _____________________ of Michigan Production Company, L.L.C. Witness my hand and official seal. My Commission expires: _____________________________________ ___________________________________ Notary Public STATE OF COLORADO COUNTY OF ARAPAHOE The foregoing instrument was acknowledged before me this ______ day of _______________, 1996, by _____________________, the ___________________ of MarkWest Hydrocarbon, Inc., as general partner of MarkWest Hydrocarbon Partners, Ltd, as manager of MarkWest Michigan LLC. Witness my hand and official seal. My Commission expires: _____________________________________ ___________________________________ Notary Public Page - 29 SCHEDULE IV NOMINATION PROCEDURES - --------------------- Pursuant to the terms of this Agreement, the Nomination Procedures detailed in this Schedule IV will be utilized to cover all nominations made by Producer on Processor's system. All nominations must be made by Producer or Producer's designee. Processor and Producer agree to minimize imbalances and sustain the flow of gas on the system. Should transporters receiving Producer's Gas revise their requirements, the parties agree to meet and negotiate upon changes to the Nomination Procedures herein as are reasonably required. MONTHLY SCHEDULING OF GAS - ------------------------- By 1:00 P.M. (MT), at least five (5) business days prior to the start of each Accounting Period or initial delivery of Gas, Producer will inform Processor's Gas Control Department ("GCD") of the amount of Gas to be delivered by Producer at each Receipt Point and of Producer's nomination for Gas to be delivered at the Plant Delivery Point. Such nomination shall be submitted to Processor by facsimile in a form acceptable to Processor. Incomplete nominations will not be accepted. By 1:00 P.M. (MT), four (4) business days prior to the start of each Accounting Period or initial delivery of Gas, Processor will notify Producer if the nomination from Producer specified above is different from the volume that Processor will confirm at the Plant Delivery Point on behalf of Producer. Processor will use its best efforts to work closely with Producer to arrive at a confirmed nomination that best estimates Producer's current production. Processor will not be required to confirm any nomination that is greater or less than Processor's estimate of Producer's Gas availability. If, following the initial nomination, Processor determines, using the best information available, including, but not limited to, measurement charts, electronically transmitted data from EFM's, and pipeline confirmations, that Producer should adjust its nominations, then Processor will notify Producer and Producer will be required to adjust nominations in accordance with Processor's request. Both parties will use their best efforts to keep Producer's Gas position in balance while maintaining Gas flow, including without limitation, such periodic reporting of relevant data as may be required to timely adjust nominations. DAILY SCHEDULING OF GAS - ----------------------- Daily nomination changes must be conveyed by facsimile to Processor's GCD on a completed nomination request form, or such other form acceptable to Processor, by 9:30 A.M. (MT) on the business day prior to the effective date of said nomination. Processor will not be required to confirm any daily nomination that is Page - 30 greater or less than Processor's estimate of Producer's availability for that particular day, except as may be necessary to correct any imbalance which may be determined to exist at that time. Producer will promptly advise Processor when Producer's gas availability, gas resale market(s) or other dispositions of Producer's Gas are interrupted or curtailed and Producer shall change its nominations accordingly. AUTHORIZATION FOR WELLHEAD TURN-ONS - ----------------------------------- Producer must request and receive authorization from Processor's GCD prior to new wells being turned on by Producer to produce into the system. Producer, or its designee, shall provide Processor's GCD an entitlement percentage (working interests and other controlled interests) for each new well at least two (2) business days prior to the turn-on date. Authorization for each well will be provided by Processor's GCD, by facsimile or telephone as agreed upon by Processor's GCD and Producer. The entitlement percentage provided by Producer, or its designee, shall remain in effect for the entire Accounting Period. Any changes to the entitlement percentage must be received by Processor in writing at least ten (10) business days prior to the start date of the next Accounting Period. COMMUNICATION WITH PROCESSOR'S GAS CONTROL DEPARTMENT - ----------------------------------------------------- Communication with Processor's GCD should be directed as follows: West Shore Processing Company, L.L.C. c/o MarkWest Michigan LLC 5613 DTC Parkway, Suite 400 Englewood, Colorado 80111 Telephone: (303) 290-8700 Facsimile: (303) 290-8769 Page - 31 SCHEDULE V
Well Percent of Residue Gas Name Net Sales Price Retained by Processor Fee - ---- --------------- --------------------- --- Adamczak Murray State Lakeland Wells Filer Lipps Dow Isley (Confidential Treatment Requested) Schultz Claybanks Johnseck Fox Slocum Dykstra
Page - 32 EX-10.13 16 PRODUCTS EXCHANGE AGREEMENTS -------- MARKWEST -------- PRODUCTS EXCHANGE AGREEMENT WE HEREBY ACKNOWLEDGE PRODUCTS EXCHANGE MADE WITH Ferrellgas, L.P. Date: May 1, 1996 P.O. Box 4644 No: 15547 Houston, Texas 77210 (hereafter "Exchanger") PER CONVERSATIONS BETWEEN Dave Wunch AND OUR Mitchel Genslinger MarkWest Hydrocarbon Partners, Ltd. will deliver to Exchanger: - ------------------------------------------------------------------------------- DURING THE PERIOD: May 1, 1996 through April 30, 1997 - ------------------------------------------------------------------------------- FOB POINT: Siloam, KY VIA - ------------------------------------------------------------------------------- PRODUCT: Propane ODORIZATION: Yes - ------------------------------------------------------------------------------- QUANTITY: [CONFIDENTIAL TREATMENT REQUESTED] MarkWest Hydrocarbon Partners, Ltd. COLLECTS Gallon(s) DIFFERENTIAL: [CONFIDENTIAL TREATMENT REQUESTED] - ------------------------------------------------------------------------------- Exchanger will deliver to MarkWest Hydrocarbon Partners, Ltd.: - ------------------------------------------------------------------------------- DURING THE PERIOD: May 1, 1996 through April 30, 1997 - ------------------------------------------------------------------------------- FOB POINT: Mt. Belvieu-TET, TX VIA - ------------------------------------------------------------------------------- PRODUCT: Propane ODORIZATION: No - ------------------------------------------------------------------------------- QUANTITY: [CONFIDENTIAL TREATMENT REQUESTED] MarkWest Hydrocarbon Partners, Ltd COLLECTS Gallon(s) DIFFERENTIAL: [CONFIDENTIAL TREATMENT REQUESTED] - ------------------------------------------------------------------------------- REMARKS: May [CONFIDENTIAL TREATMENT REQUESTED] Jun [CONFIDENTIAL TREATMENT REQUESTED] Jul [CONFIDENTIAL TREATMENT REQUESTED] Aug [CONFIDENTIAL TREATMENT REQUESTED] Sep [CONFIDENTIAL TREATMENT REQUESTED] Oct [CONFIDENTIAL TREATMENT REQUESTED] Nov [CONFIDENTIAL TREATMENT REQUESTED] Dec [CONFIDENTIAL TREATMENT REQUESTED] Jan [CONFIDENTIAL TREATMENT REQUESTED] Feb [CONFIDENTIAL TREATMENT REQUESTED] Mar [CONFIDENTIAL TREATMENT REQUESTED] Apr [CONFIDENTIAL TREATMENT REQUESTED] Winter is from October through March; Summer is from April through September. Ferrellgas Inc. will provide storage at TET to MarkWest up to a maximum of ****** barrels at no charge to MarkWest. MarkWest agrees to have its storage account empty by April 30, 1996 and to utilize only volumes due from this exchange for the storage account. MarkWest's currently effective "GENERAL TERMS AND CONDITIONS FOR NGL SALES and EXCHANGE AGREEMENTS" MWH Form "term8-94" are hereby incorporated herewith shall constitute a binding contract. THIS AGREEMENT WHEN ACCEPTED BY EXCHANGER SHALL CONSTITUTE A CONTRACT FOR THE EXCHANGE WITH MARKWEST HYDROCARBON PARTNERS, LTD. OF THE PRODUCTS SPECIFIED UPON THE TERMS AND CONDITIONS APPEARING ON THE FACE AND REVERSE SIDE HEREOF. -------- MARKWEST -------- SALES ACKNOWLEDGMENT WE HEREBY CONFIRM SALE TO Date: May 1, 1996 Ferrellgas, L.P. No: 15624 P.O. Box 4644 Houston, Texas 77210 PER CONVERSATIONS BETWEEN Dave Wunch AND OUR Mitchel Genslinger PRODUCT: Propane QUANTITY: [CONFIDENTIAL TREATMENT REQUESTED] Gallon(s) PRICE: Plant Posting TRANSPORTATION: Trucks provided by Purchaser DESCRIPTION: Via Truck FOB POINT: Siloam, KY TERMS OF PAYMENT: Net 10 calendar days TIME OF DELIVERY: May 1, 1996 through April 30, 1997 REMARKS: May [CONFIDENTIAL TREATMENT REQUESTED] Jun [CONFIDENTIAL TREATMENT REQUESTED] Aug [CONFIDENTIAL TREATMENT REQUESTED] Sep [CONFIDENTIAL TREATMENT REQUESTED] Oct [CONFIDENTIAL TREATMENT REQUESTED] Nov [CONFIDENTIAL TREATMENT REQUESTED] Dec [CONFIDENTIAL TREATMENT REQUESTED] Jan [CONFIDENTIAL TREATMENT REQUESTED] Feb [CONFIDENTIAL TREATMENT REQUESTED] Mar [CONFIDENTIAL TREATMENT REQUESTED] Apr [CONFIDENTIAL TREATMENT REQUESTED] Buyer agrees to observe their credit limit, and if that limit is exceeded, to post an acceptable letter of credit or prepay prior to delivery. Buyer agrees to pay a [CONFIDENTIAL TREATMENT REQUESTED] per gallon premium when loading bobtail trucks at the Church Hill Terminal MarkWest's currently effective "GENERAL TERMS AND CONDITIONS FOR NGL SALES and EXCHANGE AGREEMENTS" MWH Form "term8-94" are hereby incorporated herewith shall constitute a binding contract. [MARKWEST LOGO APPEARS HERE] SALES ACKNOWLEDGEMENT WE HEREBY CONFIRM SALE TO Date: May 1, 1996 Ferrellgas, L.P. No: 15547 P.O. Box 4644 Houston, Texas 77210 PER CONVERSATIONS BETWEEN Dave Wunch AND OUR Mitchel Genslinger PRODUCT: Propane QUANTITY: [CONFIDENTIAL TREATMENT REQUESTED] Gallon(s) PRICE: Plant Posting TRANSPORTATION: Trucks provided by Purchaser DESCRIPTION: Via Truck FOB POINT: Church Hill, TN TERMS OF PAYMENT: Net 10 calendar days TIME OF DELIVERY: May 1, 1996 through April 30, 1997 REMARKS: May [CONFIDENTIAL TREATMENT REQUESTED] Jun [CONFIDENTIAL TREATMENT REQUESTED] Jul [CONFIDENTIAL TREATMENT REQUESTED] Aug [CONFIDENTIAL TREATMENT REQUESTED] Sep [CONFIDENTIAL TREATMENT REQUESTED] Oct [CONFIDENTIAL TREATMENT REQUESTED] Nov [CONFIDENTIAL TREATMENT REQUESTED] Dec [CONFIDENTIAL TREATMENT REQUESTED] Jan [CONFIDENTIAL TREATMENT REQUESTED] Feb [CONFIDENTIAL TREATMENT REQUESTED] Mar [CONFIDENTIAL TREATMENT REQUESTED] Apr [CONFIDENTIAL TREATMENT REQUESTED] Buyer agrees to observe their credit limit, and if that limit is exceeded, to post an acceptable letter of credit or prepay prior to delivery. Buyer agrees to pay a [CONFIDENTIAL TREATMENT REQUESTED] per gallon premium when loading bobtail trucks at the Church Hill Terminal MarkWest's currently effective "GENERAL TERMS AND CONDITIONS FOR NGL SALES and EXCHANGE AGREEMENTS" MWH Form "term8-94" are hereby incorporated herewith shall constitute a binding contract. EX-10.14 17 GAS PROCESSING AND TREATING AGREEMENT EXHIBIT J GAS PROCESSING AND TREATING AGREEMENT THIS GAS PROCESSING AND TREATING AGREEMENT (this "Agreement"), is entered into by and between Manistee Gas Limited Liability Company, a Wyoming limited liability company, (herein called '"Manistee") and Michigan Production Company, L.L.C., a Michigan limited liability company, (herein called "Michigan Production"). WITNESSETH: WHEREAS, Manistee is the owner of a certain Amine plant and a certain ----- natural gas liquids processing plant and related assets located on the following described lands (the '"Land"): West Half of the Southeast Quarter (W/2 SE,/4) of Section 19, Township 22 North, Range 15 West, Manistee County, Michigan and a related injection well (and easement fights and pipelines connecting same to such piano located on the following described lands: NE/4 SW/4 of Section 18, Township 22 North, Range 15 West, Manistee County, Michigan (such plant, related assets, injection well and easements and pipelines, as the same from time to time exist (including, without limitation, and additions and accessions thereto and substitutions therefor) being herein called the '"Plant"); and WHEREAS, Michigan Production owns or controls certain volumes of gas and will from time to time hereafter own and/or control various volumes of gas (all such volumes of gas being herein called "Subject Gas") which it desires to have processed and/or treated in the Plant; and WHEREAS, the parties hereto have reached an agreement under which Manistee will operate the Plant and process and treat Subject Gas for Michigan Production; NOW THEREFORE, it is agreed as follows: ARTICLE I. PROCESSING AND TREATING OPERATIONS A. Processing and Treating Operations. Manistee shall cause the Plant to ----------------------------------- ------ receive all Subject Gas delivered to the Plant for processing and/or treating, cause such gas to be processed and/or treated in the Plant, and cause processed and treated gas, and products extracted therefrom, to be delivereel to Michigan Production or to other parties as designated by Michigan Production. All such processing and treating operations shall be conducted in such a fashion such that all ~ and treated gas, and products, as delivered from the Plant, meet the standards set from time to time by Michigan Production, in its reasonable discretion. All such processed and treated gas, and products, shall be delivered by Manistee at points on or near the Lands which are designated by Michigan Production. B. Ownership of Plant, Responsibilities of Manistee. The Plant shall ------------------------------------------------- belong to Manistee. Manistee shall conduct and direct and have full control of operation of the Plant and all costs and expenses incurred in operations of the Plant shall be paid by Manistee. its performance of services hereunder, Manistee shall be an independent contractor. Manistee shall not be cleaned, or hold itself out as, the agent of Michigan Production with authority to bind it to any obligation or liability assumed or incurred by Mani-qtee as to any third party. Manistee ----- shall conduct its activities under this Agreement in a good, workmanlike and ---- prudent manner, in compliance with applicable law and regulation. Without limitation of the foregoing, Manistee shall pay, or cause to be paid, as and when they become due and payable, all accounts of contractors and suppliers and wages and salaries for services rendered or performed, and for materials supplied on, or in respect of the Plant, and shall keep the Plant and the Subject Gas free from liens and encumbrances resulting therefrom except for those resulting from a bona fide dispute as to services rendered or materlal supplied. C. Abandonment of Facilities. Neither the Plant, nor any substantial -------------------------- portion thereof, shall be abandoned without the consent of Michigan Production. Should Manistee propose and Michigan Production consent to, or should Michigan Production propose, such an abandonment, Manistee shall prepare, and submit to Michigan Production for its approval, plans for such abandonment which include disassembly and disposal of the plant and such restoration and reclamation of the plant site, and other reclamation or remediation, as may be appropriate under prudent industry, standards and in order to comply with applicable agreements, Laws and regulations; such proposal shall include cost (and time) estimates for completion of the plans. Michigan Production may propose modification of such proposal which shall be considered and adopted by Manistee if appropriate under prudent industry standards and applicable agreement. Should such plan be approved by Michigan Production, Manistee shall implement and complete such plan. Abandonment operations shall be conducted in accordance with, and in such a manner so that, when concluded, the Plant site and related assets and area will be in a condition consistent with prudent industry standards and in compliance with applicable agreements, Laws and regulations, including without limitation, those pertaining to the protection of the environment. To the extent costs of such abandonment which are incurred in accordance with such plan would constitute costs which Manistee could otherwise include in its charges under clause (ii) of Section II.A, it may include such costs in such charges, up to the amount of the cost estimates included in such plan. If there are proceeds from disposal of equipment, or other credits which would be appropriate as credits in computing charges under clause (ii) of Section II.& such amounts shall be credited against such charges or, if the amount of such credits exceeds current charges, such credit amounts shall be paid to Michigan Production as reimbursement of prior charges. ARTICLE II. PAYMENT FOR SERVICES A. Payments and Accounting. In consideration for its services hereunder, ------------------------ Manistee, shall be paid an amount equal to (i) (Confidential Treatment Requested), commencing April 1996, for certain accounting services to be provided by Howard Farkas, and continuing until such services are terminated by written notice from Michigan Production to Manistee plus (it) costs and expenses provided for as charges (net of amounts provided - ---- for as credits) under the Accounting Procedure (the "Accounting Procedure") attached hereto as Exhibit A. As provided above, Manistee shall pay all costs of operation of the Plant, subject to the reimbursement obligations of Michigan Production under the preceding sentence, and shall absorb all costs, expenses and liabilities not covered by payments made by Michigan Production under the preceding sentence. Manistee shall keep an accurate record showing costs and expenses incurred, charges to Michigan Production, A-2 and credits made and received. On or before the last day of the month, Manistee shall bill Michigan Production for charges owing by it with respect to the preceding month, plus amounts sufficient to cover any payroll costs and payroll taxes for the succeeding month, and an imprest petty cash fund in the mount of $5,000; such billing shall be in sufficient detail so as to allow mounts charged ------- to be identified. Michigan Production shall pay such invoice within ten (10) 'days after it is receive & Payment of any such bills shall not prejudice the fight of Michigan Production to protest or question the correctness thereof. Michigan Production, upon notice in writing to Manistee, shall have the right to audit Manistee's accounts and records relating to this Agreement and/or the Plant. B. Certain Charges. Notwithstanding Section II.A, should Manistee ---------------- undertake any single construction, maintenance, repair or other project (or interrelated group of projects) reasonably estimated to require an expenditure in excess of $5,000, Michigan Production shall not be obligated to pay (as a pan of the charges under Section H.A) any pan of the cost thereof unless it has approval to same in writing in advance; provided, however, that, in case of explosion, fire, flood or other sudden emergency, whether of the same or different nature, Manistee may include in such charges such expenses as are reasonably required to deal with the emergency to safeguard life and property but Manistee, as promptly as possible, shall report the emergency to the Michigan Production. Manistee may include in its charges under Section II.A expenditures incurred to settle any single uninsured third party damage claim or suit arising from operations of the Plant if the expenditure does not exceed $5,000.00 and if the payment is in complete settlement of such claim or suit. If the amount required for settlement is expected to exceed the above amount Michigan Production will be notified prior to Manistee entering into any such settlement. Costs and expenses of handling, sealing or otherwise discharging such claim or suit may be charged only if Michigan Production approves such settlement. ARTICLE III. FORCE MAJEURE If any party is rendered unable, wholly or in part, by force majeure to carry out its obligations under this Agreement, other than the obligation to make money payments, that party shall give to the other party prompt written notice of the force majeure with reasonably full particulars concerning it; thereupon the obligations of the party giving the notice, so far as they axe affected by the force majeure, shall be suspended during, but no longer than, the continuance of the force majeure. The term "force majeure'' as here employed, shall mean an act of God, strike, lockout, or other industrial disturbance act of the public enemy, war, blockade, public riot, lightning, fire, storm flood or other act of nature, explosion, governmental action, governmental delay, restraint or inaction, unavailibility of equipment, and any other cause, whether of the kind specifically enumerated above or otherwise, which is not reasonably foreseeable and which is not within the control of the party claiming suspension. The affected party shall use all reasonable diligence to remove the force majeure situation as quickly as practicable and shall continue to perform to the fullest extent that it is otherwise able. The requirement that any force majeure shall be remedied with all reasonable dispatch shall not require the settlement of strikes, lockouts, or other labor difficulty by the party involved, contrary to its wishes, how all such difficulties shall be handled shall be entirely within the discretion of the party concerned. A-3 ARTICLE IV. NOTICES All notices authorized or required between the parties by any of the provisions of this Agreement shall be in writing and delivered by United States mail, by personal delivery, by courier service (for which a receipt is provided) or by telecopier or other form of facsimile, addressed to such parties AT the addresses listed on the signature page hereto. "Receipt" for purposes of this agreement with respect to written notice delivered hereunder shall be actual delivery of the notice to the address of the party to be notified specified in accordance with this agreement, or to the telecopy or facsimile machine of such party. Each party shall have the right to change its address at any time, and from time to time, by giving written notice thereof to the other party. ARTICLE V. TERM OF AGREEMENT A. Term. This agreement shall, subject to the right of Michigan Production to terminate this agreement as provided below, remain in effect until December 31, 1997, and shall continue in effect thereafter until terminated as provided below. Termination of this agreement shall not relieve any party hereto from any obligation which has accrued or attached prior to the date of such termination. B. Termination. Michigan Production may terminate this agreement at any time, with or without cause. Manistee may terminate this Agreement at any time after December 31, 1997, with or without cause. Any such termination shall become effective at a date, specified by Michigan Production (whether such marion is by Manistee or Michigan Production), to be not later than 7 o'clock a.m. on the first day of the calendar month following the expiration of ninety (90) days after the giving of notice of termination. Upon termination, either (i) Michigan Energy shall have exercised its option under the Purchase Option Agreement of even date herewith, between Manistee and Michigan Energy or (ii) the Plant shall be abandoned pursuant to Section I.C. ARTICLE VI. MISCELLANEOUS A. Liability of Parties. It is not the intention of the parties to create, nor shall this agreement be construed as creating, a mining or other partnership, joint venture, agency relationship or association, or to render the parties liable as partners or co-venturers. B. ACCESS TO PLANT AND INFORMATION. MICHIGAN PRODUCTION, AND ITS REPRESENTATIVES, shall have access to the Plant AT all reasonable times to inspect or observe operations, and shall have access at reasonable times to information pertaining to the operation thereof, including Manistee's books and records relating thereto. C. Insurance. At all times while operations are conducted hereunder, Manistee shall comply with the workmen's compensation law of the state where the operations are being conducted. Manistee shall also carry insurance, as from time to time required by Michigan Production in its reasonable discretion consistent with coverage carried in the industry for similar operations, and Michigan Production shall be named an additional insured thereon. Manistee shall require all contractors engaged in work on or for the Plant to comply with the workmen compensation A-4 law of the state of Michigan and to maintain such other insurance as Manistee may require in accordance with prudent practices. D. Compliance With Law. This agreement shall be subject to the applicable laws of the state of Michigan, to the valid rules, regulations, and orders of any duly constituted regulatory body of said state, and to all other applicable federal, state, and local laws, ordinances, rules, regulations, and orders. E. Governing Law. Without regard to principles of conflicts of law, this Agreement shall be construed and enforced in accordance with and governed by the laws of the State of Michigan applicable to contracts made and to be performed entirely within such state and the laws of the United States of America. F. Time 0f Essence. Time is of the essence in the performance of the terms and conditions of this Agreement. G. Successor and Assigns. This agreement shall be binding upon and shall insure to the benefit of the parties hereto and to their respective heirs, devisees, legal representatives, successors and assigns. Manistee may not assign its rights or obligations hereunder without the prior written consent of Newco, which consent may be granted or withheld by Newco with or without cause. This instrument may be executed in any number of counterparts, each of which shall be considered an original for all purposes. IN WITNESS WHEREOF, this agreement is executed this 291h day of March, 1996. MANISTEE, Address: BOX 4118 Traverse City, Michigan 49685 MANISTEE/GAS LIMITED LIABILITY ' COMPANY /s/ Howard L. Farkas '//Name: Howard L.' Farkas Title: Chairman Address: 1100 Louisiana, 16th Floor Houston, Texas 77002 NEWCO MICHIGAN PRODUCTION COMPANY, L.L.C. By: /s/ Michael V. Ronea Name: Michael V. Ronea Title: Manager By: /s/ Robert L. Zorich Name: Robert L. Zorich Title: Manager A-5 EXHIBIT "A" Attached to and made a part of ACCOUNTING PROCEDURE JOINT OPERATIONS I. GENERAL PROVISIONS 1. Definitions "Joint Property" shall mean the real and personal property subject to the agreement to which this Accounting Procedure is attached. "Joint Operation" shall mean all operations necessary or proper for the operation, protection and maintenance of the Joint Property. "Joint Account" shall mean the account showing the charges paid and credits received in the conduct of the Joint Operations. "Operator" shall mean Manistee. "Parties" shall mean Operator and Non-Operators. "First Level Supervisors" shall mean those employees whose primary function in Joint Operations is the direct supervision of other employees and/or contract labor directly employed on the Joint Property. "Technical Employees" shall mean those employees having special and specific engineering, geological or other professional skills, and whose primary function in Joint Operations is the handling of specific operation conditions and problems for the benefit of the Joint Property. "Personal Expense" shall mean travel and other reasonable reimbursable expenses of Operator's employees. "Material" shall mean personal property, equipment or supplies acquired or held for use on the Joint Property. "Controllable Material" shall mean Material which at the time is so classified in the Material Classification Manual as most recently recommended by the Council of Petroleum Accountants Societies. 2. Deleted by Amendment. 3. Deleted by Amendment. 4. Deleted by Amendment. 5. Audits A. Deleted by Amendment. B. The Operator shall reply in writing to an audit report within 60 days after receipt of such report. 6. Deleted by Amendment. II. DIRECT CHARGES Operator shall charge the Joint Account with the following items: 1. Ecological and Environmental Costs incurred for the benefit of the Joint Property as a result of governmental or regulatory requirements to satisfy environmental considerations applicable to the Joint Operations. Such costs may include surveys of an ecological or archaeological nature and pollution control procedures as required by applicable laws and regulations. 2. Rentals Lease rentals and royalties paid by Operator for the Joint Operations. 3. Labor A. (1) Salaries and wages of Operator's field employees directly employed on the Joint Property in the conduct of Joint Operations. (2) Deleted by Amendment. (3) Deleted by Amendment. (4) Deleted by Amendment. B. Operator's cost of holiday, vacation, sickness and disability benefits and other customary allowances paid to employees whose salaries and wages are chargeable to the Joint Account under Paragraph 3A of the Section II. Such costs under this Paragraph 3B may be charged on a "when and as paid basis". C. Expenditures or contributions made pursuant to assessments imposed by governmental authority which are applicable to Operator's costs chargeable to the Joint Account under Paragraphs 3A and 3B of the Section II. D. Personal Expenses of those employees whose salaries and wages are chargeable to the Joint Account under Paragraph 3A of this Section II. 4. Deleted by Amendment. 5. Material Material purchased or furnished by Operator for use on the Joint Property as provided under Section IV. Only such Material shall be purchased for or transferred to the Joint Property as may be required for immediate use and is reasonably practical and consistent with efficient and economical operations. The accumulation of surplus stocks shall be avoided. 6. Deleted by Amendment. 7. Services The cost of contract services, equipment and utilities provided by outside sources, except services excluded by Paragraph 10 of Section II and Paragraph i, ii, and iii of Section III. The cost of professional consultant services or contract services of technical personnel shall not be charged to the Joint Account unless previously agreed to by the Parties. 8. Equipment and Facilities Furnished By Operator A. Operator shall charge the Joint Account for use of Operator owned equipment and facilities at rates commensurate with costs of ownership and operation. Such rates shall not exceed average commercial rates currently prevailing in the immediate area of the Joint Property. B. Deleted by Amendment. 9. Damages and Losses to Joint Property All costs or expenses necessary for the repair or replacement of Joint Property made necessary because of damages or losses incurred by fire, flood, storm, theft, accident, or other cause, except those resulting from Operator's gross negligence or willful misconduct. Operator shall furnish Non-Operator written notice of damages or losses incurred as soon as practicable after a report thereof has been received by Operator. 10. Legal Expenses With consent of Non-Operator expense of handling, investigating and settling litigation or claims, discharging of liens, payment of judgments and amounts paid for settlement of claims incurred in or resulting from operations under the agreement or necessary to protect or recover the Joint Property, except that no charge for services of Operator's legal staff or fees or expenses of outside attorneys shall be made unless previously agreed to by the Parties. All other legal expense is considered to be covered by the overhead provisions of Section III unless otherwise agreed to by the Parties, except as provided in Section I, Paragraph 3. 11. Taxes All taxes of every kind and nature assessed or levied upon or in connection with the Joint Property or the operation thereof. 12. Insurance Net premiums paid for insurance required to be carried for the Joint Operations for the protection of the Parties. 13. Abandonment and Reclamation Costs incurred for abandonment of the Joint Property, including costs required by governmental or other regulatory authority. 14. Communications Cost of leasing, operation, repairing and maintaining communication systems, including radio and microwave facilities directly serving the Joint Property. 15. Deleted by Amendment. III. OVERHEAD 1. Overhead - Drilling and Producing Operations i. Costs not included in Section II above (including, without limitation, administrative, supervision, office services and warehousing costs) shall not be charged to the account. Unless otherwise agreed to by the Parties, there shall be no charges for costs and expenses of all offices and salaries or wages plus applicable burdens and expenses of all personnel, except those directly chargeable under Paragraph 3A, Section II. The cost and expense of services from outside sources in connection with matters of taxation, traffic, accounting or matters before or involving governmental agencies shall not be charged. ii. The salaries, wages and Personnel Expenses of Technical Employees and/or the cost of professional consultant services and contract services of technical personnel directly employed on the Joint Property shall not be charged. iii. The salaries, wages and Personal Expenses of Technical Employees and/or costs of professional consultant services and contract services of technical personnel either temporarily or permanently assigned to and directly employed in the operation of the Joint Property shall not be charged. A. Deleted by Amendment. B. Deleted by Amendment. 2. Deleted by Amendment. 3. Deleted by Amendment. 4. Deleted by Amendment. IV. PRICING OF JOINT ACCOUNT MATERIAL PURCHASES, TRANSFERS AND DISPOSITIONS Operator is responsible for Joint Account Material and shall make proper and timely charges and credits for all Material movements affecting the Joint Property. Operator shall provide all Material for use on the Joint Property by purchasing the same from unrelated third parties however, at Non-Operator's option, such Material may be supplied by the Non-Operator. Operator shall make timely disposition of idle and/or surplus Material, such disposal being made through sale to outsiders. 1. Purchases Material purchased shall be charged at the price paid by Operator after deduction of all discounts received, In case of Material found to be defective or returned to vendor for any other reasons, credit shall be passed to the Joint Account when adjustment has been received by the Operator. 2. Deleted by Amendment. A. Deleted by Amendment. B. Deleted by Amendment. C. Deleted by Amendment. D. Deleted by Amendment. E. Deleted by Amendment. 3. Deleted by Amendment. 4. Warranty of Material Furnished By Operator Operator does not warrant the Material furnished. In case of defective Material, credit shall not be passed to the Joint Account until adjustment has been received by Operator from the manufacturers or their agents. V. INVENTORIES The Operator shall maintain detailed records of Controllable Material. 1. Periodic Inventories, Notice and Representation At reasonable intervals, inventories shall be taken by Operator of the Joint Account Controllable Material. Written notice of intention to take inventory shall be given by Operator at least thirty (30) days before any inventory is to begin so that Non-Operators may be represented when any inventory is taken. 2. Reconciliation and Adjustment of Inventories Adjustments to the Joint Account resulting from the reconciliation of a physical inventory shall be made within six months following the taking of the inventory. Inventory adjustments shall be made by Operator to the Joint Account for overages and shortages but, Operator shall be held accountable only for shortages due to lack of reasonable diligence. 3. Special Inventories Special inventories shall be taken where requested by Non-Operator 4. Expense of Conducting Inventories A. The expense of conducting periodic inventories shall not be charged to the Joint Account unless agreed to by the Parties. B. The expense of conducting special inventories shall be charged to the Joint Account. EX-10.15 18 PROCESSING AGREEMENT PROCESSING AGREEMENT KENOVA PROCESSING PLANT This PROCESSING AGREEMENT ("Agreement") made this 15th day of March 1995 between COLUMBIA GAS TRANSMISSION CORPORATION ("Columbia"), and MARKWEST HYDROCARBON PARTNERS, LTD., ("Processor"). WHEREAS, Columbia desires to deliver natural gas to Processor at Processor's Facilities for the purpose of extracting liquid hydrocarbons therefrom, under the terms and conditions hereof; and WHEREAS, Processor desires to receive natural gas at Processor's Facilities from Columbia for the purpose of extracting liquid hydrocarbons therefrom, under the terms and conditions hereof. Columbia and Processor agree as set forth below: ARTICLE I. EXTENT OF CONTRACT 1.1 Processor agrees to process at its sole risk and expense all natural gas volumes made available by Columbia at Processor's Facilities described on Exhibit 1, to be attached hereto and made a part hereof promptly following its preparation, (herein referred to as Processor's Facilities) in order to deliver to Columbia residue gas as specified in Article IV hereof. Columbia shall accept delivery of all residue gas volumes meeting the specifications as set forth herein in Article IV and to reimburse Processor for processing each million British thermal units (MMBtu) of natural gas delivered to and processed by Processor, as set forth herein in Article VI. 1.2 Columbia agrees to use reasonable, diligent efforts to avoid taking any action not compelled by law or regulation which will reduce the volume of natural gas being supplied to the Processor's Facilities, or reduce the recovery of natural gas liquids at Processor's Facilities or divert elsewhere the streams of natural gas that would otherwise flow through and be processed by Processor's Facilities. Processor and Columbia agree that the streams of natural gas are being shipped by Columbia for third party shippers for delivery to regulated and unregulated distribution companies, producers and industries for service to the public and Columbia's control of said natural gas streams to meet its public service obligations at the lowest reasonable cost shall be paramount. Columbia shall have the right to manage the streams of natural gas in the manner in which Columbia, in its sole discretion, deems most appropriate to meet its public service obligation at the lowest reasonable cost, without any liability to Processor on account thereof. That right shall specifically include, but not be limited to, the right to curtail, interrupt, or divert the natural gas streams for such periods as Columbia, in its sole judgment, deems necessary. It is provided, however, that should Columbia divert the natural gas streams, otherwise deliverable to the Processor's Plant, to other extraction plants not operated by Processor, the liquids extracted from those streams shall be made available to Processor at those extraction plants, under the terms of this Agreement. 2 1.3 In addition to the foregoing and not by way of limitation, Columbia agrees to use reasonable, diligent efforts to deliver or cause to be delivered approximately 115 MMCfd of natural gas to Processor's Facilities. Processor acknowledges and agrees that a portion of the natural gas delivered by Columbia to Processor's Facilities will have already been processed at the Boldman Processing Plant or have, at its point of delivery into Columbia's facilities, a lower Btu than the average Btu of quantities at the outlet of Processor's Facility, and in accordance with Section 25.3 of the General Terms and Conditions of Columbia's FERC Gas Tariff, as currently in effect and as may be amended, will not be charged for processing at Processor's Facilities. All other natural gas delivered to Processor's Facilities will be charged for processing and will hereinafter be referred to as "Billable Quantities". The average Btu at the outlet of Processor's Facility shall be posted on Columbia's Electronic Bulletin Board System and redetermined on an annual basis. The volume of gas and the heating value will be calculated at 14.73 psi at 60 degrees Fahrenheit and the gas will be assumed to be dry. Additionally, Columbia will use reasonable, diligent efforts to divert previously processed gas (excluding gas processed at the Boldman Plant) received by Columbia, including without limitation, processed gas received at the Beaver Creek Compressor Station, away from Line P so that such previously processed gas will not be delivered to Processor's Facilities. Processor also acknowledges and agrees there will be events, including but not limited to, maintenance, repair, replacement and outages on Line KA, which will require previously processed gas to be delivered to Processor's Facilities; provided, Columbia will use its reasonable, diligent efforts to minimize the duration and frequency of those 3 occurrences. Further, to the extent within Columbia's reasonable control, Columbia will not reduce, or permit a reduction of the amount of the Billable Quantities delivered to Processor. ARTICLE II. TERM 2. This Agreement shall be effective upon the date Processor's Facilities begin Unrestricted Service as defined in Article II Section 2.5(c) of the Design and Construction Agreement between the parties hereto dated March 15, 1995 and shall continue in full force through December 31, 2010 (the "Primary Term"). Thereafter, this Agreement shall continue for successive periods of two (2) years each, subject to successful renegotiation of a processing fee, until either party gives written notice of termination to the other party at least one (1) year prior to the end of the Primary Term, or one year prior to the end of each succeeding 2-year period. ARTICLE III. INLET QUALITY 3. The inlet gas delivered to Processor by Columbia shall meet the following specifications: Minimum Heating Value: 1200 BTU/SCF (HHV/dry)/1/ Minimum Temperature: 90 degrees F/2/ 1 Columbia will use best efforts to meet the specification but will not incur additional costs or otherwise change its operations to the detriment of Columbia or its customers. 2 In the event Processor requires a specified temperature, including the 90 degrees F referred to herein, unable to be maintained by Columbia's existing equipment, Processor agrees to pay for any modification of 4 Maximum Temperature: 110 degrees F/3/ Maximum Water Content: 25 pounds/MMSCF Delivery Pressure Range @ Plant Inlet: 315 psig to 360 psig/4/ Further, Processor will accept gas meeting Columbia's pipeline tariff gas specifications for H2S and total sulfur. In the event Columbia delivers gas with H2S and/or total sulfur which is in excess of Columbia's pipeline tariff quality specification, then upon notice from Processor, Columbia will endeavor to identify the source of the excess and take appropriate action to bring gas back into quality specifications. Except for the above, the inlet gas delivered to Processor by Columbia shall conform to the gas quality specifications of Columbia's FERC Gas Tariff. ARTICLE IV. RESIDUE QUALITY 4.1 As long as the inlet gas delivered by Columbia to Processor meets the quality specifications in Article III herein, the residue gas delivered to Columbia by Processor shall meet the following specifications: Minimum heating value: 967 BTU/SCF (LHV/dry basis) Maximum heating value: 1125 BTU/SCF (LHV/dry basis) Columbia's existing equipment and normal operating procedures to meet the requirement. 3 Unless ambient conditions cause a higher temperature. 4 Unless operating failures do not permit. 5 Minimum temperature: 50 degrees F Maximum temperature: 110 degrees F1 Maximum water content: 7 lbs/MMSCF of gas Maximum allowable pressure drop across the plant: 25 psig 1 Unless ambient conditions cause a higher temperature. Processor will return residue gas to Columbia containing no more H2S and total sulfur than Processor receives from Columbia at the inlet of the Processor's Facilities. The residue gas shall meet, at a minimum, a -30 degrees F cricondentherm (maximum hydrocarbon dew point). The residue gas returned shall have Ninety-Nine and One-Half percent (99.5%) of liquid and solid particles greater than three (3) microns removed at maximum flowing conditions and at all times be commercially free from particulates or other solid or liquid matter which might interfere with its merchantability or cause injury to or interference with proper operation of the lines, regulators, meters and other equipment of Columbia. 4.2 Failure to meet the quality specifications set forth in Articles III and IV will be deemed a default under Article XIV of this Agreement. ARTICLE V. OPERATION 5.1 Processor shall have the exclusive responsibility for the ownership, operation and maintenance of Processor's Facilities. 6 5.2 Processor shall process and dehydrate the natural gas stream made available by Columbia to meet or exceed the residue gas quality specified in Article IV herein except for a maximum of 30 calendar days per year, to be mutually agreed upon by the parties hereto, necessary for turnaround time, maintenance or repair time. 5.3 Except as herein stated, Processor is and shall forever be responsible for all risk and all costs in connection with Processor's ownership, operation and maintenance of Processor's Facilities. Such costs may include, but are not limited to, personal property taxes, real property taxes assessed against Processor's Facilities and other taxes attributable to Processor's facilities, insurance, fees, permits and utilities. 5.4 Processor must immediately notify Columbia's Gas Control Department, telephone (304) 357-2505 and the Area Manager, telephone (304) 691-5205, or such other telephone number as may be provided by Columbia from time to time, of all material processing interruptions. Processor and Columbia shall coordinate, on a best efforts basis, necessary facility outages, including but not limited to, annual plant turnarounds, pipeline replacements and compressor overhauls, so as to minimize the disruption of each other's operations. 5.5 In conducting its activities hereunder, Processor shall (i) comply with any and all applicable local, state and/or federal laws, regulations, orders and agreements, including, but not limited to, those laws, regulations, orders, and agreements directed at protecting the environment, (ii) obtain, from the governmental authorities having jurisdiction over the premises, such permits and 7 approvals as may be required to lawfully conduct Processor's activities, including, without limitation, all permits and approvals required under local, state and/or federal environmental laws and regulations, and (iii) timely provide the governmental authorities having jurisdiction over the premises with all notifications required under applicable local, state and/or federal laws, regulations, orders and agreements. 5.6 Columbia shall allow Processor to utilize the electrical substation located on Columbia's property, adjacent to Columbia's Kenova Compressor Station, to purchase electric power from American Electric Power Company. ARTICLE VI. PROCESSING FEE 6.1 For purposes of this Agreement the "Transitional Period" is defined herein as the period commencing upon the start of Unrestricted Service as defined in Article 2.5(c) of the Agreement to Design and Construct New Facilities and continue until the effective date of any necessary abandonment authorization to be granted by the FERC regarding Columbia's facilities and the service provided thereby at the Kenova Plant. During the Transitional Period, Processor agrees to initiate the service of processing Columbia's shippers' gas for either: 1) a processing fee applicable to all Billable Quantities of 10.35c/Dth and fuel retainage at the rate provided for in Columbia's FERC Gas Tariff, currently 0.67%, which amount would be billed to Columbia and paid to Processor, or 2) under arrangements to be agreed upon separately by and between Processor and Columbia's shippers. During the Transitional Period, Columbia will bill shippers at its FERC approved processing fee plus fuel retainage for all Billable 8 Quantities. All amounts due from Columbia shall be payable in accordance with Article IX. If Processor has negotiated an alternative arrangement with any or all shippers prior to the end of the Transition Period, then upon notification to Columbia by Processor of such alternative arrangement, Columbia will discontinue Processing Fee billings to those affected shippers. 6.2 It is recognized that during the Transitional Period, Processor may desire adjustments to its processing fee in order to reflect increases in costs. Processor may request such changes after January l, 1997. Columbia will seek approval of adjustments to the processing fee requested by Processor only in the context of any general Section 4(e) Rate Case filings. In the event Columbia determines that it will file a General Section 4(e) Rate Case, Columbia will notify Processor of the impending filing and Processor may provide any information it deems necessary to support any processing fee adjustments requested by Processor. It is understood and agreed between Columbia and Processor that in no event will Columbia file any Rate Case solely due to any adjustment needed by Processor, and that the level of any adjustments and any method of presentation remains the sole control of Columbia. In the event the requested fee adjustment is approved by FERC, the fee paid by Columbia to Processor shall be adjusted to reflect the FERC approved adjustment. 6.3 By the end of the Transitional Period, Processor will have negotiated arrangements with all shippers transporting gas on Columbia upstream of Processor's Facilities, or will have offered all shippers a "default contract" and will no longer be paid by Columbia for processing. At the end of the 9 Transitional Period, Processor will be paid by and look solely to Columbia's shippers for payment for that shipper's Billable Quantities. ARTICLE VII. MEASUREMENT 7.1 The following four natural gas streams shall be measured at Columbia and Processor's facilities hereinafter collectively referred to as the Gas Measurement Facilities: 1) the inlet natural gas stream measured at a point downstream of Columbia's Kenova Plant bypass (Inlet Stream); 2) the residue gas stream measured at a point upstream of Columbia's Kenova Plant bypass (Outlet Stream); 3) plant fuel utilized in Processor's Facilities (Plant Fuel); and 4) plant flare which may be required to be estimated because of safety reasons (Plant Flare). The natural gas liquid product stream shall be measured at a facility installed and operated as described in this Agreement and hereinafter referred to as the Liquid Measurement Facility. 7.2 Columbia shall be responsible for providing the Inlet and Outlet Streams Measurement. Processor shall be responsible for providing the Plant fuel and Plant Flare Measurement. The Gas Measurement Facilities shall be designed and constructed in accordance with industry standards and consistent with Columbia standards. The Inlet and Outlet streams shall include equipment, specified by Columbia for the accurate chromatographic analysis of those streams and shall be tested monthly. The Liquid Measurement Facility shall be designed, constructed and operated by Processor to standards established in the latest edition of American Petroleum Institute's Manual of Petroleum Measurement Standards. The Liquid Measurement Facility shall include equipment, reasonably 10 specified by Columbia, for the accurate chromatographic analysis of the natural gas liquids product stream. Columbia shall have the opportunity to review the type of meters selected for Liquid Measurement, Plant Fuel and Plant Flare as well as all associated instrumentation. Processor shall operate, maintain and determine the accounting quantities measured by the Plant Fuel and Plant Flare. To the extent measurement facilities are existing for these purposes, the parties will utilize those facilities. 7.3 Columbia shall operate, maintain and determine the accounting quantities measured by the Inlet an Outlet Streams. For the Gas Measurement Facilities required herein, all measurement practices, calculations, testing and rectification of errors shall be in accordance with Columbia's FERC Gas Tariff, General Terms and Conditions, Section 26, effective November l, 1993 and as it may be subsequently amended. For the Liquid Measurement Facility required herein, all measurement practices, calculations, testing and rectification of errors shall be in accordance with the Liquid Products Industry Standards. Columbia reserves the right to be present at all regularly scheduled and unscheduled inspections and tests of the Liquid, Plant Fuel and Plant Flare measurement facilities. The Processor's regularly scheduled liquid and gas measurement facility inspections shall be performed at most quarterly and less frequently when agreeable to both Columbia and Processor. Columbia agrees to allow the Processor to be present at all inspections and tests of the gas measurement facilities. Both Columbia and the Processor agree to conduct the joint tests and inspections concurrently. 11 7.4 Electronic measurement direct data outputs on the Inlet and Outlet Streams shall be provided for use by Processor in accordance with Columbia's Standard Electronic Measurement Agreement, attached hereto and made a part hereof as Attachment A. Processor will permit Columbia to install, at Columbia's sole risk, cost and liability, electronic measurement equipment in order to obtain signals from Liquid Measurement, Plant Fuel and Flare measurement facilities and for the liquid chromatograph, provided that electronic measurement equipment does not interfere with Processor's operations. 7.5 Processor and Columbia agree to accept the measurements from Measurement Facilities, operated by each party respectively, utilized for the measurement of the Inlet Stream as the basis for determination of the monthly processing payment, and the Liquid Measurement Facility. Plant Fuel and Plant Flare as the basis for determining shrinkage reimbursement, subject nonetheless to estimation procedures and rectification of errors as provided for in Paragraph 7.3 of this Article. ARTICLE VIII. BTU REIMBURSEMENT 8.1 Processor shall make Columbia whole by reimbursing Columbia for the Btu equivalent of all natural gas liquids removed by Processor from the natural gas stream delivered to the Processor's Facilities by Columbia and the fuel consumed and gas flared in operating Processor's Facilities. Reimbursement shall consist of a quantity of Btus in the form of natural gas conforming to Columbia's FERC Gas Tariff effective at the time of reimbursement delivery. 12 For purposes of calculating Btu's received by Processor hereunder, each of the natural gas liquid products shall be deemed to have a gross heating value as reported in the latest edition of the Gas Processors Suppliers Association's Engineering Data Book, as revised from time to time, or any other industry standard which is mutually agreed upon by Columbia and Processor. The most recent edition of the Gas Processors Suppliers Association's Engineering Data Book reports the gross heating values of the natural gas liquid products as follows: GROSS HEATING VALUE OF NATURAL GAS LIQUIDS ------------------------------------------
Product Btu Per Gallon ------- --------------- Ethane 65,727 Propane 90,823 Iso-butane 98,913 Normal butane 102,909 Isopentane 108,754 Normal pentane 110,080 Hexanes + 115,064/5/
8.2 The Btu Reimbursement in the form of natural gas, as required in this Article VIII, shall be made by Processor to Columbia at any or all of the receipt points into Columbia Gas Transmission Corporation's pipeline system located in the states of Ohio, West Virginia, Virginia, Maryland, Pennsylvania, New Jersey, Delaware, North Carolina, New York and Kentucky. The receipt of natural gas at any receipt point shall be subject to physical capability of Columbia to receive said natural gas and shall not preclude Columbia from ceasing to receive natural 5 After the plant is fully operational, the BTU per gallon of hexanes and heavier components may be revised periodically, but not more than twice in one year, based upon the results of extended chromatographic analysis of the liquids stream, using the same components that Columbia uses to determine the heating content of the gas Columbia transports under its FERC Gas Tariff. 13 gas from time to time at any receipt points due to temporary changes in facility operations or relocations, or ceasing to receive natural gas at any receipt points due to abandonments, either by sale or retirement, or other permanent changes in physical capability of its pipeline facilities used to receive said natural gas. 8.3 (a) Measurement of the gas delivered at the receipt points hereunder shall be computed in accordance with Columbia's or a downstream pipeline company's tariff, as applicable. (b) It is recognized that, due to operating conditions, the Btus of liquid products recovered by Processor and the Btus of natural gas delivered to Columbia may not be in balance in any one particular calendar month. Given Columbia's gas transportation obligations to its shippers, Processor is required to maintain its Btu reimbursements within a ten percent (10%) tolerance each calendar month. In the event Processor fails to maintain its Btu reimbursements within the ten percent (10%) tolerance for greater than a thirty (30) day period, Processor will be in default under this Agreement. (c) Columbia will provide notice to Processor of the Btu Reimbursement owed to Columbia 30 days prior to the date delivery is due. Should Processor fail to deliver Btu Reimbursement consistent with the provisions of this Article VIII, Processor shall be subject to the monthly imbalance provisions of Columbia's approved FERC tariff in effect of the time of the imbalance. (d) Processor shall exercise due diligence in keeping its Btu reimbursements within the stated tolerance. 14 8.4 Processor shall be responsible for obtaining all transportation arrangements required to deliver the natural gas to the receipt points, and shall be responsible for all transportation costs incurred in delivering the natural gas to the receipt points. 8.5 Processor shall be deemed to be in control of and have responsibility for the natural gas to be processed by Processor after the delivery thereof to Processor by Columbia and prior to the delivery of such gas to Columbia by Processor. Processor shall be deemed to have no responsibility with respect to such gas prior to Processor's receipt thereof, or after Processor's delivery thereof to Columbia. ARTICLE IX. BILLING AND PAYMENT 9. On or before the lOth day of each month, Columbia will submit the Inlet and Outlet Streams accounting quantities to Processor. On or before the 20th day of each month, Processor will submit a statement and invoice to Columbia indicating all amounts and fuel reimbursement due under this Agreement for the preceding month. Processor's statement shall include a comparison of the inlet/outlet measurement heating values (DTH) minus the fuel and flare heating values (DTH) versus the equivalent heating values (DTH) of the liquid removed. In the event that a discrepancy exists in the comparison, the liquid and gas measurement facilities of both parties shall be inspected to determine the cause of the discrepancy. Both parties shall work together diligently to solve the discrepancy in a manner mutually acceptable to both parties. Columbia shall remit payment based on that invoice by the last business day of the month in 15 which the invoice is received or 10 business days following receipt of the invoice, whichever is later (Due Date). In the event Columbia does not submit payment within 30 days of the Due Date, Columbia shall pay interest at the FERC interest rate (18 CFR (S) 154.67) upon the unpaid balance until paid. ARTICLE X. INSURANCE l0.1 Processor, at all times while it has any interest in Processor's Facilities and to the extent required by current operations and as agreed by Columbia, shall provide, at its own cost and expense, insurance of the kinds and in the amounts necessary to cover all loss or liability for damages on account of bodily injury, including death resulting therefrom, and damage to or destruction of property caused by or arising out of any and all operations carried on or any and all work performed under this Agreement. At a minimum, Processor shall provide insurance of the kinds and in the amounts specified in the following schedule. (a) Workers' Compensation: Coverage shall include the following: ---------------------- (i) Workers' Compensation - Statutory coverage applicable in each State where work is to be performed, including coverage for occupational disease, if and as required. (ii) Employer's Liability minimum limit of $1,000,000 per occurrence. If coverage is obtained from a state fund (Ohio or West Virginia), Employer's Liability coverage may not be available. In such cases, Processor will purchase "Stop 16 Gap" coverage, with minimum limits of $1,000,000 per occurrence, from a commercial insurer. (iii) All States Endorsement (or equivalent). If coverage is obtained from a state fund (Ohio or West Virginia) an All States endorsement may not be available. In such cases, Processor will obtain Workers' Compensation insurance in every state in which operations may be conducted or work may be performed under the terms of this Agreement. (iv) U. S. Longshore and Harbor Workers' Compensation Act coverage, U. S. Defense Bases Act Coverage, Outer Continental Shelf Land Act coverage, when applicable: statutory limits. (v) Jones Act coverage when applicable. Minimum limits required: $1,000,000 per accident. (b) Commercial General Liability or Comprehensive General Liability --------------------------------------------------------------- Insurance: Policy to include Blanket Contractual and Broad Form Liability - ---------- endorsements, or their equivalents, Completed Operations Coverage and, when applicable, Products Coverage. The Contractual Liability section must specifically cover Processor's obligations under the indemnity provisions of this agreement. Minimum limits required: BODILY INJURY/PROPERTY DAMAGE: $1,000,000 per occurrence. Combined Single Limit. 17 PRODUCTS/COMPLETED OPERATIONS: $1,000,000 per occurrence, Combined Single Limit. PERSONAL INJURY: $1,000,000 per occurrence. When coverage obtained in accordance with this paragraph is written on a "Claims Made" or "Claims First Made:" form, Completed Operations coverage must be specifically endorsed to provide that it will respond to claims made for at least 24 months after completion of the work. The Fellow Employee and Explosion, Collapse and Under-ground Exclusions must be deleted. (c) Automobile Liability: Coverage shall include all owned, non-owned, -------------------- leased or hired vehicles. Minimum Limits required: BODILY INJURY/PROPERTY DAMAGE $1,000,000 per occurrence, Combined Single Limit. Processor warrants that it is in full compliance with any "No Fault" provision of any state in which it operates motor vehicles. (d) Umbrella Liability Insurance: Coverage shall be excess of, and at least ---------------------------- as broad as, the primary coverages listed in paragraphs a, b and c of this Section. Minimum Limits required: BODILY INJURY/PROPERTY DAMAGE - $10,000,000 per occurrence, Combined Single Limit. 18 (e) Aircraft Liability: If any operations require the use of helicopters or ------------------- fixed wing aircraft, Processor will, in addition to all other insurance coverage required in this Section, maintain and shall require any Subcontractor utilizing rotary or fixed wing aircraft to maintain aircraft liability insurance with minimum limits of $10,000,000 per occurrence for bodily injury and property damage. (f) Marine Insurance: If any operations are to be conducted in or on ----------------- navigable waters or on any pier, wharf, or other structure adjoining such waters, Processor shall, in addition to all other insurance required in this Section, maintain and shall require any Subcontractor engaged in such operations to maintain, the following additional coverage, as appropriate: (i) HULL/PROTECTION & INDEMNITY - coverage to be provided for each vessel used in any operations conducted under the terms of this agreement. Minimum limits required: HULL - Current value of the vessel. PROTECTION & INDEMNITY $1,000,000 per vessel per occurrence for bodily injury and property damage. (ii) MARINE EMPLOYERS LIABILITY - minimum limits required: $1,000,000 per accident. (g) Environmental Impairment Liability (or Equivalent): Policy to include --------------------------------------------------- coverage for all loss and liability resulting from Processor's activities and liability assumed by Processor under this Agreement. 19 Minimum Limits required: BODILY INJURY/PROPERTY DAMAGE - $10,000,000 per occurrence, Combined Single Limit. (h) All Risk Property: Limits shall be sufficient to cover replacement ------------------ cost for Processor's Facilities and provide a Bailee Endorsement to cover any loss of natural gas in Processor's possession. (i) Boiler and Machinery: Limits shall be sufficient to cover replacement --------------------- cost for Processor's Facilities. (j) Business Interruption: Limits shall be at Processor's discretion. --------------------- 10.2 All insurance policies required by this section will be written by insurance companies reasonably acceptable to Columbia, will be primary with respect to any insurance maintained by Columbia, and will be endorsed to provide at least 30 days advance notification to Columbia of any cancellation, non- renewal or material change in coverage and cancellation for non-payment of premium will require 30 days advance notice to Columbia. Insurance policies required by paragraphs b, c, d, e, f and g will name Columbia as an additional insured. All insurance policies required by this Section will contain a waiver of subrogation as against Columbia. Some of the foregoing policies may be obtained and maintained by Processor's Contractor, which policies shall name Columbia and MarkWest as additional insureds and provide Waiver of Subrogation against both parties. Some of the foregoing policies may be obtained and maintained by Processor's Contractor, which policies shall name Columbia and 2O processor as additional insureds and provide Waiver of Subrogation against both parties. 10.3 Processor warrants that any Contractor and/or Subcontractors of Processor who conduct any operations or perform any work under the terms of this Agreement, or in connection with the facilities, shall be specifically covered by Processor's policies or equivalent policies carried by the Contractor and/or Subcontractors. 10.4 Processor shall furnish, on behalf of itself and any Contractor or Subcontractor, prior to Processor conducting any activity on Processor's Facility site, copies of all insurance policies intended to meet the requirements of this Section. Properly executed Certificates of Insurance may be substituted for insurance policies provided that such Certificates contain positive statements of compliance with all the terms of this Agreement which apply to the type of insurance represented by the Certificate. Insurance Policies whose terms expire during the term of this Agreement will be renewed or replaced with no gaps in coverage, and evidence of such renewal or replacement will be provided to Columbia under the same conditions as prescribed above. ARTICLE XI. INDEMNITY 11.1 Processor shall indemnify and hold harmless Columbia from and against any and all loss, damage, and liability and from any and all claims for damages on account of or by reason of bodily injury, including death, which may be sustained or claimed to be sustained by any person, including the employees of Processor and of any Contractor or Subcontractor of Processor, and from and 21 against any and all damages to property, including loss of use, and including property of Columbia, caused by or arising out of or claimed to have been caused by or to have arisen out of an act or omission of Processor or its agents, employees, subcontractors or contractors in connection with the performance of this Agreement, in connection with the performance of this Agreement, whether or not insured against and Processor shall at its own cost and expense defend any claims, suits, actions, or proceedings, whether groundless or not, which may be commenced against Columbia by reason thereof or in connection therewith, and Processor shall pay any and all judgments which may be recovered in any such actions, claims, proceedings, or suits, and defray any and all expenses, including costs and attorney's fees, which may be incurred in or by reason of such actions, claims, proceedings, or suits, including environmental impairment; provided, however, that the foregoing indemnification will not cover loss, damage, or liability arising from the sole negligence or wilful misconduct of Columbia, its agents and employees. Notwithstanding the foregoing, in the event of such actions, claims, proceedings or suits, Columbia shall be entitled, if it so elects, to representation by attorneys of its own selection, including attorneys employed by Columbia. The obtaining by Processor of a release or discharge, running to Processor or Columbia or either or both of them, from a property owner for damages resulting from any phase of the performance of the obligations of this Agreement shall not diminish nor affect in any way the rights of Columbia and the obligations of Processor as set forth in this Article IX; and to the extent permitted by law. 22 Processor expressly waives the benefit, for itself and all contractors and subcontractors, insofar as the indemnification of Columbia is concerned, of the provisions of any applicable workers' compensation law limiting the tort or other liability of an employer on account of injuries to the employer's employees. Except to the extent of Columbia's obligations under the Purchase and Demolition Agreements, Construction Premises and Remaining Premises between Columbia and Processor both dated March 15, 1995, Processor shall further indemnify and hold Columbia harmless from any and all claims for costs, expenses, fines or fees associated with or arising from claims asserted under any local, state and/or federal environmental law or regulations, regardless of whether such claims relate to conditions that existed on the property prior to Processor's entry thereon. 11.2 Columbia shall indemnify and hold harmless Processor from and against any and all loss, damage and liability, and from any injury, including death, which may be sustained or claimed to be sustained by any person, including the employees of Columbia and of any Contractor or Subcontractor of Columbia and, from and against, any and all damages to property, including loss of use, and including property of Processor, caused by or arising out of or claimed to have been caused by or to have arisen out of the sole negligence of Columbia or its agents, employees or subcontractors. ARTICLE XII. FORCE MAJEURE 12. Neither Processor nor Columbia shall be held responsible for any losses resulting if the fulfillment of any terms or provisions shall be delayed 23 or prevented wholly or in part by compliance with any law, order or regulation, whether valid or invalid, of any governmental authority or of any person purporting to act therefor or by any act or condition not within the reasonable control of the party whose performance is interfered with and which by the exercise of reasonable diligence said party is unable to prevent, including but not limited to revolutions or other disorders, wars, acts of enemies, embargoes or other import or export restrictions, strikes, lockouts or other industrial disturbances, fires, storms, floods, acts of God or explosions. The settlement of strikes or lockouts shall be entirely within the discretion of the party having the difficulty and such party shall not be required to make settlement of strikes or lockouts by acceding to the demands of the opposing party when such course is inadvisable in the discretion of the party having the difficulty. If by reason of any cause of the nature set forth above in this Article XII, supplies of either natural gas or natural gas liquids are curtailed or cut off, then neither Columbia nor Processor shall be required to replace the hydrocarbons so curtailed or cut off nor shall either party be required to make up deliveries omitted by reason of any of the above causes. If either party is unable to fulfill the terms and conditions of this agreement by reason of any such cause as provided in this Article, the party rendered unable to perform hereunder shall give the other party notice in writing as soon as reasonably possible after the occurrence of the cause relied on, setting forth the full particulars in connection therewith, and deliveries shall be suspended during the continuance of any inability so caused but for no longer period, and such cause, so far as 24 possible, shall be remedied with all reasonable dispatch. This agreement shall not be terminated by reason of any such cause set out above but shall remain in full force and effect and this Agreement shall not be extended regardless of any such curtailment or cessation. ARTICLE XIII. REMEDIATION UPON TERMINATION 13. In the event of a permanent cessation of operations of Processor's Facilities which would result in title to the real property and/or Processor's Facilities to be passed to Columbia, Processor shall remediate the entire tract owned by Processor, including that portion thereof affected by the past operation and the dismantlement, demolition, removal and disposal of the existing Kenova Extraction Plant, to (i) a level that meets or exceeds a specific clean-up or compliance level established under applicable State and/or federal environmental laws and regulations, or (ii) where such laws and regulations do not state a specific standard, to a level or standard of remediation and compliance approved by the governmental agency or agencies having jurisdiction over the premises, such standard being negotiated solely between Processor and such agency having jurisdiction and reasonably acceptable to Columbia, for the purpose of administering such environmental laws and regulations. Further, Processor shall indemnify and hold Columbia harmless from any and all claims for costs, expenses or fees associated with or arising from Processor's remediation of or failure to remediate environmental conditions on the tract owned by Processor, including, but not limited to, claims asserted under any State and/or federal environmental law or regulation, regardless of whether such claims relate to conditions that 25 existed on the property prior to Processor's entry thereon, except to the extent of Columbia's obligations under the Purchase and Demolition Agreements. XIV. DEFAULT AND PENALTY 14. In the event Processor, for any reason other than Force Majeure and Article 5.2 hereof and for reasons related to safety considerations and the integrity of Processor's Facilities, interrupts the liquid production process as required under the terms and conditions of this Agreement, Processor shall pay to Columbia a penalty of Five Thousand Dollars ($5,000) per day unless Columbia can establish damages in excess of the Five Thousand Dollars ($5,000) per day. In the event Processor interrupts the liquid production process for any reason, including without limitation, Force Majeure, which interruption continues for a period of 30 consecutive days and within such 30-day period fails to provide Columbia with a reasonable plan and date for resuming liquid production acceptable to Columbia, or is otherwise in default of any of the terms, conditions, covenants, warranties or agreements contained herein, and which default continues for 30 days after written notice from Columbia to Processor, if curable within 30 days or if not curable within 30 days and processor has not commenced good faith, diligent efforts to cure within that 30 day period, Columbia, may at its sole discretion and in addition to any other legal or equitable remedy available to Columbia: (a) satisfy any and all obligations of Processor connected directly or indirectly with this Agreement, including but not limited to any default of Processor under this Agreement, with reimbursement from Processors of any amount 26 paid together with (i) attorneys fees and (ii) annual interest at the rate of 15%, if this rate is allowed by law, otherwise at the highest rate allowed by law and, if not reimbursed, such amount may be deducted (with attorneys fees and interest as above provided) by Columbia from any amounts then or thereafter due Processor. These rights of reimbursement and deduction are in addition to Columbia's rights to indemnity under this Agreement; and/or, (b) seek interlocutory equitable relief against Processor, as Processor acknowledges and agrees that a default will cause irreparable harm and loss to Columbia, in a form which will allow Columbia, or any entity chosen by Columbia, to complete the obligations of Processor herein at the sole risk, liability, cost and expense of Processor and, if not reimbursed, such amount may be deducted (with attorneys fees and interest as above provided) by Columbia from any amounts then or thereafter due Processor. These rights of reimbursement and deduction are in addition to Columbia's rights to indemnity under this Agreement; and/or, (c) purchase Processor's Facilities for the net depreciated book value of Processor's Facilities. ARTICLE XV. ASSIGNMENTS 15. This Agreement may not be assigned by either party without the other party's prior written consent. ARTICLE XVI. NOTICES 16. Any notices required or permitted under this Agreement, with the exception of the notice provision of Article V, Paragraph 5.4, shall be made via facsimile at the following numbers followed by notice through the U.S. Postal 27 Service return receipt requested, to the following addresses or such other facsimile numbers and addresses as may be designated by the parties hereto: MarkWest Hydrocarbon Partners, Ltd. 5613 DTC Parkway, Suite 400 Englewood, CO 80111 Attention of Vice President, Finance Facsimile: (303) 290-8769 Columbia Gas Transmission Corporation P.O. Box 1273 Charleston, WV 25325-1273 Attention: Vice President, Volume Management Facsimile: (304) 357-2424 ARTICLE XVII. RIGHT TO AUDIT 17. Each party agrees that the other or the other's Agents, at all reasonable times, shall have the right to examine or audit the books, accounts and records of that party to verify compliance with the terms and conditions of this Agreement. ARTICLE XVIII. DISPUTE RESOLUTION 18. Any and all disputes, claims or controversies arising from the interpretation of this Agreement, or a party's obligations hereunder, shall be resolved by binding arbitration conducted in accordance with the Commercial Arbitration rules of the American Arbitration Association. ARTICLE XIX. LAWS, RULES AND REGULATIONS AND CHOICE OF LAW 19. This Agreement and all operations hereunder shall be in accordance with and subject to all applicable Federal, State and Local laws, rules and 28 regulations. This Agreement shall be construed in accordance with the laws of the State of West Virginia, without reference to any conflicts of law provisions. ARTICLE XX. SEVERABILITY 20. If any sections or provisions of this Agreement shall be held by any court of competent jurisdiction to be illegal, void or unenforceable, such sections or provisions shall survive to the extent enforceable and allowed by law, but the illegality or unenforceability of any such sections or provisions shall have no effect upon and shall not impair the enforceability of any other Articles or provisions of this Agreement. ARTICLE XXI. AUTHORITY TO PROCESS 21. Except for gas processed by Processor under separate agreement with Shippers, Columbia represents it has all right and authority to permit and cause Processor to recover those liquefiable hydrocarbons from the natural gas stream and upon recovery thereof, title to those liquefiable hydrocarbons will be held by Processor. ARTICLE XXII. INDEPENDENT CONTRACTOR 22. It is mutually agreed that in the performance of any and all actions necessary to perform the duties under the terms and conditions of this Agreement, Processor is an independent contractor, and nothing in this Contract shall be construed as creating the relationship of principal and agent, or employer or employee, between Columbia and/or Processor or Processor's agents or employees. Processor shall have no authority to hire any persons on behalf of Columbia, and any and all persons whom it may employ shall be deemed to be solely the employees 29 of Processor. Processor shall have control and management of the work, the selection of employees and the fixing of their hours of labor, and no right is reserved to Columbia to direct or control the manner in which the work is performed, as distinguished from the result to be accomplished. Nothing herein contained shall be construed to authorize Processor to incur any debt, liability or obligation of any nature for or on behalf of Columbia, or for Processor to cause any lien or other encumbrance to be placed on Columbia's property, and Processor shall immediately remove, and indemnify Columbia against, all costs incurred in connection with, any such debt, liability, obligation, lien or other encumbrance, if any arises in contravention hereof. IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day and year last above written. COLUMBIA GAS TRANSMISSION CORPORATION By: /s/ Peter J. Kinsella Peter J. Kinsella Title: Vice President, Volume Management MARKWEST HYDROCARBON PARTNERS, LTD. By: /s/ Patrick W. Murray Title: Vice President - Finance 3O EX-10.16 19 NATURAL GAS LIQUIDS PURCHASE AGREEMENT NATURAL GAS LIQUIDS PURCHASE AGREEMENT (COBB PLANT) THIS AGREEMENT made and entered into this______ day of ____________ 1995, by and between COLUMBIA GAS TRANSMISSION CORPORATION, herein called "Columbia", and MARKWEST HYDROCARBON PARTNERS, LTD. herein called "MarkWest". RECITALS: A. Columbia desires to deliver all liquid hydrocarbons extracted from natural gas at Columbia's Cobb Gas Processing Plant. B. MarkWest desires to receive all of those liquid hydrocarbons in accordance with the terms of this Agreement. NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, the parties agree as follows: 1. Commitment. (a) MarkWest agrees to receive One Hundred Percent ----------- (100%) of the natural gas liquids produced from Columbia's Cobb Plant (the "Plant"). In conjunction therewith, MarkWest agrees that it shall receive and remove the liquids recovered by Columbia at that Plant on a daily basis, to the extent that the recovery of those natural gas liquids requires daily removal. (b) Subject to the limitations hereinafter set forth, Columbia agrees to use its best efforts to avoid taking any action not compelled by law or regulation which will reduce the volume of natural gas being supplied to the Plant or reduce the recovery of natural gas liquids at the Plant, or divert elsewhere the stream of natural gas that would otherwise flow through and be processed by the Plant. MarkWest and Columbia agree that the streams of natural gas are primarily part of Columbia's current natural gas supply for service to the public and Columbia's use of said natural gas streams to meet its public service obligation at the lowest reasonable cost shall be paramount. Columbia shall have the right to manage its gas supply, including the subject natural gas streams, in the manner in which Columbia, in its sole discretion, deems most appropriate to meet its said public service obligation at the lowest reasonable cost without any liability to MarkWest on account thereof. That right shall specifically include, but not be limited to, the right to curtail, interrupt, or divert the natural gas streams for such periods as Columbia, in its sole judgment, deems necessary. (c) Columbia further commits to MarkWest a right of first refusal to purchase natural gas liquids produced from other extraction plants, owned or operated by Columbia, which produced natural gas liquids which were delivered to MarkWest's Siloam Fractionation Plant at any time during the one (1) year period preceding that date of this Agreement. In the event that Columbia has any of those natural gas liquids available for sale, during the term of this Agreement, it shall so notify MarkWest. That notification shall include all of the relevant terms and conditions of any bona fide offer made by a third party to purchase those natural gas liquids. MarkWest shall have ten (10) days following receipt of that notice in which to notify Columbia whether it will elect to purchase those natural gas liquids on the same terms and conditions as those contained in the offer. Should MarkWest fail to respond within that ten (10) day period, it shall be deemed to have elected not to purchase the natural gas liquids; and, in the event that MarkWest elects, or is deemed to elect, not to purchase those natural gas liquids, Columbia shall be free to sell such liquids to any other party on terms and conditions as specified in the bona fide offer contained in Columbia's notice. Should MarkWest elect to purchase the natural gas liquids, the parties shall execute an agreement containing the terms and conditions, as specified in Columbia's notice, within a reasonable period of time. Should Columbia have natural gas liquids available for sale from those extraction plants for which no bona fide offer has been made by any other party, then it shall notify MarkWest and the parties shall attempt to negotiate the terms upon which MarkWest shall purchase the natural gas liquids. In the event the parties are unable to agree upon such terms and conditions, within ten (10) days following Columbia's notice, Columbia may offer to sell those natural gas liquids to other parties; provided, however, that if another party offers to purchase the natural gas liquids on terms less favorable to Columbia than MarkWest's most recent offer and Columbia is willing to agree to such terms, then Columbia shall notify MarkWest of such offer and MarkWest shall have ten (10) days following receipt of that notice in which to notify Columbia whether or not it will elect to purchases those natural gas liquids on the same terms and conditions as those contained in the bona fide offer described in Columbia's notice. 2. Delivery Point of Natural Gas Liquids. (a) MarkWest shall receive -------------------------------------- delivery of natural gas liquids under this Agreement at the tailgate of the Plant. Delivery of those natural gas liquids shall be into facilities furnished by MarkWest. Columbia agrees to provide MarkWest the use of adequate space at the Plant site for MarkWest to install and operate, at its expense, truck loading facilities for the natural gas liquids produced at the Plant. MarkWest shall be solely responsible for any expenses incurred in removing and transporting the natural gas liquids from the Delivery Points. Upon termination of this Agreement, Columbia shall have the option to purchase the storage and truck loading facilities installed by MarkWest at the Plant at their installed cost, less accumulated depreciation of no less than 10% per annum. (b) Title to the natural gas liquids and all components thereof shall pass from Columbia to MarkWest at the Delivery Points. As between the parties, Columbia shall be solely responsible for the natural gas liquids and all damages arising out 2 of their extraction and handling up to the Delivery Point, and MarkWest shall be solely responsible for those liquids, and the handling thereof, from and after the Delivery Point. (c) The Delivery Points for any liquids purchased under Paragraph 1 (c), above, shall be specified in the respective agreement entered into between Columbia and MarkWest. 3. Term. This Agreement shall be effective upon the date hereof and shall ----- continue in force through December 31, 2010 ("Primary Term"). Thereafter, this Agreement shall continue for successive periods of two (2) years each, until either party gives notice of termination to the other party at least one (1) year prior to the end of the Primary Term period, or one (1) year prior to the end of each succeeding 2-year period. 4. Reimbursement by MarkWest. (a) MarkWest shall make Columbia whole by -------------------------- reimbursing Columbia for the BTU equivalent of all natural gas liquids delivered to MarkWest from the natural gas stream delivered to the Plant and the fuel consumed by Columbia in operating the Plant. Reimbursement shall consist of a quantity of BTU's in the form of natural gas conforming to Columbia's FERC Gas Tariff effective at the time of reimbursement delivery. (b) For purposes of calculating BTU's received by MarkWest hereunder, attributable to natural gas liquids, each of the natural gas liquid products shall be deemed to have a gross heating value as reported in the latest edition of the Gas Processors Suppliers Association's Engineering Data book, as revised from time to time, or any other industry standard which is mutually agreed upon by Columbia and MarkWest. The most recent edition of the Gas Processors Suppliers Association Engineering Data Book reports the gross heating values of the natural gas liquid products as follows: GROSS HEATING VALUE OF NATURAL GAS LIQUIDS ------------------------------------------
Product BTU per Gallon Ethane 65,727 Propane 90,823 Iso-butane 98,913 Normal butane 102,909 Isopentane 108,754 Normal pentane 110,080 Hexanes + 115,064
(c) With respect to ethane, unless otherwise mutually agreed, MarkWest shall only be obligated to compensate Columbia for liquids received from Columbia hereunder, representing ethane, up to a maximum of Two Percent (2%) of the natural gas liquids delivered by Columbia. Should the natural gas liquids delivered hereunder contain in excess of 2% ethane, then MarkWest, at its opinion, shall have the right to receive those excess ethane liquids without any additional reimbursement, or MarkWest may, at is option, refuse to receive deliveries of those natural gas liquids. (d) MarkWest shall reimburse Columbia for actual fuel incurred in operating the Plant up to a maximum of eleven percent (11%) of the BTU's received by MarkWest in the form of natural gas liquids. Columbia shall, each month, provide MarkWest with documentation substantiating the fuel use at the Plant during the immediately preceding month. In the event such documentation establishes fuel usage, up to the 11% maximum, different than the amount for which MarkWest reimbursed Columbia, during the preceding month, then current month's fuel reimbursement shall be readjusted accordingly. MarkWest shall reimburse Columbia for all fuel incurred in operating the Plant during those periods when, at MarkWest's request, the Plant is extracting reduced levels of gas liquids. 5. Delivery of Natural Gas. (a) The BTU reimbursement in the form of ------------------------ natural gas, as required in this Agreement, shall be delivered by MarkWest to Columbia at any or all of the receipt points into Columbia Gas Transmission Corporation's Pipeline System located in the States of Ohio, West Virginia, Virginia, Maryland, Pennsylvania, New Jersey, Delaware, North Carolina, New York and Kentucky. The receipt of natural gas at any receipt point shall be subject to physical capability of Columbia to receive the natural gas and shall not preclude Columbia from ceasing to receive natural gas from time to time at any receipt points due to temporary changes in facility operations or relocations, or ceasing to receive natural gas at any receipt point due to abandonments, either by sale or retirement, or other permanent changes in physical capability of its pipeline facilities used to receive the natural gas. (b) Measurement of the gas delivered at the receipt points hereunder shall be computed based upon existing meters and calorimeters located at those points and owned and operated by either Columbia or the pipeline company interconnecting with Columbia at those locations. For determining the amounts of natural gas delivered at those receipt points, all volumes shall be converted to BTU's based upon the heating value contained in the natural gas at the receipt points measured at standard conditions (60 degrees Fahrenheit, 14.696 psia, gross heating value dry basis). (c) MarkWest shall be responsible for obtaining all transportation arrangements required to deliver the natural gas to the receipt points, and shall be responsible for all transportation costs incurred in delivering the gas to the receipt points. 4 (d) It is recognized that due to operating conditions, the BTU's of liquids received by MarkWest and the BTU's of natural gas to be delivered to Columbia may not be in balance in any one particular month. The parties shall use their best efforts to keep such variances to a minimum, and following receipt of monthly statements, MarkWest shall adjust deliveries of gas as promptly as is consistent with its operating conditions in order to balance any excess or deficiency. (e) Should MarkWest fail to deliver gas consistent with the provisions of 5(d), above, then Columbia shall have the right to either (i) reduce deliveries of natural gas liquids to MarkWest to the extent necessary to balance the natural gas due Columbia with the natural gas delivered by MarkWest, or (ii) Columbia shall have the right to demand payment of an amount equal to the product of the volume of gas which was required and the then current price for Louisiana Gulf Coast Interstate gas deliveries (as published in Natural Gas Week, or other mutually agreeable sources), plus cost of transportation which would otherwise be incurred by MarkWest in delivering that gas to a receipt point specified in this Agreement. 6. MarkWest Fuel. MarkWest will require natural gas for fuel at its -------------- Siloam Plant. MarkWest shall, during the term hereof, have the option to acquire its own required fuel supplies and deliver natural gas representing those fuel requirements to Columbia, in addition to other natural gas which it is required to deliver to Columbia hereunder. Columbia shall redeliver any such quantities (less Columbia's "use and loss" at the percentages specified from time to time in Columbia's ITS Tariff) at the maximum rate specified in its ITS Tariff, as such rate may be revised from time to time, to the pipeline which services the Siloam Fractionation Plant. Provided, if Columbia is generally discounting its tariff, the rates charged MarkWest will be accordingly discounted during the period in which the generally available discounts are in effect. MarkWest shall be responsible for all transportation costs incurred in having that natural gas delivered from the outlet of Columbia's facilities to the Siloam Plant. Columbia will transport such gas in accordance with Part 284 of the regulations of the Federal Energy Regulatory Commission. 7. Unprofitability. (a) As used herein, the term "unprofitable" shall ---------------- mean that the revenues derived from the operation of a plant are less than the direct and overhead expenses incurred in operating that plant. (b) During the term hereof, should MarkWest determine that the continued operation of the Siloam Plant is unprofitable, then MarkWest shall notify Columbia, in writing. Thereafter, the parties shall meet and attempt to renegotiate the terms of this Agreement, as may be required to return the plant to a profitable status. In the event that the parties are unable to agree upon renegotiated terms, within forth-five (45) days following receipt 5 of the notice, then MarkWest, or its successor or assignee, shall continue to honor all terms of this Agreement from the date for a period not to exceed 12 calendar months during which time Columbia, in order to fulfill its Public Service Obligation, shall expeditiously replace the Cobb extraction plant with facilities expressly designed for the maintenance of its gas pipeline operations. 8. Governmental Authorizations. (a) Columbia and MarkWest believe that ---------------------------- no prior governmental authorizations are required to effectuate this Agreement. If however, it is later determined that any such authorizations are necessary, Columbia and MarkWest shall promptly file, or cause to be filed, with Federal Energy Regulatory Commission, or successor governmental authority, and other appropriate regulatory bodies, all requisite applications to effectuate this Agreement. Each party will pursue such applications with due diligence and good faith; provided, that in attempting to secure governmental authorizations, each party shall have the right to file and prosecute any such application that is not contrary to the provisions of this Agreement in such manner as such party deems to be in its own best interest. (b) Each party hereto shall submit copies to the other of all filings and amendments thereto made with the Federal Energy Regulatory Commission or other regulatory agency that affect the obligations of either party hereunder and promptly notify the other party of any action taken by such Commission or agency with respect thereto. (c) Each party hereto shall accept the governmental authorizations applied for unless, in either Columbia's or MarkWest's sole opinion, its respective authorization or the combination of all such authorizations contain, or are issued subject to, terms and conditions unacceptable to the party. (d) If all requisite authorizations and/or approvals acceptable to each party have not been received and accepted and become final and not subject to appeal on or before one hundred eighty (180) days from the date of its filing, then at any time thereafter, prior to the acceptance of any such authorization. Thereafter, either party may terminate and cancel this Agreement by thirty (30) days prior written notice thereof to the other party. Upon acceptance or rejection by either party of any authorization or certificate hereinabove referred to, that party shall promptly notify the other party of such acceptance or rejection. 9. Billing. On or before the 15th day of each month, Columbia will -------- submit a statement to MarkWest indicating the amount of BTU reimbursement due Columbia hereunder for the preceding month. 6 10. Miscellaneous. (a) This Agreement may be assigned by either party hereto -------------- with the consent of the other party not to be unreasonably withheld, and shall be binding upon and shall inure to the benefit of each party's successors and assigns. Any assignment by Columbia of its Plant, shall be made expressly subject to the terms of this Agreement. Any assignment by MarkWest of the Siloam Fractionation Plant shall likewise be made expressly subject to the terms of this Agreement. Further, no mortgage, pledge, encumbrance or assignment for security of this Agreement by MarkWest shall be considered an assignment, and may, therefore, be made without consent. (b) Any notices required or permitted under this Agreement shall be made through the U.S. Postal Service, to the following addresses: MarkWest Hydrocarbon Partners, Ltd. 5613 DTC Parkway, Suite 400 Englewood, CO 80111 Columbia Gas Transmission Corporation Box 1273 Charleston, WV 25325 (c) This Agreement shall be construed in accordance with the laws of the State of West Virginia. IN WITNESS WHEREOF, the parties have executed this Agreement the day and year last above written. ATTEST: COLUMBIA GAS TRANSMISSION CORPORATION By: Title: ATTEST: MARKWEST HYDROCARBON PARTNERS, LTD. By: MARKWEST HYDROCARBON, INC., its general partner By: 7 EX-10.17 20 PURCHASE AND DEMOLITION AGREEMENT PURCHASE AND DEMOLITION AGREEMENT CONSTRUCTION PREMISES This Agreement. made this 15th day of March 1995, between COLUMBIA GAS TRANSMISSION CORPORATION (Columbia) and MARKWEST HYDROCARBON PARTNERS, LTD., (Processor). Columbia and Processor agree as set forth below: WHEREAS, Processor is the owner of that certain 1.361 acre parcel of land situated in Ceredo District, Wayne County, West Virginia, more particularly described on Map H-1555 and designated as Tract No. 1 which, in all events, includes all fixtures, improvements, equipment, supplies and materials located thereon (Construction Premises); and, WHEREAS, Processor and Columbia have entered into a contract for the design and construction of a new processing plant (Processor's Plant) on the Construction Premises; and WHEREAS, Columbia owns and operates the Kenova Extraction Plant which consists of processing, dehydration and extraction equipment, including but not limited to, piping, tanks, machinery, valves, concrete foundations, buildings, structural steel, spare parts, etc., (Kenova Plant); and, WHEREAS, Columbia has sold and Processor has purchased, the Construction Premises in accordance with the terms and provisions of this Agreement; and, 1 WHEREAS, Processor will dismantle, demolish, remove and dispose of such portion of the Kenova Plant located on the Construction Premises which will not be retained by Processor for use as an operational portion of Processor's Plant nor by Columbia in its continued operation of the Kenova Plant; and WHEREAS, Columbia will perform an environmental assessment and remediation of the Construction Premises. NOW, THEREFORE, in consideration of the mutual promises and covenants herein expressed, the parties hereby agree as follows: 1. Upon and subject to the terms and conditions set forth in this Agreement, Columbia agrees to sell on an "AS IS, WHERE IS" basis to Processor and Processor agrees to purchase and accept on an "AS IS, WHERE IS" basis the Construction Premises as more fully described on Exhibit A, attached hereto and made a part hereof, which, in all events, includes all fixtures, improvements, equipment, supplies and materials located thereon, as described above, and Columbia agrees to sell the Construction Premises and Processor agrees to accept the Construction Premises without (i) any express or implied warranty, merchant-ability or fitness for a particular purpose and (ii) any and all other warranties, express or implied, except as to a general warranty deed of title as to the Construction Premises. Processor warrants that it has expert knowledge of natural gas liquids, separation, extraction and dehydration processes and facilities and that Processor is familiar with the local, state and federal laws and regulations, including environmental laws and regulations, which apply to 2 and/or affect the Construction Premises and the future operations of Processor's Plant. Columbia hereby provides to Processor, notice, the sufficiency of which Processor accepts and acknowledges, that the Construction Premises being transferred are subject to regulation under certain environmental laws of the State of West Virginia and of the United States of America. 2. Processor agrees to pay to Columbia, as the full purchase price for the Construction Premises, the sum of One Hundred Thousand Dollars ($100,000). Processor has paid $5,571.95 to Columbia as consideration for the transfer of Construction Premises. Upon execution of this Agreement, Processor agrees to pay Columbia Four Thousand Four Hundred Twenty Eight Dollars and Five Cents ($4,428.05) in immediately available funds. Within 20 business days after Columbia has notified Processor of receipt of final approval by all regulatory agencies having jurisdiction, including but not limited to the Federal Energy Regulatory Commission (FERC), such approval of the United States Bankruptcy Court for the District of Delaware as may be necessary in Columbia's sole judgment, such approval of any state or federal regulatory agency as may be necessary and the completion of any and all remediation required under this Agreement, Processor shall pay the remainder of the full purchase price, being Ninety Thousand Dollars ($90,000). 3.1 Processor shall be responsible for all dismantlement, demolition, removal and disposal of such portions of the Kenova Plant located on the Construction Premises as are not a functioning portion of the Processor's Plant or the Kenova Plant. Processor, or Processor's contractor, agrees to assume the responsibility and cost for any and all necessary testing required to determine whether any portion of the Kenova Plant for which Processor is responsible for dismantlement, demolition, removal and disposal, can be legally disposed of in a solid waste landfill permitted for industrial waste or sold for salvage. In the event Processor or Processor's Contractor determines any portion of the Kenova Plant cannot be legally disposed of in a solid waste landfill permitted for industrial waste or sold for salvage, Columbia shall have the right to obtain the opinion of a third party consultant, at Columbia's sole cost and expense, to determine whether the material to be removed 3 can be legally disposed of in a solid waste landfill permitted for industrial waste or sold for salvage. If the third party consultant determines the material to be removed and/or disposed of can legally be disposed of in a solid waste landfill permitted for industrial waste or sold for salvage, Processor, and/or Processor's contractor, must remove and/or dispose of the material at its sole cost and expense in accordance with all applicable laws or regulations. In the event the third party consultant determines the material to be removed and/or disposed of cannot be legally disposed of in a solid waste landfill permitted for industrial waste or sold for salvage, Columbia and Processor shall equally divide the cost of any additional expenses which may be incurred for the removal and/or disposal of the material in accordance with all applicable laws or regulations. 4 3.2 Columbia agrees that it shall, prior to the commencement of construction by Processor, remove all items from the Construction Premises which are not then necessary to the operation of the Kenova Plant, and which removal is not otherwise Processor's responsibility under the terms hereof, specifically, Columbia shall remove all contents of the utility building and all drums located on the Construction Premises. 4. Processor represents and warrants that any substance, equipment, or other material, scrap and/or junk (including, without limitation, pipe, chemicals, drums or other containers, soil, sand or other ground substances, water or other liquids and any batteries or related equipment) that Processor removes from Columbia's premises at any time (collectively, "Removed Materials") will not be used, recycled, transported, salvaged or disposed of in a manner that will result in (i) a violation of the Federal Resource Conservation and Recovery Act or (ii) an actual or threatened release of a hazardous substance as defined under the Federal Comprehensive Environmental Response, Compensation and Liability Act, or (iii) a violation of any other environmental laws, rules or regulations passed or promulgated by any federal, state or local jurisdiction or governmental agency from time to time, except to the extent of changes in applicable laws or regulations becoming effective after the removal unless said laws or regulations are retroactive to the date of removal and Processor hereby agrees to indemnify and hold harmless Columbia and Columbia's shareholders, directors and employees from and against any liability arising out of or related to the Processor's breach of this warranty. In addition, Processor agrees to permit representatives of Columbia to inspect Processor's facilities and to review Processor's procedures for storing, handling, reselling, recycling and/or disposing of any Removed Materials and to provide Columbia with any documentation reasonably requested in connection therewith. Processor understands and covenants that upon Columbia's notice, Processor will immediately cease and discontinue any procedure or other action and remediate any condition related to the Removed Materials that Columbia reasonably determines, in Columbia's sole discretion, create a material risk of present or future liability to Columbia. Said notice shall specify the conditions, risks and/or applicable laws which Columbia claims create the liability. Processor acknowledges and 5 agrees that any breach of its warranties and covenants hereunder will cause irreparable harm and loss to Columbia and that, in addition to any other legal or equitable remedy available to Columbia, such breach shall be the basis for interlocutory equitable relief against Processor. 5. Processor shall obtain all requisite permits from governmental authorities having jurisdiction over the Construction Premises as may be necessary to perform its obligations under this Agreement. Processor agrees to promptly apply for and diligently prosecute applications for such permits. 6. In conducting its activities hereunder, Processor shall (I) comply with any and all applicable local, state and/or federal laws, regulations, orders, and agreements, including, but not limited to, those laws, regulations, orders, and 6 agreements directed at protecting the environment, (ii) obtain, from the governmental authorities having jurisdiction over the premises, such permits and approvals as may be required to lawfully conduct Processor's activities, including, without limitation, all permits and approvals required under local, state and/or federal environmental laws and regulations, and (iii) timely provide the governmental authorities having jurisdiction over the premises with all notifications required under applicable local, state and/or federal laws, regulations, orders and agreements. 7.a. Definitions: The following definitions shall apply for purposes of ------------- this Agreement: i. "Environmental Law" shall mean each of the following statutes and all regulations promulgated thereunder as well as any and all comparable statutes and regulations of the State of West Virginia in the form in which all statutes and regulations exist: the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. (S)(S)9601, et seq.; the -- --- Federal Water Pollution Control Act, 33 U.S.C. (S)1251, et seq.; the Clean -- --- Air Act, 42 U.S.C. (S)(S)7401 et seq.; the Resource Conservation and -- --- Recovery Act, 42 U.S.C.(S)(S)6901 et seq.; the Safe Drinking Water Act, -- --- 42 U.S.C. (S)(S)30Of, et seq.;and the Toxic Substances Control -- --- Act, 15 U.S.C. (S)(S)2601, et seq. -- --- ii. "Governmental Agency" shall mean any federal, state or local agency charged with or responsible for the administration of any Environmental Law. 7 b. Retention of Liability under Assessment and Remediation Plan: ------------------------------------------------------------- Columbia shall conduct and complete an environmental assessment of the Construction Premises, the results of which will be set forth in assessment reports ("Assessment"), in a manner reasonably satisfactory to Processor and, in any event shall include ground water testing and analysis. Columbia shall furnish Processor with copies of the Assessment promptly upon its completion and shall furnish Processor with copies of remediation plans, prepared in connection with the cleanup and remediation of environmental conditions disclosed by the Assessment, ("Remediation Plan") promptly following its preparation. Columbia shall obtain approval of the Remediation Plan from the applicable governmental authorities and shall furnish evidence of that approval to Processor. As between Columbia and Processor, Columbia shall retain liability for any claim against Processor under any Environmental Law, which arises from or relates to those environmental conditions of the Construction Premises identified in the Assessment and Remediation Plan which, when complete, will be attached as Exhibit B of this Agreement and which are not remediated in accordance with 7.c. below, except for claims based upon a change in applicable law or regulations becoming effective after the Closing. With respect to all areas remediated by Columbia in accordance with 7.c., Columbia shall retain no liability for any environmental conditions discovered after the completion of the remediation as set forth in 7.c. below. 8 As between Columbia and Processor and as to the Construction Premises, Processor assumes liability for any claim against Columbia under any applicable Environmental Law including, without limitation, any claim by third parties which arises from or relates to: (1) conditions or activities occurring after the Closing; (2) conditions or activities which occurred prior to the Closing which require remediation only under statutes or regulations which became effective after Closing; and, (3) except for conditions identified in the Assessment and Remediation Plan which will appear as Exhibit B, Processor's activities on, and/or ownership of, Processor's Plant including, but not limited to, any claim arising from or relating to conditions not identified in the Assessment and Remediation Plan which will appear as Exhibit B of this Agreement. Processor accepts and acknowledges that the facilities and operations being transferred are subject to regulation under certain environmental laws of the State of West Virginia and of the United States of America. c. Remediation: For any condition of the Construction Premises for ----------- which Columbia has agreed to assume liability under paragraph 7.b. above, being those conditions identified in the Assessment and Remediation Plan, Columbia shall remediate such condition, if necessary and required under any applicable Environmental Law, to a standard of remediation and compliance under such applicable Environmental Law, if any have been established, or to a standard of remediation and compliance approved by any Governmental Agency having jurisdiction under such Environmental Law, such standard being negotiated solely between 9 Columbia and such agency having jurisdiction and reasonably acceptable to Processor. Such Construction Premises shall be considered remediated upon receipt by Columbia of acceptance by the agencies having jurisdiction of the remediation and of any closure reports filed by Columbia with such agencies, copies of which will be provided to MarkWest. d. Access: After the Closing, for the period required by Columbia to ------ identify or address Columbia's obligations under Paragraph 7.c. above, Processor shall provide Columbia, its agents, representatives and contractors the unrestrained right, at Columbia's discretion and upon prior notice to Processor, to enter onto and have access to the Construction Premises in order to identify or address any obligations imposed pursuant to Paragraph 7.c. of this Agreement. In providing such access, Processor shall not interfere with, delay and/or prohibit Columbia, its agents, representatives and contractors from fulfilling Columbia's obligations under Paragraph 7.c. above. e. Indemnity During Access: Should Columbia, its agents, ------------------------ representatives or contractors enter upon the Construction Premises in order to identify or address any obligations imposed upon Columbia by Paragraph 7.c. of this Agreement, Columbia shall indemnify Processor and hold Processor harmless from any and all claims arising from the actions of Columbia or Columbia's employees or agents on the subject property or failure to accomplish the obligations imposed on Columbia by Paragraph 7.c. of this Agreement. 10 f. Mitigation: Where necessary to prevent damage to human health, the ----------- environment and personal property, Processor shall undertake action to mitigate, to the best of Processor's ability and in accordance with the best engineering practices, any condition of the Construction Premises for which Columbia may be liable pursuant to Paragraph 7.b. above: Provided, that Columbia shall reimburse Processor for Processor's reasonable expenses incurred in mitigating conditions for which Columbia has retained remedial obligations under Paragraph 7.c. above. 8.1 From and after the date of this Agreement until Closing, Columbia has and shall continue to afford to Processor and its representatives, during its normal business hours, reasonable access to the facilities and any non- privileged business records, files, maps, existing surveys, if any, describing physical characteristics, subsurface characteristics, environmental surveys of the Construction Premises and all adjacent properties occupied by Columbia, zoning requirements and utility locations, the legal description of the Construction Premises, equipment data sheets and all other non-privileged records of Columbia connected with the Construction Premises which are necessary for Processor to conduct a due diligence review in accordance with the practices of prudent purchasers in similar transactions. Processor shall have the right to enter upon the Construction Premises for purposes of examining and inspecting the Construction premises and upon Closing shall acknowledge that Processor has inspected and is familiar with the condition of the property. Further, upon 11 Closing, Processor shall assume all liability for any damages caused by the condition of the property except as herein stated. Any documents provided to Processor hereunder shall be confidential and Processor shall use its best efforts, to the extent permitted by law, to preserve the confidentiality of such documents in any dispute with third parties. Notwithstanding that any information shall be provided in good faith, Columbia expressly disclaims any warranty as to the accuracy or reliability of the information provided. Processor acknowledges and agrees that Columbia in no way controls the Processor's interpretation of any information provided. 8.2 Processor covenants and agrees that it will rely solely on its own due-diligence investigation concerning the environmental condition and fitness of the property and its improvements for the construction and operation of a natural gas liquids extraction facility and not upon any representation, warranty or statement of or on behalf of TCO by its officers, employees, agents, advisors or representatives, except for Processor's reliance upon the obligations undertaken by Columbia in Paragraph 7 hereof and except that Columbia represents that it has no knowledge of environmental conditions in violation of applicable laws or regulations, currently in effect, other than those described in the Assessment, that would effect the Construction Premises. 9. All activities on the Construction Premises which Processor does not perform with its own employees and resources shall be performed by its Contractors or by its Subcontractors. 12 10. A Subcontractor means a person or entity who has a direct contract with Processor's Contractor to perform work in connection with this Agreement. 11. No direct contractual relationship shall exist between Columbia and Processor's Contractors or Subcontractors during the performance of any activities on the Construction Premises. Processor shall be responsible for the management of its Contractors and Subcontractors in the performance of its activities. 12. During the term of this Agreement, Processor agrees that it shall carry and maintain, at its own expense, the kinds of insurance and the minimum amounts of coverage set forth below: 12.1 Basic Insurance. During the terms of this Agreement, Processor, shall ---------------- provide, at its own cost and expense, insurance of the kinds and in the amounts necessary to cover all loss or liability for damages on account of bodily injury, including death resulting therefrom, and damage to or destruction of property caused by or arising out of any and all operations carried on or any and all obligations performed under this Agreement. At a minimum, Processor shall provide insurance of the kinds and in the amounts specified in the following schedule. (a) Workers' Compensation: Coverage shall include the following: ---------------------- (i) Workers' Compensation - Statutory coverage applicable in each State where work is to be performed, including coverage for occupational disease, if and as required. 13 (ii) Employer's Liability - minimum limit of $1,000,000 per occurrence. If coverage is obtained from a state fund (Ohio or West Virginia), Employer's Liability coverage may not be available. In such cases, Processor will purchase "Stop Gap" coverage, with minimum limits of $1,000,000 per occurrence, from a commercial insurer. (iii) All States Endorsement (or equivalent). If coverage is obtained from a state fund (Ohio or West Virginia) an All States endorsement may not be available. In such cases, Processor will obtain Workers' Compensation insurance in every state in which operations may be conducted or work may be performed under the terms of this Agreement. (iv) U. S. Longshore and Harbor Workers' Compensation Act coverage, U. S. Defense Bases Act Coverage, Outer Continental Shelf Land Act coverage, when applicable: statutory limits. (v) Jones Act coverage when applicable. Minimum limits required: $1,000,000 per accident. (b) Commercial General Liability or Comprehensive General Liability --------------------------------------------------------------- Insurance: Policy to include Blanket Contractual and Broad Form Liability - ---------- endorsements, or their equivalents, Completed Operations Coverage and, when applicable, Products Coverage. The Contractual Liability section must 14 specifically cover Processor's obligations under the indemnity provisions of this agreement. Minimum limits required: Bodily Injury/Property Damage: $1,000,000 per occurrence, Combined Single Limit. Products/Completed Operations: $1,000,000 per occurrence, Combined Single Limit. Personal Injury: $1,000,000 per occurrence. When coverage obtained in accordance with this paragraph is written on a "Claims Made" or "Claims First Made:" form, Completed Operations coverage must be specifically endorsed to provide that it will respond to claims made for at least 24 months after completion of the work. The Fellow Employee and Explosion, Collapse and Underground Exclusions must be deleted. (c) Automobile Liability: Coverage shall include all owned, non-owned, --------------------- leased or hired vehicles. Minimum Limits required: Bodily Injury/Property Damage - $1,000,000 per occurrence, Combined Single Limit. Processor warrants that it is in full compliance with any "No Fault" provision of any state in which it operates motor vehicles. 15 (d) Umbrella Liability Insurance: Coverage shall be excess of, and at least ----------------------------- as broad as, the primary coverages listed in paragraphs a, b and c of this Section. Minimum Limits required: Bodily Injury/Property Damage - $10,000,000 per occurrence, Combined Single Limit. (e) Aircraft Liability: If any operations require the use of helicopters or ------------------- fixed wing aircraft, Processor will, in addition to all other insurance coverage required in this Section, maintain and shall require any Subcontractor utilizing rotary or fixed wing aircraft to maintain aircraft liability insurance with minimum limits of $10,000,000 per occurrence for bodily injury and property damage. (f) Marine Insurance: If any operations are to be conducted on navigable ----------------- waters or on any pier, wharf, or other structure adjoining such waters, Processor shall, in addition to all other insurance required in this Section, maintain and shall require any Subcontractor engaged in such operations to maintain, the following additional coverage, as appropriate: (i) HULL/PROTECTION & INDEMNITY - coverage to be provided for each vessel used in any operations conducted under the terms of this agreement. Minimum limits required: Hull - Current value of the vessel. 16 Protection & Indemnity - $1,000,000 per vessel per occurrence for bodily injury and property damage. (ii) Marine Employers Liability - minimum limits required: $1,000,000 per accident. (g) Environmental Impairment Liability (or Equivalent): Policy to include --------------------------------------------------- coverage for all loss and liability resulting from Processor's activities. Minimum Limits required: BODILY INJURY/PROPERTY DAMAGE - $10,000,000 per occurrence, Combined Single Limit. 12.2 All insurance policies required in this Agreement will be written by insurance companies reasonably acceptable to Columbia, will be primary with respect to any insurance maintained by Columbia and will be endorsed to provide at least 30 days advance notification to Columbia of any cancellation, non- renewal or material change in coverage and cancellation for non-payment of premium will require 30 days advance notice to Columbia. Insurance policies required by paragraphs b, c, d, e, f and g will name Columbia as an additional insured. All insurance policies required by this Section will contain a waiver of subrogation as against Columbia. Some of the foregoing policies may be obtained and maintained by Processor's Contractor, which policies shall name Columbia and MarkWest as additional insureds and provide Waiver of Subrogation against both parties. 17 12.3 Processor shall furnish, on behalf of itself and its Contractor, prior to Processor conducting any activity on the Construction Premises, copies of all insurance policies intended to meet the requirements of this Section. Properly executed Certificates of Insurance may be substituted for insurance policies provided that such Certificates contain positive statements of compliance with all the terms of this Agreement which apply to the type of insurance represented by the Certificate. Insurance Policies whose terms expire during the term of this Agreement will be renewed or replaced with no gaps in coverage, and evidence of such renewal or replacement will be provided to Columbia under the same conditions as prescribed above. 13.1 In addition to any other indemnification provided for by Processor herein, including Processor's environmental indemnification contained in Paragraph 7 hereof, Processor shall indemnify and hold harmless Columbia from and against any and all loss, damage, and liability and from any and all claims for damages on account of or by reason of bodily injury, including death, which may be sustained or claimed to be sustained by any person, including the employees of Processor and of any Contractor or Subcontractor of Processor, and from and against any and all damages to property, including loss of use, and including property of Columbia, caused by or arising out of or claimed to have been caused by or to have arisen out of an act or omission of Processor or its agents, employees, Contractors or Subcontractors in connection with the performance of this Agreement whether or not insured against and Processor shall at its own cost 18 and expense defend any claims, suits, actions, or proceedings, whether groundless or not, which may be commenced against Columbia by reason thereof or in connection therewith, and Processor shall pay any and all judgments which may be recovered in any such actions, claims, proceedings or suits, and defray any and all expenses, including costs and attorney's fees, which may be incurred in or by reason of such actions, claims, proceedings, or suits. including environmental impairment; provided, however, that the foregoing indemnification will not cover loss, damage or liability arising from the sole negligence or wilful misconduct of Columbia, its agents and employees. Notwithstanding the foregoing, in the event of such actions, claims, proceedings or suits, Columbia shall be entitled, if it so elects, to representation by attorneys of its own selection at Columbia's sole cost, including attorneys employed by Columbia. The obtaining by Processor of a release or discharge, running to Processor or Columbia or either or both of them, from a property owner for damages resulting from the performance of this Agreement, including without limitation, any phase of dismantlement, demolition, removal or disposal, shall not diminish nor affect in any way the rights of Columbia and the obligations of Processor as set forth in this Section 14. To the extent permitted by law, Processor expressly waives the benefit, for itself and all contractors and subcontractors, insofar as the indemnification of Columbia is concerned, of the provisions of any applicable workers' compensation law limiting the tort or other liability of an employer on account of injuries to the employer's employees. 19 13.2 Columbia shall indemnify and hold harmless Processor from and against any and all loss, damage and liability, and from any injury, including death, which may be sustained or claimed to be sustained by any person, including the employees of Columbia and of any Contractor or Subcontractor of Columbia and, from and against, any and all damages to property, including loss of use, and including property of Processor, caused by or arising out of or claimed to have been caused by or to have arisen out of the sole negligence of Columbia or its agents, employees or subcontractors. 14.1 An Event of Default shall be deemed to have occurred under this contract if: (a) Processor fails to make due and punctual payments of amounts required to lenders for all loans associated with construction or ownership of Processor's Plant; (b) Processor fails to make due and punctual payments of all premiums necessary to assure the coverages required under the terms and conditions of this Agreement to the insurance companies responsible for the respective policies; (c) Processor's Plant, or any part thereof, shall be taken upon execution or by other process of law directed against Processor; or (d) Either party shall fail to perform any of its other covenants, agreements or terms hereof, and such nonperformance shall continue for a period of twenty (20) days following notice from the other party. 20 14.2 Processor acknowledges and agrees that an Event of Default by Processor, as defined above, will cause irreparable harm and loss to Columbia and that, in addition to any other legal or equitable remedy available to Columbia, such Event of Default shall be the basis for interlocutory equitable relief against Processor. Such interlocutory equitable relief shall be in a form which will allow Columbia, or any entity chosen by Columbia, to complete the obligations of Processor herein at the sole risk, liability, cost and expense of Processor. 14.3 In the event of a default by a party (Defaulting Party), the other party (Non-Defaulting Party), at its sole discretion, may satisfy any and all obligations of the Defaulting Party connected directly with this Agreement, including but not limited to any default of Defaulting Party under this Agreement. Defaulting Party agrees to reimburse Non-Defaulting Party any amount paid together with attorneys fees and annual interest at the highest rate allowed by law. 15. Neither Processor nor Columbia shall be held responsible for any losses resulting if the fulfillment of any terms or provisions shall be delayed or prevented wholly or in part by compliance with any law, order or regulation, whether valid or invalid, of any governmental authority or of any person purporting to act therefor or by any act or condition not within the reasonable control of the party whose performance is interfered with and which by the exercise of reasonable diligence said party is unable to prevent, including but 21 not limited to revolutions or other disorders, wars, acts of enemies, embargoes or other import or export restrictions, strikes, lockouts or other industrial disturbances, fires, storms, floods, acts of God or explosions. The settlement of strikes or lockouts shall be entirely within the discretion of the party having the difficulty and such party shall not be required to make settlement of strikes or lockouts by acceding to the demands of the opposing party when such course is inadvisable in the discretion of the party having the difficulty. If either party is unable to fulfill the terms and conditions of this agreement by reason of any such cause as provided in this Article, the party rendered unable to perform hereunder shall give the other party notice in writing as soon as reasonably possible after the occurrence of the cause relied on, setting forth the full particulars in connection therewith, and that parties' obligations shall be suspended during the continuance of any inability so caused but for no longer period, and such cause, so far as possible, shall be remedied with all reasonable dispatch. This agreement shall not be terminated by reason of any such cause set out above but shall remain in full force and effect and this Agreement shall not be extended regardless of any such curtailment or cessation. 16. The waiver by either party of any breach of any term, covenant, or condition herein contained shall not be deemed to be a waiver of any subsequent term, covenant, or condition, whether similar or dissimilar to the term, covenant, or condition which was waived. 22 17. Notices required or permitted hereunder shall be made to the parties at the following addresses: MarkWest Hydrocarbon Partners, Ltd. 5613 DTC Parkway, Suite 400 Englewood, CO 80111 Attention Of Vice President, Finance Columbia Gas Transmission Corporation P.O. Box 1273 Charleston, WV 25325-1273 Attention of Vice President, Volume Management 18. Processor agrees that Columbia or its Agents, at all reasonable times, shall have the right to examine or audit the books, accounts and records of Processor to verify compliance with the terms and conditions of this Agreement. 19. This Agreement shall be governed in accordance with the laws of the State of West Virginia. 20. If any sections or provisions of this Agreement shall be held by any court of competent jurisdiction to be illegal, void or unenforceable, such sections or provisions shall survive to the extent enforceable and allowed by law, but the illegality or unenforceability of such sections or provisions shall have no effect upon and shall not impair the enforceability of any other sections or provisions of this Agreement. 23 21. With the exception of the obligations contained in the indemnification provisions herein, this Agreement terminates at the completion of each parties obligations hereunder. 22. Closing is herein defined as the mutually agreeable time and date of the delivery of a general warranty deed by Columbia to Processor. 23. It is mutually agreed that in the performance of any and all actions necessary to perform the duties under the terms and conditions of this Agreement, Processor is an independent contractor, and nothing in this Contract shall be construed as creating the relationship of principal and agent, or employer or employee, between Columbia and/or Processor or Processor's agents or employees. Processor shall have no authority to hire any persons on behalf of Columbia, and any and all persons whom it may employ shall be deemed to be solely the employees of Processor. Processor shall have control and management of the work, the selection of employees and the fixing of their hours of labor, and no right is reserved to Columbia to direct or control the manner in which the work is performed, as distinguished from the result to be accomplished. Nothing herein contained shall be construed to authorize Processor to incur any debt, liability or obligation of any nature for or on behalf of Columbia, or for Processor to cause any lien or other encumbrance to be placed on Columbia's property, and Processor shall immediately remove, and indemnify Columbia against, all costs incurred in connection with, any such debt, liability, obligation, lien or other encumbrance, if any arises in contravention hereof. 24 IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day and year last above written. COLUMBIA GAS TRANSMISSION CORPORATION By: /s/ Peter J. Kinsella Peter J. Kinsella Title: Vice President, Volume Management MARKWEST HYDROCARBON PARTNERS, LTD. By: /s/ Patrick W. Murray Title: Vice President, Finance ----------------------- 25 EX-10.18 21 PURCHASE AND DEMOLITION AGREEMENT PURCHASE AND DEMOLITION AGREEMENT REMAINING PREMISES This Agreement, made this 15th day of March 1995, between COLUMBIA GAS TRANSMISSION CORPORATION (Columbia) and MARKWEST HYDROCARBON PARTNERS, LTD., (Processor). Columbia and Processor agree as set forth below: WHEREAS, Columbia is the owner of that certain 4.643 acre parcel of land situated in Ceredo District, Wayne County, West Virginia, more particularly described on Map #H-1555 designated as Tract No. 2 which, in all events, includes all fixtures, improvements, equipment, supplies and materials located thereon (Remaining Premises); and, WHEREAS, Processor and Columbia have entered into an Agreement to Design and Construct New Facilities (Processor's Plant) on the premises adjacent to the Remaining Premises; and WHEREAS, Columbia owns and operates the Kenova Extraction Plant which consists of processing, dehydration and extraction equipment, including but not limited to, piping, tanks, machinery, valves, concrete foundations, buildings, structural steel, spare parts, etc., (Kenova Plant) which is located on the Remaining Premises; and, WHEREAS, Columbia desires to sell and Processor desires to purchase, the Remaining Premises in accordance with the terms and provisions of this Agreement; and, 1 WHEREAS, Processor will dismantle, demolish. remove and dispose of such portion of the Kenova Plant located on the Remaining Premises which will not be retained by Processor for use as an operational portion of Processor's Plant; and WHEREAS, Columbia will perform an environmental assessment and remediation of the Remaining Premises. NOW, THEREFORE, in consideration of the mutual promises and covenants herein expressed, the parties hereby agree as follows: 1. Upon and subject to the terms and conditions set forth in this Agreement, Columbia agrees to sell on an "AS IS, WHERE IS" basis to Processor and Processor agrees to purchase and accept on an "AS IS, WHERE IS" basis the Remaining Premises as more fully described on Exhibit A, to be attached hereto and made a part hereof promptly following its preparation, which, in all events, includes all fixtures, improvements, handtools unique to the extraction process, equipment, supplies and materials located thereon, as described above, and Columbia agrees to sell the Remaining Premises and Processor agrees to accept the Remaining Premises without(i) any express or implied warranty, merchantability or fitness for a particular purpose and (ii) any and all other warranties, express or implied, except as to a general warranty deed as to the Remaining Premises. Processor warrants that it has expert knowledge of natural gas liquids, separation, extraction and dehydration processes and facilities and that Processor is familiar with the local, state and federal laws and regulations, including environmental laws and regulations, which apply to and/or affect the 2 Remaining Premises and the future operations of Processor's Plant. Columbia hereby provides to Processor, notice, the sufficiency of which Processor accepts and acknowledges, that the Remaining Premises being transferred are subject to regulation under certain environmental laws of the State of West Virginia and of the United States of America. 2. Processor agrees to pay to Columbia, as the full purchase price for the Remaining Premises, the sum of Four Hundred Thousand Dollars ($400,000). At Closing Processor agrees to pay Columbia One Hundred Thousand Dollars ($100,000) in immediately available funds. Within 20 business days after Columbia has notified Processor of receipt of final approval by all regulatory agencies having jurisdiction, including but not limited to the Federal Energy Regulatory Commission (FERC), such approval of the United States Bankruptcy Court for the District of Delaware as may be necessary in Columbia's sole judgment, such approval of any state or federal regulatory agency as may be necessary and the completion of any and all remediation required under this Agreement, Processor shall pay the remainder of the full purchase price, being Three Hundred Thousand Dollars ($300,000). 3. Processor shall be responsible for all the dismantlement, demolition, removal and disposal of such portions of the Kenova Plant located on the Remaining Premises which are not a functioning portion of Processor's Plant. Processor, or Processor's contractor, agrees to assume the responsibility and cost for any and all necessary testing required to determine whether any portion 3 of the Kenova Plant for which Processor is responsible for dismantlement, demolition, removal and disposal, can be legally disposed of in a solid waste landfill permitted for industrial waste or sold for salvage. In the event Processor or Processor's Contractor determines any portion of the Kenova Plant cannot be legally disposed of in a solid waste landfill permitted for industrial waste or sold for salvage, Columbia shall have the right to obtain the opinion of a third party consultant, at Columbia's sole cost and expense, to determine whether the material to be removed can be legally disposed of in a solid waste landfill permitted for industrial waste or sold for salvage. If the third party consultant determines the material to be removed and/or disposed of can be legally disposed of in a solid waste landfill permitted for industrial waste or sold for salvage, Processor, and/or Processor's contractor, must remove and/or dispose of the material at its sole cost and expense in accordance with all applicable laws of regulations. In the event the third party consultant determines the material to be removed and/or disposed of cannot be legally disposed of in a solid waste landfill permitted for industrial waste or sold for salvage, Columbia and Processor shall equally divide the cost of any additional expenses which may be incurred for the removal and/or disposal of the material in accordance with all applicable laws or regulations. Prior to the start of said dismantlement of the Kenova Plant by Processor, Columbia shall shut down the Kenova Plant by blocking and bypassing the Inlet Gas Stream and opening all existing vent valves to flare, shutting down all motors, engines and turbines, 4 shutting off the electric power. Additionally, Columbia shall provide advisors knowledgeable of the Kenova Plant to provide information to Processor to assist Processor in completing the shutdown of all the existing vent valves to flare, shutting down all motors, engines and turbines and shutting off the electric power. Additionally, Columbia shall provide advisors knowledgeable of the Kenova Plant to provide information to Processor to assist Processor in completing the shutdown of the Kenova Plant. Processor also agrees to dismantle, demolish, remove and dispose of the cooling tower and basin located on that portion of the Kenova Plant which will be retained by Columbia. Columbia and Processor agree the river pumps and associated electrical equipment shall remain the property of Columbia. 4. Processor represents and warrants that any substance, equipment, or other material, scrap and/or junk (including, without limitation, pipe, chemicals, drums or other containers, soil, sand or other ground substances, water or other liquids and any batteries or related equipment) that Processor removes from Columbia's premises at any time (collectively, "Removed Materials") will not be used, recycled, transported, salvaged or disposed of in a manner that will result in (i) a violation of the Federal Resource Conservation and Recovery Act or (ii) an actual or threatened release of a hazardous substance as defined under the Federal Comprehensive Environmental Response, Compensation and Liability Act, or (iii) a violation of any other environmental laws, rules or regulations passed or promulgated by any federal, state or local jurisdiction or 5 governmental agency from time to time, except to the extent of changes in applicable laws or regulations becoming effective after the removal unless said laws or regulations are retroactive to the date of removal, and Processor hereby agrees to indemnify and hold harmless Columbia and Columbia's shareholders, directors and employees from and against any liability arising out of or related to the Processor's breach of this warranty. In addition, Processor agrees to permit representatives of Columbia to inspect Processor's facilities and to review Processor's procedures for storing, handling, reselling, recycling and/or disposing of any Removed Materials and to provide Columbia with any documentation reasonably requested in connection therewith. Processor understands and covenants that upon Columbia's notice, Processor will immediately cease and discontinue any procedure or other action and remediate any condition related to the Removed Materials that Columbia reasonably determines, in Columbia's sole discretion, create a material risk of present or future liability to Columbia. Said notice shall specify the conditions, risks and/or applicable laws which Columbia claims create the liability. Processor acknowledges and agrees that any breach of its warranties and covenants hereunder will cause irreparable harm and loss to Columbia and that, in addition to any other legal or equitable remedy available to Columbia, such breach shall be the basis for interlocutory equitable relief against Processor. 5. Processor shall obtain all requisite permits from governmental authorities having jurisdiction over the Remaining Premises as may be necessary 6 to perform its obligations under this Agreement. Processor agrees to promptly apply for and diligently prosecute applications for such permits. 6. In conducting its activities hereunder, Processor shall (i) comply with any and all applicable local, state and/or federal laws, regulations orders and agreements, including, but not limited to those laws, regulations, orders and agreements directed at protecting the environment, (ii) obtain, from the governmental authorities having jurisdiction over the premises, such permits and approvals as may be required to lawfully conduct Processor's activities, including, without limitation, all permits and approvals required under local, state and/or federal environmental laws and regulations, and (iii) timely provide the governmental authorities having jurisdiction over the premises with all notifications required under applicable local, state and/or federal laws, regulations, orders and agreements. 7. a. Definitions: The following definitions shall apply for purposes of ------------ this Agreement: i. "Environmental Law" shall mean each of the following statutes and all regulations promulgated thereunder as well as any and all comparable statutes and regulations of the State of West Virginia in the form in which all statutes and regulations exist: the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. (S)(S)9601, et seq.; the Federal Water -- ---- Pollution Control Act, 33 U.S.C. (S)1251, et seq.; the Clean Air Act, 42 U.S.C. -- ---- (S)(S)7401 et seq.; the Resource Conservation and Recovery Act, 42 U.S.C. -- ---- 7 (S)(S)6901 et seq.; the Safe Drinking Water Act, 42 U.S.C. (S)(S)30Of, et seq.; -- ---- -- ---- and the Toxic Substances Control Act, 15 U.S.C. (S)(S)2601, et seq. -- --- ii. "Governmental Agency" shall mean any federal, state or local agency charged with or responsible for the administration of any Environmental Law. b. Retention of Liability under Assessment and Remediation Plan: ------------------------------------------------------------- Columbia shall conduct and complete an environmental assessment of the Remaining Premises, the results of which will be set forth in assessment reports ("Assessment") in a manner reasonably satisfactory to Processor and, in any event shall include ground water testing and analysis. Columbia shall furnish Processor with copies of the Assessment promptly upon its completion and shall furnish Processor with copies of remediation plans, prepared in connection with the cleanup and remediation of environmental conditions disclosed by the Assessment, ("Remediation Plan") promptly following its preparation. Columbia shall obtain approval of the Remediation Plan from the applicable governmental authorities and shall furnish evidence of that approval to Processor. As between Columbia and Processor, Columbia shall retain liability for any claim against Processor under any Environmental Law, which arises from or relates to those environmental conditions of the Remaining Premises identified in the Assessment and Remediation Plan which, when complete, will be attached as Exhibit B of this Agreement and which are not remediated in accordance with 7.c. below, except for claims based upon a change in applicable law or regulations 8 becoming effective after the Closing. With respect to all areas remediated by Columbia in accordance with 7.c., Columbia shall retain no liability for any environmental conditions discovered after the completion of the remediation as set forth in 7.c. below. As between Columbia and Processor and as to the Remaining Premises, Processor assumes liability for any claim against Columbia under any applicable Environmental Law including, without limitation, any claim by third parties which arises from or relates to: (1) conditions or activities occurring after the Closing; (2) conditions or activities which occurred prior to the Closing which require remediation only under statutes or regulations which became effective after Closing: and, (3) except for conditions identified in the Assessment and Remediation Plan which will appear as Exhibit B, Processor's activities on, and/or ownership of, the Facilities, including, but not limited to, any claim arising from or relating to conditions not identified in the Assessment and Remediation Plan which will appear as Exhibit B of this Agreement. Columbia represents that it has furnished Processor with a true and correct copy of the Administrative Order by Consent for Removal Actions. In the Matter of Columbia Gas Pipeline, EPA Docket No. III-94-35-DC. Processor: (l) acknowledges receipt of said true and correct copy of the Administrative Order by Consent for Removal Actions, In the Matter of Columbia Gas Pipeline, EPA Docket No. III-94-35-DC and agrees that remediation under this Agreement will be conducted pursuant to that Order, to the extent applicable: and (2) accepts and acknowledges that the 9 facilities and operations being transferred are subject to regulation under certain environmental laws of the State of West Virginia and of the United States of America. c. Remediation: For any condition of the Remaining Premises for which ----------- Columbia has agreed to assume liability under Paragraph 7.b. above, being those conditions identified in the Assessment and Remediation Plan, Columbia shall remediate such condition, if necessary and required under any applicable Environmental Law, to a standard of remediation and compliance under such applicable Environmental Law, if any have been established, or to a standard of remediation and compliance approved by any Governmental Agency having jurisdiction under such Environmental Law, such standard being negotiated solely between Columbia and such agency having jurisdiction and reasonably acceptable to Processor. Such Remaining Premises shall be considered remediated upon receipt by Columbia of acceptance by the agencies having jurisdiction of the remediation and of any closure reports filed by Columbia with such agencies, copies of which will be provided to Processor. Upon completion of the remediation to be performed by Columbia under this paragraph, Processor will pay to Columbia, in immediately available funds, Six Hundred Thousand Dollars ($600,000) as a contribution to Columbia for performing the remediation and making any necessary changes to Columbia's existing facilities, including, without limitation, changes to Columbia's dehydration facility. 10 d. Access: After the Closing, for the period required by Columbia to ------- identify or address Columbia's obligations under Paragraph 7.c. above, Processor shall provide Columbia, its agents, representatives and contractors the unrestrained right, at Columbia's discretion and upon prior notice to Processor, to enter onto and have access to the Remaining Premises in order to identify or address any obligations imposed pursuant to Paragraph 7.c. of this Agreement. In providing such access, Processor shall not interfere with, delay and/or prohibit Columbia, its agents, representatives and contractors from fulfilling Columbia's obligations under Paragraph 7.c. above. Columbia's remediation activities will not unreasonably interfere with Processor's operations of Processor's Plant. e. Indemnity During Access: Should Columbia, its agents, ------------------------ representatives or contractors enter upon the Remaining Premises in order to identify or address' any obligations imposed upon Columbia by Paragraph 7.c. of this Agreement, Columbia shall indemnify Processor and hold Processor harmless from any and all claims arising from the actions of Columbia or Columbia's employees or agents on the subject property or failure to accomplish the obligations imposed on Columbia by Paragraph 7.c. of this Agreement. f. Mitigation: Where necessary to prevent damage to human health, the ----------- environment and personal property, Processor shall undertake action to mitigate, to the best of Processor's ability and in accordance with the best engineering practices, any condition of the Remaining Premises for which Columbia 11 may be liable pursuant to Paragraph 7.b. above: Provided, that Columbia shall reimburse Processor for Processor's reasonable expenses incurred in mitigating conditions for which Columbia has retained remedial obligations under Paragraph 7.C. above. 8.1 From and after the date of this Agreement until Closing, Columbia has and shall continue to afford to Processor and its representatives, during its normal business hours, reasonable access to the facilities and any non-privileged business records, files, maps, existing surveys, if any, describing physical characteristics, subsurface characteristics. environmental surveys of the Remaining Premises and all adjacent properties occupied by Columbia, zoning requirements and utility locations, the legal description of the Remaining Premises, equipment data sheets and all other non-privileged records of Columbia connected with the Remaining Premises which are necessary for Processor to conduct a due diligence review in accordance with the practices of prudent purchasers in similar transactions. Processor shall have the right to enter upon the Remaining Premises for-purposes of examining and inspecting the Remaining Premises and upon Closing shall acknowledge that Processor has inspected and is familiar with the condition of the property. Further, upon Closing, Processor shall assume all liability for any damages caused by the condition of the property except as herein stated. Any documents provided to Processor hereunder shall be confidential and Processor, shall use its best efforts, to the extent permitted by law, to preserve the confidentiality of such documents in any 12 dispute with third parties. Notwithstanding that any information shall be provided in good faith, Columbia expressly disclaims any warranty as to the accuracy or reliability of the information provided. Processor acknowledges and agrees that Columbia in no way controls the Processor's interpretation of any information provided. 8.2 Processor covenants and agrees that it will rely solely on its own due- diligence investigation concerning the environmental condition and fitness of the property and its improvements for the construction and operation of a natural gas liquids extraction facility and not upon any representation, warranty or statement of or on behalf of TCO by its officers, employees, agents, advisors or representatives, except for Processor's reliance upon the obligations undertaken by Columbia in paragraph 7 hereof and except that Columbia represents that it has no knowledge of environmental conditions in violation of applicable taws or regulations, currently in effect, other than those described in the Assessment that would effect the Remaining Premises. 9. All activities on the Remaining Premises which Processor does not perform with its own employees and resources shall be performed by its Contractors or by its Subcontractors. 10. A Subcontractor means a person or entity who has a direct contract with Processor's Contractor to perform work in connection with this Agreement. 11. No direct contractual relationship shall exist between Columbia and Processor's Contractors or Subcontractors during the performance of any 13 activities on the Remaining Premises. Processor shall be responsible for the management of its Contractors and Subcontractors in the performance of its activities. 12. During the term of this Agreement, Processor agrees that it shall carry and maintain, at its own expense, the kinds of insurance and the minimum amounts of coverage set forth below: 12.1 Basic Insurance. During the terms of this Agreement, Processor, shall ---------------- provide, at its own cost and expense, insurance of the kinds and in the amounts necessary to cover all loss or liability for damages on account of bodily injury, including death resulting therefrom, and damage to or destruction of property caused by or arising out of any and all operations carried on or any and all obligations performed under this Agreement. At a minimum, Processor shall provide insurance of the kinds and in the amounts specified in the following schedule. (a) Workers' Compensation: Coverage shall include the following: ---------------------- (i) Workers' Compensation - Statutory coverage applicable in each State where work is to be performed, including coverage for occupational disease, if and as required. (ii) Employer's Liability minimum limit of $1,000,000 per occurrence. If coverage is obtained from a state fund (Ohio or West Virginia), Employer's Liability coverage may not be available. In such cases, Processor will purchase "Stop 14 Gap" coverage, with minimum limits of $1,000,000 per occurrence, from a commercial insurer. (iii) All States Endorsement (or equivalent). If coverage is obtained from a state fund (Ohio or West Virginia) an All States endorsement may not be available. In such cases, Processor will obtain Workers' Compensation insurance in every state in which operations may be conducted or work may be performed under the terms of this Agreement. (iv) U. S. Longshore and Harbor Workers' Compensation Act coverage, U. S. Defense Bases Act Coverage, Outer Continental Shelf Land Act coverage, when applicable: statutory limits. (v) Jones Act coverage when applicable. Minimum limits re- quired: $1,000,000 per accident. (b) Commercial General Liability or Comprehensive General Liability --------------------------------------------------------------- Insurance: Policy to include Blanket Contractual and Broad Form Liability - ---------- endorsements, or their equivalents, Completed Operations Coverage and, when applicable, Products Coverage. The Contractual Liability section must specifically cover Processor's obligations under the indemnity provisions of this agreement. 15 Minimum limits required: BODILY INJURY/PROPERTY DAMAGE: $1,000,000 per occurrence, Combined Single Limit. PRODUCTS/COMPLETED OPERATIONS: $1,000,000 per occurrence, Combined Single Limit. PERSONAL INJURY: $1,000,000 per occurrence When coverage obtained in accordance with this paragraph is written on a "Claims Made" or "Claims First Made:" form, Completed Operations coverage must be specifically endorsed to provide that it will respond to claims made for at least 24 months after completion of the work. The Fellow Employee and Explosion, Collapse and Under-ground Exclusions must be deleted. (c) Automobile Liability: Coverage shall include all owned, non-owned, --------------------- leased or hired vehicles. Minimum Limits required: Bodily- Injury/Property Damage - $1,000,000 per occurrence, Combined Single Limit. Processor warrants that it is in full compliance with any "No Fault" provision of any state in which it operates motor vehicles. (d) Umbrella Liability Insurance: Coverage shall be excess of, and at least ----------------------------- as broad as, the primary coverages listed in paragraphs a, b and c of this Section. 16 Minimum Limits required: BODILY INJURY/PROPERTY DAMAGE - $10,000,000 per occurrence, Combined Single Limit. (e) Aircraft Liability: If any operations require the use of helicopters or ------------------- fixed wing aircraft, Processor will in addition to all other insurance coverage required in this Section, maintain and shall require any Subcontractor utilizing rotary or fixed wing aircraft to maintain aircraft liability insurance with minimum limits of $10,000,000 per occurrence for bodily injury and property damage. (f) Marine Insurance: If any operations are to be conducted on navigable ----------------- waters or on any pier, wharf, or other structure adjoining such waters. Processor shall, in addition to all other insurance required in this Section, maintain and shall require any Subcontractor engaged in such operations to maintain, the following additional coverage, as appropriate: (i) HULL/PROTECTION & INDEMNITY - coverage to be provided for each vessel used in any operations conducted under the terms of this agreement. Minimum limits required: HULL - Current value of the vessel. PROTECTION & INDEMNITY - $1,000,000 per vessel per occurrence for bodily injury and property damage. (ii) MARINE EMPLOYERS LIABILITY - minimum limits required: $1,000,000 per accident. 17 (g) ENVIRONMENTAL IMPAIRMENT LIABILITY (OR EQUIVALENT): Policy to include coverage for all loss and liability resulting from activities. Minimum Limits required: BODILY INJURY/PROPERTY DAMAGE - $10,000,000 per occurrence, Combined Single Limit. 12.2 All insurance policies required in this Agreement will be written by insurance companies reasonably acceptable to Columbia, will be primary with respect to any insurance maintained by Columbia and will be endorsed to provide at least 30 days advance notification to Columbia of any cancellation, non- renewal or material change in coverage and cancellation for non-payment of premium will require 30 days advance notice to Columbia. Insurance policies required by paragraphs b, c, d, e, f and g will name Columbia as an additional insured. All insurance policies required by this Section will contain a waiver of subrogation as against Columbia. Some of the foregoing policies may be obtained and maintained by Processor's Contractor, which policies shall name Columbia and Processor as additional insureds and provide Waiver of Subrogation against both parties. 12.3 Processor shall furnish, on behalf of itself and its Contractor, prior to Processor conducting any activities on the Remaining Premises, copies of all insurance policies intended to meet the requirements of this Section. Properly executed Certificates of Insurance may be substituted for insurance 18 policies provided that such Certificates contain positive statements of compliance with all the terms of this Agreement which apply to the type of insurance represented by the Certificate. Insurance Policies whose terms expire during the term of this Agreement will be renewed or replaced with no gaps in coverage, and evidence of such renewal or replacement will be provided to Columbia under the same conditions as prescribed above. 13.1 In addition to any other indemnification provided for by Processor herein, including Processor's environmental indemnification contained in Paragraph 7 hereof, Processor shall indemnify and hold harmless Columbia from and against any and all loss, damage, and liability and from any and all claims for damages on account of or by reason of bodily injury, including death, which may be sustained or claimed to be sustained by any person, including the employees of Processor and of any Contractor or Subcontractor of Processor, and from and against any and all damages to property, including loss of use, and including property of Columbia, caused by or arising out of or claimed to have been caused by or to have arisen out-of an act or omission of Processor or its agents, employees, Contractors or Subcontractors in connection with the performance of this Agreement whether or not insured against and Processor shall at its own cost and expense defend any claims, suits, actions, or proceedings, whether groundless or not, which may be commenced against Columbia by reason thereof or in connection therewith, and Processor shall pay any and all judgments which may be recovered in any such actions, claims, proceedings or suits, and defray any and 19 all expenses, including costs and attorney's fees, which may be incurred in or by reason of such actions, claims, proceedings, or suits, including environmental impairment; provided, however, that the foregoing indemnification will not cover loss, damage or liability arising from the sole negligence or willful misconduct of Columbia, its agents and employees. Notwithstanding the foregoing, in the event of such actions, claims, proceedings or suits, Columbia shall be entitled, if it so elects, to representation by attorneys of its own selection at its sole cost, including attorneys employed by Columbia. The obtaining by Processor of a release or discharge, running to Processor or Columbia or either or both of them, from a property owner for damages resulting from the performance of this Agreement, including without limitation, any phase of dismantlement, demolition, removal or disposal, shall not diminish nor affect in any way the rights of Columbia and the obligations of Processor as set forth in this Section 14. To the extent permitted by law, Processor expressly waives the benefit, for itself and all contractors and subcontractors, insofar as the indemnification of Columbia is concerned, of the provisions of any applicable workers' compensation law limiting the tort or other liability of an employer on account of injuries to the employer's employees. 13.2 Columbia shall indemnify and hold harmless Processor from and against any and all loss, damage and liability, and from any injury, including death, which may be sustained or claimed to be sustained by any person, including the employees of Columbia and of any Contractor or Subcontractor of Columbia and, 20 from and against, any and all damages to property, including loss of use, and including property of Processor, caused by or arising out of or claimed to have been caused by or to have arisen out of the sole negligence of Columbia or its agents, employees or subcontractors. 14.1 An Event of Default shall be deemed to have occurred under this contract if: (a) Processor fails to make due and punctual payments of amounts required to lenders for all loans associated with the dismantlement, demolition, removal or disposal of the Kenova Plant; (b) Processor fails to make due and punctual payments of all premiums necessary to assure the coverages required under the terms and conditions of this Agreement to the insurance companies responsible for the respective policies; or, (c) Either party shall fail to perform any of its other covenants, agreements or terms hereof, and such nonperformance shall continue for a period of twenty (20) days following notice from the other party. 14.2 Processor acknowledges and agrees that an Event of Default by Processor, as defined above, will cause irreparable harm and loss to Columbia and that, in addition to any other legal or equitable remedy available to Columbia, such Event of Default shall be the basis for interlocutory equitable relief against Processor. Such interlocutory equitable relief shall be in a form which will allow Columbia, or any entity chosen by Columbia, to complete the 21 obligations of Processor herein at the sole risk, liability, cost and expense of Processor. 14.3 In the event of a default by a party (Defaulting Party), the other party (Non-Defaulting Party), at its sole discretion, may satisfy any and all obligations of the Defaulting Party connected directly with this Agreement, including but not limited to any default of Defaulting Party under this Agreement. Defaulting Party agrees to reimburse Non-Defaulting Party any amount paid together with attorneys fees and annual interest at the highest rate allowed by law. 15. Neither Processor nor Columbia shall be held responsible for any losses resulting if the fulfillment of any terms or provisions shall be delayed or prevented wholly or in part by compliance with any law, order or regulation, whether valid or invalid, of any governmental authority or of any person purporting to act therefor or by any act or condition not within the reasonable control of the party whose performance is interfered with and which by the exercise of reasonable diligence said party is unable to prevent, including but not limited to revolutions or other disorders, wars, acts of enemies, embargoes or other import or export restrictions, strikes, lockouts or other industrial disturbances, fires, storms, floods, acts of God or explosions. The settlement of strikes or lockouts shall be entirely within the discretion of the party having the difficulty and such party shall not be required to make settlement of strikes or lockouts by acceding to the demands of the opposing party when such 22 course is inadvisable in the discretion of the party having the difficulty. If either party is unable to fulfill the terms and conditions of this agreement by reason of any such cause as provided in this Article, the party rendered unable to perform hereunder shall give the other party notice in writing as soon as reasonably possible after the occurrence of the cause relied on, setting forth the full particulars in connection therewith, and that parties' obligations shall be suspended during the continuance of any inability so caused but for no longer period, and such cause, so far as possible, shall be remedied with all reasonable dispatch. This agreement shall not be terminated by reason of any such cause set out above but shall remain in full force and effect and this Agreement shall not be extended regardless of any such curtailment or cessation. 16. The waiver by either party of any breach of any term, covenant, or condition herein contained shall not be deemed to be a waiver of any subsequent term, covenant, of condition, whether similar or dissimilar to the term. covenant, or condition which was waived. 17. Notices required or permitted hereunder shall be made to the parties at the following addresses: MarkWest Hydrocarbon Partners, Ltd. 5613 DTC Parkway, Suite 400 Englewood, CO 80111 Attention of Vice President, Finance 23 Columbia Gas Transmission Corporation P.0. Box 1273 Charleston, WV 25325-1273 Attention of Vice President, Volume Management 18. Processor agrees that Columbia or its Agents, at all reasonable times, shall have the right to examine or audit the books, accounts and records of Processor to verify compliance with the terms and conditions of this Agreement. 19. This Agreement shall be governed in accordance with the laws of the State of West Virginia. 20. If any sections or provisions of this Agreement shall be held by any court of competent jurisdiction to be illegal, void or unenforceable, such sections or provisions shall survive to the extent enforceable and allowed by law, but the illegality or unenforceability of such sections or provisions shall have no effect upon and shall not impair the enforceability of any other sections or provisions of this Agreement. 21. With the exception of the obligations contained in the indemnification provisions herein, this Agreement terminates at the completion of each parties obligations hereunder. 22. Closing is herein defined as the mutually agreeable time and date of the delivery of a general warranty deed by Columbia to Processor. 23. It is mutually agreed that in the performance of any and all actions necessary to perform the duties under the terms and conditions of this Agreement, Processor is an independent contractor, and nothing in this Contract shall be 24 construed as creating the relationship of principal and agent, or employer or employee, between Columbia and/or Processor or Processor's agents or employees. Processor shall have no authority to hire any persons on behalf of Columbia, and any and all persons whom it may employ shall be deemed to be solely the employees of Processor. Processor shall have control and management of the work, the selection of employees and the fixing of their hours of labor, and no right is reserved to Columbia to direct or control the manner in which the work is performed, as distinguished from the result to be accomplished. Nothing herein contained shall be construed to authorize Processor to incur any debt, liability or obligation of any nature for or on behalf of Columbia, or for Processor to cause any lien or other encumbrance to be placed on Columbia's property, and Processor shall immediately remove, and indemnify Columbia against, all costs incurred in connection with, any such debt, liability, obligation, lien or other encumbrance, if any arises in contravention hereof. IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day and year last above written. COLUMBIA GAS TRANSMISSION CORPORATION /s/ Peter J. Kinsella By: Peter J. Kinsella Title: Vice President, Volume Management MARKWEST HYDROCARBON PARTNERS, LTD. By: /s/ Patrick W. Murray Title: Vice President - Finance 25 EX-10.19 22 AGREEMENT TO DESIGN AND CONSTRUCT NEW FACILITIES AGREEMENT TO DESIGN AND CONSTRUCT NEW FACILITIES This AGREEMENT, made this 15th day of March 1995, between COLUMBIA GAS TRANSMISSION CORPORATION ("Columbia"), and MARKWEST HYDROCARBON PARTNERS, LTD. ("Processor"). WHEREAS, Columbia and Processor will enter into a series of Agreements whereby Processor will: (1) design and construct processing facilities which will allow Processor to remove certain hydrocarbons from natural gas being shipped on Columbia's pipeline system: (2) demolish certain facilities now in existence on Columbia's real property; and, (3) ultimately purchase a portion of Columbia's real property. NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein and in the Purchase and Demolition Agreement - Construction Premises, Purchase and Demolition Agreement - Remaining Premises and Processing Agreement of even date herewith to be executed simultaneously herewith, the receipt and sufficiency of which is hereby acknowledged. Columbia and Processor agree as set forth below: ARTICLE I. EXTENT OF CONTRACT Processor agrees to furnish the engineering, design, procurement, fabrication, erection, commissioning, start-up services, equipment, materials, machinery, labor and any other items or services required for the construction, installation, start-up and operation of a natural gas liquids extraction facility ("Plant") on such portion of Columbia's 9.8 acre tract of land situate adjacent to Columbia's Kenova Compressor Station, in Ceredo District, Wayne County, West Virginia, as is necessary to afford Processor ample area to construct the Plant ("Construction Premises"). Processor agrees to furnish acceptable industry practices, business administration and superintendence, and to otherwise complete the Plant in accordance with the terms of this Agreement and to meet the specifications in the Processing Agreement. Time is of the essence for the performance of this Agreement. The design, construction and start-up of the Plant must be completed, subject to the force majeure provisions contained herein in Article VIII, within 45 weeks following receipt of the later of all requisite FERC and any necessary Bankruptcy Court approvals and local, state or federal permits and completion of any environmental remediation agreed to by the parties, with 14 consecutive calendar day maximum downtime of the Kenova Extraction Plant allowable for the Commissioning Process of the Plant as set forth herein. ARTICLE II. RESPONSIBILITIES OF PROCESSOR 2.1 (a) Processor shall be responsible for furnishing the design of the Plant. (b) Processor shall be responsible for providing all utility services, except natural gas, necessary for the operation of the Plant, including but not limited to electrical service and any necessary water supply. (c) Both the Plant inlet gas and residue gas piping shall contain an electrical insulation flange at the points Columbia delivers to and receives gas from Processor, capable of withstanding the design pressure of the Plant. 2 The Plant shall have a corrosion protection system electrically isolated from Columbia's Kenova Compressor Station and any other facilities owned by Columbia. including without limitation, the remaining dehydration facilities of the Kenova Plant. (d) The Plant shall meet all applicable federal, state, local and industry rules regulations, codes, standards, laws and ordinances. The Plant shall meet legally required emissions limits for noise and pollutants (air, water and any other), and shall meet all applicable federal, state and local environmental regulations governing the use and disposal of hazardous wastes, hazardous substances, pollutants and contaminants as they may be defined by the various federal, state and local environmental laws and regulations. 2.2 Prior to the construction of the Plant, Processor shall dismantle, demolish, remove and dispose of such portion of the existing Kenova Plant located on the Construction Premises which is necessary to provide ample area to construct the Plant and which is not necessary for the continued operation of the existing Kenova Plant. Prior to Processor beginning dismantlement, demolition, removal and disposal of the Operations Building which houses the Laboratory, Workshop, Warehouse, Boiler and Air Compressor Room, Locker/Wash Room Facility and Assembly Room, Processor shall be responsible for providing temporary facilities which will perform the function of the Operations Building to the extent required for the safe operation of the Kenova Plant. 3 2.3 In conducting its activities hereunder, Processor shall (i) comply with any and all applicable local, state and/or federal laws, regulations, orders and agreements, including, but not limited to, those laws, regulations, orders and agreements directed at protecting the environment, (ii) obtain, from the governmental authorities having jurisdiction over the premises, such permits and approvals as may be required to lawfully conduct Processor's activities, including, without limitation, all permits and approvals required under local, state and/or federal environmental laws and regulations, and (iii) timely provide the governmental authorities having jurisdiction over the premises with all notifications required under applicable local, state and/or federal laws, regulations, orders and agreements. 2.4 (a) Processor shall provide, or cause to be provided, all construction supervision, inspection, labor, utilities, materials, tools, construction equipment and other services and items necessary for the completion of the Plant, together with the procurement and/or fabrication of all equipment, components and initial Plant charge materials required for the proper construction, installation and start-up of the Plant. (b) Processor shall make all necessary tie-ins to the Kenova Plant during the time which the Kenova Plant is undergoing its annual maintenance or such time as is mutually agreed to between the parties hereto; provided, however, should the occurrence of the annual maintenance or other mutually agreeable times 4 be at a time which will delay completion required under Article I, then the completion date will be correspondingly extended. (c) Processor agrees to promptly apply for, diligently prosecute and obtain all requisite permits and approvals from and make all required notifications to governmental authorities having jurisdiction over the premises as may be necessary to design, construct, install, start-up and operate the Plant, including, without limitation, all necessary air permits, water permits and all other permits required under applicable local, state and federal laws and regulations. (d) Processor will give all notices and comply with all applicable federal, state and local rules, regulations, codes, laws and ordinances, legally enacted at the date of execution of this Agreement, or thereafter during the course of the construction, installation, start-up and operation of the Plant. 2.5 (a) Processor shall notify Columbia when the Plant is ready for the running of a performance test. Processor shall commence that test within seven (7) consecutive calendar days following the notice and will give Columbia a further notice five (5) business days prior to the date the test will commence. The day the test commences shall be the day the Commissioning Process of the Plant begins (b) Processor shall have complete responsibility for conducting performance tests to verify the proper functioning of the Plant, including the ability of the Plant to accept raw feedstock and perform its specified functions. 5 Columbia shall have a right to attend all tests. Records of the performance tests shall be submitted by Processor to Columbia regardless of whether Columbia attends or does not attend the test. (c) The Plant shall be deemed to have satisfactorily completed the performance tests when the Plant successfully comes on line from a "cold start", provides residue gas to the specifications agreed to in the Processing Agreement, adjusted as mutually agreeable for the available inlet gas conditions, for a continuous 48 hour period and completes an orderly, automatic shutdown. After the Plant successfully completes the performance test process, the Plant shall be deemed to have completed the Commissioning Process and be ready for Unrestricted Service. Processor and Columbia shall thereafter be required to comply with the terms of the Processing Agreement. 2.6 Processor covenants and agrees that it will rely solely on (1) Columbia's obligations under Section 7 of the Purchase and Demolition Agreement - -Construction Premises and (2) its own due-diligence investigation concerning the environmental condition and fitness of the property and its improvements for the construction and operation of a natural gas liquids extraction facility and not upon any representation, warranty or statement of or on behalf of Columbia by its officers, employees, agents, advisors or representatives. ARTICLE III. RESPONSIBILITIES OF COLUMBIA 3.1 From and after the date of this Agreement until such time as Columbia transfers legal title to the Construction Premises to Processor, Columbia has and 6 shall continue to afford to Processor and its representatives, during its normal business hours, reasonable access to the facilities and any non-privileged business records, files, maps, existing surveys, if any, describing physical characteristics, subsurface characteristics, environmental assessments zoning requirements and utility locations, the legal description of the Kenova Plant site, equipment data sheets and all other non-privileged records of Columbia connected with the Kenova Plant. Processor shall have the right to enter upon the Kenova Plant Premises for purposes of examining and inspecting the Kenova Plant and Plant site. Any documents provided to Processor hereunder shall be confidential and Processor shall use its best efforts, to the extent permitted by law, to preserve the confidentiality of such documents in any dispute with third parties. Notwithstanding that any information shall be provided in good faith, Columbia expressly disclaims any warranty as to the accuracy or reliability of the information provided. Processor acknowledges and agrees that Columbia in no way controls Processor's interpretation of any information provided. 3.2 Columbia shall allow Processor to utilize the electrical substation located on Columbia's property, adjacent to Columbia's Kenova Compressor Station, to purchase electric power from American Electric Power Company. 7 ARTICLE IV. CONTRACTORS AND SUBCONTRACTORS 4.1 All activities and operations performed under the terms and provisions of this Agreement that Processor does not perform with its own employees and resources shall be performed by its Contractors or by their Subcontractors. 4.2 A Subcontractor is defined herein as a person or entity who has a direct contract with Processor's Contractor to engage in the activities and operations necessary to perform the obligations contained in this Agreement. 4.3 No direct contractual relationship shall exist between Columbia and Processor's Contractors or Subcontractors for the activities and operations performed under this Agreement at the Plant. Processor shall be responsible for the management of Contractors and Subcontractors in the performance of all activities and operations necessary to perform the obligations contained in this Agreement. 4.4 Processor accepts no obligations or responsibilities during any phase of this Agreement to comply with or be bound by any collective bargaining agreement to which Columbia is a party. ARTICLE V. INSURANCE 5.1 During the time of construction, installation and start-up, Processor shall obtain and maintain Builder's Risk Insurance; and further agrees that any of Processor's Contractors shall indemnify Columbia in accordance with the indemnity set forth in Article VI. 8 5.2 Processor, at all times during the term of this Agreement, shall provide, at its own cost and expense, insurance of the kinds and in the amounts necessary, to cover all loss or liability for damages on account of bodily injury, including death resulting therefrom, and damage to or destruction of property caused by or arising out of any and all operations carried on or any and all work performed under this Agreement. At a minimum, Processor shall provide insurance of the kinds and in the amounts specified in the following schedule. (a) Workers' Compensation: Coverage shall include the following: ---------------------- (i) Workers' Compensation - Statutory coverage applicable in each State where work is to be performed, including coverage for occupational disease, if and as required. (ii) Employer's Liability - minimum limit of $1,000,000 per occurrence. If coverage is obtained from a state fund (Ohio or West Virginia), Employer's Liability coverage may not be available. In such cases, Processor will purchase "Stop Gap" coverage, with minimum limits of $1,000,000 per occurrence, from a commercial insurer. (iii) All States Endorsement (or equivalent). If coverage is obtained from a state fund (Ohio or West Virginia) an All States endorsement may not be available. In such cases, Processor will obtain Workers' Compensation insurance in every state in which operations may be conducted or work may be performed under the terms of this Agreement. 9 (iv) U.S. Longshore and Harbor Workers' Compensation Act coverage, U.S. Defense Bases Act Coverage, Outer Continental Shelf Land Act coverage, when applicable: statutory limits. (v) Jones Act coverage when applicable. Minimum limits required: $1,000,000 per accident. (b) Commercial General Liability Or Comprehensive General Liability --------------------------------------------------------------- Insurance: Policy to include Blanket Contractual and Broad Form Liability - ---------- endorsements, or their equivalents, Completed Operations Coverage and, when applicable, Products Coverage. The Contractual Liability section must specifically cover Processor's obligations under the indemnity provisions of this agreement. Minimum limits required: BODILY INJURY/PROPERTY DAMAGE: $1,000,000 per occurrence Combined Single Limit. PRODUCTS/COMPLETED OPERATIONS: $1,000,000 per occurrence. Combined Single Limit. PERSONAL INJURY: $1,000,000 per occurrence. When coverage obtained in accordance with this paragraph is written on a "Claims Made" or "Claims First Made:" form, Completed Operations coverage must 10 be specifically endorsed to provide that it will respond to claims made for at least 24 months after completion of the work. The Fellow Employee and Explosion, Collapse and Under-ground Exclusions must be deleted. (c) Automobile Liability: Coverage shall include all owned, non-owned, --------------------- leased or hired vehicles. Minimum Limits required: BODILY INJURY/PROPERTY DAMAGE - $1,000,000 per occurrence, Combined Single Limit. Processor warrants that it is in full compliance with any "No Fault" provision of any state in which it operates motor vehicles. (d) Umbrella Liability Insurance: Coverage shall be excess of, and at least ----------------------------- as broad as, the primary coverages listed in paragraphs a, b and c of this Section. Minimum Limits required: BODILY INJURY/PROPERTY DAMAGE - $10,000,000 per occurrence, Combined Single Limit. (e) Aircraft Liability: If any operations require the use of helicopters or ------------------- fixed wing aircraft, Processor will, in addition to all other insurance coverage required in this Section, maintain and shall require any Subcontractor utilizing rotary or fixed wing aircraft to maintain aircraft liability insurance 11 with minimum limits of $10,000,000 per occurrence for bodily injury and property damage. (f) Marine Insurance: If any operations are to be conducted on or in ----------------- navigable waters or on any pier, wharf, or other structure adjoining such waters, Processor shall, in addition to all other insurance required in this Section, maintain and shall require any Subcontractor engaged in such operations to maintain, the following additional coverage, as appropriate: (i) HULL/PROTECTION & INDEMNITY - coverage to be provided for each vessel used in any operations conducted under the terms of this agreement. Minimum limits required: HULL - Current value of the vessel. PROTECTION & INDEMNITY - $1,000,000 per vessel per occurrence for bodily injury and property damage. (ii) MARINE EMPLOYERS LIABILITY - minimum limits required: $1,000,000 per accident. (g) Environmental Impairment Liability (or Equivalent): Policy to --------------------------------------------------- include coverage for all loss and liability resulting from Processor's activities. Minimum Limits required: BODILY INJURY/PROPERTY DAMAGE - $10,000,000 per occurrence. Combined Single Limit. 12 Builders Risk Insurance: Policy is to cover the obligations set is Agreement ------------------------ with a $10,000 deductible during construction and $50,000 during testing. All insurance policies required by this Article will be written by companies reasonably acceptable to Columbia, will be primary with any insurance maintained by Columbia, and will be endorsed to provide 0 days advance notification to Columbia of any cancellation, non-material change in coverage and cancellation for non-payment of 1 require 30 days advance notice to Columbia. Insurance policies paragraphs b, c, d, e, f, g and h will name Columbia as an additional 11 insurance policies required by this Article will contain a waiver ion as against Columbia. Some of the foregoing policies may be d maintained by Processor's Contractor, which policies shall name d Processor as additional insureds and provide Waiver of Subrogation h parties. Processor shall furnish, on behalf of itself and its Contractor, prior conducting any activity on the Construction Premises, copies of all policies intended to meet the requirements of this Article. Properly Certificates of Insurance may be substituted for insurance policies at such Certificates contain positive statements of compliance with ms of this Agreement which apply to the type of insurance represented certificate. Insurance Policies whose terms expire during the term of 13 this Agreement will be renewed or replaced with no gaps in coverage, and evidence of such renewal or replacement will be provided to Columbia under the same conditions as prescribed above. ARTICLE VI. INDEMNITY 6.1 Processor shall indemnify and hold harmless Columbia from and against any and all loss, damage, and liability and from any and all claims for damages on account of or by reason of bodily injury, including death, which may be sustained or claimed to be sustained by any person, including the employees of Processor and of any Contractor or Subcontractor of Processor, and from and against any and all damages to property, including loss of use and including property of Columbia, caused by or arising out of or claimed to have been caused by or to have arisen out of an act or omission of Processor or its agents, employees or Contractors or Subcontractors in connection with the performance of this Agreement, whether or not insured against and Processor shall at its own cost and expense defend any claims, suits, actions, or proceedings, whether groundless or not, which may be commenced against Columbia by reason thereof or in connection therewith, and Processor shall pay any and all judgments which may be recovered in any such actions, claims, proceedings, or suits, and defray any and all expenses, including costs and attorney's fees, which may be incurred in or by reason of such actions, claims, proceedings, or suits, including environmental impairment; provided, however, that the foregoing indemnification will not cover loss, damage, or liability arising from the sole negligence or 14 wilful misconduct of Columbia, its agents and employees. Notwithstanding the foregoing, in the event of such actions, claims, proceedings or suits, Columbia shall be entitled, if it so elects, to representation by attorneys of its own selection, at Columbia's sole cost, including attorneys employed by Columbia. The obtaining by Processor of a release or discharge, running to Processor or Columbia or either or both of them, from a property owner for damages resulting from any phase of construction shall not diminish nor affect in any way the rights of Columbia and the obligations of Processor as set forth in this Article VI. To the extent permitted by law, Processor expressly waives the benefit, for itself and all Contractors and Subcontractors, insofar as the indemnification of Columbia is concerned, of the provisions of any applicable workers' compensation law limiting the tort or other liability of an employer on account of injuries to the employer's employees. 6.2 Columbia shall indemnify and hold harmless Processor from and against any and all loss, damage and liability, and from any injury, including death, which may be sustained or claimed to be sustained by any person, including the employees of Columbia and of any Contractor or Subcontractor of Columbia and, from and against, any and all damages to property, including loss of use, and including property of Processor, caused by or arising out of or claimed to have been caused by or to have arisen out of the sole negligence of Columbia or its agents, employees or subcontractors. 15 ARTICLE VII. DEFAULT 7.1 An Event of Default shall be deemed to have occurred under this contract if: (a) Processor fails to make due and punctual payments of amounts required to lenders for all loans associated with construction or ownership of the Plant; (b) Processor fails to make due and punctual payments of all premiums necessary to assure the coverages required under the terms and conditions of this Agreement to the insurance companies responsible for the respective policies; (c) the Plant, or any part thereof, shall be taken upon execution or by other process of law directed against Processor; or (d) Processor shall fail to perform any of its other covenants, agreements or terms hereof, and such nonperformance shall continue for a period of twenty (20) days following notice from Columbia. 7.2 Processor acknowledges and agrees that an Event of Default by Processor, as defined above, will cause irreparable harm and loss to Columbia and that, in addition to any other legal or equitable remedy available to Columbia, such Event of Default shall be the basis for interlocutory equitable relief against Processor. Such interlocutory equitable relief shall be in a form which will allow Columbia, or any entity chosen by Columbia, to complete the 16 obligations of Processor herein at the sole risk, liability, cost and expense of Processor. 7.3 Columbia, in the Event of Default by Processor, at its sole discretion, may satisfy any and all obligations of Processor connected directly or indirectly with this Agreement, including but not limited to any Event of Default of Processor under this Agreement. Processor agrees to reimburse Columbia the amount paid together with (a) attorneys fees and (b) annual interest at the rate of 15% if this rate is allowed by law, otherwise at the highest rate allowed by law. ARTICLE VIII. FORCE MAJEURE 8.1 Neither Processor nor Columbia shall be held responsible for any losses resulting if the fulfillment of any terms or provisions shall be delayed or prevented wholly or in part by compliance with any law, order or regulation, whether valid or invalid, of any governmental authority or of any person purporting to act therefor or by any act or condition not within the reasonable control of the party whose performance is interfered with and which by the exercise of reasonable diligence said party is unable to prevent, including but not limited to revolutions or other disorders, wars, acts of enemies, embargoes or other import or export restrictions, strikes, lockouts or other industrial disturbances, fires, storms, floods, acts of God or explosions. The settlement of strikes or lockouts shall be entirely within the discretion of the party having the difficulty and such party shall not be required to make settlement of 17 strikes or lockouts by acceding to the demands of the opposing party when such course is inadvisable in the discretion of the party having the difficulty. If either party is unable to fulfill the terms and conditions of this Agreement by reason of any such cause as provided in this Article, the party rendered unable to perform hereunder shall give the other party notice in writing as soon as reasonably possible after the occurrence of the cause relied on, setting forth the full particulars in connection therewith, and that parties' obligations shall be suspended during the continuance of any inability so caused but for no longer period, and such cause, so far as possible, shall be remedied with all reasonable dispatch. This Agreement shall not be terminated by reason of any such cause set out above but shall remain in full force and effect. ARTICLE IX. MISCELLANEOUS 9.1 The waiver by either party of any breach of any term, covenant or condition herein contained shall not be deemed to be a waiver of any subsequent term, covenant or condition, whether similar or dissimilar to the term, covenant, or condition which was waived. 9.2 Notices required or permitted hereunder shall be made to the parties at the following addresses: Columbia Gas Transmission Corporation P.O. Box 1273 Charleston, WV 25325-1273 Attention of Vice President, Volume Management 18 MarkWest Hydrocarbon Partners, Ltd. 5613 DTC Parkway, Suite 400 Englewood, CO 80111 Attention of Vice President, Finance 9.3 Processor agrees that Columbia or its Agents, at all reasonable times, shall have the right to examine or audit the books, accounts and records of Processor to verify compliance with the terms and conditions of this Agreement. 9.4 This Agreement shall be governed in accordance with the laws of the State of West Virginia. 9.5 If any sections or provisions of this Agreement shall be held by any court of competent jurisdiction to be illegal, void or unenforceable, such sections or provisions shall survive to the extent enforceable and allowed by law, but the illegality or unenforceability of such sections or provisions shall have no effect upon and shall not impair the enforceability of any other Articles or provisions of this Agreement. 9.6 With the exception of the obligations contained in the indemnity provisions herein, this Agreement terminates 180 days after the obligations of Processor as defined in Paragraph 2.4(c) are completed. ARTICLE X. INDEPENDENT CONTRACTOR It is mutually agreed that in the performance of any and all actions necessary to perform the duties under the terms and conditions of this Agreement, Processor is an independent contractor, and nothing in this Contract shall be 19 construed as creating the relationship of principal and agent, or employer or employee, between Columbia and/or Processor or Processor's agents or employees. Processor shall have no authority to hire any persons on behalf of Columbia, and any and all persons whom it may employ shall be deemed to be solely the employees of Processor. Processor shall have control and management of the work, the selection of employees and the fixing of their hours of labor, and no right is reserved to Columbia to direct or control the manner in which the work is performed, as distinguished from the result to be accomplished. Nothing herein contained shall be construed to authorize Processor to incur any debt, liability or obligation of any nature for or on behalf of Columbia, or for Processor to cause any lien or other encumbrance to be placed on Columbia's property, and Processor shall immediately remove, and indemnify Columbia against, all costs incurred in connection with, any such debt, liability, obligation, lien or other encumbrance, if any arises in contravention hereof. 20 IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day and year last above written. COLUMBIA GAS TRANSMISSION CORPORATION By: /s/ Peter J. Kinsella Peter J. Kinsella Title: Vice President, Volume Management MARKWEST HYDROCARBON PARTNERS, LTD. By MarkWest Hydrocarbon, Inc., its general partner By: Patrick W. Murray Vice President - Finance 21 EX-10.20 23 SALES ACKNOWLEDGEMENT [LOGO OF MARKWEST APPEARS HERE] MarkWest Hydrocarbon Partners, Ltd. PH:(303)290-8700 5613 DTC Parkway, Suite 400 FAX:(303)290-8769 Englewood, CO 80111 SALES ACKNOWLEDGEMENT DATE August 8, 1994 ---------- -- WE HEREBY CONFIRM SALE TO: No. 12577 Ashland Petroleum Company, ------ Div. of Ashland Oil, Inc. P.O. Box 391 Ashland, KY 41105 PER CONVERSATIONS BETWEEN MR. Dean Kazee AND OUR MR. Fred Shato ----------------- -------------------- PRODUCT Normal Butane QUANTITY Approximately [CONFIDENTIAL TREATMENT REQUESTED] gallons PRICE See attached terms CONSIGNEE ORIGIN FOB POINT Siloam, KY ROUTING TERMS OF PAYMENT Net 10 calendar days via check TIME OF DELIVERY September 1, 1994 through August 31, 1996 HOW DELIVERED Into railcars or barges provided by Buyer via Rail/Barge REMARKS: See Attachment "A" SUBJECT TO TERMS & CONDITIONS ATTACHED Void if not returned fully executed to this office within ten (10) days from the date of the order. ACCEPTED 19 MarkWest Hydrocarbon Partners, Ltd. ----------------- ---- By MarkWest Hydrocarbon, Inc., General Partner BY - ------------------------------- --------------------------------------------- Brian T. O'Neill, Sr. V.P. BY BY ----------------------------- --------------------------------------------- ATTACHMENT "A" ADDITIONAL TERMS AND CONDITIONS ASHLAND PETROLEUM NC4 PURCHASE AGREEMENT 1.) Ashland Petroleum Company, Division of Ashland Oil, Inc. (buyer) agrees to purchase from MarkWest Hydrocarbon Partners, Ltd. (Seller) the total productions of normal butane from Seller's Siloam, KY fractionation plant, estimated to be approximately [CONFIDENTIAL TREATMENT REQUESTED] gallons (approximately [CONFIDENTIAL TREATMENT REQUESTED] gallons per month), with a projected yearly volume increase of approximately [CONFIDENTIAL TREATMENT REQUESTED]. 2.) Term of sale shall be September 1, 1994 through August 31, 1996 with an option to extend year to year thereafter upon written approval of both parties. 3.) Product to be delivered FOB Seller's Siloam, KY plant loaded into Buyer provided railcars and/or barges at Buyer's option. 4.) It is anticipated that deliveries made during March through September will be predominately for shipment to Ashland Chemical Company, while deliveries made during October through February will be predominately for shipment to Ashland Petroleum Company; however, direction of shipment of all deliveries shall be at Buyer's option. 5.) Minimum purity for deliveries into railcars for shipment to Ashland Chemical shall be [CONFIDENTIAL TREATMENT REQUESTED] during March through September. Minimum purity for deliveries into railcars or barges for shipment to Ashland Petroleum shall be [CONFIDENTIAL TREATMENT REQUESTED] at all times. 6.) Seller will designate on each invoice to which of Buyer's entities shipment was made. 7.) The base price for deliveries made during the first through the fifteenth day of each month shall be the simple average of the daily high-low postings for TET spot normal butane at Mt. Belview, Texas as reported in Oil Price Information Service (OPIS) during the sixteenth throughout the last day of the month immediately preceding delivery. The base price for deliveries made during the sixteenth through the last day of each month shall be the simple average of the daily high-low postings for TET spot normal butane at Mt. Belview, Texas as reported in OPIS for the first through the fifteenth day of the month of delivery. Deliveries for shipment to Ashland Chemical Company will be billed at the foregoing described base price plus [CONFIDENTIAL TREATMENT REQUESTED] per gallon. Deliveries for shipment to Ashland Petroleum Company will be billed at the foregoing described base price plus [CONFIDENTIAL TREATMENT REQUESTED] per gallon. 8. Payment terms are net 10 days from date of shipment via check. 9.) If at anytime during the term of this Agreement the OPIS TET Mt. Belview average spot posting for isobutane exceeds the OPIS TET Mt. Belview average spot posting for normal butane by [CONFIDENTIAL TREATMENT REQUESTED] or more continuously for any thirty day period (Trigger Event). Seller has the option to take its normal butane stream to isobutane production for so long as said price relationship shall continue. In that event, Buyer has the option to pay Seller one half of the difference between average thirty day isobutane and normal butane postings in order to retain Seller's normal butane production. Example: OPIS thirty day average price for normal butane=[CONFIDENTIAL TREATMENT REQUESTED], for isobutane=[CONFIDENTIAL TREATMENT REQUESTED]; then, Buyer has option to pay [CONFIDENTIAL TREATMENT REQUESTED], plus the applicable differential of [CONFIDENTIAL TREATMENT REQUESTED] for shipments to Ashland Petroleum or [CONFIDENTIAL TREATMENT REQUESTED] for shipments to Ashland Chemical Company. In the event that Buyer exercises said option, the price for normal butane shall be subject to adjustment of the first and sixteenth of each month using the method described in this paragraph. Upon a lapse of the circumstances that comprise a Trigger Event, effective on the next immediate first or sixteenth day of each month, whichever is soonest, the price of normal butane shall revert to the method described in Item #7, above, unless Buyer and Seller shall agree otherwise in writing within five working days of said lapse. 10.) If Buyer chooses not to proceed with the above option to retain normal butane supply, the Buyer has the right of first refusal on any or all of Seller's total isomerization unit production of isobutane of approximately [CONFIDENTIAL TREATMENT REQUESTED] at a base price calculated in the same manner as described in Item #7, above, for normal butane, except substituting OPIS postings for isobutane, plus [CONFIDENTIAL TREATMENT REQUESTED]. 11.) Buyer has the right to utilize Seller's normal butane cavern storage of approximately [CONFIDENTIAL TREATMENT REQUESTED]. Buyer agrees to lift product so as to empty said cavern for at least one twenty-four hour period sometime between January first and March first each year during the term of this Agreement. EX-10.21 24 LOAN AGREEMENT DATED NOVEMBER 20, 1992 LOAN AGREEMENT Among MARKWEST HYDROCARBON PARTNERS, LTD. and NORWEST BANK DENVER, NATIONAL ASSOCIATION, individually and as Agent, and FIRST AMERICAN NATIONAL BANK November 20, 1992 TABLE OF CONTENTS -----------------
Page - ---- SECTION 1. DEFINITIONS 1 SECTION2. THE LOANS 9 (a) The Term Loan 9 (b) The Revolver Loan 10 (c) The Loan Date 12 (d) Computation and Payment of Interest; Late Payment Rate 12 (e) Payments by Borrower 12 (f) Payments to Lenders 12 (g) Mandatory Payments 13 (h) Fees 13 (i) Adjustments 14 (j) Increased Capital 14 SECTION 3. CONDITIONS OF LENDING 15 (a) Initial Advance 15 (b) Second Advance on the Term Loan 18 (c) Subsequent Advances 19 SECTION 4. BORROWING BASE 20 (a) Initial Borrowing Base 20 (b) Information 20 (c) Subsequent Determinations of Borrowing Base 20 (d) Notification of Borrowing Base 21 SECTION 5. BORROWING BASE DEFICIENCY 21 (a) Repay Excess Debt 21 (b) Installment Payments 21 SECTION 6. SECURITY 21 SECTION 7. REPRESENTATIONS AND WARRANTIES 22 (a) Existence 22 (b) Non-Contravention 23 (c) Third Party Authorization 23 (d) Authorization; Binding Effect 23 (e) Litigation 23 (f) Taxes 23 (g) Liens 24 (h) Names and Places of Business 24 (i) Use of Proceeds 24 (j) Other Obligations 24 (k) Full Disclosure 24 (l) Margin Stock 25 (m) ERISA 25 (n) Security Documents 25 (o) Compliance with Laws 25 (p) Financial Condition 26 (q) Environmental Matters 26
-2- (r) Investment Company Act 26 (s) Public Utility Holding Company Act 26 (t) Title to Properties; First Priority Security Interest 26 (u) Partners, Shareholders and Subsidiaries of Borrower and of Related Persons 27 (v) Location of Inventory 27 SECTION 8. AFFIRMATIVE COVENANTS 27 (a) Payment and Performance of Loans 27 (b) Financial Statements 27 (c) Preservation of Existence, Etc. 29 (d) Maintenance of Property 29 (e) Payment of Other Obligations 29 (f) Insurance 30 (g) Inspection of Property, Books and Records; Confidentiality Agreement 31 (h) Notices 32 (i) Compliance with Laws 33 (j) Further Assurances 33 (k) Current Ratio 34 (l) Funded Debt to Total Capitalization 34 (m) Tangible Net Worth 34 (n) Fixed Charge Coverage Ratio 34 (o) Environmental Matters 34 (p) Additional Title Insurance 34 SECTION 9. NEGATIVE COVENANTS 35 (a) Debt 35 (b) Liens 36 (c) Guaranty Obligations 36 (d) Loans and Advances 37 (e) Limitation on Investments and New Businesses 37 (f) Mergers and Consolidations 37 (g) Location of Inventory 38 (h) Burdensome Undertakings 38 (i) Change in Location of Business 38 (j) Restricted Distributions 38 (k) Disposition of Assets 39 (l) ERISA 39 (m) Use of Proceeds 39 (n) Transactions with Affiliates 40 (o) Contracts; Take-or-Pay Agreements 40
-3- (p) Amendments to Organizational Documents 41 (q) Amendments to RIMCO Loan Documents 41 SECTION 10. EVENTS OF DEFAULT 41 (a) Non-Payment 41 (b) Certain Defaults 41 (c) Other Defaults 41 (d) Representation or Warranty 41 (e) Security Documents and Covenant Agreements 42 (f) Judgments 42 (g) Insolvency 42 (h) Bankruptcy, Etc. 42 (i) Cross-Default 43 (j) ERISA 43 (k) Loan Documents 43 (1) Material Adverse Change 44 (m) Partners of Borrower 44 (n) Ownership of the General Partner 44 (o) Failure to be a Partnership 44 (p) Columbia Contracts 44 (q) Regulatory Change 44 SECTION 11. REMEDIES 44 (a) Automatic Acceleration of Loan 44 (b) Optional Acceleration of Loan 45 (c) Setoff 45 SECTION 12. THE AGENT 46 (a) Appointment 46 (b) Delegation of Duties 46 (c) Exculpatory Provisions 46 (d) Reliance by Agent 47 (e) Notice of Default 47 (f) Non-Reliance on Agent and Other Lenders 47 (g) Indemnification 48 (h) Agent and Lenders in Their Individual Capacity 49 (i) Successor Agent 49 (j) Agent's Fee 49 (k) Borrower Entitled to Rely on Agent 49 SECTION 13. MISCELLANEOUS 49 (a) No Waiver; Cumulative Remedies 49 (b) Notices 50 (c) Counterpart Execution 51 (d) Governing Law; Entire Agreement 51 (e) Amendments and Waivers 51 (f) Costs, Expenses and Indemnity 52
-4- (g) Inconsistent Provisions; Severability 53 (h) Incorporation of Exhibits and Schedules 53 (i) Amendment of Defined Instruments 53 (j) References and Titles 54 (k) Calculations and Determinations 54 (1) Usury 54 (m) Waiver of Right to Trial by Jury 54 (n) Successors and Assigns 55 (o) Term of Agreement 55 (p) Jurisdiction 55
LIST OF EXHIBITS ---------------- Exhibit Title ------- ----- A Term Note B Revolver Note C Request for Advance D Covenant Agreement E Borrower's Counsel Opinion F Local Counsel Opinion G [Intentionally Omitted] H Litigation I Limited Partners of Borrower & Shareholders of the General Partner J Location of Borrower's Inventory K Compliance Certificate L Loans and Advances to Officers and Employees M Form of Subordination Agreement -5- LOAN AGREEMENT -------------- THIS LOAN AGREEMENT (this "Agreement"), dated as of November 20, 1992, is --------- among MARKWEST HYDROCARBON PARTNERS, LTD., a Colorado limited partnership, ("Borrower") with an address of 5613 DTC Parkway, Suite 400, Englewood, Colorado -------- 80111, NORWEST BANK DENVER, NATIONAL ASSOCIATION, a national banking association ("Norwest"), with an address of 1740 Broadway, Denver, Colorado 80274-8699, ------- FIRST AMERICAN NATIONAL BANK, a national banking association ("First American"), ----- -------- with an address of 4894 Poplar Ave., Memphis, Tennessee 38117, (Norwest and First American are referred to individually as a "Lender" and collectively as ------ the "Lenders"), and NORWEST, AS AGENT FOR THE BANKS (in such capacity, the ------- "Aqent"). ----- Borrower desires to borrow from the Lenders to provide funds for the purposes set forth below, and the Lenders are willing to lend such funds to Borrower to accomplish those purposes, subject to the terms and conditions contained or referred to heroin. Accordingly, in consideration of the mutual agreements, provisions and covenants contained heroin, the parties agree as follows: SECTION 1. DEFINITIONS. As used herein, each of the following ----------- capitalized terms shall have the meaning given it in this Section 1: "Adjusted Prime Rate" shall mean an annual rate which equals ------------------- the sum of the floating commercial loan rate of the Agent announced from time to time as its prime rate but which may not be the lowest or best rate charged by the Agent to any customer (the "Prime Rate") plus one percentage point per year, adjusted in each case as of the banking day in which a change in the Prime Rate occurs. "Advance" shall mean the advances under the Term Loan or a ------- Revolver Advance. "Affiliate" shall mean as to any Person, each other Person --------- which, directly or indirectly (through one or more intermediaries or otherwise), is in control of, is controlled by, or is under common control with, such Person. "Borrowing Base," shall mean, at the particular time in -------------- question, either the amount provided for in Section 4(a) or the amount determined by the Lenders in accordance with the provisions of Section 4(c); provided however, that in no event shall the Borrowing Base exceed $20,000,000. - -------- ------- "Borrowing Base Deficiency" shall have the meaning set forth ------------------------- in Section 5. "Business Day" shall mean a day other than Saturdays or ------------ Sundays on which commercial banks are open for business with the public in Denver, Colorado and Memphis, Tennessee. "Code" means the Internal Revenue Code of 1986, as amended, ---- together with the regulations promulgated thereunder. "Collateral" shall mean all tangible or intangible, real or ---------- personal property subject to any of the Security Documents. "Columbia Contracts" shall mean (a) the Natural Gas Liquids ------------------ Purchase Agreement dated as of April 26, 1988 between Columbia Gas Transmission Corporation and Borrower as amended November 4, 1988, July 31, 1989, December 24, 1990 and January 28, 1991 (Siloam); (b) the Natural Gas Liquids Purchase Agreement dated as of December 24, 1990, between Columbia Gas Transmission Corporation and Borrower as amended January 28, 1991 (Boldman); and (c) the Contract for Construction and Lease of Boldman Plant dated December 24, 1990 between Columbia Gas Transmission Corporation and Borrower, together with any and all amendments now existing or hereafter created to any of the foregoing to the extent such amendments are otherwise permitted hereunder. "Consolidated" refers to the consolidation of any Person, in ------------ accordance with GAAP, with its properly consolidated subsidiaries. Reference heroin to Borrower's financial statements, financial position, financial condition, liabilities, etc. refer to the consolidated financial statements, position, condition, liabilities, etc. of Borrower and its properly consolidated subsidiaries. "Controlled Group" means the Borrower and all Persons under ---------------- common control or treated as a single -6- employer with the Borrower pursuant to Section 414(b), (c), (n) or (o) of the Internal Revenue Code of 1986, as amended, and regulations promulgated thereunder. "Covenant Agreements" shall mean a letter agreement in the ------------------- form of Exhibit D attached hereto, one from each of the General Partner and John Fox. "Current Ratio" shall mean the ratio of Borrower's current ------------- assets to current liabilities, both determined in accordance with GAAP. "Debt" shall mean as to any Person, at a particular date, ---- the sum (without duplication) of (a) all indebtedness of such Person for borrowed money or for the deferred purchase price of property or services, (b) all obligations of such Person in respect of surety bonds, letters of credit, bankers' acceptances, or similar obligations issued or created for the account of such Person, (c) all capitalized lease obligations of such Person, (d) all indebtedness created or arising under any conditional sale or other title retention agreement, (e) open lines of credit to finance futures contracts, commodities and/or options contracts, (f) all indebtedness referred to in clauses (a) through (e) above secured by a lien, encumbrance or security interest on or in property owned by such Person, even though such Person has not assumed or become liable for the payment of such indebtedness, and (g) all guaranties in respect of indebtedness or obligations of other Persons of the kinds referred to in clauses (a) through (f) above. "Determination Date" has the meaning given it in Section ------------------ 4(c)(ii). "Employee Option Agreement" shall mean the Option Plan of ------------------------- MarkWest Hydrocarbon Partners, Ltd. dated April 6, 1992 (without regard to any future amendments, modifications or changes thereto without the required Lenders' prior consent). "ERISA" shall mean the Employee Retirement Income Security ----- Act of 1974, as amended from time to time, together with all rules and regulations promulgated with respect thereto. "ERISA Plan" shall mean any pension benefit plan subject to ---------- Section 302 of ERISA or Title IV of ERISA maintained by Borrower or any member of a controlled group (as defined in Section 4001 (a)(14) of ERISA). "Evaluation Date" shall mean the date of this Agreement and --------------- April 1 and October 1 of each year, commencing April 1, 1993. "Event of Default" shall have the meaning set forth in ---------------- Section 10. "First American Loan" shall mean the loan to Borrower ------------------- pursuant to a Loan Agreement dated June 19, 1992 in the principal amount not to exceed $3,500,000 and secured by an Arkansas Leasehold Deed of Trust with Security Agreement and Assignment of Rents and Leases dated June 19, 1992. "Fiscal Quarter" shall mean a three-month period ending on -------------- the last day of each March, June, September and December of any year. "Fiscal Year" shall mean a twelve-month period ending on ----------- December 31 of any year. "Fixed Charge Coverage Ratio" shall mean for any period, the --------------------------- ratio for such period of (a) the sum of net income (or net loss) plus interest expense and non-cash charges included in determining net income (or net loss), all as determined in accordance with GAAP, to (b) the sum of interest expense included in calculating (a) and the principal portion of Debt required to be repaid during such period. "Florida Mesa Project" shall mean the project in which the -------------------- Borrower has invested, the purpose of which is the drilling, production, and gathering of coal bed methane gas located in La Plata County, Colorado. "Funded Debt" shall mean the aggregate amount of Debt for ----------- borrowed money with a maturity in excess of one year (including guarantees of such Debt) and capitalized leases, minus the outstanding principal balance, if any, under the Working Capital Facility. -7- "GAAP" shall mean generally accepted accounting principles ---- and practices as consistently applied (except as otherwise required due to changes in GAAP) by Borrower and certified to by the firm of independent certified public accountants regularly employed as Borrower's auditors, such principles and practices at all times being consistent with requirements of the Financial Accounting Standards Board of the American Institute of Certified Public Accountants in effect from time to time, as applicable to the nature of the business conducted by Borrower; provided however, if any change in any -------- ------- accounting principle or practice is required by the Financial Accounting Standards Board (or any such successor), all financial covenants provided for herein may be prepared in accordance with such change only after notice of such change is given to the Agent, and the Lenders agree to such change insofar as it affects the financial covenants. "General Partner" means MarkWest Hydrocarbon, Inc., a --------------- Colorado corporation. "Initial Financial Statements" shall mean the audited ---------------------------- financial statements of Borrower for the Fiscal Year ending December 31, 1991, and the unaudited quarterly financial statements (consisting of a current balance sheet and profit and loss statement) for Borrower as of September 30, 1992. "Late Payment Rate" shall have the meaning set forth in ----------------- Section 2(d)(ii). "Loans" shall mean the Term Loans and the Revolver Loans. ----- "Loan Date" shall have the meaning set forth in Section --------- 2(c). "Loan Documents" means this Agreement, the Notes, the -------------- Security Documents, the Covenant Agreements and all other documents executed and delivered by or on behalf of Borrower to the Agent or the Lenders in connection herewith or therewith. "Loan Share" means with respect to each of Norwest and First ---------- American, fifty percent. "Mortgages" shall mean one or more mortgages, deeds of --------- trust, collateral mortgages, acts of collateral mortgage, security agreements and assignments of proceeds of even date herewith, in favor of the Agent on behalf of the Lenders, covering certain properties of Borrower and related interests as described therein, including, without limitation, (a) Borrower's leasehold interest in the West Memphis Terminal facility it operates in West Memphis, Arkansas, (b) Borrower's Siloam fractionating facility in Greenup County, Kentucky, (c) a 38 mile long natural gas liquids pipeline which commences at the point called the Kenova Extraction Plant in Wayne County, West Virginia, runs through Boyd and Greenup Counties, Kentucky and connects to Borrower's Siloam facility described in (b) above, (d) Borrower's interest in the truck loading facility at the Cobb Extraction Plant in Kanawha County, West Virginia, and (e) Borrower's interest in the natural gas liquids extraction plant known as the Boldman Extraction Plant and the related truck loading facility, both of which are located in Pike County, Kentucky. "NationsBank Loan" shall mean the loan to Borrower pursuant to a Credit Agreement with NationsBank of Texas, N.A., formerly known as NCNB Texas National Bank, dated April 16, 1990, as it may have been amended prior to the date hereof, in the principal amount of $7,000,000 and secured by a Security Agreement dated as of April 16, 1990 by 'Borrower in favor of NationsBank Texas, N.A. "Note" shall mean a Term Note or a Revolver Note; all of ---- which together shall be collectively referred as the "Notes." ----- "Obligations" means all Debt from time to time owing by ----------- Borrower to the Lenders under or pursuant to any of the Loan Documents, including without limitation the Revolver Loan and the Term Loan. "Ordinary Course of Business" shall mean, in respect of any --------------------------- transaction, the ordinary course of such Person's business, substantially as conducted by such Person prior to or as of the date hereof, and undertaken by such Person in good faith and not for purposes of evading any covenant or restriction in any Loan Document, and, as applied to Borrower, shall include the acquisition of natural gas reserves and investments or participation in the Florida Mesa Project or other coal bed methane gas projects. "Person" shall mean an individual, partnership, corporation, ------ association, business trust, joint stock -8- company, trust or trustee thereof, unincorporated association, joint venture, governmental unit or any agency or subdivision thereof, or any other legally recognizable entity. "Related Person" shall mean any of Borrower and each -------------- Subsidiary of Borrower. "Request for Advance" shall mean a request for Advance ------------------- meeting the requirements of Sections 2(a)(i) or 2(b)(i) hereof. "Required Lenders" shall mean at any time Lenders, the Loan ---------------- Shares of which aggregate 100 percent. "Responsible Person" shall mean any officer of the General ------------------ Partner or any other Person employed by either a Related Person or the General Partner and who should be aware of the terms of this Agreement. "Revolver Advances" has the meaning given it in Section ----------------- 2(b). "Revolver Commitment" means the amount of the Borrowing Base ------------------- then in effect minus the Term Balance; provided that in no event shall the Revolver Commitment exceed $20,000,000 at any time from the date hereof through and including the last day of the Revolver Commitment Period, and thereafter, the amount of the Revolver Commitment shall be reduced in accordance with the scheduled amortization set forth in Section 2(b)(ii). "Revolver Commitment Period" shall mean the period from the -------------------------- date of this Agreement to and including December 31, 1994, or such earlier date on which the Revolver Notes become due and payable. "Revolver Loan" shall mean the loan to Borrower by the ------------- Lenders provided for in Section 2(b) hereof, the maximum principal amount of which shall never exceed the Revolver Commitment. "Revolver Note" shall mean a note substantially in the form ------------- of Exhibit B attached hereto, made by Borrower and payable to the order of --------- Norwest or to First American, as appropriate, with appropriate insertions, together with any and all renewals, extensions, amendments and changes of, or substitutions for said note; collectively, the "Revolver Notes." -------------- "RIMCO Loan" shall mean the loan to Borrower pursuant to the ---------- Note Agreement dated December 15, 1989 in principal amount up to $11,500,000, and secured by a Mortgage and Security Agreement dated as of April 29, 1988, to Rimco Partners, L.P., as modified by a First Modification and Amendment of Mortgage and Security Agreement dated as of January 15, 1990 between Borrower and Rimco Partners, L.P., as agent for itself and others, and by Second Modification and Amendment of Mortgage and Security Agreement dated as of October 1, 1990, between Borrower and RIMCO Partners, L.P., the Resigning Agent, and Resource Investors Management Company Limited Partnership, the Successor Agent. "Security Aqreement" shall mean that certain Security ------------------ Agreement of even date herewith by Borrower in favor of the Agent covering and relating to Borrower's inventory, receivables, contract rights, Cash Collateral Instruments, proceeds and certain other personal property. "Security Documents" means the Mortgages and all other ------------------ security agreements, deeds of trust, mortgages, chattel mortgages, assignments, pledges, guaranties, financing statements, continuation statements, extension agreements and other agreements or instruments now or hereafter delivered by Borrower to the Agent on behalf of the Lenders or to the Lenders in connection with this Agreement or any transaction contemplated hereby to secure or guarantee the payment of any part of the Obligations or the performance of any other duties and obligations of Borrower under the Loan Documents, whenever made or delivered, and shall also include all of the 'Security Documents' as defined in the Working Capital Facility. "Subsidiary" means, with respect to any Person, any ---------- corporation, association, partnership, joint venture, or other business or corporate entity, enterprise or organization which is directly or indirectly (through one or more intermediaries) controlled by or owned fifty-one percent or more by such Person. "Tangible Net Worth" shall mean the partners' equity of ------------------ Borrower less intangible assets. -9- "Term Balance" means the aggregate unpaid principal balance ------------ of the Term Notes determined as of the most recent Determination Date prior to the time in question. "Term Loan" has the meaning given it in Section 2(a). --------- "Term Note" shall mean a note substantially in the form of --------- Exhibit A attached hereto, made by Borrower and payable to the order of Norwest or to First American, as appropriate, with appropriate insertions, together with any and all renewals, extensions, amendments and changes of, or substitutions for said note; collectively, the "Term Notes." "Total Capitalization" means the sum of Funded Debt plus -------------------- partners' equity. "Unmatured Event of Default" shall mean any event that with -------------------------- the passage of time or giving of notice, or both, would constitute an Event of Default under Section 11. "Working Capital Facility" shall mean the loan provided for ------------------------ pursuant to that certain Working Capital Loan Agreement of even date herewith between Borrower, the Lenders and the Agent in the maximum principal amount of $5,000,000 and which loan is secured by various 'Security Documents' (as such term is defined therein). SECTION 2. THE LOANS. (a) The Term Loan. Subject to the terms and conditions of ------------- this Agreement, each Lender agrees to make two Advances to Borrower in an aggregate principal amount of both such Advances not to exceed its Loan Share of $13,500,000 (the "Term Loan"). The Advances of the Term Loan shall be evidenced --------- by the Term Notes. Amounts repaid under the Term Notes may not be reborrowed. (i) Request for Advance under the Term Loan. Each --------------------------------------- Request for Advance relating to the two Advances to be made under the Term Loan shall be in the form of Exhibit C attached hereto and shall be submitted to --------- the Agent on or before 11:00 a.m. Denver, Colorado time on the Business Day immediately preceding the day such Advance is to be made. Upon receipt of a Request for Advance, the Agent shall promptly notify each Lender thereof. Not later than 11:00 a.m. Denver time on the next Business Day, each Lender shall make available to the Agent the amount of such Lender's Loan Share of the amount specified in the Request for Advance in immediately available funds; provided, however, that the Lenders shall -------- ------- not be obligated to make an Advance to Borrower that would result in the outstanding principal amount under the Term Notes exceeding $13,500,000. If all conditions precedent to each Advance have been met, Agent will on the date requested make such Advance available to Borrower in immediately available funds at Agent's office in Denver, Colorado. (ii) Dates of Advances under the Term Loan. The ------------------------------------- first Advance under the Term Loan shall' not exceed $3,500,000 and shall be made on the Loan Date and the Second Advance shall be made on December 1, 1992 in an amount not to exceed $10,000,000. (iii) Scheduled Payments on the Term Loan. The ----------------------------------- principal amount of the Term Notes shall be due and payable in twenty-four equal quarterly payments of $562,500.00, payable on the last day of each Fiscal Quarter, commencing March 31, 1993, with the final payment due on or before December 31, 1998, together with interest on the Term Loan, calculated and payable as set forth in Section 2(d). (iv) Optional Prepayments of the Term Loan. ------------------------------------- Borrower may prepay all or any portion of the Term Loan without penalty or premium, at any time and from time to time, in integral multiples of $100,000 or such lesser amount equal to the then outstanding principal balance, together with accrued and unpaid interest on the principal amount so prepaid. Borrower shall give the Agent one Business Day's notice prior to any prepayment of the Term Loan. All prepayments of principal under this Subsection shall be applied to the payment of principal indebtedness due on the Term Loan in the inverse order of approaching maturities. -10- (b) The Revolver Loan. Subject to the terms and conditions ----------------- of this Agreement, each Lender agrees to make advances to Borrower (such advances are called the "Revolver Advances") from time to time during the ----------------- Revolver Commitment Period, in an aggregate principal amount not to exceed its Loan Share of the Revolver Commitment. Revolver Advances shall be evidenced by the Revolver Notes. So long as an Event of Default or an Unmatured Event of Default has not occurred, during the Revolver Commitment Period, Borrower may borrow, repay and reborrow under the Revolver Notes in accordance with this Section 2. (i) Request for Advance under the Revolver Loan. ------------------------------------------- (A) Each Request for Advance under the Revolver Loan shall be in the form of Exhibit C --------- attached hereto and shall be submitted to the Agent on or before 11:00 a.m. Denver, Colorado time on the Business Day immediately preceding the day such Revolver Advance is requested to be made. Upon receipt of a Request for Advance, the Agent shall promptly notify each Lender thereof. Not later than 11:00 a.m. Denver time on the next Business Day, each Lender shall make available to the Agent the amount of such Lender's Loan Share of the amount specified in the Request for Advance in immediately available funds; provided, however, that the ----------------- Lenders shall not be obligated to make any Revolver Advance to Borrower that would result in the aggregate unpaid principal balance outstanding under the Revolver Notes exceeding the Revolver Commitment. If all conditions precedent to such Revolver Advance have been met, Agent will on the date requested make such Revolver Advance available to Borrower in immediately available funds at Agent's office in Denver, Colorado . (B) Each Revolver Advance shall be in an amount of at least $100,000 or such lesser amount equal to the unadvanced portion of the Revolver Loan. Each Revolver Advance shall be evidenced by the Revolver Notes. (C) All Revolver Advances requested by Borrower shall be made pro rata by each Lender in proportion to such Lender's Loan Share. (ii) Scheduled Amortization of the Revolver Loan. ------------------------------------------- On the last day of the Revolver Commitment Period, the commitment of the Lenders to make" Revolver Advances shall terminate and the aggregate principal balance outstanding on such date under the Revolver Loan shall be due and payable in sixteen equal quarterly payments (the amount of such principal payments to be determined by dividing the amount of the outstanding principal balance of the Revolver Loan on.the last day of the Revolver Commitment Period by sixteen), payable on the last day of each Fiscal Quarter, commencing March 31, 1995, with the final payment due on or before December 31, 1998, together with interest on the Revolver Loan, calculated and payable as set forth in Section 2(d). (iii) Optional Payments. Borrower may make optional ----------------- payments on the outstanding principal balance of the Revolver Loan without penalty or premium, at any time, and from time to time, in integral multiples of $100,000 or such lesser amount equal to the then outstanding principal balance, together with accrued and unpaid interest on the principal amount so paid.. Borrower shall give the Agent one Business Day's notice in advance of any optional payment on the Revolver Loan. Upon the termination of the Revolver Commitment Period, all prepayments of principal thereafter received under this Subsection shall be applied to the payment of principal indebtedness due on the Revolver Loan in the inverse order of approaching maturities. (c) The Loan Date. The initial Advance under the Term Loan ------------- shall be made on a date and at a time (the "Loan Date") selected by Borrower, --------- but in no event earlier than the time all conditions of lending described in Section 3(a) below have been satisfied or waived by the Lenders. The initial Revolver Advance shall not be made prior to the date of the second and final Advance to be made under the Term Loan. (d) Computation and Payment of Interest; Late Payment Rate. ------------------------------------------------------ -11- (i) Interest on the Loans shall accrue daily and shall be computed on the basis of a year of 365 or 366 days, as appropriate. Interest on the Loans shall be payable in arrears on the last day of each Fiscal Quarter, beginning December 31, 1992. (ii) Notwithstanding anything to the contrary contained in this Agreement, overdue principal, and (to the extent permitted under applicable law) overdue interest, whether caused by acceleration of maturity or otherwise, shall bear interest at a fluctuating rate, adjustable the day of any change in such rate, equal to three percentage points above the Adjusted Prime Rate (the "Late Payment Rate)", until paid, and shall be ----------------- due and payable immediately. (e) Payments by Borrower. All payments of principal and -------------------- interest hereunder shall be made at the Agent's. offices at 1740 Broadway, Denver, Colorado 80274-8699 (or at such other place as the Agent shall have designated to Borrower in writing at least one Business Day prior to the due date or prepayment date, as the case may be) by 12:00 noon Denver time on the date due or the date of prepayment (as the case may be) in immediately available funds free and clear of any and all taxes and without set-off or counterclaim or deduction of any kind. If any payment to be made by Borrower hereunder or under the Notes shall become due on a day other than a Business Day, .such payment shall be made on the next succeeding Business Day and such extension of time shall be included in computing any interest and fees in respect of such payment. (f) Payments to Lenders. Each payment by Borrower to the ------------------- Agent on account of principal of and interest on the Loans or otherwise hereunder shall be distributed the same day in like funds as received from Borrower by Agent pro rata according to the Loan Share of each Lender in like funds; provided that in the event Agent receives less than the aggregate amount -------- ---- due to all Lenders on any day, Agent shall distribute ratably to each Lender in the case of any payment, the portion of the aggregate amount received by Agent on such day multiplied by the Loan Share of such Lender. (g) Mandatory Payments. If at any time, or from time to ------------------ time, a Borrowing Base Deficiency exists, Borrower shall, within thirty Business Days after the Agent, on behalf of Lenders, gives written notice of such fact to Borrower pursuant to Section 5 hereof, make one or more mandatory prepayments to Agent for distribution to the Lenders in the principal amount determined in accordance with Section 5(a) or (b). If the Borrower elects, pursuant to Section 5(b), to repay the Borrowing Base Deficiency in six equal monthly installments, then the payments shall be due and payable exactly one calendar month apart, with the first one due and payable as set forth above in this Section 2(g). Each prepayments of principal shall be accompanied by the amount of accrued and unpaid interest on, and fees related to, the principal amount so prepaid. Any such prepayment of principal under this Section 2 shall be applied pro rata in accordance with each Lender's Loan Share, (i) first to the unpaid principal balance of the Revolver Loan until the Revolver Loan is paid in full (once the Revolver Commitment Period has expired, such prpepayment shall be applied in the inverse order of approaching maturities) and (ii) then to the unpaid principal balance of the Term Loan until the Term Loan is paid in full, in the inverse order of approaching maturities. (h) Fees. ---- (i) During the Revolver Commitment Period, Borrower shall pay to the Lenders an unused commitment fee on the average daily difference between the Revolver Commitment and the aggregate outstanding principal amount under the Revolver Notes, at an annual rate of one-half of one percent (0.5%), payable quarterly in arrears, with the first such payment due December 31, 1992 (for the period from the date hereof through December 31, 1992) and ending on the last day of the Revolver Commitment Period . (ii) Borrower shall pay to the Lenders on the Loan Date a one-time commitment fee of $100,000 in the aggregate, of which $10,000 has already been paid. (i) Adjustments. If any Lender (a "benefitted Lender") ----------- ----------------- shall at any time receive any payment of all or part of its Loans, or interest thereon, or receive any collateral in respect thereof (whether voluntarily or involuntarily, by set-off, pursuant to events or proceedings of the nature referred to in Section ll(c), or otherwise), in a greater proportion than its Loan Share, such benefitted Lender shall purchase for cash from the other Lender such portion of such other Lender's Loans, or shall provide such other Lender with the benefits of any such collateral, or the proceeds thereof, as shall be necessary to cause such benefitted Lender to share the excess payment or benefits of such collateral or proceeds ratably with the other Lender; provided -------- however, that if all or any portion of such excess payment or benefits is - ------- thereafter recovered from such benefitted Lender, such purchase shall be rescinded, and the -12- purchase price and benefits returned, to the extent of such recover~, but without interest. Borrower agrees that any Lender so purchasing a portion of another Lender's Loans may exercise all rights of payment (including, without limitation, rights of set-off) with respect to such portion as fully as if such Lender were the direct holder of such portion. (j) Increased Capital. If either (A) the introduction of or ----------------- any change in or in the interpretation of any law or regulation after the date hereof (and excluding any new laws or changes presently known to Agent even if they have not yet become effective) or (B) compliance by any Lender with any guideline or request from any central bank or other governmental authority (whether or not having the force of law) affects or would affect the amount of capital required or expected to be maintained by any Lender or any corporation controlling any Lender and such Lender determines that the amount of such capital is increased by or based upon the existence of the Revolver Commitment and other commitments of this type then, upon demand by such Lender, Borrower shall immediately pay to such Lender, from time to time as specified by such Lender, additional amounts sufficient to compensate such Lender in light of such circumstances, to the extent that such Lender reasonably determines such increase in capital to be allocable to the issuance or maintenance of the Revolver Commitment. Such Lender claiming compensation under this Section 2(j) shall provide Borrower with a certificate setting forth in reasonable detail the amount payable to such Lender, the reason for the additional compensation and the calculation of the additional compensation. SECTION 3. CONDITIONS OF LENDING. ---------------------- (a) Initial Advance. (i) The Lenders shall have no ---------------- obligation to make the initial Advance under the Loans unless the Agent shall have received all of the following, at the Agent's office in Denver, Colorado, duly executed and delivered and in form and substance satisfactory to the Agent and its counsel: (A) This Agreement, executed by Borrower, the Agent and the Lenders; (B) The Notes; (C) Counterparts of the Mortgages, duly executed and acknowledged by Borrower, together with the appropriate financing statements, as may be necessary or advisable under applicable law in order to perfect and maintain, to the full extent permitted by applicable law, the first priority liens and security interests created thereby; (D) With respect to the Collateral consisting of real property, an ALTA form B (or other form acceptable to the Agent) mortgagee title insurance or a binder issued by a title insurance company satisfactory to the Agent, insuring or undertaking to insure, in the case of a binder, that the Mortgages create and constitute a valid first lien against such Collateral in favor of the Agent, subject only to permitted exceptions, with such endorsements and affirmative insurance as the Agent may reasonably request; (E) With respect to the Siloam fractionating facility covered by the Mortgages, one or more environmental site assessments with respect to that portion of the Collateral as the Agent may request, dated as of a recent date' and prepared by a qualified environmental engineering firm acceptable to the Agent which environmental site assessments shall be acceptable to the Lenders in their sole discretion; (F) Evidence satisfactory to the Agent that all amounts outstanding under each of the First American Loan and the NationsBank Loan are being simultaneously paid in full from the proceeds of the Term Loan, or, as to the NationsBank Loan, from proceeds of the Working Capital Facility, by Borrower and all commitments of the lenders thereunder have been terminated and released and the liens and security interests securing such loans have been or simultaneously herewith are being fully released or reconveyed; (G) Results of UCC lien searches as to Borrower for the States of Arizona, Arkansas, Colorado, Kansas, Michigan, Texas and West Virginia and for the following counties: Crittenden County, Arkansas; Boyd, Greenup and Pike Counties, Kentucky; and Wayne County, West Virginia, and for all other relevant filing jurisdictions as to the Collateral; (H) Evidence that the Agent has been named as mortgagee/loss payee under all policies of casualty insurance, and as an additional insured under all policies of liability insurance, as required by -13- Section 8(f); (I) The Covenant Agreements, executed by the parties thereto; (J) A duly executed and acknowledged subordination agreement between Resource Investors Management Company Limited Partnership and the Agent, in form and substance acceptable to the Agent; (K) A certificate, dated the Loan Date and executed on behalf of Borrower by the president or a vice president of the General Partner, stating the substance of Subsections 3(a)(ii)(A), (C) and (D); (L) A certificate, dated the Loan Date and executed on behalf of Borrower by an appropriate party, which shall certify to the correctness and completeness of the following exhibits attached thereto: copies of any partnership authorization of Borrower authorizing the execution of the Loan Documents and the consummation of the transactions contemplated heroin and therein; copies of the limited partnership agreement of Borrower and all amendments thereto, and the certificate of limited partnership of Borrower; (M) A certificate, dated the Loan Date and executed by the Secretary or assistant Secretary of the General Partner, which shall contain the names and signature of the officers of the General Partner authorized to execute the Loan Documents on behalf of the Borrower, and which shall certify to the correctness and completeness of the articles of incorporation and bylaws of the General Partner, and the resolutions duly adopted by the Board of Directors of the General Partner authorizing the execution of the Loan Documents and the consummation of the transactions contemplated herein and therein; (N) Certificates from the Colorado Secretary of State as to the good standing of Borrower and of the General Partner; and (O) All other documents and assurances which the Agent reasonably requires or which it may reasonably request in connection with the transactions contemplated by this Agreement, and such documents shall be certified, when appropriate, by proper authorities. (ii) The Lenders shall have no obligation to make any Advances hereunder unless the following shall be true and correct on and as of the date of such Advance: (A) All representations and warranties contained in Section 7 and in the Security Documents shall be true on the Loan Date as if then given, and Borrower shall have performed or observed all terms, agreements, conditions and obligations hereunder and under the Security Documents to be performed or observed on or prior to the Loan Date; (B) All legal matters incident to the Loans shall be satisfactory to counsel to the Agent, and the Agent shall have received on the Loan Date a favorable opinion addressed to the Agent and the Lenders of (x) Barry Spector, Esq., counsel for Borrower, substantially in the form set forth in Exhibit E, together with the --------- certificate provided for in such Exhibit, which opinion shall cover the matters set forth in Sections 7(a)(i), (ii) and (iii), (b), (c), (d), (e), (r) and (s), and such other matters as the Agent or its counsel may reasonably request, and (y) Rex M. Terry, Esq. of Hardin, Jesson, Dawson & Terry, local counsel for Arkansas, and P. Bruce Leslie, Esq. of McBrayer, McGinnis, Leslie & Kirkland, local counsel for Kentucky, substantially in the form of Exhibit F attached hereto; --------- (C) No Event of Default or Unmatured Event of Default shall have occurred and be continuing or would result from the making of the requested Advance; and (D) Since December 31, 1991, there has been no material adverse change in the business, financial position or results of operations of Borrower. -14- (b) Second Advance on the Term Loan. The ------------------------------- obligation of the Lenders to make the second and final Advance under the Term Loan as set forth in Section 2 is subject to satisfaction of the conditions set forth in such Section, the satisfaction of all of the conditions set forth in Section 3(c) and the following conditions precedent: (i) The date of such Advance shall be December 1, 1992; (ii) Agent shall have received concurrently with the making of such Advance a duly executed and acknowledged subordination agreement between Resource Investors Management Company Limited Partnership and the Agent and Statements of Amendment to uniform commercial code filings, in substantially the form of Exhibit M hereto; --------- (iii) Counterparts of the Mortgage relating to the West Virginia property, duly executed and acknowledged by Borrower, together with the appropriate financing statements, as may be necessary or advisable under applicable law in order to perfect and maintain, to the full extent permitted by applicable law, the first priority liens and security interests created thereby, which Mortgage shall be in form and substance acceptable to Lenders ; (iv) The Agent shall have received a favorable opinion addressed to the Agent and the Lenders of George A. Patterson, Esq. of Bowles Rice McDavid Graff & Love, local counsel for West Virginia, in form and substance acceptable to the Lenders; and (v) Results of the UCC lien search as to Borrower for Kanawha County, West Virginia, satisfactory to Lenders. (c) Subsequent Advances. The obligation of the ------------------- Lenders to make subsequent Advances under the Revolver Commitment and to make the second and final Advance under the Term Loan, all as set forth in Section 2 is subject to satisfaction of the conditions set forth in such Section, the satisfaction of the conditions set forth in Setion 3(c) and the following conditions precedent: (i) A certificate, dated the date of the requested Advance and executed on behalf of Borrower by the president or a vice president of the General Partner, stating the substance of Subsections 3(a)(ii)(A), (C) and (D); (ii) All representations and warranties contained in Section 7 hereof and in the Security Documents shall be true on the date of such requested Advance as if then given, and Borrower shall have performed or observed all terms, agreements, conditions and obligations hereunder and under the Security Documents to be performed or observed on or prior to the date of such requested Advance; (iii) No Event of Default or Unmatured Event of Default shall have occurred and be continuing or would result from the making of the requested Advance; (iv) Since December 31, 1991, there has been no material adverse change in the business, financial position or results of operations of Borrower; (v) All legal matters relating to the Loan Documents, such Advance and the consummation of the transactions contemplated thereby shall be reasonably satisfactory to the Agent's counsel; and (vi) Such Advance shall not be prohibited by any laws or any regulation or order of any court or governmental authority or agency and shall not subject the Lender to any penalty or other onerous condition under or pursuant to any such law, regulation or order. SECTION 4. BORROWING BASE. --------------- (a) Initial Borrowinq Base. During the period from the date ----------------------- hereof to the first Determination Date (as defined in Subsection 4(c)(ii) below), the Borrowing Base shall be $20,000,000. -15- (b) Information. At least 45 days prior to each Evaluation ----------- Date, Borrower shall furnish to Agent all information, reports and data which the Agent or any Lender has then requested concerning the business and properties of Borrower (which properties are included, at the time, in the calculation of the Borrowing Base), and its Subsidiaries, dated as of such Evaluation Date and including information concerning the oil and gas reserves owned by Borrower or its Subsidiaries and the production from acreage dedicated to gas processing plants and pipelines owned or operated by Borrower or its Subsidiaries. (c) Subsequent Determinations of Borrowinq Base. (i) The ------------------------------------------- Lenders shall determine the Borrowing Base (which shall never exceed $20,000,000) semi-annually, as of April 1 and October 1 of each year that this Agreement is in effect, commencing April 1, 1993, based upon the Obligations then outstanding, the value and associated cash flow available for debt service which the lender assign, in their sole discretion, to Borrower's oil and gas reserves, its natural gas liquids processing plants, fractionater, and propane terminal, but only to the extent each of the same are subject to a perfected first priority lien in favor of the Agent for the benefit of the Lenders, and based upon such other factors, assumptions, criteria and general credit considerations as the Lenders in their sole discretion deem appropriate. (ii) The Borrowing Base as so designated shall be effective on and including the date on which the Agent sends the notice provided in Section 4(d) (herein called a "Determination Date") ------------------ and, until the next date on which the Borrowing Base is redesignated by the Lenders. A Determination Date may occur during the period between the date on which a Request for Revolver Advance is submitted and the day on which such Revolver Advance is to be made. (iii) If Borrower does not furnish to the Agent the information required by Section 4(b) by the date specified therein, the Agent may designate the Borrowing Base at any amount which the Lenders determine based on the relevant information then available to the Lenders and the Agent. The Agent may redesignate the Borrowing Base from time to time thereafter until the Lenders receive the required information, whereupon a new Borrowing Base shall be determined as described above. (iv) No increase in the Borrowing Base shall be made at any time unless the amount of such increase is agreed to by all Lenders. (d) Notification of Borrowinq Base. The Agent shall give ------------------------------ written notice to Borrower of the amount determined pursuant to Section 4(c) as the Borrowing Base for such period as soon as possible after the Lenders have made such determination. Until the Agent has notified Borrower of the Borrowing Base for such period pursuant to this Section 4(d), the Borrowing Base shall be the amount determined pursuant to this Section 4 for the immediately preceding period. SECTION 5. BORROWING BASE DEFICIENCY. If the aggregate unpaid ------------------------- principal amount outstanding under the Notes exceeds the Borrowing Base then in effect (the "Borrowing Base Deficiency"), Borrower shall take one of the ------------------------- following actions following receipt of notice from the Agent of the existence of such Borrowing Base Deficiency: (a) Repay Excess Debt. Within 30 calendar days following ----------------- receipt of such notice from the Agent, make a mandatory prepayment on the Loans in accordance with Section 2(g) in an amount equal to the Borrowing Base Deficiency; or (b) Installment Payments. Make mandatory prepayments of the -------------------- Loans in an aggregate amount equal to the Borrowing Base Deficiency, payable in six equal monthly installments, with the first installment due within 30 calendar days following receipt of such notice from the Agent; such mandatory prepayments to be made in accordance with Section 2(g) hereof. Failure of Borrower to comply with this Section 5 shall be an immediate Event of Default. SECTION 6. SECURITY. The repayment of the Loans and the Notes and all -------- extensions and renewals thereof, and the performance of all obligations of Borrower hereunder, shall be secured by the Security Documents. SECTION 7. REPRESENTATIONS AND WARRANTIES. Borrower represents and ------------------------------ warrants to the Agent and each Lender that: (a) Existence. --------- -16- (i) Borrower is a limited partnership duly organized, validly existing and in good standing under the laws of the State of Colorado, and is qualified to do business in Arkansas, Kentucky, Texas and West Virginia and in every other jurisdiction in which the nature of its business or the ownership of its assets requires such qualification and failure to so qualify could have a material adverse effect on Borrower, its business, operations, assets, property, prospects or condition (financial or otherwise); (ii) Each of the Related Persons other than Borrower is duly organized, validly existing and in good standing under the laws of the state of its incorporation or formation and is qualified to do business in every jurisdiction in which the nature of its business or the ownership of its assets requires such qualification and failure to so qualify could have a material adverse effect on Borrower or such Related Person, its business, operations, assets, property, prospects or condition (financial or otherwise); (iii) Each Related Person has the power and authority to own the property which it owns and to carry on its business as such business is now conducted; and (iv) Each Related Person has all franchises, permits, licenses and similar agreements necessary to carry on its business as now conducted, and has not received any notices of default or termination under any of such agreements. (b) Non-Contravention. The execution, delivery and ----------------- performance by the Borrower of this Agreement, and the other Loan Documents and the borrowings hereunder, and the consummation of the transactions contemplated herein and therein will not conflict with the limited partnership agreement or other organizational or governing documents of any Related Person, or conflict with or result in any breach of any mortgage, lien, lease, agreement, instrument, order, judgment, decree, law, rule, regulation or any other restriction of any kind or character to which any Related Person is a party or is subject or by which any Related Person or its properties are bound or affected or result in the creation or imposition of any lien, charge or encumbrance upon. any property of any Related Person. (c) Third Party Authorization. No consent, approval, ------------------------- exemption, authorization or order of or other action by, and no notice to or filing with, any court or governmental authority or third party is required by any Related Person in connection with the execution, delivery or performance by Borrower of this Agreement, or any other Loan Document or to consummate any transactions contemplated hereby or thereby. (d) Authorization; Binding Effect. Borrower has full power ----------------------------- and authority to enter into this Agreement and the other Loan Documents. The execution and delivery of this Agreement, and the other Loan Documents, and the performance and observance of their terms, conditions and obligations, have been duly authorized by all necessary action by Borrower and the General Partner. This Agreement and the Notes are, and the other Loan Documents when duly executed and delivered will be,' legal, valid and binding obligations of Borrower, enforceable in accordance with their respective terms, except as such enforcement may be limited by bankruptcy, insolvency or similar laws of general application relating to the enforcement of creditors' rights. (e) Litigation. Except as disclosed in Exhibit H attached ---------- --------- hereto, there are no actions, suits, proceedings or claims against any Related Person or the General Partner or any of their respective properties pending or, to the knowledge of Borrower, threatened before any court or by or before any governmental instrumentality, which could have a material adverse effect on the business, operations, property, prospects or condition (financial or otherwise) of any Related Person or the ability of Borrower to perform its obligations under this Agreement, or any of the other Loan Documents. There exists no default or breach by any Related Person with respect to any order, writ, injunction, decree or demand of any court or governmental instrumentality, nor does the execution, delivery or performance by Borrower of this Agreement or any of the other Loan Documents result in any such default or breach. (f) Taxes. Each Related Person has filed all required tax ----- returns and paid all taxes and other governmental charges or levies imposed upon or against it or its properties, including the Mortgages and the Collateral, or profits before the same became in default, except those being contested in good faith and by appropriate proceedings, for which adequate reserves have been set up by such Person, and for which there is no risk of loss 'of any of the Collateral. -17- (g) Liens. All property and assets of Borrower are free and ----- clear of all liens and encumbrances except (i) the liens permitted by Section 9(b) hereof, and (ii) the liens pursuant to the First American Loan and the NationsBank Loan, both of which will be released simultaneously with the execution of this Agreement. (h) Names and Places of Business. No Related Person has ---------------------------- been known by, or used any other partnership, trade, or fictitious name. The chief executive office and principal place of business of Borrower and the General Partner have been located at the address of Borrower set out in Section 13(b) for at least the four months immediately preceding the date hereof. The place where Borrower keeps its books and records concerning the Collateral is at Borrower's address for notices set forth in Section 13(b), and has been there for at least the four months immediately preceding the date hereof. (i) Use of Proceeds. (i) The proceeds of the Term Loan --------------- shall be used solely to finance existing assets of Borrower and to repay the principal of and accrued interest on outstanding Debt of Borrower, including repayment in full of the First American Loan, , and (ii) the proceeds of the Revolver Loan shall be used solely for general business or commercial purposes, including capital expenditures and acquisition of natural gas processing and natural gas liquids related facilities. In no event shall funds from any Advance be used directly or indirectly by any Person for personal, family, household or agricultural purposes. (j) Other Obligations. No Related Person has any ----------------- outstanding Debt of any kind (including contingent obligations, tax assessments, and unusual forward or long-term commitments) which is, in the aggregate, material to such Related Person or material with respect to Borrower's Consolidated financial condition and not shown in the Initial Financial Statements. (k) Full Disclosure. No certificate, statement, report or --------------- other information delivered herewith or heretofore by any Related Person or the General Partner to Agent or the Lenders in connection with the negotiation of this Agreement or in connection with any transaction contemplated hereby contains any untrue statement of a material fact or omits to state any material fact known to such Person necessary to make the statements contained herein or therein not materially misleading as of the date made or deemed made. There is no fact known to any Related Person or the General Partner that has not been disclosed to the Agent or the Lenders in writing that could materially and adversely affect Borrower's properties, business, prospects or condition (financial or otherwise). (l) Margin Stock. No Related Person is engaged principally, ------------ or as one of its important activities, in the business of extending credit to others for the purpose of purchasing or carrying any "margin stock" or any "margin securities" (as such terms are defined respectively in Regulation U and Regulation G promulgated by the Board of Governors of the Federal Reserve System). (m) ERISA. Neither Borrower nor any member of its ----- Controlled Group maintains, or has ever maintained any ERISA Plan. Borrower and the members of its Controlled Group are in compliance with ERISA and the Code in all material respects as to all employee benefit plans maintained by Borrower and the members of its Controlled Group. Neither Borrower nor any member of its Controlled Group is, or has ever been, required to contribute to, or has, or has ever had, any other absolute or contingent liability in respect of, any "multiemployer plan" as defined in Section 4001 of ERISA. Neither the Borrower nor any member of its Controlled Group has ever represented, promised, or contracted (whether in oral or written form) to any current or former employee (either individually or as a group) that such current or former employee(s) would be provided, at any cost to any member of the Controlled Group, with any employee welfare benefits (within the meaning of Section 3(1) of ERISA) following retirement or termination of employment. All members of the Controlled Group have complied in all material respects with the notice and continuation coverage requirements of Section 4980B of the Code. (n) Security Documents. The warranties and representations ------------------ contained in the Security Documents are true and correct in all material respects. (o) Compliance with Laws. Each Related Person is in -------------------- material compliance with all laws, rules and regulations, and determination of any arbitrator or governmental authority applicable to or binding upon it or any of its property or to which it or any of its property is subject. (p) Financial Condition. The Initial Financial Statements ------------------- fairly present Borrower's financial position at the date thereof and the results of Borrower's operations and cash flows for the period thereof. Since December 31, 1991, there has been no material adverse change in the business, financial position or results of operations of Borrower. -18- (q) Environmental Matters. (i) The operations of each --------------------- Related Perso comply in all material respects with all federal, state or local laws, statutes, rules, regulations, and all administrative orders, licenses, authorizations and permits of any governmental authority, relating to environmental or public health and safety; (ii) none of the operations of any Related Person is the subject of federal, state or local investigation evaluating whether any material remedial action is needed to respond to a release of any hazardous or toxic waste, substance or constituent into the environment; (iii) no Related Person has (and to the best knowledge of Borrower, nor has any other person) filed any notice under any federal, state or local law indicating that such Person is responsible for the release into the environment, or the improper storage, of any material amount of any hazardous or toxic waste, substance or constituent or that any such waste, substance or constituent has been released, or is improperly stored, upon any property of such Person; and (iv) no Related Person otherwise has any known material contingent liability in connection with the release into the environment, or the improper storage, of any such waste, substance or constituent. (r) Investment Company Act. No Related Person is an ---------------------- "investment company" or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. (s) Public Utility Holding Company Act. No Related Person ---------------------------------- is a "holding company", or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company", within the meaning of the Public Utility Holding Company Act of 1935, as amended. (t) Title to Properties; First Priority Security Interest. ----------------------------------------------------- Each Related Person and the General Partner have good and indefeasible title to all of their respective material properties and assets, free and clear of all liens except those permitted by Section 9(b) hereof. Upon filing and recording of the Mortgages and the related financing statements in the locations specified in the opinions provided to the Lenders pursuant to Section 3(a)(ii)(B) hereof, the Agent, on behalf of the Lenders will have a perfected first priority lien or security interest in all of the Collateral. (u) Partners, Shareholders and Subsidiaries of Borrower and ------------------------------------------------------- of Related Persons. The General Partner is the sole general partner of Borrower. - ------------------ The identity of the limited partners of Borrower and their respective limited partnership interests are set forth in Exhibit I hereto and the identity and --------- percentage ownership interest of the shareholders of General Partner are set forth in Exhibit I. Borrower does not presently have any Subsidiaries or own any --------- stock or equity interest in any corporation, partnership, joint venture or association, except for Borrower's interests in the Florida Mesa Project and except, after the date hereof, interests acquired as permitted by Section 9(e) hereof. (v) Location of Inventory. The location of all of --------------------- Borrower's inventory is set forth in Exhibit J hereto. --------- SECTION 8. AFFIRMATIVE COVENANTS. Until payment in full of tile Loans --------------------- and termination of all commitments by the Lenders to make Advances hereunder, without the prior written consent of the Required Lenders: (a) Payment and Performance of Loans. Borrower shall duly -------------------------------- and punctually pay or cause to be paid in lawful money of the United States, the principal and interest on the Loans upon the dates, at the place and in the manner set forth in Section 2 hereof, and perform and observe all other obligations of Borrower under this Agreement and the other Loan Documents. (b) Financial Statements. Each of the Related Persons shall -------------------- keep proper books of record and account in which full, true and correct entries will be made of all business, dealings and affairs in accordance with GAAP, and Borrower shall deliver to the Agent sufficient copies for each Lender, at Borrower's expense and in an acceptable format: (i) Within 120 calendar days after the end of each Fiscal Year, complete audited annual financial statements of Borrower, together with all notes thereto, prepared in reasonable detail in accordance with GAAP, together with an unqualified opinion, based on an audit conducted by Price Waterhouse or other independent certified publi c accountants selected by Borrower and acceptable to the Lenders, stating that such financial statements present fairly the financial position for the periods indicated in conformity with GAAP applied on a basis consistent with prior years (except as otherwise required due to changes in GAAP); (ii) Within 45 calendar days after the end of each calendar month, an unaudited -19- monthly income statement, balance-sheet and statement of cash flows for the subject month, prepared in reasonable detail and in accordance with GAAP, together with a report describing for each natural gas liquids processing or distribution facility the revenue and expenses (including capital expenditures) relating thereto, the "throughput" figures for such facilities for such calendar month, and a list of the prices, capital expenditures, new material contracts and amendments to existing material contracts relating thereto. For purposes of this Subsection 8(b)(ii), "material contract" shall mean any contract with a term exceeding one year or a value exceeding $1,000,000. (iii) Together with delivery of each of the financial statements described in Subsection (i) and (ii) above, a certificate signed by the president or chief financial officer of the General Partner of Borrower in the form of Exhibit K attached hereto, --------- stating that he or she has read this Agreement and made all other necessary investigations, attesting to the authenticity of such financial statements, showing the calculation of and compliance with the financial covenants contained in this Agreement, and stating that in making the examination and reporting on such financial statements, he or she concluded that there did not exist any condition or event at the end of such Fiscal Year or at the time of such certificate which constituted an Event of Default or an Unmatured Event of Default, or, if such condition or event existed, specifying the nature and period of existence of any such condition or event; (iv) Within 120 calendar days after the end of each Fiscal Year, annual unaudited Consolidated financial statements of the General Partner, together with all notes thereto, prepared in reasonable detail in accordance with GAAP applied on a basis consistent with prior years; provided, however, that if the General -------- ------- Partner has an audited financial statement prepared for any reason, at any time, then such audited financial statement shall be promptly furnished to the Agent together with any opinion obtained from its independent certified public accountants relating thereto; (v) Within 30 days after the same are filed, copies of all financial statements, registration statements and regular, periodical or special reports that any Related Person or the General Partner may make to, or file with, the Securities and Exchange Commission or any stock exchange; and (vi) Within 30 days, such additional financial and other information as any of the Agent or either of the Lenders may from time to time reasonably request, including without limitation reasonable detail with respect to the information provided on an aggregate basis pursuant to Subsection (ii) above. (c) Preservation of Existence, Etc. (i) Borrower shall ------------------------------ maintain in full force and effect Borrower's existence as a limited partnership and its good standing under the laws of the State of Colorado and its right to transact business in the States of Arkansas, Kentucky, Texas and West Virginia; and (ii) each Related Person shall maintain its good standing under the laws of the state of its formation and its right to transact business in all states where its activities and ownership of assets are such that qualification to transact business is necessary under the laws of such states and failure to so qualify could have a material adverse effect on such Person or on Borrower, or on Borrower's business, property, prospects, assets, operations or condition (financial or otherwise). (d) Maintenance of Property. Borrower shall maintain, ----------------------- preserve, protect and keep in good repair and in good working order and condition the Collateral; and each Related Person shall maintain all other properties, real or personal, used or useful in its business in good repair and in good working order and condition. (e) Payment of Other Obliqations. ---------------------------- (i) Each Related Person shall duly and punctually pay and discharge (A) all taxes, assessments and other governmental charges assessed against or imposed upon or with respect to such Person or its properties or assets prior to the date when they shall become delinquent unless the same are being contested in good faith and by appropriate proceedings and appropriate reserves have been established in accordance with GAAP and there is no risk of loss of any of the Collateral; (B) all charges for labor, materials and supplies which if unpaid might become a lien against any part of the property of such Person unless the same are being contested in good faith and by appropriate proceedings and appropriate reserves have been established in accordance with GAAP and there is no risk of loss of any of the Collateral; and (C) all federal and state social security, worker's -20- compensation and similar taxes, payments and contributions for which such Person may be liable, before the same become delinquent unless the same are being contested in good faith and by appropriate proceedings and appropriate reserves have been established in accordance with GAAP and there is no risk of loss of any of the Collateral; and (ii) duly and punctually pay all Debt obligations (principal and interest), including without limitation, accounts payable and lease obligations, unless the same are being contested in good faith and by appropriate proceedings and appropriate reserves have been established in accordance with GAAP. (f) Insurance. Each Related Person shall keep all of its --------- insurable property, real and personal, adequately insured at all times against fire and against such other risks as are customarily insured against by similar businesses of a comparable size, and fully insure against its employer's and public liability risks in financially sound and reputable insurance companies, all in such amounts and upon such terms and conditions, including deductibles, consistent with industry standards. Each insurance policy covering Collateral shall be endorsed (i) to provide for payment of losses to the Agent, for the benefit of the Lenders, as its interests may appear, (ii) to provide that such policies may not be cancelled, reduced or affected in any manner for any reason without fifteen days prior notice to the Agent, (iii) to provide for any other matters specified in any applicable Security Document or which the Lenders or the Agent may reasonably require; (iv) to provide for insurance against fire, casualty and any other hazards normally insured against, in the amount of the full value (less a reasonable deductible not to exceed amounts customary in the industry for similarly situated businesses and properties) of the property insured, and (v) business interruption insurance in an amount equal to the cost of operating Borrower's business as reasonably determined by Borrower for a six- month period, which may change from time to time depending upon Borrower's costs of operation at the time in question. Each Related Person shall at all times maintain adequate insurance against its liability for injury to persons or property, which insurance shall be by financially sound and reputable insurers. A true and complete list of all currently existing insurance of Borrower has been furnished to the Agent prior to the date hereof. It is understood, and Agent and Lenders agree, that based on existing circumstances Borrower has no obligation to insure inventory. (g) Inspection of Property, Books and Records; ----------------------------------------- Confidentiality Agreement. Borrower shall permit the Agent's and any Lender's - ------------------------- duly authorized officers, employees and agents to inspect (and make copies of or abstracts therefrom) the Collateral and the other property, books and records of Borrower and to discuss Borrower's affairs, finances and accounts with Borrower's officers and its independent accountants, and furnish any other data which the Agent or any Lender may reasonably request, all at the expense of Borrower and at any reasonable time and as often as the Agent or any Lender may reasonably request; provided that Borrower shall not be liable for expenses -------- ---- arising out of the gross negligence or willful misconduct of the inspecting party; provided, further, that Borrower shall not be required to give access to -------- ------- any party inspecting the property subject to any of the Mortgages, if such inspecting party refuses or is unwilling or unable to comply with the reasonable safety requirements of Borrower relating to the property to be inspected. Each Lender agrees that, until the occurrence of an Event of Default, it will take all reasonable steps to keep confidential any proprietary information given to it by any Related Person including without limitation any environmental information or reports pertaining to the property subject to the Mortgages, provided, however, that this restriction shall not apply to information which - -------- ------- (i) has at the time in question entered the public domain, (ii) is required to be disclosed by law or by any order, rule or regulation (whether valid or invalid) of any court or governmental agency, or authority, (iii) is disclosed to such Lender's external auditors, (iv) is disclosed to such Lender's affiliates', agents or attorneys, or (v) is furnished to purchasers or prospective purchasers of participations or other interests in the Loans or the Notes; provided that before making the disclosures described in the immediately preceding clauses (iv) and (v), such Lender shall direct in writing the Persons to whom such proprietary information is to be disclosed to comply with the confidentiality provisions set forth in this Section 8(g). Borrower agrees that if either Lender breaches its confidentiality agreement contained in this Section 8(g), Borrower's exclusive remedy shall be an action for actual damages and such breach shall not be asserted in any action for payment hereunder or under the Notes or in a foreclosure of any of the Security Documents. (h) Notices. Borrower shall give written notice to the ------- Agent within three days after a Responsible Person becomes aware of any of the following: (i) Any material adverse change in the business, property, prospects, assets, operations or condition (financial or otherwise), of Borrower or any other Related Person; (ii) Any Event of Default or Unmatured Event of Default; (iii) The institution of any litigation or other proceeding before any governmental body or official against any Related Person or any of their respective assets and any developments in any pending -21- litigation or other proceeding before any governmental body or official that could materially affect Borrower or such Related Person, its business, property, prospects, assets, operations or condition (financial or otherwise); (iv) Any existing or pending investigation or inquiry by any governmental authority in connection with any applicable Environmental Laws (as such term is defined in the Mortgages); (v) The institution of, or material development in, any litigation affecting any of the Collateral, or any other dispute or claim that could have a material adverse effect on any of the Collateral or the calculation of the Borrowing Base; (vi) Any fact that causes or may cause the Agent, on behalf of the Lenders, or the Lenders to fail to have a valid, enforceable and perfected first priority lien on or security interest in any of the Collateral, except as expressly permitted by this Agreement or the Security Documents and except as a result of the acts or omissions of the Agent or either Lender; or (vii) The shut-down of any natural gas liquids processing facility owned or leased by Borrower for a period of 48 consecutive hours or more or of any planned shut-down of any such facility that is expected to be in effect for a period of 48 consecutive hours or more (notice of any actual shut-down shall be given to Agent within 24 hours after the occurrence thereof and notice of any such planned shut-down shall be given to Agent in advance). (i) Compliance with Laws. Each Related Person shall comply -------------------- in all material respects with all applicable laws, statutes, rules and regulations of the United States and of any state or municipality, and of any official, arbitrator or governmental authority, in respect of the conduct of business and ownership of property by such Person. (j) Further Assurances. Borrower shall promptly and, ------------------ insofar as not contrary to applicable law, at Borrower's own expense, (i) file and refile in such offices, at such times and as often as may be reasonably necessary, every instrument and every amendment thereto, and take such other action, as may be reasonably necessary or desirable to create, perfect, maintain and preserve all liens and security interests intended to be created by Borrower under the Security Documents in favor of the Agent for the benefit of the Lenders or in favor of the Lenders and to protect and preserve the rights and remedies of the Agent and the Lenders thereunder, (ii) furnish to the Agent evidence reasonably satisfactory to the Agent of all such filings and refilings, (iii) otherwise do all things necessary or expedient to be done to effectively create, perfect, maintain and preserve the liens and security interests intended to be created by the Security Documents as a lien on real property and fixtures and a security interest in personal property and fixtures, and (iv) pay all fees and expenses (including counsel fees) incident to this Agreement and in compliance with this Section. In addition, Borrower covenants and agrees that if all or any part of the Loans become subject to the provisions of the Financial Institutions Reform, Recovery and Enforcement Act of 1989, as it may be amended from time to time, or other governmental regulation requiring appraisals, surveys or similar requirements as to all or any part of the Collateral, Borrower shall promptly provide the Agent and the Lenders with any appraisals, surveys or other items required to have the Loans be in compliance with all applicable state and federal laws, at its sole cost and expense. (k) Current Ratio. Borrower shall maintain a Current Ratio ------------- of not less than 1.1 to 1.0. (1) Funded Debt to Total Capitalization. Borrower's Funded ----------------------------------- Debt shall not exceed 65% of its Total Capitalization. (m) Tangible Net Worth. Borrower shall maintain a Tangible ------------------ Net Worth equal to or greater than the sum of $15,000,000 plus 25 percent of consolidated net income determined in accordance with GAAP and earned by Borrower after December 31, 1991 (but excluding any net losses). (n) Fixed Charge Coverage Ratio. Borrower shall maintain a --------------------------- Fixed Charge Coverage Ratio, determined as of the end of any Fiscal Quarter, commencing with the Fiscal, Quarter ending December 31, 1992, calculated on a rolling four quarter basis, Of not less than 1.5. (o) Environmental Matters. No Related Person shall cause or --------------------- permit the use or storage of Hazardous Substances or Solid Waste (as such terms are defined in the Mortgages) on, in or in connection with such Persons's properties or disposal of Hazardous Substances or Solid Waste from such Person's properties, except in full compliance with all Environmental -22- Laws (as such term is defined in the Mortgages), or make any use of such Person's properties that results in any requirement that such Person apply for or obtain a permit under RCRA (as such term is defined in the Mortgages) or other Environmental Law.for the treatment, storage or disposal of Hazardous Substances or Solid Waste. Borrower covenants and agrees to keep or cause each Related Person's properties to be kept free of any Hazardous Substances or Solid Waste except in full compliance with all Environmental Laws, and, promptly upon the discovery that the presence of any such substance on any of their respective properties is not in full compliance, to remove the same (or if removal is prohibited by law, to take whatever action is required by law) at Borrower's sole expense. (p) Additional Title Insurance. If Borrower's operations, -------------------------- plant or equipment on its Siloam facility are to be expanded beyond the 190-acre area it presently occupies and which is described in the Mortgagee's title insurance policy delivered to the Agent pursuant to Subsection 3(a)(i)(D), Borrower will furnish the Agent with an updated ALTA Form B mortgage title policy (or such other form as is acceptable to the Agent) showing a first lien in favor of the Agent, for the benefit of the Lenders, on such expanded area. SECTION 9. NEGATIVE COVENANTS. Until payment in full of the Loans and ------------------ termination of all commitments by the Lenders to make Advances hereunder, neither Borrower nor any of the other Related Persons shall, without the prior written consent of the Required Lenders: (a) Debt. Create, incur, assume or permit to exist any ---- Debt, except: (i) The Loans and the Working Capital Facility; (ii) Debt incurred to finance the acquisition or construction by Borrower of one or more projects consistent with Borrower's covenant contained in Section 9(e) hereof and for which recourse is limited to the property included in the project and is no- recourse to Borrower and the Collateral; (iii) Obligations under leases, whether capital or operating leases, provided that the obligations payable in any one year do not, in the aggregate, exceed $2,000,000; (iv) Debt incurred pursuant to Borrower's or any Related Person's hedging activities related to such Person's line of business in the futures or commodities market such that (A) the liability under open lines of credit to finance futures contracts, commodities and/or option contracts does not exceed $1,000,000 in the aggregate at any one time outstanding, and (B) recourse is limited to Borrower's or such Related Person's position in futures contracts; (v) Current accounts and charges, payable or accrued, incurred in the ordinary course of Borrower's or any Related Person's business; and (vi) Debt under the RIMCO Loan in a maximum principal amount not to exceed at any one time outstanding (A) $11,500,000 from the date hereof through and including December 1, 1992, and (B) $500,000 thereafter. (b) Liens. Create, assume or permit to exist any mortgage, ----- pledge, security interest, lien or other encumbrance upon any Related Person's properties or assets, whether now owned or hereafter acquired, real or personal, except: (i) The Security Documents; (ii) Liens for taxes not delinquent or being contested in good faith and by appropriate proceedings and for which adequate reserves have been set aside on such Person's books; (iii) Operator's, mechanic's, workmen's, materialmen's and other like liens arising in the Ordinary Course of Business in respect of obligations not overdue or which are being contested in good faith and by appropriate proceedings and for which adequate reserves have been set aside on such Person's books and for which there is no risk of loss of any of the Collateral; (iv) Liens or encumbrances, if any, permitted by the Security Documents; and -23- (v) Liens securing Debt permitted by Section 9 (a) above. (c) Guaranty Obligations. Assume, guarantee, endorse or -------------------- otherwise become or be contingently liable upon (by direct or indirect agreement, contingent or otherwise, or by operation of law, to provide funds for payment, to supply funds to, or otherwise invest in, a debtor, or otherwise assure a creditor against loss) for the Debt, obligation, undertaking or other liability of any other Person, or otherwise become or be responsible in any manner (whether by agreement to purchase any obligations, stock, assets, goods or services, or to supply or advance any funds, assets, goods or services, or otherwise) with respect to any undertaking of any other Person, except (i) guarantees by Borrower of Debt incurred by MarkWest Energy Partners, Ltd. in connection with the Florida Mesa Project so long as such guarantees do not exceed $1,000,000 in the aggregate at any one time, and (ii) endorsements of negotiable instruments for deposit or collection and similar transactions in the ordinary course of its business. (d) Loans and Advances. Make any loans or advances to any ------------------ Person, except for (i) accounts receivable or notes receivable arising from the sale or lease of goods or services in the Ordinary Course of Business; (ii) as part payment in the Ordinary Course of Business on its ordinary equipment rental, repair, replacement and operating needs, or (iii) loans and advances to officers and employees of Borrower to the extent and in the amount reflected on in Exhibit L. --------- (e) Limitation on Investments and New Businesses. (i) Make -------------------------------------------- any expenditure or commitment or incur any obligation or enter into or engage in any transaction except in the Ordinary Course. of Business, (ii) engage directly or indirectly in any business or conduct any operations except in connection with gas processing and gathering, gas liquids fractionation, gas and gas liquids marketing, MTBE manufacturing, refining and marketing and gasoline blending and oil and gas production, (iii) make any acquisitions of or capital contributions to or other investments in any Person unless the following conditions are satisfied: (A) the investment is in a Person engaged in any of the businesses described in (e)(ii) above, and (B) Agent has received 10 days' advance notice of such investment. Notwithstanding the foregoing, the Related Persons may make (1) investments in open market commercial paper, maturing within 365 days after acquisition thereof, which has a credit rating of at least A-2 or P-2 by either Standard & Poor's Corporation or Moody's Investors Service, Inc., (2) marketable obligations issued or unconditionally guaranteed by the United States of America or an instrumentality or agency thereof and entitled to the full faith and credit of the United States of America, and (3) demand deposits, time deposits (including certificates of deposit), repurchase agreements, Eurodollar time deposits or bankers' acceptances, maturing in each case within 12 months from the date of deposit thereof, with a domestic office of either Lender. (f) Mergers and Consolidations. Merge or consolidate into -------------------------- or with any Person, or sell, lease, convey, transfer or otherwise dispose of all or a substantial part of its assets to or with any Person,'except: (i) a merger or consolidation in connection with the acquisition by Borrower of property or facilities as a result of a stock or equity transaction in the ordinary course of its business and after the consummation of which Borrower is the surviving entity; (ii) a merger or consolidation of any Consolidated Subsidiary of the Borrower with or into the Borrower, provided that the Borrower shall be the -------- continuing or surviving corporation; in both cases, so long as no Event of Default or Unmatured Event of Default has occurred or is continuing or would be caused by the consummation of such merger or consolidation and Agent shall have received within 10 days after such merger or consolidation a certificate from the chief financial officer or any Vice President of the General Partner that Borrower is in compliance with the provisions of this Agreement. (g) Location of Inventory. Borrower shall not store any of its --------------------- products or inventory except at the locations described in Exhibit J hereto --------- without giving the Agent notice of a change within 30 days thereof and the execution of any and all Security Documents the Agent and its counsel deem necessary or desirable to grant a perfected first priority lien in favor of Agent for the benefit of the Lenders in such products or inventory; notwithstanding the foregoing, Borrower shall not, under any circumstances, store any of its products or inventory in a location outside of the United States. (h) Burdensome Undertakings. Undertake, or become ----------------------- contractually bound to undertake, any action net in the Ordinary Course of Business that could materially adversely affect Borrower or its business, properties, prospects, assets, operations or condition (financial or otherwise). (i) Chance in Location of Business. Move its place of ------------------------------ business or chief executive office or the place where Borrower keeps its books and records concerning the Collateral (including, without limitation, the records with respect to its accounts and contract rights), from one state to another without giving the Agent 45 days' prior written notice of the proposed new location thereof. -24- (j) Restricted Distributions. Make any dividends or ------------------------ distributions of assets or declare or pay any cash or liquidating distribution or dividends or make any other distribution to any of its partners or shareholders, other than the following: (i) Whether or not an Event of Default. or Unmatured Event of Default has occurred or is continuing, Borrower may make distributions to each of its partners in an amount equal to such partner's estimated federal and state income tax liabilities (assuming each partner is taxable at the maximum marginal income tax rates) resulting from such partner's interest in Borrower. Such distribution shall not occur earlier than 30 days prior to the date such payments are due; (ii) So long as a Borrowing Base Deficiency does not exist and no Event of Default or Unmatured Event of Default has occurred, Borrower may make distributions in an aggregate cumulative amount not to exceed 75 percent of Borrower's net income, determined in accordance with GAAP and computed on a cumulative basis for all periods since December 31, 1991, taking into account allowable distributions previously declared or made since December 31, 1991; provided, however, -------- ------- that such distributions are allowable so long as they would not cause Borrower to be in contravention of the financial covenants contained in Sections S(k), (1), (m) and (n); and (iii) As to any Subsidiary of Borrower, the foregoing restrictions of this Section 9(j) shall not apply. (k) Disposition of Assets. Sell, transfer, lease, exchange --------------------- or otherwise dispose of any of its assets, real or personal, except as follows: (i) sales, transfers, leases, exchanges or other dispositions of assets by Borrower or any other Related Person in the Ordinary Course of Business; and (ii) sales, transfers, leases, exchanges or other dispositions of assets by Borrower and the other Related Persons not in the Ordinary Course of Business, so long as such transaction is on fair and reasonable terms and the proceeds from all such transactions do not exceed $250,000 in the aggregate in any calendar year. (1) ERISA. Establish, maintain or contribute to any ERISA ----- Plans or incur any obligation to contribute to any "multiemployer plan" as defined in Section 4001 of ERISA or represent, promise, or contract (in oral or written form) to any current or former employee (individually or as a group) that such current or former employee(s) would be provided, at any cost to any member of the Controlled Group, with any employee welfare benefits (as defined in Section 3(1) of ERISA) following retirement or termination of employment. (m) Use of Proceeds. Use any funds from the Loans directly --------------- or indirectly for the purpose, whether immediate, incidental or ultimate, of purchasing, acquiring or carrying any "margin stock' or any "margin securities" (as such terms are defined respectively in Regulation U and Regulation G promulgated by the Board of Governors of the Federal Reserve System) or to extend credit to others directly or indirectly for the purpose of purchasing or carrying any such margin stock or margin securities. (n) Transactions with Affiliates. Enter into any ---------------------------- transaction with any Affiliate, except any transaction that is in the ordinary course of such Related Person's business and that is upon fair and reasonable terms no less favorable to such Related Person than would obtain in a comparable arm's-length transaction with a Person not an Affiliate of such Related Person. (o) Contracts; Take-or-Pay Agreements. Amend or modify the --------------------------------- Columbia Contracts in any manner or permit any of them to be amended or modified or any term waived by any party thereto or assign any of its rights thereunder. Enter into any "take-or-pay" contract or other contract which requires it to pay for oil, gas, other hydrocarbons or other minerals prior to taking delivery thereof, provided that Borrower may enter into such contracts so long as the -------- term thereof does not exceed one year, and provided further that Borrower may -------- ------- enter into such contracts if the products purchased thereunder are needed by the associated facility at the time of delivery thereof. Examples of permitted contracts include (i) futures contracts to hedge (but not speculate) against future changes in prices and (ii) reciprocal exchange agreements or back to back contracts in which Borrower avoids the cost of all or a portion of the cost of transportation of natural gas or natural gas liquids (in this subsection called "gas and liquids") processed by -25- it by exchanging such gas and liquids for gas and liquids processed by others which are closer in location to Borrower's ultimate purchaser. Examples of prohibited contracts include: (1) essentially speculative contracts entered into primarily in hopes of bonefitting from price changes and (i) providing for the purchase of gas and liquids not covered by a back to back contract permitting an exchange or sale thereof within 180 days after the date of purchase or (ii) providing for the purchase of gas and liquids that will not be consumed in Borrower's operations within 180 days after the purchase thereof; and (2) contracts for the future sale or purchase of gas or liquids that are not for the purpose of facilitating the ultimate sale of gas or liquids owned, distributed or processed by Borrower. Notwithstanding the foregoing provisions of this section, Borrower may enter into speculative contracts not related to Borrower's operations primarily in hopes of benefitting from price changes so long as the aggregate liability (including contingent or potential liability) and costs of Borrower thereunder do not exceed $1,250,000 at any time. (p) Amendments to Organizational Documents. Amend the -------------------------------------- partnership agreement of Borrower or any other organizational document of any Related Person. (q) Amendments to RIMCO Loan Documents. Amend, modify or ---------------------------------- waive, or consent or acquiesce in the amendment, modification, or waiver of any term or provision of any document evidencing or securing the RIMCO Loan, or any other document executed in connection with the RIMCO loan. SECTION 10. EVENTS OF DEFAULT. The occurrence of any of the following ----------------- shall constitute an event of default ("Event of Default") hereunder: (a) Non-Payment. Failure by Borrower to (i) pay any ----------- installment of principal of, or interest on, the Notes, any fees or other amounts payable hereunder or under the Notes or any of the Security Documents within three Business Days after its due date, or (ii) comply with the provisions of Section 5 within the 30-day period set forth therein. (b) Certain Defaults. Failure by Borrower to perform or ---------------- observe any term, covenant, agreement, condition or provision contained in any of Sections 2(a)(ii), 8(b), (c)(ii), (g), (h), (k), (1), (m) or (n), or Sections 9 (a) through (q), inclusive. (c) Other Defaults. Failure by Borrower to perform or -------------- observe any other covenant, agreement, condition or provision contained in this Agreement or in the Notes (which covenant, agreement, condition or provision is not included in Subsection 10(a) or (b)), and such failure continues unremedied for a period of 30 days. (d) Representation or Warranty. Any representation or -------------------------- warranty of the Borrower, whether contained in this Agreement or in any certificate or other writing required or contemplated by this Agreement or in the Security Agreement, or any representation or warranty of any party to a Covenant Agreement shall be false or misleading in any material respect as of the date made or deemed made. (e) Security Documents and Covenant Agreements. (i) Occurrence of any of the events of default defined in any of the Security Documents or Covenant Agreements. (ii) Any of the Security Documents shall for any reason (other than pursuant to the terms thereof or as a direct result of any act or omission of Lenders or Agent) cease to create a valid security interest in the collateral purported to be covered thereby or such security interest shall for any reason cease to be a perfected and first priority lien and security interest, subject only to those matters expressly permitted by Section 9(b) hereof or by the applicable 'Security Document. (iii) Any of the Covenant Agreements shall cease to be in full force and effect. (iv) Failure of the General Partner or John Fox, as applicable, to perform or observe any covenant, agreement, condition or provision contained in its or his respective Covenant Agreement. (v) Failure by Borrower to perform or observe any term, covenant, agreement, condition or provision contained in the Security Agreement. -26- (f). Judgments. Any money judgment, writ or warrant of --------- attachment, or similar process in an amount of $250,000 (in the aggregate) or more shall be entered or filed against any Related Person or any of its assets and shall remain unvacated, unbonded or unstayed for a period of 30 calendar days, or in any event later than five calendar days prior to the date of any proposed sale thereunder. (g) Insolvency. Any Related Person or the General Partner ---------- shall become insolvent, admit in writing its inability to pay its debts as they mature, or make an assignment for the benefit of creditors; or apply for or consent to the appointment of a receiver or trustee for it or for a substantial part of its property or business; or such a receiver or trustee otherwise shall be appointed and shall not be discharged within 30 calendar days after such appointment. (h) Bankruptcy, Etc. Bankruptcy, insolvency, ---------------- reorganization or liquidation proceedings or other proceedings for relief under any bankruptcy law or any other law for the relief of debtors shall be instituted by or against any Related Person or the General Partner (except for an involuntary petition against any Related Person or the General Partner, which shall not constitute an Event of Default if such petition is vacated or dismissed within 15 Business Days after the filing thereof), or any order, judgment or decree shall be entered against any Related Person or the General Partner decreeing its dissolution or division. (i) Cross-Default. Any event of default shall occur as to ------------- any other agreement now or hereafter existing relating to extensions of credit to any Related Person or the General Partner by the Lenders or either of them, including without limitation the Working Capital Facility, or by any third party, including without limitation, the RIMCO Loan, or any event which with the passage of time or giving of notice, or both, would permit the holder or holders of such indebtedness to cause such indebtedness to be declared to be due and payable prior to its stated maturity. (j) ERISA. An employee benefit plan that is intended to be ----- qualified under the Code shall lose its qualification, and the loss can reasonably be expected to impose on the Controlled Group liability (for additional taxes to Plan participants, or otherwise) in the aggregate amount of $250,000 or more; any member of the Controlled Group engages in or becomes liable for a non-exempt prohibited transaction and the initial tax or additional tax under Section 4975 of the Code might reasonably be expected to exceed $100,000; a violation of Section 404 or 405 of ERISA or Section 401(a)(2) of the Code that can be reasonably expected to expose the Controlled Group to liability in excess of $250,000; any member of the Controlled Group is assessed a tax under Section 4980B of the Code or is liable for failure to comply with the Section 4980B notice and continuation coverage requirements that can be reasonably expected to result in liability to the Controlled Group in excess of $250,000; any member of the Controlled Group is assessed a penalty under-Section 502(c)(2) of ERISA or Section 6652(e) of the Code that can be reasonably expected to expose the Controlled Group to liability in excess of $250,000; or any combination of the foregoing events that involves potential liability in excess of $250,000. (k) Loan Documents. This Agreement, the Notes, any of the -------------- other Loan Documents or any of the Covenant Agreements shall for any reason be revoked or invalidated, or otherwise cease to be in full force and effect, except as a direct result of the acts or omissions of the Agent or the Lenders. (1) Material Adverse Change. Any material adverse change ----------------------- occurs in Borrower's financial condition or business or operations (including, without limitation, any material adverse change caused by Borrower becoming subject to any statute, regulation or order of any governmental authority after the date hereof). (m) Partners of Borrower. The General Partner ceases to be -------------------- the sole general partner of Borrower. Any change occurs in the identity or ownership interests of any limited partner of Borrower owning at least a 10% interest at such time, other than pursuant to the Employee Option Agreement or pursuant to the RIMCO Loan documents. (n) Ownership of the General Partner. John Fox and the members of his immediate family cease to own collectively at least seventy-five percent (75%) of the issued and outstanding voting stock of General Partner. (o) Failure to be a Partnership. Borrower is not treated as --------------------------- a partnership for federal income tax purposes. (p) Columbia Contracts. Any of the Columbia Contracts shall ------------------ cease to be in full force and effect for any reason, including, without limitation, as the result of being rejected or disaffirmed by Columbia Gas Transmission Corporation, a debtor in possession under federal bankruptcy laws. -27- (q) Regulatory Change. There shall be any legislative ----------------- action by any local, state or federal agency or other governmental entity resulting in any regulatory control of Borrower's operations, the result of which has or could have, in Lenders' reasonable opinion, a significant financial impact on, or control of, its financial condition. SECTION 11. REMEDIES. (a) Automatic Acceleration of Loan. Upon the -------- occurrence of any Event of Default specified in Section 10(g) or (h), the obligation of the Lenders to make Advances under the Loans shall automatically terminate and the unpaid principal amount of the Loans and all interest and other amounts payable hereunder, under the Notes or any of the Security Documents, shall automatically become due and payable without further act of the Agent or the Lenders. (b) Optional Acceleration of Loan. Upon the occurrence of ----------------------------- any Event of Default (other than those specified in Section ll(a) above, the Agent may, from time to time, do any or all of the following: (i) Declare all or any part of the Loans to be forthwith due and payable, together with all accrued and unpaid interest thereon and all other amounts payable hereunder or under any of the other Loan Documents, without presentment, demand, protest or other notice of any kind, all of which are expressly waived by Borrower; (ii) Declare the Commitments terminated; (iii) With respect to any and all contingent, unmatured or unliquidated obligations of Borrower hereunder, declare and require that cash in an amount equal to the aggregate outstanding amount of all such obligations be immediately paid over, pledged and delivered to the Agent on behalf of the Lenders to be held as cash collateral for such obligations; and (iv) Proceed with every remedy provided for herein or in the Notes, the Security Documents or any contract, agreement or undertaking supplemental hereto and the Lenders shall have, without limitation, all of the rights of a secured party under the Uniform Commercial Codes as then in effect with respect to any security then held for the Loans. The enforcement of any rights of the Agent and the Lenders as to the security for the Loans shall not affect the rights of the Agent or the Lenders to enforce payment of the Loans against Borrower and to recover judgment against Borrower for any portion thereof remaining unpaid. (c) Setoff. Upon the occurrence of any Event of Default, ------ each Lender shall have the right at any time and from time to time, without prior notice to Borrower (which notice is hereby waived by Borrower to the fullest extent permitted by law), to setoff and apply any debt owing to Borrower by such Lender, including without limitation, any deposits (general or special, time or Lender, against any and all obligations of Borrower now or hereafter existing under this Agreement or any of the other Loan Documents, although such obligations may be contingent or unmatured, and for such purpose Borrower hereby grants a security interest in and assigns to each Lender all such deposit accounts. SECTION 12. THE AGENT. --------- (a) Appointment. Each Lender hereby irrevocably designates an ----------- d appoints Norwest as the Agent of such Lender under this Agreement and the other Loan Documents, and each such Lender irrevocably authorizes Norwest as the Agent for such Lender, to take such action on its behalf under the provisions of this Agreement and the other Loan Documents and to exercise such powers and perform such duties as are expressly delegated to the Agent by the terms of this Agreement and the other Loan Documents, together with such other powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary contained elsewhere in this Agreement, the Agent shall not have any duties or responsibilities, except those expressly set forth herein, or any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan DOcument or otherwise exist against the Agent. (b) Delegation of Duties. The Agent may execute any of its -------------------- duties under this Agreement and the other Loan Documents by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters -28- pertaining to such duties. The Agent shall not be responsible to the Lenders for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care. (c) Exculpatory Provisions. Neither the Agent nor any of ---------------------- its officers, directors, employees, agents, attorneys-in-fact or affiliates shall be (i) liable for any action lawfully taken or omitted to be taken by it or such Person or entity under or in connection with this Agreement or any other Loan Document (except for its or such Person's or entity's own gross negligence or willful misconduct), or (ii) responsible in any manner to any of the Lenders for any recitals, statements, representations or warranties made by the Borrower or any representative thereof contained in this Agreement or any other Loan Document or in any certificate, report, statement or other document referred to or provided for in, or received by the Agent under or in connection with, this Agreement or any other Loan Document or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or the Notes or any other Loan Document or for any failure of the Borrower to perform its obligations hereunder or thereunder. The Agent shall not be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Loan Document, or to inspect the properties, books or records of the Borrower. (d) Reliance by Agent. The Agent shall be entitled to rely, ----------------- and shall be fully protected in relying, upon any Note, writing, resolution, notice, consent, certificate,. affidavit, letter, telecopy or telex message, statement, order or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper person or persons and upon advice and statements of legal counsel (including, without limitation, counsel to the Borrower), independent accountants and other experts selected by the Agent. The Agent may deem and treat the payee of any Note as the owner thereof for all purposes unless a written notice of assignment, negotiation or transfer thereof shall have been filed with the Agent. The Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Loan Document unless it shall first receive such advice or concurrence of the Required Lenders as it deems appropriate or it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement and the Notes and the other Loan Documents in accordance with a request of the Required Lenders,. and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Lenders and all future holders of the Notes. (e) Notice of Default. The Agent shall not be deemed to ----------------- have knowledge or notice of the occurrence of any Unmatured Event of Default or Event of Default hereunder unless the Agent has received notice from a Lender or the Borrower referring to this Agreement, describing such Unmatured Event of Default or Event of Default and stating that such notice is a "notice of default." In the event that the Agent receives such a notice, the Agent shall give notice thereof to the Lenders. (f) Non-Reliance on Agent and Other Lenders. Each Lender --------------------------------------- expressly acknowledges that neither the Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or affiliates has made any representations or warranties to it and that no act by the Agent hereinafter taken, including any review of the affairs of the Borrower, shall be deemed to constitute any representation or warranty by the Agent to any Lender. Each Lender represents to the Agent that it has, independently and without reliance upon the Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, financial and other condition and creditworthiness of the Borrower and made its own decision to make its Loans hereunder and enter into this Agreement. Each Lender also represents that it will, independently and without reliance upon the Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigation as it deems necessary to inform itself as to the business, operations, property, financial and other condition and creditworthiness of the Borrower. Except for notices, reports and other documents expressly required to be furnished to the Lenders by the Agent hereunder, the Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, operations, property, condition (financial or otherwise), prospects or creditworthiness of the Borrower which may come into the possession of the Agent or any of its officers, directors, employees, agents, attorneys-in-fact or affiliates. (g) Indemnification. The Lenders agree to indemnify the --------------- Agent in its capacity as such (to the extent not reimbursed by the Borrower and without limiting the obligation of the Borrower to do so), ratably according to the respective amounts of their original Commitments, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever which may at any time (including, without limitation, at any time following the payment of the Notes) be imposed on, incurred by or asserted against the Agent in any way relating to or arising out of this Agreement, any of the other Loan Documents or the transactions contemplated hereby or thereby or any action taken or omitted -29- by the Agent under or in connection with any of the foregoing; provided that no Lender shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting solely from the Agent's gross negligence or willful misconduct. The agreements in this subsection shall survive the payment of the Notes and all other amounts payable hereunder. (h) Agent and Lenders in Their Individual Capacity. Each of ---------------------------------------------- The Agent, the Lenders and their respective affiliates may make loans to, accept deposits from and generally engage in any kind of business with the Borrower as though such Person was not the Agent and/or a Lender, as the case may be, hereunder and under the other Loan Documents. With respect to Advances made by it and any Note issued to it, the Agent shall have the same rights and powers under this Agreement and the other Loan Documents as any Lender and may exercise the same as though it were not the Agent, and the terms "Lender" and "Lenders" shall include the Agent in its individual capacity. (i) Successor Agent. The Agent may resign as Agent upon 10 --------------- days' notice to the Lenders. If the Agent shall resign as Agent under this Agreement and the other Loan Documents, then the Required Lenders shall appoint from among the Lenders a successor agent for the Lenders, which successor agent shall be approved by the Borrower, whereupon such successor agent shall succeed to the rights, powers and duties of the Agent, and the term "Agent" shall mean such successor agent effective upon its appointment, and the former Agent's rights, powers and duties as Agent shall be terminated, without any other or further act or deed on the part of such former Agent or any of the parties to this Agreement or any holders of the Notes, other than to give notice of the appointment of such successor agent to Borrower. Borrower is entitled to rely upon the existing Agent until Borrower has received notice of the appointment of a successor agent. After any retiring Agent's resignation as Agent, the provisions of this subsection shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement and the other Loan Documents. (j) Agent's Fee. To compensate Agent for performing its ----------- duties under the Loan Documents and for expenses incurred by Agent in connection with such performance, Borrower shall pay to Agent an agent's fee in an amount mutually agreed upon by Borrower and Agent. (k) Borrower Entitled to Rely on Agent. Borrower shall be ---------------------------------- entitled to rely upon the Agent's written actions and representations. SECTION 13. MISCELLANEOUS. ------------- (a) No Waiver; Cumulative Remedies. No delay on the part of the Agent or any Lender in exercising any right, power, privilege or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise or waiver of any right, power, privilege, or remedy hereunder preclude any other or further exercise of such right, power, privilege, or remedy hereunder or the exercise of any other right, power or privilege or remedy. The rights and remedies of the Agent and the Lenders contained herein are cumulative and not exclusive of any right or remedy which the Agent and the Lenders shall otherwise have pursuant to the Security Documents, the Notes or applicable law. The obligations of Borrower contained herein are cumulative, and compliance by Borrower with any covenant shall not excuse compliance by Borrower with any other covenant. (b) Notices. All notices given hereunder shall be in ------- writing, shall be given by certified mail, return receipt requested, overnight courier service, telecopy, facsimile or copy delivered by hand, and, (i) if mailed, shall be deemed received three Business Days after having been deposited in a receptacle for United States mail, postage prepaid, (ii) if delivered by overnight air courier service, shall be deemed received one Business Day after having been deposited with such overnight air courier service, postage prepaid, and (iii) if delivered by telex, telecopy or hand delivery, shall be deemed received on the day the notice is sent, in each case addressed as follows: If to Borrower, to: MarkWest Hydrocarbon Partners, Ltd. 5613 DTC Parkway, Suite 400 Englewood, Colorado 80111 Attention: Finance Department Fax. No.: (303) 290-8769 -30- If to the Lenders, to: Norwest Bank Denver, National Association 1700 Broadway Denver, Colorado 80274-0099 Attention: Energy and Minerals Group Fax. No.: (303) 863-5196 First American National Bank 4894 Poplar Avenue Memphis, TN 38117 Attention: National Accounts Fax. No.: (901) 762-5665 If to the Agent, to: Norwest Bank Denver, National Association 1700 Broadway Denver, Colorado 80274-0099 Attention: Energy and Minerals Group Fax. No.: (303) 863-5196 Any party may, by written notice so delivered to the others, change the address or facsimile number to which delivery shall thereafter be made. (c) Counterpart Execution. This Agreement may be executed ---------------------- in any number of counterparts which together will be but one and the same instrument. This Agreement shall become effective whenever each party shall have signed at least one counterpart. (d) Governinq Law; Entire Agreement. THIS AGREEMENT AND THE -------------------------------- NOTES SHALL BE DEEMED TO BE CONTRACTS UNDER THE LAWS OF COLORADO AND FOR ALL PURPOSES SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF SUCH STATE. Such documents and any other Loan Documents, together with the Security Documents, constitute and incorporate the entire agreement between the Agent, the Lenders and Borrower concerning the subject matter hereof and thereof, and supersede and cancel any prior or contemporaneous agreements, verbal or written, between the Agent, the Lenders and Borrower concerning the subject matter hereof and thereof. (e) Amendments and Waivers. No waiver of any provision of ----------------------- this Agreement, the Notes, the Covenant Agreements or any of the Security Documents, and no consent with respect to any departure by Borrower therefrom or by the respective parties to the Covenant Agreements, shall be effective unless the same shall be in writing and signed by the Agent, at the direction of the Required Lenders. No amendment of any provision of this Agreement shall be effective unless the same shall be in writing and signed by the Agent and the Required Lenders. All consents, waivers and other action to be taken by the Lenders hereunder shall only be taken upon approval of the Required Lenders. Any waiver shall be effective only in the specific instance and for the specific purpose for which given. Any consent or approval contemplated herein by, the Required Lenders or the Lenders may be granted or withheld in the sole discretion of such Persons. (f) Costs, Expenses and Indemnity. Borrower shall reimburse and pay the Agent, the Issuer and the Lenders for all fees, costs and expenses (including, without limitation, attorneys' fees, court costs and legal expenses and consultants' and experts' fees and expenses, the costs of the Agent's inspection of the Collateral and the costs and expenses of title or lien searches -31- and filing and recording fees and expenses), reasonably incurred or expended in connection with (i) the preparation, execution and delivery of this Agreement, the Notes and the other Loan Documents, subject however, to the terms of the letter agreement between Borrower and the Agent regarding the maximum legal fees to be charged by the Agent's counsel for the preparation and execution of the Loan Documents to be delivered at closing, (ii) the enforcement of this Agreement, the Notes and the other Loan Documents and any amendments, waivers or modifications of such documents, (iii) the breach by Borrower of any representation or warranty contained in this Agreement, the Security Documents or any other Loan Document, (iv) the failure by Borrower to perform any agreement, covenant, condition, indemnity or obligation contained in this Agreement, the Security Documents or any other Loan Document, (v) the Agent's or the Lenders' exercise of any of their rights and remedies under this Agreement, the Security Documents and the other Loan Documents, or (vi) the protection of the Collateral and the liens thereon and security interests therein. Borrower shall indemnify, defend and hold harmless the Agent, the Issuer and each Lender and persons or entities owned or controlled by or affiliated with such Persons and their respective directors, officers, shareholders, partners, employees, consultants and agents (herein individually called an "Indemnified Party," and ----------- ----- collectively called "Indemnified Parties") from and against, and reimburse and ----------- ------- pay Indemnified Parties with respect to, any and all claims, demands, ----------- ------- liabilities, losses, damages (including, without limitation, actual, consequential, exemplary and punitive damages), causes of action, judgments, penalties, fees, costs and expenses (including, without limitation, attorneys' fees, court costs and legal expenses and consultants' and experts' fees and expenses), of any and every kind or character, known or unknown, fixed or contingent, that may be imposed upon, asserted against or connection with, or arising out of (a) any bodily injury or death or property damage occurring in or upon or in the vicinity of the Collateral through any cause whatsoever, (b) any act performed or omitted to be performed hereunder or the breach of or failure to perform any warranty, representation, indemnity, covenant, agreement or condition contained in this Agreement, the Security Documents or any other Loan Documents, (c) any transaction, act, omission, event or circumstance arising out of or in any way connected with the Collateral or with this Agreement, the Security Documents or any other Loan Documents, and (d) subject to the exceptions and limitations contained in the Mortgages, the violation of or failure to comply with any statute, law, rule, regulation or order now existing or hereafter occurring, including without limitation, "Environmental Laws" (as defined in the Mortgages) and statutes, laws, rules, regulations and orders relating to "Hazardous Substances" (as defined in the Mortgages). The foregoing indemnities shall not apply to any Indemnified Party to the extent the subject of the indemnification is caused by or arises out of the gross negligence or willful misconduct of that or another Indemnified Party or a successful suit by Borrower against such Indemnified Party. If Borrower and the Indemnified Party are jointly named in any action covered by this Section 13, the Indemnified Party shall cooperate in the defense of such action to the extent its own rights or defenses are not compromised thereby. Subject to the exceptions and limitations contained in the Mortgages, the foregoing indemnities shall not terminate upon release, foreclosure or other termination of this Agreement or the Security Documents, but shall survive such release, foreclosure or termination and the repayment of the Loans. Any amount to be paid hereunder by Borrower to the Agent, the Issuer or any Lender or for which Borrower has indemnified an Indemnified Party shall be a demand obligation owing by Borrower to the Agent, the Issuer or such Lender and shall bear interest at the Late Payment Rate until paid, and shall constitute a part of the Loans and be indebtedness secured by the Security Documents. (g) Inconsistent Provisions; Severability. In case of any ------------------------------------- irreconcilable conflict between the provisions of this Agreement and those of the Security Documents and the Notes, the provisions of this Agreement shall govern. The invalidity, illegality or unenforceability of any provision of any of the Loan Documents shall not in any way affect or impair the legality or enforceability of the remaining provisions of each of the Loan Documents. (h) Incorporation of Exhibits and Schedules. All Exhibits --------------------------------------- and Schedules attached to this Agreement are a part hereof and are incorporated herein for all purposes. (i) Amendment of Defined Instruments. Unless the context -------------------------------- otherwise requires or unless otherwise provided herein the terms defined in this Agreement which refer to a particular agreement, instrument or document also refer to and include all renewals, extensions and modifications of such agreement, instrument or document, provided that nothing contained in this section shall be construed tO authorize any such renewal, extension or modification. (j) References and Titles. All references in this Agreement --------------------- to Exhibits, Schedules, Sections and Subsections and other subdivisions refer to the Exhibits, Schedules, Sections and Subsections and other subdivisions of this Agreement unless expressly provided otherwise. Headings are for convenience only and do not constitute any part of such subdivisions and shall be disregarded in construing the language contained in such subdivisions. The words "this Agreement", "this instrument", "herein", "hereof", "hereby", "hereunder" and words of similar import refer to this Agreement as a whole and not to any particular subdivision unless expressly so limited. Pronouns in masculine, feminine and neuter genders shall be construed to include any other gender, and words in the singular form shall be construed to include the plural and vice versa, unless the context otherwise requires. -32- (k) Calculations and Determinations. Unless otherwise ------------------------------- expressly provided herein or unless the Lenders otherwise consent, all financial statements and reports furnished to the Agent or the Lenders hereunder shall be prepared and all financial computations and determinations pursuant hereto shall be made in accordance with GAAP. (1) Usury. It is not intended hereby to charge interest at ----- a rate in excess of the maximum rate of interest that the Agent and the Lenders may charge to Borrower under applicable usury and other laws, but if, notwithstanding, interest in excess of such rate shall be paid hereunder, the interest rates provided for herein shall be adjusted to the maximum permitted under applicable law during the period or periods that any of the interest rates otherwise provided herein would exceed such rate and any excess amount applied at the Lenders' option to reduce the outstanding principal balance of the Loans or to be returned to Borrower. (m) Waiver of Right to Trial by Jury. EACH PARTY TO THIS -------------------------------- AGREEMENT HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (a) ARISING UNDER THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR (b) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR THE TRANSACTIONS RELATED HERETO OR THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING; AND EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. (n) Successors and AssiqnS. This Agreement shall be binding ---------------------- upon and shall inure to the benefit of the parties hereto and their respective successors and assigns, except that Borrower may not transfer or assign any of its rights or obligations hereunder without the Agent's, the Issuer's and each of the Lenders' prior written consent. The Notes, this Agreement and any other Loan Document may be endorsed, assigned, or transferred in whole or in part by any Lender, and any subsequent holder and assignee of same shall succeed to and be possessed of the rights of such Lender under such documents to the extent transferred and assigned; provided however, that such endorsement, assignment or transfer shall not be binding upon Borrower until Borrower has received written notice of such endorsement, assignment or transfer. (o) Term of Agreement. Except as set forth in Section ----------------- 13(f), this Agreement shall continue in full force and effect so long as any indebtedness or other obligation of Borrower to the Lenders remains unpaid or outstanding or Borrower has any right to Advances hereunder. (p) Jurisdiction. At the option of the Agent or the ------------ Lenders, an action may be brought to enforce this Agreement in the District Court in and for the City and County of Denver, State of Colorado, in the United States District Court for the District of Colorado or in any other court in which venue and jurisdiction are proper. Borrower and all guarantors hereof consent to venue and jurisdiction in the District Court in and for the City and County of Denver, State of Colorado and in the United States District Court for the District of Colorado and to jurisdiction and service of process under Sections 13-1-124(1)(a) and 13-1-125, Colorado Revised Statutes (1973), as amended, in any action commenced to enforce this Agreement. EXECUTED to be effective as of the day and year first above written. MARKWEST HYDROCARBON PARTNERS, LTD. By: MarkWest Hydrocarbon, Inc. General Partner By By /s/ Patrick W. Murray Patrick W. Murray, Vice President -33- NORWEST BANK DENVER, NATIONAL ASSOCIATION, individually and as Agent By /s/ Mark Williamson ___________________________ Mark Williamson, Vice President FIRST AMERICAN NATIONAL BANK By /s/ David C. May ____________________________ David C. May, Vice President -34- EXHIBIT A - --------- FORM OF TERM NOTE --------- $6,750,000.00 Denver, Colorado November 20, 1992 MARKWEST HYDROCARBON PARTNERS, LTD., a Colorado limited partnership, ("Borrower"), with an address of 5613 DTC Parkway, Suite 400, Englewood, CO 80111, for value received, hereby promises to pay to the order of , a national banking association ("Lender"), on or before December 31, 1998, the principal sum of Six Million Seven Hundred Fifty Thousand Dollars ($6,750,000.00), together with interest on the outstanding unpaid principal balance at the Adjusted Prime Rate as provided in the Loan Agreement of even date herewith between Borrower, Norwest Bank Denver, National Association, individually and as agent, and First American National Bank (the "Loan Agreement"). ------ This Note is one of the notes referred to in the Loan Agreement as the Term Notes, and is issued pursuant to, and is subject to the terms and provisions of, the Loan Agreement. All capitalized terms used herein but not otherwise defined shall have the meanings set forth in the Loan Agreement. The outstanding principal amount of this Note shall be payable as provided in the Loan Agreement, in twenty-four equal quarterly installments due on the last day of each calendar quarter, commencing March 31, 1993, as more fully described in the Loan Agreement. The entire outstanding principal balance of this Note shall be due and payable on or before December 31, 1998 (unless payable sooner pursuant to the terms of the Loan Agreement), together with accrued and unpaid interest thereon. Interest shall accrue daily, shall be payable on the last day of each calendar quarter, commencing December 31, 1992 and at the maturity of this Note, and shall be calculated on the basis of a 365 or 366-day year, as appropriate. All payments of principal and interest hereof shall be made as provided in the Loan Agreement in immediately available funds and without set-off or counterclaim or deduction of any kind. Notwithstanding anything to the contrary contained in this Note, overdue principal, and (to the extent permitted under applicable law) overdue interest, whether caused by acceleration of maturity or otherwise, shall bear interest at the Late Payment Rate and shall be immediately due and payable. A-1 It is not intended hereby to charge interest at a rate in excess of the maximum rate of interest that Lender may charge to Borrower under applicable usury and other laws, but if, notwithstanding, interest in excess of such rate shall be paid hereunder, the interest rate on this Note shall be adjusted to the maximum permitted under applicable law during the period or periods that the interest rate otherwise provided herein would exceed such rate and any excess amount applied at Lender's option to reduce the outstanding principal balance of this Note or to be returned to Borrower. This Note is secured by, and the holder of this Note is entitled to the benefits of the Security Documents described in the Loan Agreement. Reference is made to the Security Documents for a description of the property covered thereby and the rights, remedies and obligations of the holder hereof in respect thereto. Lender shall maintain a record of the advances hereunder and all payments made on this Note until Lender has been repaid in full, as set forth on Schedule I hereto; provided however, that the failure, error or omission by Lender to maintain such a record shall not diminish or otherwise affect the obligation of Borrower to repay the amount outstanding hereunder and any other amounts due to Lender. If Borrower fails to pay any amount due under this Note and Lender has to take any action to collect the amount due or to exercise its rights under this Note or the Security Documents, including without limitation retaining attorneys for collection of this Note, or if any suit or proceeding is brought for the recovery of all or any part of or for protection of the Obligations or to foreclose the Security Documents or to enforce Lender's rights under the Security Documents, then Borrower agrees to pay on demand all costs and expenses of any such action to collect, suit or proceeding, or any appeal of any such suit or proceeding, incurred by the holder hereof, including without limitation the fees and disbursements of attorneys for the holder hereof. Borrower, and all endorsers, sureties and guarantors of this Note, hereby severally waive demand, presentment for payment, notice of dishonor, notice of acceleration or intent to accelerate, protest, notice of protest, diligence in collecting and assents to any extension of time with respect to any payment due under this Note, to any substitution or release of collateral and to the addition or release of any party. No waiver by Lender of any payment or other right under this Note shall operate as a waiver of any other payment or right. A-2 If any provision in this Note shall be held invalid, illegal or unenforceable in any jurisdiction, the validity, legality or enforceability of any defective provisions shall not be in any way affected or impaired in any other jurisdiction, nor shall the invalid, illegal or unenforceable provision affect or impair any other provision of this Note. No delay or failure of the holder of this Note in the exercise of any right or remedy provided for hereunder shall be deemed a waiver of such right by the holder hereof, and no exercise of any right or remedy shall be deemed a waiver of any other right or remedy that the holder may have. Any notices given hereunder shall be in writing and shall be given as provided in the Loan Agreement. At the option of Lender, an action may be brought to enforce this Note in the District Court in and for the City and County of Denver, State of Colorado, in the United States District Court for the District of Colorado or in any other court in which venue and jurisdiction are proper. Borrower and all endorsers, sureties and guarantors hereof consent to venue and jurisdiction in the District Court in and for the City and County of Denver, State of Colorado and in the United States District Court for the District of Colorado and to jurisdiction and service of process under Sections 13-1-124(!)(a) and 13-1-125, Colorado Revised Statutes (1973), as amended, in any action commenced to enforce this Agreement. THIS NOTE IS TO BE GOVERNED BY AND CONSTRUED ACCORDING TO THE LAWS OF THE STATE OF COLORADO. MARKWEST HYDROCARBON PARTNERS, LTD. By: MarkWest Hydrocarbon, Inc. General Partner By Patrick W. Murray, Vice President & A-3 Schedule I ---------- Date Principal Amount of Term Loan - ------------ Amount of Payment Outstanding Principal Balance . A-I -1 EXHIBIT B --------- FORM OF REVOLVER NOTE ------------- $10,000,000.00 Denver, Colorado November 20, 1992 MARKWEST HYDROCARBON PARTNERS, LTD., a Colorado limited partnership, ("Borrower"), with an address of 5613 DTC Parkway, Suite 400, Englewood, CO 80111, for value received, hereby promises to pay to the order of , a national banking association ("Lender"), on or before December 31, 1998, the principal sum of Ten Million Dollars ($10,000,000.00), or so much thereof as may be advanced by Lender pursuant to the Loan Agreement of even date herewith between Borrower, Norwest Bank Denver, National Association, individually and as agent, and First American National Bank (the "Loan Agreement"), together with interest on the ------------ outstanding unpaid principal balance at the Adjusted Prime Rate as provided in the Loan Agreement. This Note is one of the notes referred to in the Loan Agreement as the Revolver Notes, and is issued pursuant to, and is subject to the terms and provisions of, the Loan Agreement. All capitalized terms used herein but not otherwise defined shall have the meanings set forth in the Loan Agreement. As of December 31, 1994, the aggregate unpaid principal amount outstanding under this Note shall be repaid to Lender in sixteen equal quarterly installments, commencing March 31, 1993, as more fully provided in the Loan Agreement, together with accrued and unpaid interest thereon. All remaining outstanding principal of and interest on this Note shall be due and payable no later than December 31, 1998. Interest shall accrue daily, shall be payable on the last day of each calendar quarter, commencing December 31,. 1992 and at the maturity of this Note, and shall be calculated on the basis of a 365 or 366-day year, as appropriate. All payments of principal and interest hereof shall be made as provided in the Loan Agreement in immediately available funds and without set- off or counterclaim or deduction of any kind. Notwithstanding anything to the contrary contained in this Note, overdue principal, and (to the extent permitted under applicable law) overdue interest, whether caused by acceleration of maturity or otherwise, shall bear interest at the Late Payment Rate and shall be immediately due and payable. B-1 It is not intended hereby to charge interest at a rate in excess of the maximum rate of interest that Lender may charge to Borrower under applicable usury and other laws, but if, notwithstanding, interest in excess of such rate shall be paid hereunder, the interest rate on this Note shall be adjusted to the maximum permitted under applicable law during the period or periods that the interest rate otherwise provided herein would exceed such rate and any excess amount applied at Lender's option to reduce the outstanding principal balance of this Note or to be returned to Borrower. This Note is secured by, and the holder of this Note is entitled to the benefits of the Security Documents described in the Loan Agreement. Reference is made to the Security Documents for a description of the property covered thereby and the 'rights, remedies and obligations of the holder hereof in respect thereto. Lender shall maintain a record of all advances hereunder and all payments made on this Note until Lender has been repaid in full, as set forth on Schedule I hereto; provided, however that the failure, error or omission by ------------------ Lender to maintain such a record shall not diminish or otherwise affect the obligation of Borrower to repay the amount outstanding hereunder and any other amounts due to Lender. If Borrower fails to pay any amount due under this Note and Lender has to take any action to collect the amount due or to exercise its rights under this Note or the Security Documents, including without limitation retaining attorneys for collection of this Note, or if any suit or proceeding is brought for the recovery of all or any part of or for protection of the Obligations or to foreclose the Security Documents or to enforce Lender's rights under the Security. Documents, then Borrower agrees to pay on demand all costs and expenses of any such action to collect, suit or proceeding, or any appeal of any such suit or proceeding, incurred by the holder hereof, including without limitation the fees and disbursements of attorneys for the holder hereof. Borrower, and all endorsers, sureties and guarantors of this Note, hereby severally waive demand, presentment for payment, notice of dishonor, notice of acceleration or intent to accelerate, protest, notice of protest, diligence in collecting and assents to any extension of time with respect to any payment due under this Note, to any substitution or release of collateral and to the addition or release of any party. No waiver by Lender of any payment or other right under this Note shall operate as a waiver of any other payment or right. B-2 If any provision in this Note shall be held invalid, illegal or unenforceable in any jurisdiction, the validity, legality or enforceability of any defective provisions shall not be in any way affected or impaired in any other jurisdiction, nor shall the invalid, illegal or unenforceable provision affect or impair any other provision of this Note. No delay or failure of the holder of this Note in the exercise of any right or remedy provided for hereunder shall be deemed a waiver of such right or remedy by the holder hereof, and no exercise of any right or remedy shall be deemed a waiver of any other right or remedy that the holder may have. Any notices given hereunder shall be in writing and shall be given as provided in the Loan Agreement. At the option of Lender, an action may be brought to enforce this Note in the District Court in and for the City and County of Denver, State of Colorado, in the United States District Court for the District of Colorado or in any other court in which venue and jurisdiction are proper. Borrower and all endorsers, sureties and guarantors hereof consent to venue and jurisdiction in the District Court in and for the City and County of Denver, State of Colorado and in the United States District Court for the District of Colorado and to jurisdiction and service of process under Sections 13-1-124(1)(a) and 13-1-125, Colorado Revised Statutes (1973), as amended, in any action commenced to enforce this Agreement. THIS NOTE IS TO BE GOVERNED BY AND CONSTRUED ACCORDING TO THE LAWS OF THE STATE OF COLORADO. MARKWEST HYDROCARBON PARTNERS, LTD. By: MarkWest Hydrocarbon, Inc. General Partner By Patrick W. Murray, Vice President . 4 B-3 Date Schedule I ---------- Principal Amount of Advance ---------- Amount of Payment Outstanding Principal Balance . ~ B-!-I EXHIBIT C --------- MARKWEST HYDROCARBON PARTNERS, LTD. REQUEST FOR ADVANCE UNDER THE ----------------------------- REVOLVER/TERM LOAN ------------------ Reference is made to that certain Loan Agreement dated as of.November 20, 1992 (as from time to time amended, the "Agreement"), among MarkWest Hydrocarbon Partners, Ltd. ("Borrower"), Norwest Bank Denver, National Association, individually and as agent, and First American National Bank (collectively, the "Lenders"). Capitalized terms not otherwise defined heroin shall have the meaning assigned to them in the Agreement. Pursuant to the terms of the Agreement, Borrower hereby requests the Lenders to make an advance to Borrower in the amount of $ ,such advance being evidenced by the Notes, and specifies ,-199 , as the date Borrower desires for the Lenders to make such advance. Borrower and the officer of the General Partner of Borrower signing this instrument hereby certify that: (a) Such officer is the duly elected, qualified and acting officer of the General Partner of Borrower as indicated below such officer's signature hereto. (b) The representations and warranties of Borrower set forth in Section 7 of the Agreement and in the Security Documents are true and correct on and as of the date hereof, with the same effect as though such representations and warranties had been made on and as of the date hereof. (c) Borrower has performed or observed all terms, agreements, conditions and obligations in the Agreement and under the Security Documents required to be performed or observed by Borrower on or prior to the date hereof (except those waived in writing by the Lenders), and each of the conditions precedent to Advances contained in the Agreement remains satisfied in all respects. (d) No Event of Default or Unmatured Event of Default has occurred and is continuing, or would result from the making of the requested Advance. Borrower will use the advance hereby requested in compliance with the Agreement. C-1 IN WITNESS WHEREOF, this instrument is executed as of , 199-. MARKWEST HYDROCARBON PARTNERS, LTD. By: MarkWest Hydrocarbon, Inc. General Partner By: Patrick W. Murray, Vice President C-2 . & EXHIBIT D-1 COVENANT AGREEMENT ------------------------------ (STOCKHOLDER) ------------- THIS COVENANT AGREEMENT (this "Agreement") dated as of November 20, 1992 is made ------------ by JOHN FOX, a Colorado resident ("Stockholder"), in favor of NORWEST BANK DENVER, NATIONAL ASSOCIATION, a national banking association, as agent (the "Agent") for itself, and FIRST AMERICAN NATIONAL BANK, a national banking association (Agent, in its individual capacity, and First American National Bank are collectively called "Lenders"). WITNESSETH: WHEREAS, Stockholder and his wife own directly or indirectly eighty-five percent (85%) of the outstanding shares of stock of MarkWest Hydrocarbon, Inc., a Colorado corporation, the general partner of Markwest Hydrocarbon Partners, Ltd., a Colorado limited partnership ("Borrower"); WHEREAS, Borrower has executed in favor of Lenders those two certain promissory notes of even date herewith, each payable to the order of one of the Lenders, in an aggregate principal amount not to exceed $5,000,000 (such promissory notes, as from time to time amended, and all promissory notes given in substitution, renewal or extension therefor or thereof, in whole or in part, being herein collectively referred to as the "Working Capital Notes"); ---------------- WHEREAS, the Working Capital Notes were executed pursuant to a Working Capital Loan Agreement of even date herewith (herein, as from time to time amended, supplemented or restated, called the "Working Capital Loan Agreement"), ---------------------- by and between Borrower, Agent and Lenders, pursuant to which Lenders have agreed to advance funds to Borrower under the Working Capital Notes which are to be used by Borrower as provided in the Working Capital Loan Agreement; WHEREAS, Borrower has executed in favor of Lenders those two certain promissory notes of even date herewith, each payable to the order of one of the Lenders, in an aggregate principal amount not to exceed $20,000,000, (such promissory notes, as from time to time amended, and all promissory notes given in substitution, renewal or extension therefor or thereof, in whole or in part, being herein collectively referred to as the "Revolver Notes"); ---------- D-I-1 WHEREAS, Borrower has executed in favor of Lenders those two certain promissory notes of even date herewith, each payable to the order of one of the Lenders, in an aggregate principal amount not to exceed $13,500,000 (such promissory notes, as from time to time amended, and all promissory notes given in substitution, renewal or extensions therefor or thereof, in whole or in part, being herein collectively referred to herein as the "Term Notes"; the Working ------ Capital Notes, the Revolver Notes and the Term Notes are herein collectively referred to as the "Notes"); WHEREAS, the Revolver Notes and the Term Notes were all executed pursuant to a Loan Agreement of even date herewith (herein, as from time to time amended, supplemented or restated, called the "Revolver/Term Loan Agreement"), by and ----------------- between Borrower, Agent and Lenders, pursuant to which Lenders have agreed to advance funds to Borrower under the Revolver Notes and the Term Notes which are to be used by Borrower as provided in the Revolver/Term Loan Agreement. (The Working Capital Loan Agreement and the Revolver/Term Loan Agreement shall be referred to herein collectively as the "Loan Agreements"); ------ WHEREAS, it is a condition precedent to the Lenders' obligation to advance funds pursuant to the Revolver/Term Loan Agreement or advance funds or issue letters of credit pursuant to the Working Capital Loan Agreement that the Stockholder shall execute and deliver this Agreement to Agent and Lenders; and WHEREAS, the Stockholder has determined that his execution, delivery and performance of this Agreement may reasonably be expected to benefit. him, directly or indirectly, and are in the best interest of the Stockholder. NOW THEREFORE, in consideration of the premises and of Ten Dollars ($10.00) and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and in order to induce the Lenders to advance funds under the Loan Agreements and issue letters of credit, the Stockholder hereby agrees with Agent and Lenders as follows: 1. Definitions. Reference is hereby made to each of the Loan ------------- Agreements for all purposes. All terms used in this Agreement which are defined in the Revolver/Term Loan Agreement and not otherwise defined herein shall have the same meanings when used herein. If at any time either of the Loan Agreements shall be terminated or otherwise cease to be in full force and effect, then all references herein to "Loan D-I-2 Agreements" shall thereafter be deemed to refer to the Loan Agreement still in force and effect. 2. Representations and Warranties of Stockholder. To induce Agent --------------------------------------------- and Lenders to enter into the Loan Agreements, the Stockholder represents and warrants to Agent and Lenders that: (a) Capacity. Stockholder has the requisite capacity and -------- contractual power necessary for the execution and delivery by him of this Agreement and the performance of his obligations hereunder. (b) Enforceable Obligations. This Agreement is a legal, valid ----------------------- and binding obligation of Stockholder, enforceable in accordance with its terms except as such enforcement may be limited by bankruptcy, insolvency or similar laws of general application relating to the enforcement of creditors' rights. 3. Debt Guaranteed by the Stockholder. Without the prior written ---------------------------------- consent of the Agent, the Stockholder shall not in any manner assume, guarantee, endorse or otherwise become or be contingently liable (by direct or indirect agreement, contingent or otherwise, or by operation of law, to provide funds for payment or otherwise assure a creditor against loss) for the Debt, obligation, undertaking or other liability of Borrower, or otherwise become or be responsible in any manner (whether by agreement .~3 purchase any obligations, stock, assets, goods or services, or to supply or advance any funds, assets, goods or services, or otherwise) with respect to any undertaking of Borrower, except endorsements of negotiable instruments for deposit or collection and similar transactions in the ordinary course of his business. 4. Waivers. No action which Agent or Lenders may take or omit to ------- take in connection with any of the Loan Documents or any of the indebtedness evidenced by the Notes shall release or diminish Stockholder's obligations, duties or agreements hereunder,. including, but not limited to the following actions from time to time: (a) taking or holding any property of any type from any Person as security for the indebtedness evidenced by the Notes, and exchanging, enforcing, waiving and releasing any or all of such property, (b) applying the Collateral or such other property and directing the order or manner of sale thereof as Agent or Lenders may, in their discretion, determine which is not inconsistent with the Loan Documents, (c) releasing any of the obligations of any other Person in respect of any or all of the Obligations (as such term is defined in each of the Loan D-1-3 Agreements) or other security for the Obligations, (d) waiving, enforcing or supplementing any of the provisions of any Loan Document, (e) renewing, consolidating, extending, modifying, compromising, rearranging or amending from time to time any of the Notes or the terms of any one or more of the Loan Documents, including, without limitation, extending the maturity date of any of the Notes; (f) increasing the Collateral or the amount of the Debt under either of the Loan Agreements; (g) the invalidity, unenforceability or insufficiency of any one or more of the Loan Documents or any lien or security interest securing payment or performance thereunder, or (h) the failure of the Stockholder to receive notice of any one or more of the foregoing actions or events. The Stockholder specifically acknowledges and agrees that Agent and Lenders may, at their option without notice to or further consent of Stockholder, take any of the foregoing actions and that if Agent or Lenders elect to take any of the foregoing actions or any of the foregoing events occur, that such actions or events shall in no way reduce, affect, impair or limit the covenant and agreement of the Stockholder hereunder. 5. Amendments. No modification or amendment of or supplement to ------------ this Agreement shall be valid or effective unless the same is in writing and signed by the party against whom it is sought to be enforced. 6. Governinq Law. This Agreement shall be governed by and construed --------------- in accordance with the laws of the State of Colorado in all respects, including construction, validity and performance. 7. Counterparts. This Agreement may be separately executed by the -------------- different parties hereto in separate counterparts, each of which when so executed shall be deemed to constitute one and the same instrument. THIS WRITTEN AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE ----------------------------------------------------------------- FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT - ----------------------------------------------- BE CONTRADICTED BY EVIDENCE OF PRIOR~ CONTEMPORANEOUS, OR SUBSEQUENT ORAL - ------------------------------------------------------------------------- AGREEMENT OF THE PARTIES. - ------------------------- THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE -------------------------------------------------- PARTIES. - -------- D-I-4 IN WITNESS WHEREOF, this Agreement is executed as of the date first written above. STOCKHOLDER: JOHN FOX NORWEST BANK DENVER, NATIONAL ASSOCIATION, a national banking association, individually and as agent By: Mark Williamson, Vice President FIRST AMERICAN NATIONAL BANK, a national banking association By: David C. May, Vice President . E I & D-l-5 EXHIBIT D-2 ----------- COVENANT AGREEMENT ------------------ (GENERAL PARTNER) THIS COVENANT AGREEMENT (this "Agreement") dated as of November 20, 1992 is made by MARKWEST HYDROCARBON, INC., a Colorado corporation ("General --------- Partner"), in favor of NORWEST BANK DENVER, NATIONAL ASSOCIATION, a national - ---------- banking association, as agent (the "Agent") for itself, and FIRST AMERICAN ------- NATIONAL BANK, a national banking association (Agent, in its individual capacity, and First American National Bank are collectively called "Lenders"). W I T N E S S~ T H: WHEREAS, the General Partner is the sole general partner of Markwest Hydrocarbon Partners, Ltd., a Colorado limited partnership ("Borrower"); ------------- WHEREAS, Borrower has executed in favor of Lenders those two certain promissory notes of even date herewith, each payable to the order of one of the Lenders, in an aggregate principal amount not to exceed $5,000,000 (such promissory notes, as from time to time amended, and all promissory notes given in substitution, renewal or extension therefor or thereof, in whole or in part, being herein collectively referred to as the "Working Capital Notes"); ------------------------- WHEREAS, the Working Capital Notes were executed pursuant to a Working Capital Loan Agreement of even date herewith (herein, as from time to time amended, supplemented or restated, called the "Workinq Capital Loan Agreement"), ---------------------------------- by and between Borrower, Agent and Lenders, pursuant to which Lenders have agreed to advance funds to Borrower under the Working Capital Notes which are to be used by Borrower as provided in the Working Capital Loan Agreement; WHEREAS, Borrower has executed in favor of Lenders those two certain promissory notes of even date herewith, each payable to the order of one of the Lenders, in an aggregate principal amount not to exceed $20,000,000, (such promissory notes, as from time to time amended, and all promissory notes given in substitution, renewal or extension therefor or thereof, in whole or in part, being herein collectively referred to as the "Revolver Notes"); ------------------ WHEREAS, Borrower has executed in favor of Lenders those two certain promissory notes of even date herewith, each D-2-1 payable to the order of one of the Lenders, in an aggregate principal amount not to exceed $13,500,000 (such promissory notes, as from time to time amended, and all promissory notes given in substitution, renewal or extensions therefor or thereof, in whole or in part, being heroin collectively referred to heroin as the "Term Notes"; the Working Capital Notes, the Revolver Notes and the Term ------------- Notes are heroin collectively referred to as the "Notes"); WHEREAS, the Revolver Notes and the Term Notes were all executed pursuant to a Loan Agreement of even date herewith (heroin, as from time to time amended, supplemented or restated, called the "Revolver/Term Loan Agreement"), -------------------------------- by and between Borrower, Agent and Lenders, pursuant to which Lenders have agreed to advance funds to Borrower under the Revolver Notes and the Term Notes which are to be used by Borrower as provided in the Revolver/Term Loan Agreement. (The Working Capital Loan Agreement and the Revolver/Term Loan Agreement shall be referred to herein collectively as the "Loan Agreements"); ----------------- WHEREAS, it is a condition precedent to the Lenders' obligation to advance funds pursuant to the Revolver/Term Loan Agreement or advance funds or issue letters of credit pursuant to the Working Capital Loan Agreement that the General Partner shall execute and deliver this Agreement to Agent and Lenders; and WHEREAS, the General Partner has determined that its execution, delivery and performance of this Agreement may reasonably be expected to benefit the General Partner, directly or indirectly, and are in the best interest of the General Partner. NOW THEREFORE, in consideration of the premises and of Ten Dollars ($10.00) and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and in order to induce the Lenders to advance funds under the Loan Agreements and issue letters of credit, the General Partner hereby agrees with Agent and Lenders as follows: 1. Definitions. Reference is hereby made to each of the Loan ------------ Agreements for all purposes. All terms used in this Agreement which are defined in the Revolver/Term Loan Agreement and not otherwise defined heroin shall have the same meanings when used heroin. If at any time either of the Loan Agreements shall be terminated or otherwise cease to be in full force and effect, then all references heroin to "Loan Agreements" shall thereafter be deemed to refer to the Loan Agreement still in force and effect. D-2-2 2. Representations and Warranties of General Partner. To induce --------------------------------------------------- Agent and Lenders to enter into the Loan Agreements, the General Partner represents and warrants to Agent and Lenders that: (a) Capacity. General Partner has the requisite capacity and --------- contractual power necessary for the execution and delivery by it of this Agreement and the performance of its obligations hereunder. (b) Enforceable Obligations. This Agreement is a legal, valid and ------------------------- binding obligation of General Partner, enforceable in accordance with its terms except as such enforcement may be limited by bankruptcy, insolvency or similar laws of general application relating to the enforcement of creditors' rights. 3. Debt Guaranteed by the General Partner. Without the prior ---------------------------------------- written consent of the Agent, the General Partner shall not in any manner assume, guarantee, endorse or otherwise become or be contingently liable (by direct or indirect agreement, contingent or otherwise, or by operation of law, to provide funds for payment or otherwise assure a creditor against loss) for the Debt, obligation, undertaking or other liability of Borrower, or otherwise become or be responsible in any manner (whether by agreement to purchase any obligations, stock, assets, goods or services, or to supply or advance any funds, assets, goods or services, or otherwise) with respect to any undertaking of Borrower, except endorsements of negotiable instruments for deposit or collection and similar transactions in the ordinary course of its business. 4. Waivers. No action which Agent or Lenders may take or omit to --------- take in connection with any of the Loan Documents or any of the indebtedness evidenced by the Notes shall release or diminish General Partner's obligations, duties or agreements hereunder, including, but not limited to the following actions from time to time: (a) taking or holding any property of any type from any Person as security for the indebtedness evidenced by the Notes, and exchanging, enforcing, waiving and releasing any or all of such property, (b) applying the Collateral or such other property and directing the order or manner of sale thereof as Agent or Lenders may, in their discretion, determine which is not inconsistent with the Loan Documents, (c) releasing any of the obligations of any other Person in respect of any or all of the Obligations (as such term is defined in each of the Loan Agreements) or other security for the Obligations, (d) waiving, enforcing or supplementing any of the provisions D-2-3 of any Loan Document, (e) renewing, consolidating, extending, modifying, compromising, rearranging or amending from time to time any of the Notes or the terms of any one or more of the Loan Documents, including, without limitation, extending the maturity date of any of the Notes; (f) increasing the Collateral or the amount of the Debt under either of the Loan Agreements; (g) the invalidity, unenforceability or insufficiency of any one or more of the Loan Documents or any lien or security interest securing payment or performance thereunder, or (h) the failure of the General Partner to receive notice of any one or more of the foregoing actions or events. The General Partner specifically acknowledges and agrees that Agent and Lenders may, at their option without notice to or further consent of General Partner, take any of the foregoing actions and that if Agent or Lenders elect to take any of the foregoing actions or any of the foregoing events occur, that such actions or events shall in no way reduce, affect, impair or limit the covenant and agreement of the General Partner hereunder. 5. Amendments. No modification or amendment of or supplement to ------------ this Agreement shall be valid or effective unless the same is in writing and signed by the party against whom it is sought to be enforced. 6. Governing Law. This Agreement shall be governed by and construed --------------- in accordance with the laws of the State of Colorado in all respects, including construction, validity and performance. 7. Counterparts. This Agreement may be separately OSecuted by the -------------- different parties hereto in separate counterparts, each of which when so executed shall be deemed to constitute one and the same instrument. THIS WRITTEN AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE ----------------------------------------------------------------- FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF - ------------------------------------------------------------------------------ PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENT OF THE PARTIES. - ------------------------------------------------------------------- THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES ---------------------------------------------------------- D-2-4 IN WITNESS WHEREOF, this Agreement is executed as of the date first written above. GENERAL PARTNER: MARKWEST HYDROCARBON, INC., a Colorado corporation By: 'Patrick W. Murray, Vice President NORWEST BANK DENVER, NATIONAL ASSOCIATION, a national banking association, individually and as agent By: Mark Williamson, 'Vice President FIRST AMERICAN NATIONAL BANK, a national banking association By: David C. May, Vice President D-2-5 BARRY W. SPECTOR Attorney EXHIBIT E Suite 3301 Prudential Plaza 1050 Seventeenth Street Denver, Coloradu 80265 Telephone (303) ~23-0717 Fax (303) 6~,3-09.~.0 November 30, 1992 Norwest Bank Denver, National Association, individually and as Agent 1740 Broadway Denver, CO 80274-8699 First American National Bank 4894 Poplar Avenue Memphis, TN 38117 Ladies and Gentlemen: I have acted as counsel for MarkWest Hydrocarbon Partners, Ltd., a Colorado limited partnership ("Borrower"), in connection with the transactions contemplated by the Loan Agreement dated as of November 20, 1992 (the "Revolver/Term Loan Agreement"), both among Borrower, Norwest Bank Denver, National Association and First American National Bank (collectively the "Lenders') and Norwest Bank Denver, National Association, as agent for the Lenders ("Agent"). The Revolver/Term Loan Agreement and the Working Capital Agreement are referred to herein collectively as the "Loan Agreements." I am rendering this opinion pursuant to subsection 3(a)(ii)(B) of the Revolver/term Loan Agreement and subsection 4(a)(ii)(B) of the Working Capital Loan Agreement. Capitalized terms used but not defined herein shall have the meanings set forth in the Revolver/Term Loan Agreement, except that the term "Collateral" shall have the meaning set forth in the Mortgages (as such term is defined below). Materials Examined: - ------------------- As a basis for the opinion hereinafter expressed, I have examined executed counterparts (unless otherwise noted) of the following: 1. Revolver/Term Loan Agreement. 2. Working Capital Loan Agreement. 3. The Notes (as such term is defined in the Mortgages described below). 4. The Arkansas Leasehold Deed of Trust with Security Agreement, Assignment of Rents and Leases and Financing Statement, dated as of November 20, 1992, by and among Borrower, as Grantor, the Trustees named therein and Agent, as Beneficiary, including the Exhibits thereto (the "Arkansas Mortgage"). 5. (a) The Mortgage, Security Agreement, Assignment of Profits and Proceeds and Financing Statement, dated as of November 20, 1992, by and among Borrower, as Mortgagor, and Agent, as Mortgagee, including the Exhibits thereto (Siloam); and (b) the Mortgage, Security Agreement, Assignment of Profits and Proceeds and FinanCing Statement, dated as of November 20, 1992, by and among Borrower, as Mortgagor, and Agent, as Mortgagee, including the Exhibits thereto (Boldman). ((a) and (b) are collectively called the "Kentucky Mortgages"). 6. A Credit Line Deed of Trust with Security Agreement, Assignment of Rents and Leases and Financing Statement, dated as of November 20, 1992, by and among Borrower, as Grantor, the Trustee named therein and Agent, as Beneficiary, including the Exhibits thereto (the "West Virginia Mortgage"). 7. A Security Agreement dated as of November 20, 1992, between Borrower and Agent (the "Security Agreement"). 8. The financing statements for use in the States of Arizona, Arkansas, Colorado, Kansas, Kentucky, Michigan and West Virginia, naming Borrower as debtor, and Agent as secured party (collectively the "Financing Statements"), relating to the Mortgages and the Security Agreement. 9. The Covenant Agreement of Stockholder dated as of November 20, 1992, by John Fox in favor of Agent. 10. The Covenant Agreement of General Partner dated as of November 20, 1992, by the General Partner in favor of Agent. 11. The opinions of Rex M. Terry, Esq. of Hardin, Jesson, Dawson & Terry; P. Bruce Leslie, Esq. of McBrayer, McGinnis, Leslie & Kirkland; and George A. Patterson, Esq., of Bowles, Rice, McDavid, Groff & Love (the "Local Counsel Opinions"). The documents described in paragraphs 1 through 10 collectively referred to as the "Principal Documents". The Arkansas Mortgage and the Kentucky Mortgages are herein collectively called the "Mortgages". Assumptions: - ------------ In rendering the opinions hereinafter expressed, I have made the following assumptions: 2- A. The Lenders are duly organized, validly existing and in good standing under the laws of the states or governmental bodies under which they are organized. Bm executed Borrower). Each of the Principal Documents has been duly authorized, and delivered by the parties thereto (other than C. The Principal Documents constitute legal, valid and binding obligations of the parties thereto (other than Borrower), enforceable against such parties (other than Borrower) in accordance with their respective terms, and all parties (other than Borrower) to the Principal Documents have all necessary power and authority to enter into and perform the transactions contemplated thereby. D. None of the execution, delivery or performance of the Principal Documents by any party thereto (other than Borrower) will result in any violation of or be in contravention of or constitute a default under the charter, bylaws or other governing documents of such party, or any other contract or agreement binding on such party or its properties. E. The transactions provided for in the Principal Documents are supported by sufficient and adequate consideration, and a loan has been made and is currently outstanding, which loan is intended to be secured by the Mortgages. F. All signatures are genuine, all documents submitted to me as originals are authentic, and all documents submitted to me as photocopies, telecopies or facsimiles conform to the original documents. Opinion: - -------- Based upon the foregoing, and subject to the qualifications, limitations and assumptions stated herein, I am of the opinion that: 1. (a) Borrower is a limited partnership duly organized, validly existing and in good standing under the laws of the State of Colorado, and is qualified to do business in Arkansas, Kentucky, Texas and in every other Jurisdiction in which the nature of its business or the ownership of its assets requires such qualification and failure to so qualify could have a material adverse effect on Borrower, its business, operations, assets, property, prospects or condition (financial or otherwise); (b) Each of the Related Persons other than Borrower is duly organized, validly existing and in good standing under the laws of the state of its incorporation or formation and is qualified to do business in every Jurisdiction in which the nature of its business or the ownership of its assets requires such qualification and failure to so qualify could have a material adverse effect on Borrower or such Related Person, its business, operations, assets, property, prospects or condition (financial or otherwise); (c) Each Related Person has the power and authority to own the property which it owns and to carry on its business as such business is now conducted. 2. The execution, delivery and performance by the Borrower of the Principal Documents and the borrowings thereunder and the consummation of the transactions contemplated therein will not conflict with the limited partnership agreement or other organizational or governing documents of any Related Person; or conflict with any law, rule or regulation which conflict would result in a materially adverse affect on Borrower, its business, operations, assets, property, prospect or condition; or to the best of my knowledge, conflict with or result in any breach of any mortgage, lien, lease, agreement, instrument, order, judgment, decree or, any other restriction of any kind or character to which any Related Person is a party or is subject or by which any Related Person or its properties are bound or affected. 3. No consent, approval, exemption, authorization or order of or other action by, and no notice to or filing with, any court or governmental authority or third party is required by any Related Person in connection with the execution, delivery or performance by Borrower of the Principal Documents or to consummate any transactions contemplated thereby, or the incurring of indebtedness by Borrower or the granting of the liens by Borrower under the Mortgages. 4. Borrower has full power and authority to enter into the Principal Documents. The execution and delivery of the Principal Documents, and the performance and observance of their terms, conditions and obligations, have been duly authorized by all necessary action by Borrower and the General Partner and the Principal Documents are duly executed and delivered and are legal, valid and binding obligations of Borrower, and to the extent a party thereto, the General Partner, enforceable in accordance with their respective terms, except as such similar laws of general application relating to the enforcement of creditors' rights~ 5. Except as disclosed in Exhibit H to the Loan Agreements, to my knowledge, there are no actions, suits, proceedings or claim~ against any Related Person or the General Partner of any of their respective properties pending or threatened before any court or by or before any governmental instrumentality, which could have a material adverse effect on the business, operations, property, prospects or condition (financial or otherwise) of any Related Person or the ability of Borrower to perform its obligations under any of the Principal Documents. To my knowledge, there exists no default or breach by any Related Person with respect to any order, writ, injunction, decree or demand of any court or governmental instrumentality, nor does the execution, delivery or performance by Borrower of any of the Principal Documents result in any such default or breach. 6. No Related Person is an "investment company" or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. 7. No Related person is a "holding company", or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company" or of the "subsidiary company" of a "holding company", within the meaning of the Public Utility Holding Company Act of 1935, as amended. 8. To the best of my knowledge, the General Partner is the sole general partner of Borrower. 9. No state or local mortgage tax, stamp tax or other fee, tax or governmental charge (other than filing and recording fees imposed by law) is required to be paid in the State of Colorado in connection with the execution, delivery, filing or recording of the Mortgages or the Financing Statements. 10. With respect to the law of the State of Colorado, the Security Agreement creates a valid security interest in favor of Agent for the benefit of the Lenders in the Collateral described therein consisting of fixtures, goods, including equipment and inventory, and the other personal property collateral governed by the UCC (as defined below), securing the Obligations. The filing of the Financing Statements in the offices identified in Schedule I hereto and to the Local Counsel Opinions will perfect such security interest in such fixtures and personal property granted in the Security Agreement to the extent that the security interest can be perfected by filing. It is not necessary to refile the Financing Statements or to make any other recording or filing in order to maintain the perfection of the security interest described above, except as provided below. Comments, Qualifications and Limitations: ----------------------------------------- The opinions expressed herein are limited by and subject to the following qualifications, limitations and assumptions: A. General Qualifications. The validity, binding effect and ---------------------- enforceability of the Principal Documents may be subject to, or limited or affected by, (i) bankruptcy, or similar statutes or rules of law affecting creditors' rights generally, including, without limitation, statutes or rules of law that limit the effect of waivers of rights by a debtor, guarantor or grantor; (ii) 5- general principles of equity (whether considered in a suit in equity or at law); and (iii) the qualification that certain remedial provisions of the Principal Documents may be unenforceable in whole or in part under the UCC or other applicable state and federal law, but the inclusion of such provisions does not render the other provisions of the Principal Documents invalid and does not make the remedies afforded by the Principal Documents inadequate for the practical realization of the benefits afforded thereby. B. Title Matters. In rendering this opinion, I have made no -------------- examination of and express no opinion with respect to (i) title to the Collateral or the priority of the liens created by the Mortgages; or (ii) the creation or perfection of the lien of the Mortgages with respect to water rights. I have assumed that Borrower has rights in the Personal Property Collateral sufficient to enable Borrower to grant liens on and security interests in such property. C. Foreclosure. Notwithstanding the terms and provisions of the ----------- Mortgages relating to the foreclosure, in order to realize upon the Collateral, the foreclosure provisions of the statutes of the State where the Mortgaged Property is located must be complied with. D. Certain Matters as to Personal Property Collateral. I have made the --------------------------------------------------- following additional assumptions and qualifications in rendering the opinions expressed in paragraph 6 above: (i) The security interests created by the Mortgages are subject to the rights of purchasers under Section 9-307 of the UCC. E. After-Acquired Property.' Under applicable law, after-acquired ----------------------- title provisions in a deed of trust or mortgage may be effective against the parties thereto but not against third parties, because the deed of trust or mortgage may be outside the chain of title to the after-acquired property. F. Proceeds. With respect to proceeds (as such term is defined in --------- the UCC) of Collateral, the effectiveness and perfection of security interests that are purported to be created by the Mortgages are subject to and limited or affected by the following: (i) the operation of Section 9-306 of the UCC and the other provisions of the UCC referred to therein, and (ii) as to any proceeds which consist of items of property not subject to perfection under the provisions of Article 9 of the UCC, to the requirement that Agent's interest be perfected in the appropriate manner under the laws governing perfection of liens or security interests for that type of property. s- G. Factual Matters. As to certain factual matters we have relied, ---------------- without independent verification, upon information obtained from officers of the general partner of Borrower. H. Under applicable law, a financing statement filed in the State of Colorado is effective for a period of five years from the date of filing (and for an additional period in certain limited circumstances). The effectiveness of a filed financing statement may be continued however, by filing a continuation statement, in the manner prescribed by law, in the office in which the financing statement was originally filed, within six months prior to the end of the five- year period thereafter. Amendments or supplements to the Financing Statements or additional financing statements may be required to be filed in the event of a change in the name, identity, principal place of business, chief executive office or corporate structure of Borrower, or in the event the Financing Statements or the description of the Collateral otherwise becomes inaccurate, incomplete or seriously misleading. I. Limitations. I do not express any opinion as to matters governed ------------ by any law other than the federal law and laws of the State of Colorado. The opinions expressed herein are rendered as of the date hereof. Any statement herein which may be construed as an opinion regarding the law of any other state should be construed only as a referral to the appropriate Local Counsel Opinion if one exists, and if one does not exists, should not be construed or interpreted as any statement or opinion concerning the law or the applicability of the law of any other state. To the extent this opinion refers to Local Counsel opinions, the reference is for convenience only. No independent .review or examination of the matters covered by or opined on by Local Counsel was undertaken by the undersigned, nor did the undersigned participate in the selection or retention of West Virginia Local Counsel. I do not undertake to advise you of matters that may come to my attention subsequent to the date hereof and that may affect the opinions expressed herein, including without limitation, future changes in applicable law. W. Spector 7 SCHEDULE I - ---------- Colorado Secretary of State G. D. HARDIN (1884.-1-degree,64) P. H. HARDIN BRAOLEY O. JESSON ROBERT T. DAWSON REX M. TERRY RCBERT M, HONEA J. LESLIE L-"VIII'S III J. RODNEY MILLS + KIRKMAN T. DOUGHERTY .,.. CAROL WOODS FRAZtER EXHIBIT F-1 ATTORNEY'S AT LAW SUITE 500, SUPERIOR FEDERAL TOWER 5000 ROOERS AVENUE P. O. BOX 10127 FORT SMITH, ARKANSAS 7291 7-0127 TELEFHONE (501) 452-2200 FAX (501) 452-9692 December 3, 1992 *'AI..SCI AJDMII'T"ED IN CXLA~UA Norwest Bank Denver, National Association, Individualiv and as Agent 1740 Broadway Denver, Colorado 80274-8699 First American National Bank 4894 Poplar Avenue Memphis, Tennessee 38117 Barry Spector, Esq. 1050 Seventeenth Street, Suite 330 Denver, Colorado 80265 Ladies and Gentlemen: We have been asked to render an opinion concerning certain limited matters of Arkansas law. Materials Examined: - ------------------- As a basis for the opinions hereinafter expressed, we have examined unexecuted counterparts (unless otherwise noted) of the "Execution Form" of the following: 1. Arkansas Leasehold Deed of Trust with Security Agreement, Assignment of Rents and Leases and Financing Statement draft, dated as of November 18, 1992, by and among MARKWEST HYDROCARBON PARTNERS, LTD., a limited partnership organized and existing under the laws of the State of Colorado (hereinafter called "Grantor" or "Borrower"), Mark Williamson, as Trustee --------- ---------- (hereinafter called "Trustee" and NORWEST BANK DENVER, NATIONAL ASSOCIATION, a --------- national banking association, as agent (hereinafter called "Beneficiary"), for itself and First American National Bank, a national banking association, ("First American"), NATIONAL including Exhibits "A", "B", and "C" thereto (the "Mortgage"). Norwest Bank Denver, - ---------- December 3, 1992 Page No. 2 National Association in its individual capacity is hereinafter called "Norwest". --------- Norwest and First American are collectively referred to herein as "Lenders". - --------- 2. The financing statement for use in the State of Arkansas, naming Borrower as debtor, and Agent as secured party (the "Financing Statement"). We have not examined any other documents in connection with this transaction and offer no opinion as to any such documents. The documents described in paragraphs 1 and 2 are collectively referred to as the "Principal Documents." Assumptions: - ------------ In rendering the opinions hereinafter expressed, we have made the following assumptions: A. The Lenders are duly organized, validly existing and in good standing under the laws of the states or governmental bodies under which they are organized. Borrower is duly organized, validly existing and in good standing as a limited partnership under the laws of the State of Colorado. If any party is doing business in the State of Arkansas it has properly qualified to transact such business. B. Each of the Principal Documents has been duly authorized, executed and delivered by the parties thereto. C. The Principal Documents constitute legal, valid and binding obligations of the parties thereto (other than Borrower), enforceable against such parties (other than Borrower) in accordance with their respective terms, and all parties to the Principal Documents have all necessary power and authority to enter into and perform the transactions contemplated thereby. D. None of the execution, delivery or performance of the Principal Documents by any party thereto will result in any violation of or be in contravention of or constitute a default under the charter, bylaws or other governing documents of such party, or any other contract or agreement binding on such party or its properties. E. The transactions provided for in the Principal Documents are supported by sufficient and adequate December 3, 1992 Page No. 3 consideration, and a loan has been made and is currently outstanding, which loan is intended to be secured by the Mortgage. F. All signatures are genuine, all documents submitted ~.c us as originals are authentic, and all documents submitted to us as photocopies, telecopies or facsimiles conform to the original documents. G. MarkWest is not a public utility within the meaning of Arkansas law and is not a regulated pipeline or other entity which would require approval from the Arkansas Public Service Commission or other state entity prior to obtaining mortgage financing. Opinion: - -------- Based upon the foregoing, and subject to the qualifications, limitations and assumptions stated herein, we are of the opinion that: 1. No approval, consent, exemption or other action by, or notice to or filing with any governmental authority of this State pursuant to any statutory law, treaty, rule or regulation is required in connection with the (a) execution, delivery or performance by Borrower of its agreements in any of the Principal Documents or the incurring of indebtedness by Borrower or the granting of the liens by Borrower under the Mortgage, or (b) enforcement by Agent or the Lenders of any of the Principal Documents; except that either or both clauses (a) and (b) above are or may be subject to or limited or affected by: (i) the filings and recordings referred to in paragraphs 5 and 6 below; (ii) notices to or filings with appropriate county recorders under applicable state law relating to nonjudicial foreclosure; and (iii) any notices, filings or other actions under applicable state law required in connection with (A) judicial foreclosure, (B) realization upon any assignment of rents, or (C) the appointment of receivers. 2. The execution, delivery and performance by Borrower of its agreements in the Principal Documents and the incurring of indebtedness by Borrower and the granting of the liens described in and pursuant to the Mortgage do not and will not violate or result in a breach of any statutory law, treaty, rule or regulation of this State applicable to Borrower. December 3, 1992 Page No. 4 3. No state or local mortgage tax, stamp tax or other fee, tax or governmental charge (other than filing and recording fees imposed by law) is required to be paid in the State of Arkansas in conection with the execution, delivery, filing or recording of the Mortgage or the Financing Statement. 4. The Mortgage constitutes the legal, valid and binding obligation of Borrower, enforceable against Borrower in accordance with its terms. 5. The Mortgage is in form sufficient to create a lien in favor of Trustee for the benefit of Agent and Lenders in and to the real property described in the Mortgage and in Exhibits "A" and "B" to the Mortgage (including fixtures that are real property under Arkansas law), securing payment of such obligations as are stated in the Mortgage, and is in proper form for recording in the respective office or offices identified in Schedule I attached hereto. Upon recording of the Mortgage in the office or offices identified in Schedule I hereto, the Mortgage will constitute constructive notice of the contents thereof to subsequent purchasers and mortgagees of the real property described therein. No other recordings or re-recordings are or will be necessary in order to provide any subsequent purchasers and mortgagees of any such real property with constructive notice of the contents of the Mortgage or to maintain the perfection of the lien created by the Mortgage, except as stated in paragraph G below. 6. The Mortgage and Exhibits "A" and "B" thereto is in form sufficient to create a valid security interest in favor of Agent for the benefit of Lenders in and to the personal property described in the Mortgage and Exhibits "A" and "B" thereto (including fixtures that are personal property under Arkansas law) consisting of fixtures, goods and other personal property which is within the scope of the Uniform Commercial Code as adopted in Arkansas (the "UCC"), securing the payment of such obligations as are stated in the Mortgage. The recording of the Mortgage and the filing of the Financing Statement in the offices identified in Schedule I hereto will perfect such security interest in such fixtures and personal property to the extent that such security interest can be perfected by filing. The Principal Documents are effective as a fixture filing from the date of their filing and/or recording in the offices identified in Schedule I hereto. It is not necessary to rerecord the Mortgage or refile the Financing December 3, 1992 Page No. 5 Statement or to make any other recording or filing in order to maintain the perfection of the security interest described above, except as provided in paragraphs "D", "E", "F," and "G" below. Comments, Oualifications and Limitations: - ----------------------------------------- The opinions expressed herein are limited by and subject to the following qualifications, limitations and assumptions: A. General Qualifications. The validity, binding effect and ----------------------- enforceability of the Principal Documents may be subject to, or limited or affected by, (i) bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or similar statutes or rules of law affecting creditors' rights generally, including, without limitation, statutes or rules of law that limit the effect of waivers of rights by a debtor, guarantor or grantor; (ii) general principles of equity (whether considered in a suit in equity or at law); and (iii) the qualification that certain remedial provisions of the Principal Documents may be unenforceable in whole or in part under the UCC or other applicable state and federal law, but the inclusion of such provisions does not render the other provisions of the Principal Documents invalid; (iv) the validity and enforcement of the Principal Documents is subject to the terms of the underlying ground leases; and (v) the rights of the secured parties may be further subject to the Arkansas Code provisions with regard to landlord's liens, Arkansas Code Annotated, Sec. 18-16-108. The ramifications of this statute are more particularly discussed in a letter dated June 18, 1992, from Rex M. Terry to Barry W. Spector which by this reference is incorporated herein. B. Title Matters. In rendering this opinion we have made no examination -------------- of and express no opinion with respect to (i) title to the property conveyed in the Mortgage or the priority of the liens created by the Mortgage; or (ii) the creation or perfection of the lien of the Mortgage with respect to water rights. We have assumed that Borrower has rights in the personal property conveyed in the Mortgage sufficient to enable Borrower to grant liens on and security interests in such property. C. Foreclosure. Notwithstanding the terms and provisions of the ------------ Mortgage relating to foreclosure, in order to realize upon the property conveyed therein as December 3, 1992 Page No. 6 collateral, the foreclosure provisions of the statutes and case law of this State must be complied with. In our opinion, as a practical matter, in Arkansas, judicial foreclosure is required as to the interest in real estate in order to establish marketable title in the event of default despite the terms of the Mortgage providing for non-judicial sale. D. Certain Matters as to Personal Property Collateral. We have made the --------------------------------------------------- following additional assumptions and qualifications in rendering the opinions expressed in paragraph 6 above. (i) Our opinion as to perfection of the security interest with respect to the fixtures (as that term is used in the UCC), is based upon the following assumptions: (a) Any portion of the property conveyed in the Mortgage consisting of goods that are or are to become fixtures is and will be located on the real estate described in Exhibit "A" to the Mortgage; and (b) Borrower has an interest of record in the real property described in the Mortgage sufficient to support a security interest in fixtures attached to or placed upon such property. (ii) Our opinion as to perfection of the security interests with respect to the personal property included in the Mortgage is limited to those items that constitute goods under the UCC and proceeds thereof; but excluding consumer goods, standing timber, goods covered by a certificate of title or warehouse receipt, goods in the possession of a bailee, farm products and crops. (iii) The security interests created by the Mortgage are subject to the rights of the purchasers under Section 9-307 of the UCC. E. After-Acquired Property. Under applicable law, after-acquired ------------------------ title provisions contatined in the Principal Documents may be effective against the parties thereto but not against third parties, because the Principal Documents may be outside the chain of title to the after-acquired property. December 3, 1992 Page No. 7 F. Proceeds. With respect to proceeds (as such term is defined 'in the --------- UCC) of property conveyed in the Mortgage, the effectiveness and perfection of security interests that are purported to be created by the Mortgage are subject to and limited or affected by the following: (i) the operation of Section 9-306 of the UCC and the other provisions of the UCC referred to therein, and (ii) as to any proceeds which consist of items of property not subject to perfection under the provisions of Article 9 of the UCC, to the requirement that Agent's interest be perfected in the appropriate manner under the laws governing perfection of liens or security interests for that type of property. G. Continuation of Lien and Secured Interest. Under Arkansas law, a ------------------------------------------ mortgage, deed of trust or similar document may not be enforceable with respect to real property collateral and the record thereof may cease to provide constructive notice and has no more effect than an unrecorded instrument immediately upon expiration of a period of five years next following the date upon which acceleration of the indebtedness and payment of the indebtedness in full may have first been permitted or demanded pursuant to the Principal Documents and the indebtedness such documents secure. Under Arkansas law, a financing statement filed in the State of Arkansas is effective for a period of five years from the date of filing (and for an additional period in certain limited circumstances). The effectiveness of a filed financing statement may be continued, however, by filing a continuation statement, in the manner prescribed by law, in the offices in which the financing statement was originally filed, within six months prior to the end of the five-year period, and by so filing subsequent continuation statements within six months prior to the end of each five-year period thereafter. Amendments or supplements to the Mortgage and the Financing Statement or additional financing statements may be required to be filed in the event of a change in the name, identity, principal place of business, chief executive office or corporate structure of Borrower, or in the event the Mortgage or the Financing Statement or the description of the Collateral otherwise becomes inaccurate, incomplete or seriously misleading. I. Filing Offices. For the purposes of determining the proper counties --------------- or offices to record the Mortgage, we have relied upon the descriptions in Exhibit December 3, 1992 Page No. 8 "A" to the Mortgage for information concerning the counties in which the property conveyed in the Mortgage is located. J. Limitations. We do not express any opinion as to matters governed ------------ by any law other than the laws of the State of Arkansas. The opinions expressed heroin are rendered as of the date hereof. We do not undertake to advise you of matters that may come to our attention subsequent to the date hereof and that may affect the opinions expressed herein, including without limitation, future changes in applicable law. K. Usury. No opinion is given with regard as to whether this ------ transaction complies with the Arkansas usury limitations. L. Due on Sale. The Due on Sale provisions of Section 2j'8 of the ------------ Mortgage may be subject to the Arkansas case law provisions which require that the mortgage holder have a valid reason not to permit a transfer. See, Tucker vs. Pulaski Savings and Loan Association, ~1 S.W.2d 725 (1972) and Abrego - ----------------------------------------------- ------ v. United PooDles Federal - ------------------------- Savings and Loan Association, 664 S.W.2d 858 (1~84). - ---------------------------- Very truly yours, HARDIN, JESSON, DAWSON & TERRY /s/ Robert M. Honea Robert M. Honea SCHEDULE I ---------- A. Real Property. -------------- To perfect a lien on real property in the State of Arkansas, the instrument evidencing the lien must be filed in the land records of the Circuit Clerk and Ex-Officio Recorder for the county in Arkansas in which the real property is located. For Crittenden County, that address is: Land Records Circuit Clerk and Ex-Officio Recorder Crittenden County Courthouse 100 Court Street Marion, Arkansas 72364 B. UCC Filings ----------- In order to perfect a security interest in personal property and fixtures pursuant to the Uniform Commercial Code, as adopted in the State of Arkansas, the instrument evidencing the lien must be filed in both the UCC Records of the Circuit Clerk and Ex-Officio Recorder for the county in Arkansas in which the personal property and/or fixtures are located, and in addition, must be filed in the UCC records maintained by the Office of the Secretary of State for the State of Arkansas. Those addresses are as follows: UCC Records Circuit Clerk and Ex-Officio Recorder Grittendon County Courthouse 100 Court Street Marion, Arkansas 72364 and UCC Filings Division Office of the Secretary of State State of Arkansas 256 State Capitol Building Little Rock, Arkansas 72201 BAR-~Y SPECTOR, ESQ. LADIES & GENTLEMEN: WE HAVE ACTED AS SPECIAL KENTUCKY COUNSEL FOR MARKWEST HYDROCARBON PARTNERS, LTD., A COLORADO LIMITED PARTNERSHIP ("BORROWER"), IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED BY THE LOAN AGREEMENT DATED AS OF NOVEMBER 20, 1992 (THE "REVOLVER/TERM LOAN AGREEMENT") AND THE WORKING CAPITAL LOAN AGREEMENT DATED AS OF NOVEMBER 20, 1992 (THE "WORKING CAPITAL LOAN AGREEMENT"), BOTH AMONG BORROWER, NORWEST BANK DENVER, NATIONAL ASSOCIATION AND FIRST AMERICAN NATIONAL BANK (COLLECTIVELY THE "LENDERS") AND NORWEST BANK DENVER, NATIONAL ASSOCIATION, AS AGENT FOR THE LENDERS ("AGENT"). THE REVOLVER/TEN LOAN AGREEMENT AND THE WORKING CAPITAL LOAN AGREEMENT ARE REFERRED TO HEREIN COLLECTIVELY AS THE "LOAN AGREEMENTS". WE RENDER THIS OPINION PURSUANT TO SUBSECTION 3(A)(II)(B) OF THE REVOLVER/TEN LOAN AGREEMENT AND SUBSECTION 4(A)(II)(B) 'OF THE WORKING CAPITAL LOAN AGREEMENT. CAPITALIZED TERMS USED BUT NOT DEFINED HEREIN SHALL HAVE THE MEANINGS SET FROTH IN THE REVOLVER/TERM LOAN AGREEMENT, EXCEPT THAT THE TEN "COLLATERAL" SHALL HAVE THE MEANING SET FORTH IN THE MORTGAGE (AS SUCH TEN IS DEFINED BELOW). Nor-west Bank Denver, National McBRAYER, McGINNIS, LESLIE KIRKLAND Association, Individually an as Agent November 20, 1992 -Page 2 Materials Examined: - ------------------- As a basis for the opinions hereinafter expressed, we have examined unexecuted counterparts (unless otherwise noted) of the "Execution Form" of the following: 1. (a) The Mortgage, Security Agreement, Assignment of Profits and Proceeds and Financing Statement, dated as of November 20, 1992 by and among Borrower, as Mortgagor, and Agent, as Mortgagee, including the Exhibits thereto (Siloam); (b) The Mortgage, Security Agreement, Assignment of Profits and Proceeds and Financing Statement, dated as of November 20, 1992 by and among the Borrower, as Mortgagor, and Agent, as Mortgagee, including the Exhibits thereto (Boldman). ((a) and (b) are collectively called the "Mortgage"). 2. The financing statement for use in the State of Kentucky naming Borrower as debtor, and Agent as secured party (the "Financing Statement"). The documents described in paragraphs 1 and 2 are collectively referred to as the "Principal Documents". Assumptions: - ------------ In rendering the opinions heroinafter expressed, we have made the following assumptions: A. The Lenders are duly organized, validly existing and in good standing under the laws of the states or governmental bodies under which they are organized. Borrower is duly organized, validly existing and in good standing as a limited partnership under the laws of the State of Colorado. B. Each of the Principal Documents has been duly authorized, executed and delivered by the parties thereto. C. The Principal Documents constitute legal, valid and binding obligations of the parties thereto (other than Borrower), enforceable against such parties (other than Borrower) in accordance with their respective terms; and all parties to the Principal Documents have all necessary power and authority to enter into and perform the transactions contemplated thereby. D. None of the execution, delivery or performance of the Principal Documents by any party thereto will result in any violation of or be in contravention of or constitute a default under the charter, bylaws or other governing documents of such party, or any other contract or agreement binding on such party or its properties. Norwest Bank Denver, National McBRAYER, McGINNIS, LESLIE & KIRKLAND Association, Individually an as Agent November 20, 1992 Page 3 E. The transactions provided for in the Principal Documents are supported by sufficient and adequate consideration, and a loan has been made and is currently outstanding, which loan is intended to be secured by the Mortgage. F. All signatures are genuine, all documents submitted to us as originals are authentic, and all documents submitted to us as photocopies, telecopies or facsimiles conform to the original documents. Opinion: - -------- Based upon the foregoing, and subject to the qualifications, limitations and assumptions stated heroin, we are of the opinion that: 1. No approval, consent, exemption or other action by, or notice to or filing with any governmental authority of this State pursuant to any statutory law, treaty, rule or regulation is required in connection with the execution, delivery or performance of Borrower of its agreements in any of the Principal Documents or in the incurring of indebtedness by Borrower or the granting of the liens by Borrower under the Mortgage. 2. The execution, delivery and performance by Borrower of its agreements in the Principal Documents and the incurring of indebtedness by Borrower and the granting of the liens described in and pursuant to the Mortgage do not and will not violate or result in a breach of any statutory law, treaty, rule or regulation of this State ("Requirement of Law") applicable to Borrower nor result in or require the creation or imposition of any lien on any properties or revenues of Borrower pursuant to any Requirement of Law. 3. No state or local mortgage tax, stamp tax or other fee, tax or governmental charge (other than filing and recording fees imposed by law) is required to be paid in the State of Kentucky in connection with the execution, delivery, filing or recording of the Mortgage or the Financing Statement. 4. The Mortgage constitutes the legal, valid and binding obligation of Borrower, enforceable against Borrower in according with its terms. 5. The Mortgage, including the form of description contained in Exhibit A and B thereto, are in form sufficient to create a lien in favor of Agent for the benefit of Agent and the Lenders on the title and interest of Borrower in the real property (including improvements located thereon and fixtures thereto) described in Exhibit A and B thereto, securing payment and performance of the Obligations (as defined therein), and is in proper form for recording in the Norwest Bank Denver, National McBRAYER, McGINNIS, LESLIE & KIRKLAND Association, Individually an as Agent November 20, 1992 Page 4 respective office' or offices identified for the Mortgage in Schedule I. Upon such recording, the Mortgage will constitute constructive notice of the contents thereof to subsequent purchasers and mortgagees of the real property described therein. No other recordings or re-recordings are or will be necessary in order to provide any subsequent purchasers and mortgagees of any such real property with constructive notice of the contents of the Mortgage or to maintain the perfection of the lien described above. 6. The Mortgage is in form sufficient to create a valid security interest in favor of Agent for the benefit of the Lenders in the Collateral described therein consisting of fixtures, goods and the other personal property collateral governed by the UCC (as defined below), securing the Obligations. The recording of the Mortgage and the filing of the Financing Statement in the offices identified in Schedule I hereto will perfect such security interest in such fixtures and personal property granted in the Mortgage to the extent that the security interest can be perfected by filing. The Mortgage is, among other things, a financing statement and is effective as a fixture filing from the date of its recording in the offices identified in Schedule I hereto. It is not necessary to re-record the Mortgage or refile the Financing Statement or to make any other recording or filing in order to maintain the perfection of the security interest described above, except as provided below. Comments, Qualifications & Limitations: - --------------------------------------- The opinions expressed heroin are limited by and subject to the following qualifications, limitations and assumptions: A. General Qualifications. The validity, binding effect and ----------------------- enforceability of the Principal Documents may be subject to, or limited or affected by, (i) bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or similar statutes or rules of law affecting creditors' rights generally, including, without limitation, statutes or rules of law that limit the effect of waivers of rights by a debtor, guarantor cr grantor; (ii) general principles of equity (whether considered in a suit in equity or at law); and (iii) the qualification that certain remedial provisions of the Principal Documents may be unenforceable in whole or in part under the UCC or other applicable state and federal law, but the inclusion of such provisions does not render the other provisions of the Principal Documents invalid and does not make the remedies afforded by the Principal Documents inadequate for the practical realization of the benefits afforded thereby. B. Tiitle Matters. In rendering this opinion we have made no examination of --------------- and express no opinion with respect to (i) title to the Collateral or the priority of the liens created by Norwest Bank Denver, National McBRAYER, McGINNIS, LESLIE & KIRKLAND Association, Individually an as Agent November 20, 1992 Page 5 the Mortgage; or (it) the creation or perfection of the lien of the Mortgage with respect to water rights. We have assumed that Borrower has rights in the personal property Collateral sufficient to enable Borrower to grant liens on and security interests in such property. C. Foreclosure. Notwithstanding the terms and provisions of the Mortgage ------------ relating to foreclosure, in order to realize upon the Collateral, the foreclosure provisions of the statutes of this State must be complied with. D. Certain Matters as to Personal Property Collateral. We have made the --------------------------------------------------- following additional assumptions and qualifications in rendering the opinions expressed in paragraph 6 above: (i) Our opinion as to perfection of the security interest with respect to the fixtures (as that term is used in the UCC), is based upon the following assumptions: (a) Any portion of the Collateral consisting of goods that are or are to become fixtures is and will be located on the real estate described in Exhibit A to the Mortgage; and, (b) Borrower has an interest of record in the real estate described in the Mortgage, or, as to Boldman, that Columbia Gas Transmission Corporation is the owner of an interest of record in the real estate concerned. (ii) Our opinion as to perfection of the security interests with respect to the personal property included in the Collateral is limited to those items of Collateral that constitute goods under the UCC and proceeds thereof; but excluding consumer goods, standing timber( goods covered by a certificate of title or warehouse receipt, goods in possession of a bailee, fan products and crops. (iii) The security interests created by the Mortgage are subject to the rights of purchasers under Section 9-307 of the UCC. E. After-Acquired Property. Under applicable law, after-acquired title ------------------------ provisions in a deed of trust or mortgage may be effective against the parties thereto but not against third parties, because the deed of trust or mortgage may be outside the chain of title to the after-acquired property. F. Proceeds. With respect to proceeds (as such term is defined in the UCC) --------- of Collateral, the effectiveness and perfection of security interests that are purported to be created by the Mortgage are subject to and limited or affected by the following: (i) the operation of Section 9-306 of the UCC and other provisions of the UCC referred to therein, and (it) as to Norwest Bank Denver, National MCBRAYER, McGINNIS, LESLIE & KIRKLAND Association, Individually an as Agent November 20, 1992 Page 6 any proceeds which consist of items of property not subject to perfection under the provisions of Article 9 of the UCC, to the requirement that Agent's interest be perfected in the appropriate manner under the laws governing perfection of liens or security interests for that type of property. G. Factual Matters. As to certain factual matters we have relied, without ---------------- independent verification, upon information contained in certificates of an offer of Borrower. H. Continuation of Lien & Security Interest. Under applicable law, a ----------------------------------------- financing statement filed in the State of Kentucky is effective for a period of five years from the date of filing (and for an additional period in certain limited circumstances). The effectiveness of a filed financing statement may be continued however, by filing a continuation statement, in the manner prescribed by law, in the office in which the financing statement was originally filed, within six months prior to the end of the five-year period, and by so filing subsequent continuation statements within six months prior to the end of each five-year period thereafter. Amendments or supplements to the Mortgage and the Financing Statement or additional financing statements may be required to be filed in the event of change in the name, identity, principal place of business, chief executive office or corporate structure of Borrower, or in the event the Mortgage or the Financing Statement or the description of the Collateral otherwise becomes inaccurate, incomplete or seriously misleading. I. Filing Offices. For purposes of determining the proper counties or --------------- offices to record the Mortgage, we have relied upon the descriptions in Exhibit A to the Mortgage for information concerning the counties in which the Mortgaged Property is located. J. Limitations. We do not express any opinion as to matters governed by any ------------ law other than the laws of the State of Kentucky. The opinions expressed herein are rendered as of the date hereof. We do not undertake to advise you of matters that my come to our attention subsequent to the date hereof and that may affect the opinions expressed herein, including without limitation, future changes in applicable law. Sincerely yours, Phillip Bruce Leslie EXHIBIT G --------- THIS EXHIBIT INTENTIONALLY OMITTED G-1 . EXHIBIT H LITIGATION ---------- 1. In Re the Columbia Gas System, Inc. and Columbia Gas Transmission ----------------------------------------------------------------- Corporation, Case Nos. 91-803 and 91-804, United States Bankruptcy Court, - ------------ District of Delaware. EXHIBIT I --------- MARKWEST HYDROCARBON PARTNERS LTD. PARTNERSHIP INTEREST PERCENTAGES GENERAL PARTNER MarkWest Hydrocarbon inc. TOTAL LIMITED PARTNERS ERIN Investments Jon Crabtree Majorie S. Fox Lisbeth Fox Vance James Hamilton The Murray Company Tom Reed Brian O'Neill Patrick Murray Arthur Denney William Adkins Patricia Cameron Steve Creamer Daniel Deneault Katherine Holland Henry Nickel Paul O'Neill Mark Porth Mike Price Fred Shato Eldon Smith Kevin Timken Total Limited Partners GRAND TOTAL 69.7176% 69.7176% 10.9915% 4.7107% 1.6170% 1.0000% 0.0000% 2.6170% 0.9421% 4.4939% 1.7193% 0.8909% 0.0957% 0.0787% 0.1702% 0.1277% 0.0617% 0.0255% 0.1277% 0.0766% 0. 1702% 0.1277% 0.1277% 0.1106% 30.2824% 100.0000% . ~ I - 1 GENERAL PARTNER' S SHAREHOLDERS MARKWEST HYDROCARBON, INC. Percentage Ownership --------- John M. and Marcella F. Fox Anne Fox Mounsey Kelley Fox John M. Fox, Jr. 85.00% 5.00% 5.00% 5.00% Address of above: 3482 E. Davies Place Littleton, Colorado 80122 .z!~ I-2 FIRST AMENDMENT TO LOAN AGREEMENT --------------------------------- This First Amendment to Loan Agreement (this "Amendment") dated as of September 14, 1993 is by and among MARKWEST HYDROCARBON PARTNERS, LTD., a Colorado limited partnership (the "Borrower"), NORWEST BANK DENVER, NATIONAL ASSOCIATION, a national banking association, ("Norwest"), FIRST AMERICAN NATIONAL BANK, a national banking association ("First American") (Norwest and -------- First American are referred to individually as a "Lender" and collectively as --------- the "Lenders"), and NORWEST, AS AGENT FOR THE LENDERS (in such capacity, the ------------ "Agent"). - --------- RECITALS -------- 1. Borrower, the Lenders and the Agent executed a Loan Agreement dated as of November 20, 1992 (the "Loan Agreement"), whereby the Lenders agreed to make Revolver Loans and a Term Loan to Borrower in accordance with the terms and conditions set forth therein. The principal of and interest on the Term Loan have been paid in full. Unless otherwise defined herein, capitalized terms used herein shall have the meaning assigned to them in the Loan Agreement. 2. Borrower, the Agent and the Lenders now desire to amend the Loan Agreement to provide, among other things, for an increase in the principal amount of the Revolver Loan from $20,000,000 to $25,000,000 and to add additional collateral to secure the Loans. AGREEMENT --------- NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Borrower, the Agent and each of the Lenders hereby agree as follows.: 1. Amendment of Section 1. The definitions of Borrowing Base, ------------------------ Mortgages, Revolver Commitment and Revolver Note set forth in section 1 of the Loan Agreement shall be amended in the following manner: "Borrowing Base": shall be amended by deleting the figure ------------------ "$20,000,000" in the last line of that definition and substituting the phrase "'the Maximum Principal Amount" therefor; "Mortgages": shall be amended by changing the period at the end of the ----------- present definition to a comma and adding to the end thereof the following: "and (f) Borrower's interest in the Florida Mesa Project and the Herford Project." "Revolver Commitment": shall be amended by deleting the figure ----------------------- "$20,000,000" in the fourth line of that definition and substituting the phrase "the Maximum Principal Amount" therefor; and "Revolver Note": shall be amended by restating the definition of the ----------------- term "Revolver Note" in its entirety to read as follows: "Revolver Note" shall mean a note dated November 20, 1992, --------------- substantially in the form of Exhibit B attached hereto, made by Borrower and payable to the order of Norwest or to First American, as appropriate, with appropriate insertions, as amended by an Allonge dated September 14, 1993, to increase the principal amount of such note to $12,500,000.00, together with any and all renewals, extensions, amendments and changes of, or substitutions for said note; collectively, the "Revolver Notes." ----------------- B. The following additional definitions are hereby added to Section 1 of the Loan Agreement in their appropriate alphabetical order: "Allonge" shall refer individually to each Allonge dated September 14, ---------- 1993, between Borrower and either Norwest or First American, as appropriate, which amends the Revolver Note payable to such Lender to increase the principal amount of such note from $10,000,000 to $12,500,000, and which are in the form attached hereto as Exhibits A-1 and A-2, and the term "Allonges" shall refer to both Allonges. "Amended Notes" shall refer to each Revolver Note as amended by the --------------- Allonge for the appropriate Lender. "Amendment Documents" shall refer to this Amendment, the Allonges, the ----------- First Mortgage Amendments and the Florida Mesa Mortgage. "First Mortgage Amendments" shall refer to the amendments dated as of ---------------------------- September 14, 1993, to each of the mortgages and deeds of trust executed by the Borrower in -2- connection with the Initial Advance and the Second Advance on the Term Loan and described as follows: (i) First Amendment to Arkansas Leasehold Deed of Trust with Security Agreement, Assignment of Rents and Leases and Financing Statement (Revolving Credit); (ii) First Amendment to Mortgage, Security Agreement, Assignment of Profits and Proceeds and Financing Statement relating to Siloam, (iii) First Amendment to Mortgage, Security Agreement, Assignment of Profits and Proceeds and Financing Statement (Boldman); and (iv) First Amendment to A Credit Line Deed of Trust with Security Agreement, Assignment of Profits and Proceeds and Financing Statement relating to West Virginia property. "Florida Mesa Deed of Trust" shall refer to the Deed of Trust to ----------------------------- Public Trustee, Mortgage, Security Agreement, Assignment of Production and Proceeds and Financing Statement dated as of September 14, 1993 from Borrower to the Public Trustee of La Plata County, Colorado, for the benefit of the Agent, covering Borrower's interest in the Florida Mesa Project and its interest in the Herford Project. "Maximum Principal Amount" shall be $25,000,000. --------------------------- 2. Amendment of Section 4(c). Section 4(c) is hereby amended to --------------------------- delete the figure "$20,000,000" in the third line and substitute the phrase "the Maximum Principal Amount" therefor. 3. Amendment of Section 9(c). Section 9(c) is hereby amended to --------------------------- delete the following language: (i) guarantees by Borrower of Debt incurred by MarkWest Energy Partners, Ltd. in connection with the Florida Mesa Project so long as such guarantees do not exceed $1,000,000 in the aggregate at any one time, and (ii) 4. Amendment of Section 13(b). Section 13(b) shall be amended by ---------------------------- changing the address of Norwest in both the provision for Norwest, as Lender, and Norwest, as Agent: Norwest Bank Denver, National Association 1740 Broadway Denver, CO 80274-8699 Attention: Energy and Minerals Group Fax No.: (303) 863-5196 -3- 5. Conditions Precedent. The amendments provided for in this ---------------------- Amendment shall not become effective until the Agent has received each of the following: A. This Amendment, executed by Borrower, the Agent and the Lenders; B. The Allonges, executed by Borrower and the appropriate Lender; C. Counterparts of the First Mortgage Amendments, duly executed and acknowledged by Borrower and Agent, and to the extent applicable, the trustee thereunder; D. Counterparts of the Florida Mesa Deed of Trust duly executed and acknowledged by Borrower; E. A letter from each of John Fox and the General Partner reconfirming their respective Covenant Agreement; F. A duly executed and acknowledged Subordination Agreement between RIMCO Partners, L.P., Resource Investors Management Company Limited Partnership and the Agent, in form and substance acceptable to the Agent; G. Results of UCC lien searches as to Borrower for the States of Arkansas, Colorado and West Virginia and for the following counties: Crittenden County, Arkansas; Boyd, Greenup and Pike Counties, Kentucky; and Wayne and Kanawha Counties, West Virginia, and for all other relevant filing jurisdictions as to the Collateral; H. Evidence that the Agent has been named as mortgagee/loss payee under all policies of casualty insurance, and as an additional insured under all policies of liability insurance, as required by Section 8(f) of the Loan Agreement with respect to the collateral subject to the Florida Mesa Deed of Trust; I. All legal matters incident to the Loans and the Amendment Documents shall be satisfactory to counsel to the Agent, and the Agent shall have received a favorable opinion addressed to the Agent and the Lenders of Barry W. Spector, Esq., counsel for Borrowers, in form and substance satisfactory to the Agent; and J. All other documents and assurances which the Agent reasonably requires or which it may reasonably request in connection with the transactions contemplated by -4- this Agreement, and such documents shall be certified, when appropriate by proper authorities. 6. Post-Closing Matters. On or before thirty (30) days after the ---------------------- recording of the Florida Mesa Deed of Trust in the real property records of La Plata County, Colorado, Borrower shall have delivered to the Agent a security opinion prepared by Barry W. Spector, Esq., showing the Florida Mesa Deed of Trust as a perfected first priority lien and security interest in all of the collateral subject to such Deed of Trust, subject only to those matters acceptable to the Agent and its counsel. 7. Representations and Warranties. To induce the Agent and the -------------------------------- Lenders to enter into this Amendment, Borrower hereby represents and warrants to the Agent and each Lender that: A. Non-Contravention. The execution, delivery and performance ------------------- by the Borrower of this Amendment, and the other Amendment Documents and the borrowings thereunder, and the consummation of the transactions contemplated herein and therein will not conflict with the limited partnership agreement or other organizational or governing documents of any Related Person, or conflict with or result in any breach of any mortgage, lien, lease, agreement, instrument, order, judgment, decree, law, rule, regulation or any other restriction of any kind or character to which any Related Person is a party or is subject or by which any Related Person or its properties are bound or affected or result in the creation or imposition of any lien, charge or encumbrance upon any property of any Related Person. B. Third Party Authorization. No consent, approval, --------------------------- exemption, authorization or order of or other action by, and no notice to or filing with, any court or governmental authority or third party is required by any Related Person in connection with the execution, delivery or performance by Borrower of this Amendment, or any other Amendment Document or to consummate any transactions contemplated hereby or thereby. C. Authorization; Binding Effect. Borrower has full power and ------------------------------- authority to enter into this Amendment and the other Amendment Documents. The execution and delivery of this Amendment, and the other Amendment Documents, and the performance and observance of their terms, conditions and obligations, have been duly authorized by all necessary action by Borrower and the General Partner. This Amendment and the other Amendment Documents are the legal, valid and binding obligations of Borrower, enforceable in accordance with their -5- respective terms, except as such enforcement may be limited by bankruptcy, insolvency or similar laws of general application relating to the enforcement of creditors' rights. D. First Priority Security Interest. Upon filing and ---------------------------------- recording of the Florida Mesa Deed of Trust and the related financing statements in the locations specified in the opinion provided to the Lenders pursuant to paragraph 5(I) hereof, the Agent, on behalf of the Lenders will have a perfected first priority lien or security interest in all of the Collateral subject to such mortgage. The foregoing representations and warranties shall be deemed to be representations and warranties made in the Loan Agreement for all purposes. 8. Continuing Effect. Except as expressly amended hereby, the Loan ------------------- Agreement shall continue to be and shall remain in full force and effect in accordance with its terms. References in the Loan Agreement to "this Agreement", "this instrument" and like terms shall be deemed to be references to the Loan Agreement as amended by this Amendment. When used in this Amendment or in the Loan Agreement, each reference to a term defined in the Loan Agreement, which is amended by this Amendment, shall be deemed to be the term as amended by this Amendment. Any reference to the "Revolver/Term Loan Agreement" in the Collateral Documents shall be deemed to be a reference to the Loan Agreement as amended by this Amendment. The Borrower hereby confirms and acknowledges that the term "Obligations" as used in the Security Agreement, includes all obligations of the Borrower with respect to the Revolver Loans as increased hereby and the Amended Notes and all other costs, fees, indemnities and expenses in connection therewith. 9. This Amendment shall be governed by and construed under the laws of the State of Colorado and shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. 10. This Amendment may be executed in one or more counterparts, with each party signing on different counterparts, each of which shall be deemed an original, and all of which together shall constitute but one and the same instrument. -6- BORROWER: MARKWEST HYDROCARBON PARTNERS, LTD., a Colorado limited partnership By: MARKWEST HYDROCARBON, INC., General Partner By: Patrick W. Murray Vice President LENDERS: NORWEST BANK DENVER, NATIONAL ASSOCIATION, a national banking association By: Mark Williamson Vice President FIRST AMERICAN NATIONAL BANK, a national banking association By: David C. May Senior Vice President AGENT: NORWEST BANK DENVER, NATIONAL ASSOCIATION, a national banking association By: Mark Williamson Vice President -7- EXHIBIT A-1 ----------- FIRST ALLONGE TO REVOLVER NOTE THIS FIRST ALLONGE TO REVOLVER NOTE dated September 14, 1993, is between MARKWEST HYDROCARBON PARTNERS, LTD., a Colorado limited partnership ("Borrower"), and NORWEST BANK DENVER, NATIONAL ASSOCIATION, a national banking association (the "Lender"). For good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Borrower and the Lender agree as follows: 1. This Allonge shall be attached to and shall become a part of the Revolver Note dated November 20, 1992, made by Borrower and payable to the order of the Lender, in the original principal amount of $10,000,000.00 (the "Note"). 2. The Note is hereby amended by increasing the principal amount of the Note from $10,000,000.00 to $12,500,000.00. 3. Except as amended hereby, the provisions of the Note are not changed, altered or amended, and such provisions and the liens of the deeds of trust and mortgages that secure the obligations under the Note are hereby ratified and confirmed in all respects and remain in full force and effect. 4. This Allonge shall be binding upon and shall inure to the benefit of the parties hereto and their heirs, administrators, executors, personal representatives, successors and assigns. EXECUTED as of the date first set forth above. NORWEST BANK DENVER, MARKWEST HYDROCARBON PARTNERS NATIONAL ASSOCIATION, LTD., a Colorado limited a national banking association partnership By: MarkWest Hydrocarbon, Inc., General Partner By: Mark Williamson, Patrick W. Murray, Vice President Vice President EXHIBIT A-2 ----------- FIRST ALLONGE TO REVOLVER NOTE THIS FIRST ALLONGE TO REVOLVER NOTE dated September 14, 1993, is between MARKWEST HYDROCARBON PARTNERS, LTD., a Colorado limited partnership ("Borrower"), and FIRST AMERICAN NATIONAL BANK, a national banking association (the "Lender"). For good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Borrower and the Lender agree as follows: 1. This Allonge shall be attached to and shall become a part of the Revolver Note dated November 20, 1992, made by Borrower and payable to the order of the Lender, in the original principal amount of $10,000,000.00 (the "Note"). 2. The Note is hereby amended by increasing the principal amount of the Note from $10,000,000.00 to $12,500,000.00. 3. Except as amended hereby, the provisions of the Note are not changed, altered or amended, and such provisions and the liens of the deeds of trust and mortgages that secure the obligations under the Note are hereby ratified and confirmed in all respects and remain in full force and effect. 4. This Allonge shall be binding upon and shall inure to the benefit of the parties hereto and their heirs, administrators, executors, personal representatives, successors and assigns. EXECUTED as of the date first set forth above. FIRST AMERICAN NATIONAL MARKWEST HYDROCARBON PARTNERS BANK, LTD., a Colorado limited a national banking association partnership By: MarkWest Hydrocarbon, Inc., General Partner By: Mark Williamson, Patrick W. Murray, Vice President, Vice President FIRST ALLONGE TO REVOLVER NOTE THIS FIRST ALLONGE TO REVOLVER NOTE dated September 14, 1993, is between MARKWEST HYDROCARBON PARTNERS, LTD., a Colorado limited partnership ("Borrower"), and FIRST AMERICAN NATIONAL BANK, a national banking association (the "Lender"). For good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Borrower and the Lender agree as follows: 1. This Allonge shall be attached to and shall become a part of the Revolver Note dated November 20, 1992, made by Borrower and payable to the order of the Lender, in the original principal amount of $10,000,000.00 (the "Note"). 2. The Note is hereby amended by increasing the principal amount of the Note from $10,000,000.00 to $12,500,000.00. 3. Except as amended hereby, the provisions of the Note are not changed, altered or amended, and such provisions and the liens of the deeds of trust and mortgages that secure the obligations under the Note are hereby ratified and confirmed in all respects and remain in full force and effect. 4. This Allonge shall be binding upon and shall inure to the benefit of the parties hereto and their heirs, administrators, executors, personal representatives, successors and assigns. EXECUTED as of the date first set forth above. FIRST AMERICAN NATIONAL MARKWEST HYDROCARBON PARTNERS BANK, LTD., a Colorado limited a national banking association partnership By: MarkWest Hydrocarbon, Inc., General Partner By: David C. May Patrick W. Murray, Vice President Vice President FIRST ALLONGE TO REVOLVER NOTE THIS FIRST ALLONGE TO REVOLVER NOTE dated September 14, 1993, is between MARKWEST HYDROCARBON PARTNERS, LTD., a Colorado limited partnership ("Borrower"), and NORWEST BANK DENVER, NATIONAL ASSOCIATION, a national banking association (the "Lender"). For good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Borrower and the Lender agree as follows: 1. This Allonge shall be attached to and shall become a part of the Revolver Note dated November 20, 1992, made by Borrower and payable to the order of the Lender, in the original principal amount of $10,000,000.00 (the "Note"'). 2. The Note is hereby amended by increasing the principal amount of the Note from $10,000,000.00 to $12,500,000.00. 3. Except as amended hereby, the provisions of the Note are not changed, altered or amended, and such provisions and the liens of the deeds of trust and mortgages that secure the obligations under the Note are hereby ratified and confirmed in all respects and remain in full force and effect. 4. This Allonge shall be binding upon and shall inure to the benefit of the parties hereto and their heirs, administrators, executors, personal representatives, successors and assigns. EXECUTED as of the date first set forth above. NORWEST BANK DENVER, MARKWEST HYDROCARBON PARTNERS NATIONAL ASSOCIATION, LTD., a Colorado limited a national banking association partnership By: MarkWest Hydrocarbon, Inc., General Partner By: Mark Williamson, Patrick W. Murray, Vice President Vice President SECOND AMENDMENT TO LOAN AGREEMENT ---------------------------------- This Second Amendment to Loan Agreement (this "Amendment") dated as of --------- March 23, 1994 is by and among MARKWEST HYDROCARBON PARTNERS, LTD., a Colorado limited partnership (the "Borrower"), NORWEST BANK COLORADO, NATIONAL -------- ASSOCIATION (successor to Norwest Bank Denver, National Association), a national banking association, ("Norwest"), FIRST AMERICAN NATIONAL BANK, a national ------- banking association ("First American") (Norwest and First American are referred -------------- to individually as a "Lender" and collectively as the "Lenders"), and NORWEST, ------ ------- AS AGENT FOR THE LENDERS (in such capacity, the "Agent"). ----- RECITALS -------- 1. Borrower, the Lenders and the Agent executed a Loan Agreement dated as of November 20, 1992 (the "Original Loan Agreement"), whereby the -------- -------------- Lenders agreed to make Revolver Loans and a Term Loan to Borrower in accordance with the terms and conditions set forth therein. The principal of and interest on the Term Loan have been paid in full. Borrower, the Lenders and the Agent executed a First Amendment to Loan Agreement dated as of September 14, 1993 (the "First Amendment") whereby various terms of the Original Loan Agreement were ----- --------- amended. The Original Loan Agreement, as amended by the First Amendment, is herein referred to as the "Loan Agreement". Unless otherwise defined herein, -------------- capitalized terms used herein shall have the meaning assigned to them in the Loan Agreement. 2. Borrower, the Agent and the Lenders now desire to amend the Loan Agreement to extend the Revolver Commitment Period from December 31, 1994 to December 31, 1995, and to extend the maturity date from December 31, 1998 to December 31, 1999. AGREEMENT --------- NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Borrower, the Agent and each of the Lenders hereby agree as follows: 1. Amendment of Section 1. A. The definitions of Loan Documents, ---------------------- Amended Notes, Revolver Commitment Period and Revolver Note set forth in Section 1 of the Loan Agreement shall be amended by restating the definition of each of the following terms in their entirety to read as follows: "Amended Notes" shall refer to each Revolver Note as amended by ------------- the Allonge and Second Allonge for the appropriate Lender. "Loan Documents" shall mean the Loan Agreement, as amended by -------------- this Agreement, the Amended Notes, the Security Documents, the Covenant Agreements and all other documents executed and delivered, from time to time, by or on behalf of Borrower to the Agent or the Lenders in connection herewith or therewith. "Revolver Commitment Period" shall mean the period from November -------------------------- 20, 1992, to and including December 31, 1995, or such earlier date on which the Revolver Notes become due and payable. "Revolver Note" shall mean a note dated November 20, 1992, ------------- substantially in the form of Exhibit B attached to the Original Loan Agreement, --------- made by Borrower and payable to the order of Norwest or to First American, as appropriate, with appropriate insertions, as amended by an Allonge dated September 14, 1993, to increase the principal amount of such note to $12,500,000.00, and as amended by Second Allonge dated March 23, 1994, to change the maturity date from December 31, 1998 to December 31, 1999, together with any and all renewals, extensions, amendments and changes of, or substitutions for said note; collectively, the "Revolver Notes." -------------- "Working Capital Facility" shall mean the loan provided for ------------------------ pursuant to that certain Working Capital Loan Agreement dated November 20, 1992, between Borrower, the Lenders and the Agent, as such agreement may be amended from time to time, in the maximum principal amount of $5,000,000, and which loan is secured by various "Security Documents" (as such term is defined therein). B. The following additional definitions are hereby added to Section 1 of the Loan Agreement in -1- their appropriate alphabetical order: "Second Allonge" shall refer individually to each Second Allonge -------------- to Revolver Note dated March 23, 1994, between Borrower and either Norwest or First American, as appropriate, which amends the Revolver Note payable to such Lender to extend the maturity date from December 31, 1998 to December 31, 1999, and which are in the form attached hereto as Exhibits A-1 and A-2, and the term "Second Allonges" shall refer to both of the Second Allonges. C. The term "Amendment Documents" when used in this Agreement shall ------------------- refer to this Amendment and the Second Allonges. 2. Amendment of Section 2(b)(ii). Section 2(b)(ii) is hereby ----------------------------- amended to (a) delete the date "March 31, 1995" in the twelfth and thirteenth lines and substitute the date "March 31, 1996" therefor, and (b) delete the date "December 31, 1998" in the fourteenth line and substitute the date "December 31, 1999" therefor. 3. Amendment of Section 9(j)(ii). Section 9(j)(ii) of the Loan ----------------------------- Agreement is hereby deleted and restated in its entirety to read as follows: (ii) So long as a Borrowing Base Deficiency does not exist and no Event of Default or Unmatured Event of Default has occurred, Borrower may make distributions in an aggregate cumulative amount not to exceed 75 percent of Borrower's net income, determined in accordance with GAAP and computed on a cumulative basis for all periods since December 31, 1991, taking into account allowable distributions previously declared or made since December 31, 1991; provided however, that the distribution of $1,800,851 made in 1992 -------- ------- relating to 1991 earnings shall not be included in the calculation of distributions declared or made since December 31, 1991; notwithstanding any of the foregoing, distributions are allowable only so long as they would not cause Borrower to be in contravention of the financial covenants contained in Section 8(k), (l), (m) and (n). 4. Amendment of Section 13(b). Section 13(b) shall be amended by -------------------------- changing the address of Norwest in both the provision for Norwest, as Lender, and Norwest, as Agent to the following: Norwest Bank Colorado, National Association 1740 Broadway Denver, CO 80274-8699 Attention: Energy and Minerals Group Fax No.: (303) 863-5196 5. Conditions Precedent. The amendments provided for in this -------------------- Amendment shall not become effective until the Agent has received each of the following: A. This Amendment, executed by Borrower, the Agent and the Lenders; B. The Second Allonges, executed by Borrower and the appropriate Lender; C. A letter from each of John Fox and the General Partner reconfirming their respective Covenant Agreement; D. All legal matters incident to the Loans and the Amendment Documents shall be satisfactory to counsel to the Agent, and the Agent shall have received a favorable opinion addressed to the Agent and the Lenders of Barry W. Spector, Esq., counsel for Borrowers, in form and substance satisfactory to the Agent; and E. All other documents and assurances which the Agent reasonably requires or which it may reasonably request in connection with the transactions contemplated by this Agreement, and such documents shall be certified, when appropriate by proper authorities. 6. Representations and Warranties. To induce the Agent and the ------------------------------ Lenders to enter into this Amendment, Borrower hereby represents and warrants to the Agent and each Lender that: -2- A. Non-Contravention. The execution, delivery and performance ----------------- by the Borrower of this Amendment, and the other Amendment Documents and the borrowings thereunder, and the consummation of the transactions contemplated herein and therein will not conflict with the limited partnership agreement or other organizational or governing documents of any Related Person, or conflict with or result in any breach of any mortgage, lien, lease, agreement, instrument, order, judgment, decree, law, rule, regulation or any other restriction of any kind or character to which any Related Person is a party or is subject or by which any Related Person or its properties are bound or affected or result in the creation or imposition of any lien, charge or encumbrance upon any property of any Related Person. B. Third Party Authorization. No consent, approval, exemption, ------------------------- authorization or order of or other action by, and no notice to or filing with, any court or governmental authority or third party is required by any Related Person in connection with the execution, delivery or performance by Borrower of this Amendment, or any other Amendment Document or to consummate any transactions contemplated hereby or thereby. C. Authorization; Binding Effect. Borrower has full power and ----------------------------- authority to enter into this Amendment and the other Amendment Documents. The execution and delivery of this Amendment, and the other Amendment Documents, and the performance and observance of their terms, conditions and obligations, have been duly authorized by all necessary action by Borrower and the General Partner. This Amendment and the other Amendment Documents are the legal, valid and binding obligations of Borrower, enforceable in accordance with their respective terms, except as such enforcement may be limited by bankruptcy, insolvency or similar laws of general application relating to the enforcement of creditors' rights. D. Representations and Warranties. All representations and ------------------------------ warranties contained in Section 7 of the Original Loan Agreement and in the Security Documents shall be true on the date hereof as if then given, and Borrower shall have performed or observed all terms, agreements, conditions and obligations under the Loan Agreement and under the Security Documents to be performed or observed on or prior to the date hereof. E. No Default. No Event of Default or Unmatured Event of ---------- Default under the Loan Agreement shall have occurred and be continuing or would result from the entering into of this Amendment. The foregoing representations and warranties shall be deemed to be representations and warranties made in the Loan Agreement for all purposes. 7. Continuing Effect. Except as expressly amended hereby, the Loan ----------------- Agreement shall continue to be and shall remain in full force and effect in accordance with its terms. References in the Loan Agreement to "this Agreement", "this instrument" and like terms shall be deemed to be references to the Loan Agreement as amended by this Amendment. When used in this Amendment or in the Loan Agreement, each reference to a term defined in the Loan Agreement, which is amended by this Amendment, shall be deemed to be the term as amended by this Amendment. Any reference to the "Revolver/Term Loan Agreement" in the Collateral Documents shall be deemed to be a reference to the Loan Agreement as amended by this Amendment. The Borrower hereby confirms and acknowledges that the term "Obligations" as used in the Security Agreement, includes all obligations of the Borrower with respect to the Revolver Loans as extended hereby and the Amended Notes and all other costs, fees, indemnities and expenses in connection therewith. 8. This Amendment shall be governed by and construed under the laws of the State of Colorado and shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. 9. This Amendment may be executed in one or more counterparts, with each party signing on different counterparts, each of which shall be deemed an original, and all of which together shall constitute but one and the same instrument. BORROWER: MARKWEST HYDROCARBON PARTNERS, LTD., a Colorado limited partnership By: MARKWEST HYDROCARBON, INC., General Partner -3- By: _____________________________ Patrick W. Murray Vice President LENDERS: NORWEST BANK COLORADO, NATIONAL ASSOCIATION (successor to Norwest Bank Denver, National Association), a national banking association By:_____________________________ Mark Williamson Vice President FIRST AMERICAN NATIONAL BANK, a national banking association By:______________________________ David C. May Senior Vice President AGENT: NORWEST BANK COLORADO, NATIONAL ASSOCIATION (successor to Norwest Bank Denver, National Association), a national banking association By:_____________________________ Mark Williamson Vice President -4- EXHIBIT A-1 SECOND ALLONGE TO REVOLVER NOTE THIS SECOND ALLONGE TO REVOLVER NOTE dated March 23, 1994 (this "Allonge"), is between MARKWEST HYDROCARBON PARTNERS, LTD., a Colorado limited partnership ("Borrower"), and NORWEST BANK COLORADO, NATIONAL ASSOCIATION (successor to Norwest Bank Denver, National Association), a national banking association (the "Lender"). For good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Borrower and the Lender agree as follows: 1. This Allonge shall be attached to and shall become a part of the Revolver Note dated November 20, 1992, made by Borrower and payable to the order of the Lender, in the original principal amount of $10,000,000.00 (the "Original Note"). 2. The Original Note was amended by increasing the principal amount of the Original Note from $10,000,000.00 to $12,500,000.00 by First Allonge to Revolver Note dated September 14, 1993 (the "First Allonge"). The Original Note, as amended by the First Allonge, is herein referred to as the "Note". 3. All references in the Note to the "Loan Agreement" shall refer to the Loan Agreement dated November 20, 1992 among Borrower, Lender, First American National Bank, as a lender, and Norwest Bank Colorado, National Association (successor to Norwest Bank Denver, National Association), as Agent, as such agreement has been amended by First Amendment to Loan Agreement dated September 14, 1993, and by Second Amendment to Loan Agreement dated as of the date hereof, and as such agreement may be further amended from time to time. 4. The Note is hereby amended to extend the maturity date from December 31, 1998 to December 31, 1999. 5. The Note is further amended by deleting the third full paragraph of the Original Note and by substituting the following for it in its entirety: As of December 31, 1995, the aggregate unpaid principal amount outstanding under this Note shall be repaid to Lender in sixteen equal quarterly installments, commencing March 31, 1996, as more fully provided in the Loan Agreement, together with accrued and unpaid interest thereon. All remaining outstanding principal of and interest on this Note shall be due and payable no later than December 31, 1999. 6. Except as amended hereby, the provisions of the Note are not changed, altered or amended, and such provisions and the liens of the deeds of trust and mortgages that secure the obligations under the Note are hereby ratified and confirmed in all respects and remain in full force and effect. 7. This Allonge shall be binding upon and shall inure to the benefit of the parties hereto and their heirs, administrators, executors, personal representatives, successors and assigns. 8. This Allonge is to be governed by and construed according to the laws of the State of Colorado. EXECUTED as of the date first set forth above. NORWEST BANK COLORADO, MARKWEST HYDROCARBON PARTNERS NATIONAL ASSOCIATION, LTD., a Colorado limited (successor to Norwest partnership -5- Bank Denver, National Association), By: MarkWest Hydrocarbon, Inc., a national banking General Partner association By:________________________ By:_________________________ Mark Williamson, Patrick W. Murray, Vice President Vice President -6- EXHIBIT A-2 SECOND ALLONGE TO REVOLVER NOTE THIS SECOND ALLONGE TO REVOLVER NOTE dated March 23, 1994 (this "Allonge"), is between MARKWEST HYDROCARBON PARTNERS, LTD., a Colorado limited partnership ("Borrower"), and FIRST AMERICAN NATIONAL BANK, a national banking association (the "Lender"). For good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Borrower and the Lender agree as follows: 1. This Allonge shall be attached to and shall become a part of the Revolver Note dated November 20, 1992, made by Borrower and payable to the order of the Lender, in the original principal amount of $10,000,000.00 (the "Original Note"). 2. The Original Note was amended by increasing the principal amount of the Original Note from $10,000,000.00 to $12,500,000.00 by First Allonge to Revolver Note dated September 14, 1993 (the "First Allonge"). The Original Note, as amended by the First Allonge, is herein referred to as the "Note". 3. All references in the Note to the "Loan Agreement" shall refer to the Loan Agreement dated November 20, 1992, among Borrower, Lender, and Norwest Bank Colorado, National Association (successor to Norwest Bank Denver, National Association), as a lender and as Agent, as such agreement has been amended by First Amendment to Loan Agreement dated September 14, 1993, and by Second Amendment to Loan Agreement dated as of the date hereof, and as such agreement may be further amended from time to time. 4. The Note is hereby amended to extend the maturity date from December 31, 1998 to December 31, 1999. 5. The Note is further amended by deleting the third full paragraph of the Original Note and by substituting the following for it in its entirety: As of December 31, 1995, the aggregate unpaid principal amount outstanding under this Note shall be repaid to Lender in sixteen equal quarterly installments, commencing March 31, 1996, as more fully provided in the Loan Agreement, together with accrued and unpaid interest thereon. All remaining outstanding principal of and interest on this Note shall be due and payable no later than December 31, 1999. 6. Except as amended hereby, the provisions of the Note are not changed, altered or amended, and such provisions and the liens of the deeds of trust and mortgages that secure the obligations under the Note are hereby ratified and confirmed in all respects and remain in full force and effect. 7. This Allonge shall be binding upon and shall inure to the benefit of the parties hereto and their heirs, administrators, executors, personal representatives, successors and assigns. 8. This Allonge is to be governed by and construed according to the laws of the State of Colorado. EXECUTED as of the date first set forth above. FIRST AMERICAN NATIONAL MARKWEST HYDROCARBON PARTNERS BANK, a national banking LTD., a Colorado limited association partnership By: MarkWest Hydrocarbon, Inc., General Partner -7- By:________________________ By:_________________________ David C. May Patrick W. Murray, Senior Vice President Vice President -8- THIRD AMENDMENT TO LOAN AGREEMENT --------------------------------- This Third Amendment to Loan Agreement (this "Amendment") dated as of --------- September 8, 1995 is by and among MARKWEST HYDROCARBON PARTNERS, LTD., a Colorado limited partnership (the "Borrower"), NORWEST BANK COLORADO, NATIONAL -------- ASSOCIATION (successor to Norwest Bank Denver, National Association), a national banking association, ("Norwest"), FIRST AMERICAN NATIONAL BANK, a national ------- banking association ("First American"), and N M ROTHSCHILD AND SONS LIMITED, a -------------- company organized and existing under the laws of England ("Rothschild") ---------- (Norwest, First American and Rothschild are referred to individually as a "Lender" and collectively as the "Lenders"), and NORWEST, AS AGENT FOR THE - ------- ------- LENDERS (in such capacity, the "Agent"). ----- RECITALS -------- 1. Borrower, Norwest, First American and Agent executed a Loan Agreement dated as of November 20, 1992 (the "Original Loan Agreement"), whereby ----------------------- Lenders agreed to make Revolver Loans and a Term Loan to Borrower in accordance with the terms and conditions set forth therein. The principal of and interest on the Term Loan have been paid in full. Borrower, Norwest, First American and Agent executed a First Amendment to Loan Agreement dated as of September 14, 1993 (the "First Amendment") whereby various terms of the Original Loan --------------- Agreement were amended. Borrower, Norwest, First American and Agent executed a Second Amendment to Loan Agreement dated as of March 23, 1994 (the "Second ------ Amendment") whereby various terms of the Original Loan Agreement were further - --------- amended. The Original Loan Agreement, as amended by the First Amendment and Second Amendment, is herein referred to as the "Loan Agreement". Unless -------------- otherwise defined herein, capitalized terms used herein shall have the meaning assigned to them in the Loan Agreement. 2. Borrower, Agent and Lenders now desire to amend the Loan Agreement, among other things, to add Rothschild as a Lender, to reflect the execution of replacement notes to reflect such addition of Rothschild, to extend the Revolver Commitment Period from December 31, 1995 to June 30, 1997, to extend the maturity date from December 31, 1999 to June 30, 2001, and to provide a LIBOR interest option on Revolver Loans. AGREEMENT --------- NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Borrower, Agent and each of Lenders hereby agree as follows: 1. Amendment of Section 1. A. The definitions of Loan Documents, ---------------------- Loan Share, Fixed Charge Coverage Ratio, Revolver Commitment Period, Revolver Loan and Revolver Note set forth in Section 1 of the Loan Agreement shall be amended by restating the definition of each of the following terms in their entirety to read as follows: "Fixed Charge Coverage Ratio" shall mean for the four most recent ----------------------------- fiscal quarters, the ratio for such period of (a) the sum of net income (or net loss) plus interest expense and non-cash charges included in determining net income (or net loss), all as determined in accordance with GAAP, to (b) the sum of interest expense included in calculating (a). "Loan Documents" shall mean the Loan Agreement, as amended by this -------------- Agreement, the Replacement Notes, the Security Documents, the Covenant Agreements and all other documents executed and delivered, from time to time, by or on behalf of Borrower to Agent or Lenders in connection herewith or therewith. "Loan Share" means with respect to each of Norwest and First American, ---------- forty percent and with respect to Rothschild, twenty percent. "Revolver Commitment Period" shall mean the period from November 20, -------------------------- 1992, to and including June 30, 1997, or such earlier date on which the Revolver Notes become due and payable. "Revolver Loan" shall mean the loan provided for in Section 2(b) ------------- hereof to Borrower by Lenders, in the form of a Base Rate Loan or a LIBOR Rate Loan, all of which shall collectively be referred to as "Revolver Loans" or "the -------------- --- Revolver Loan," the maximum principal amount of which shall never exceed the - ------------- Revolver Commitment. "Revolver Note" shall mean a Replacement Revolver Note dated September ------------- 8, 1995, substantially in the form of Exhibit A-1, A-2 or A-3 attached hereto, ----------------------- made by Borrower and payable to the order of Norwest, First American or Rothschild, as appropriate, with appropriate insertions, reissued in connection with the assignment by Norwest and First American to Rothschild of a portion of their interests in the Loan, in replacement of a note dated November 20, 1992, substantially in the form of Exhibit B attached to the Original Loan Agreement --------- made by Borrower and payable to the order of Norwest or First American, as amended by an Allonge dated September 14, 1993, to increase the principal amount of such note to $12,500,000.00, as amended by Second Allonge dated March 23, 1994, to change the maturity date from December 31, 1998 to December 31, 1999, and which has a maturity date of June 30, 2001, together with any and all renewals, extensions, amendments and changes of, or substitutions for said note; collectively, the "Revolver Notes." -------------- "Second Mortgage Amendments" shall refer to the amendments dated as of -------------------------- September 8, 1995, to each of the mortgages and deeds of trust executed by the Borrower in connection with this Amendment and described as follows: (i) Second Amendment to Arkansas Leasehold Deed of Trust with Security Agreement, Assignment of Rents and Leases and Financing Statement (Revolving Credit); (ii) Second Amendment to Mortgage, Security Agreement, Assignment of Profits and Proceeds and Financing Statement relating to Siloam, (iii) Second Amendment to Mortgage, Security Agreement, Assignment of Profits and Proceeds and Financing Statement (Boldman); and (iv) Second Amendment to A Credit Line Deed of Trust with Security Agreement, Assignment of Profits and Proceeds and Financing Statement relating to West Virginia property. "Working Capital Facility" shall mean the loan provided for pursuant ------------------------ to that certain Working Capital Loan Agreement dated November 20, 1992, between Borrower, Lenders and Agent, as such agreement may be amended from time to time, in the maximum principal amount of $7,500,000, and which loan is secured by various "Security Documents" (as such term is defined therein). B. The following additional definitions are hereby added to Section 1 of the Loan Agreement in their appropriate alphabetical order: "Applicable Margin" shall mean: ----------------- (a) for Base Rate Loans: (i) 0.25 percentage points if Borrower's total Debt is less than or equal to 40 percent of Borrower's Total Capitalization or (ii) 0.50 percentage points if Borrower's total Debt is greater than 40 percent of Borrower's Total Capitalization; and (b) for LIBOR Rate Loans: (i) 2.0 percentage points if Borrower's total debt is less than or equal to 40 percent or (ii) 2.25 percentage points if Borrower's total debt is greater than 40 percent. "Base Rate" shall mean an annual rate of interest which equals the --------- floating commercial loan rate of Agent announced from time to time as its "prime rate," which rate is used as a reference point for pricing certain loans, which may not be the lowest interest rate charged by Agent, adjusted in each case as of the banking day in which a change in the "prime rate" occurs. "Base Rate Loan" shall mean a Revolver Loan that bears interest based -------------- on the Base Rate. "Capital Adequacy Regulation" means any guideline, request or --------------------------- directive of any 3 central bank or other governmental authority, or any other law, rule, or regulation, whether or not having the force of law, in each case regarding capital adequacy of any bank or of any corporation controlling a bank. "Conversion Date" means any date on which Borrower converts a Base --------------- Rate Loan to a LIBOR Rate Loan, or a LIBOR Rate Loan to a Base Rate Loan. "Eurocurrency Liabilities" has the meaning specified in Regulation D ------------------------ of the Board of Governors of the Federal Reserve System, as in effect from time to time. "Eurodollar Reserve Percentage" shall mean, for any Interest Period, ----------------------------- the reserve percentage applicable two Business Days before the first day of such Interest Period under regulations issued from time to time by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement (including, without limitation, any emergency, supplemental or other marginal reserve requirement) for Lenders with respect to liabilities or assets consisting of or including Eurocurrency Liabilities (or with respect to any other category of liabilities that includes deposits by reference to which the interest rate on LIBOR Rate Loans is determined) having a term equal to such Interest Period. "Interest Payment Date" means, with respect to any LIBOR Rate Loan, --------------------- the last day of each Interest Period applicable to such Loan and, with respect to Base Rate Loans, the last Business Day of each Fiscal Quarter; provided that, -------- if any Interest Period for a LIBOR Rate Loan exceeds three months, the date which falls three months after the beginning of such Interest Period shall also be an Interest Payment Date. "Interest Period" means, with respect to any LIBOR Rate Loan, the --------------- period commencing on the Business Day the Loan is disbursed or continued or on the Conversion Date on which the Loan is converted to the LIBOR Rate Loan and ending on the date one, two, three or six months thereafter, as selected by Borrower in its Request for Advance or Notice of Conversion/Continuation; provided that: - -------- (a) if any Interest Period would otherwise end on a day which is not a Business Day, that Interest Period shall be extended to the next succeeding Business Day unless the result of such extension would be to carry such Interest Period into another calendar month, in which event such Interest Period shall end on the immediately preceding Business Day; (b) any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of the calendar month at the end of such Interest Period; and 4 (c) no Interest Period may be selected by Borrower which would extend beyond the last day of the Revolver Commitment Period. "LIBOR Rate" shall mean, for any Interest Period, an interest rate per ---------- annum (rounded up to the nearest one-sixteenth of one percent) equal to the rate per annum obtained by dividing (i) the rate per annum at which deposits in U.S. dollars are offered by funding sources acceptable to Agent to leading banks in the London interbank market at 11:00 a.m. (London time) two Business Days before the first day of such Interest Period in an amount substantially equal to the amount of the applicable LIBOR Rate Loan and for a period equal to such Interest Period by (ii) a percentage equal to 100 percent minus the Eurodollar Reserve Percentage for such Interest Period. The LIBOR Rate for each Interest Period shall be determined by Agent two Business Days before the first day of such Interest Period. "LIBOR Rate Loan" shall mean a Revolver Loan that bears interest based --------------- on the LIBOR Rate. "Notice of Conversion/Continuation" means a notice given by Borrower --------------------------------- to Agent pursuant to Section 2(b)(ii), in substantially the form of Exhibit N. ---------------- --------- "Replacement Notes" shall refer to each Replacement Revolver Note for ----------------- the appropriate Lender that is executed by Borrower, in connection with the addition of Rothschild as a Lender, for the purpose of replacing each original Revolver Note as amended by the Allonge and Second Allonge for the appropriate Lender. C. The definition of Amended Notes set forth in Section 1 of the Loan Agreement shall be deleted in its entirety. D. The term "Amendment Documents" when used in this Agreement shall ------------------- refer to this Amendment, the Replacement Notes and the Second Mortgage Amendments. 2. Amendment of Section 2(b)(i). Section 2(b)(i) of the Loan Agreement ---------------------------- is hereby deleted and restated in its entirety to read as follows: (i) Request for Advance Under the Revolver Loan. ------------------------------------------- (A) Each Request for Advance under the Revolver Loan shall be irrevocable and shall be in the form of Exhibit C on or before 11:00 --------- a.m. Denver, Colorado time (x) three Business Days immediately preceding the day such Revolver Advance is requested to be made in case of LIBOR Rate Loans, and (y) on the Business Day immediately preceding the day such Revolver Advance is requested to be made in 5 case of Base Rate Loans. (B) Each request for Advance shall specify: (1) the amount of the requested Advance, which shall be in an aggregate minimum principal amount of $100,000 or an integral multiple thereof for both LIBOR Rate Loans and Base Rate Loans, or such lesser amount equal to the unadvanced portion of the Revolver Loan; (2) the requested date of the Revolver Advance, which shall be a Business Day; (3) whether the Revolver Advance is to be comprised of LIBOR Rate Loans or Base Rate Loans; and (4) the duration of the Interest Period applicable to LIBOR Rate Loans included in such notice. If the Request for Advance shall fail to specify the duration of the Interest Period for any LIBOR Rate Loan, such Interest Period shall be three months. (C) Unless Agent shall otherwise state in writing, during the existence of an Unmatured Event of Default or an Event of Default, Borrower may not elect to have a Revolver Advance made as a LIBOR Rate Loan. (D) After giving effect to any LIBOR Rate Loan, there shall not be more than six different Interest Periods in effect. (E) Upon receipt of a Request for Advance, Agent shall promptly notify each Lender thereof. Not later than 11:00 a.m. Denver time on the date requested, each Lender shall make available to Agent the amount of such Lender's Loan Share of the amount specified in the Request for Advance in immediately available funds; provided, however, that Lenders ----------------- shall not be obligated to make any Revolver Advance to Borrower that would result in the aggregate unpaid principal balance outstanding under the Revolver Notes exceeding the Revolver Commitment. If all conditions precedent to such Revolver Advance have been met, Agent will on the date requested make such Revolver Advance available to Borrower in immediately available funds at Agent's office in Denver, Colorado. (F) All Revolver Advances requested by Borrower shall be made pro rata by each Lender in proportion to such Lender's Loan Share. 6 3. Amendment of Section 2(b)(ii). Old Sections 2(b)(ii) and 2(b)(iii) ----------------------------- shall be renumbered to be Sections 2(b)(iii) and 2(b)(iv), and a new Section 2(b)(ii) shall be inserted to read in its entirety as follows: (ii) Conversion and Continuation Elections. ------------------------------------- (A) Upon irrevocable written notice to the Agent, Borrower may: (1) elect to convert on any Business Day any Base Rate Loan (or any part thereof) in an amount not less than $100,000 or an integral multiple thereof into a LIBOR Rate Loan or; (2) elect to convert on any Interest Payment Date any LIBOR Rate Loan maturing on such Interest Payment Date (or any part thereof) in an amount not less than $100,000 or an integral multiple thereof into a Base Rate Loan; or (3) elect to renew on any Interest Payment Date any LIBOR Rate Loan maturing on such Interest Payment Date (or any part thereof) in an amount not less than $100,000 or an integral multiple thereof; (B) Borrower shall deliver a Notice of Conversion/Continuation to be received by Agent not later than 2:00 p.m. Denver, Colorado time at least (x) three Business Days in advance of the Conversion Date or continuation date, if a Loan is to be converted into or continued as a LIBOR Rate Loan; and (y) the Business Day immediately preceding the Conversion Date, if the Loan is to be converted into a Base Rate Loan; specifying: (1) the proposed Conversion Date or continuation date, which shall be a Business Day; (2) the aggregate amount of the Revolver Loan(s) to be converted or renewed; (3) the nature of the proposed conversion or continuation; and (4) the duration of the requested Interest Period, if 7 applicable. (C) If upon the expiration of any Interest Period applicable to any LIBOR Rate Loan, Borrower has failed to select timely a new Interest Period to be applicable to such LIBOR Rate Loan, or if any Unmatured Event of Default or Event of Default shall then exist, Borrower shall be deemed to have elected to convert such LIBOR Rate Loan into a Base Rate Loan effective as of the expiration date of such current Interest Period. (D) Unless Agent shall otherwise state in writing, during the existence of an Unmatured Event of Default or Event of Default, Borrower may not elect to have a Revolver Loan converted into or continued as a LIBOR Rate Loan. (E) Notwithstanding any other provision contained in this Agreement, after giving effect to any conversion or continuation of any LIBOR Rate Loans, there shall not be more than six different Interest Periods in effect. 4. Amendment of new Section 2(b)(iii). Section 2(b)(iii) as renumbered ---------------------------------- under paragraph 3 above is hereby amended to (a) delete the date "March 31, 1996" in the twelfth and thirteenth lines and substitute the date "September 30, 1997" therefor, and (b) delete the date "December 31, 1999" in the fourteenth line and substitute the date "June 30, 2001" therefor. 5. Amendment of new Section 2(b)(iv). Section 2(b)(iv) as renumbered --------------------------------- under paragraph 3 above is hereby deleted and restated in its entirety to read as follows: (iv) Optional Payments. Borrower may make optional payments on the ----------------- outstanding principal balance of the Base Rate Loan without penalty or premium, at any time, and from time to time, in integral multiples of $100,000 or such lesser amount equal to the then outstanding principal balance, together with accrued and unpaid interest on the principal amount so paid. LIBOR Rate Loans may not be prepaid, except if it is necessary so that Borrower can be in compliance with Section 2(g). Borrower shall give Agent one Business Day's notice in advance of any optional payment on the Base Rate Loan, and three Business Day's notice in advance of any prepayment on the LIBOR Rate Loan required pursuant to Section 2(g). Such notices shall specify which Revolver Loans (or portion thereof) are to be prepaid and the date of prepayment. Such notices shall not be revocable by Borrower. Upon the termination of the Revolver Commitment Period, all prepayments of principal thereafter received under this Subsection shall first be applied to the payment of principal indebtedness due on any Base 8 Rate Loan then outstanding and then to LIBOR Rate Loans with the shortest Interest Periods remaining. 6. Amendment of Section 2(d). Section 2(d) is hereby deleted and ------------------------- restated in its entirety to read as follows: (d) Computation and Payment of Interest; Late Payment Rate. ------------------------------------------------------ (i) Each Revolver Loan shall bear interest on the outstanding principal amount thereof from the date when made at a rate per annum equal to the LIBOR Rate or the Base Rate, as specified in the applicable Request for Advance or Notice of Conversion/Continuation, plus the Applicable ---- Margin. After termination of the Revolver Commitment Period, the Revolver Loan shall bear interest on the outstanding principal amount thereof at the Base Rate plus the Applicable Margin for Base Rate Loans, and interest shall be payable on the Interest Payment Date for Base Rate Loans. (ii) Interest on the Loans shall accrue daily and shall be computed on the basis of a year of 365 or 366 days, as appropriate, for Base Rate Loans, and a year of 360 days for LIBOR Rate Loans. Interest on the Loans shall be payable in arrears on the Interest Payment Date. (iii) Notwithstanding anything to the contrary contained in this Agreement, overdue principal, and (to the extent permitted under applicable law) overdue interest, whether caused by acceleration of maturity or otherwise, shall bear interest at a fluctuating rate, adjustable the day of any change in such rate, equal to three percentage points above the Base Rate (the "Late Payment Rate"), until paid, and shall ----------------- be due and payable immediately. 7. Amendment of Section 2(e). Section 2(e) is hereby amended by adding ------------------------- the following phrase at the end of such paragraph: , unless the result of such extension would be to carry any Interest Period relating to a LIBOR Rate Loan into another calendar month in which event such Interest Period shall end on the immediately preceding Business Day. 8. Amendment of Section 2(g). Section 2(g) is hereby amended by deleting ------------------------- the last sentence thereof and restating such sentence in its entirety to read as follows: Any such prepayment of principal under this Section 2 shall be applied pro rata in 9 accordance with each Lender's Loan Share, first to any Base Rate Loans then outstanding and then to LIBOR Rate Loans with the shortest Interest Periods remaining. 9. New Section 3A. A new Section 3A is hereby added to read in its -------------- entirety as follows: SECTION 3A. TAXES, YIELD PROTECTION AND ILLEGALITY -------------------------------------- (a) Taxes. ----- (i) Any and all payments by Borrower to the Lenders under this Agreement shall be made free and clear of, and without deduction or withholding for, any and all future taxes, levies, imposts, deductions, charges or withholdings, and any stamp or documentary taxes or any other excise or property taxes, charges or similar levies which arise from any payment made hereunder or from the execution, delivery or registration of, or otherwise with respect to, this Agreement or any other Loan Documents and all liabilities with respect thereof, excluding such taxes (including income taxes or franchise taxes) as are imposed on or measured by Lender's net income by the jurisdiction under the laws of which Lender is organized or any political subdivision thereof (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to as "Taxes"). ----- (ii) Borrower shall indemnify Lenders and hold Lenders harmless for the full amount of Taxes (including any Taxes imposed by any jurisdiction on amounts payable under this Section 3A(a)) paid by Lenders ------------- and any liability (including penalties, interest, additions to tax and expenses) arising therefrom or with respect thereto, whether or not such Taxes were correctly or legally asserted; provided that Lenders shall pay -------- over to Borrower the amount of any tax refunds received by Lenders with respect to any such Taxes (net of any tax detriment resulting from receipt of such tax refunds to the extent not offset by payment over of such amount) solely to the extent that (A) such tax refunds are fairly allocable to such Taxes and (B) Borrower actually paid such Taxes. Payment under this indemnification shall be made within 30 days from the date Lenders make written demand therefor. (iii) If Borrower shall be required by law to deduct or withhold any Taxes from or in respect of any sum payable hereunder to Lenders, then: (A) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to 10 additional sums payable under this Section 3A(a)) Lenders receive an amount equal to the sum they would have received had no such deductions been made; (B) Borrower shall make such deductions, and (C) Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law. (iv) Within thirty days after the date of any payment by Borrower of Taxes Borrower shall furnish to Lenders the original or a certified copy of a receipt evidencing payment thereof, or other evidence of payment satisfactory to Lenders. (b) Illegality. ---------- (i) If Lenders shall determine that the introduction of any law, rule or regulation, or any change in any law, rule or regulation or in the interpretation or administration thereof, has made it unlawful, or that any central bank or other governmental authority has asserted that it is unlawful, for Lenders to make LIBOR Rate Loans, then, on notice thereof by Lenders to Borrower, the obligation of Lenders to make LIBOR Rate Loans shall be suspended until Lenders shall have notified Borrower that the circumstances giving rise to such determination no longer exist. (ii) If Lenders shall determine that it is unlawful to maintain any LIBOR Rate Loan, and, if any LIBOR Rate Loans are then outstanding, Agent shall give notice thereof to Borrower, and within three Business Days after receipt of such notice Borrower shall elect either (A) to prepay in full all LIBOR Rate Loans of Lenders then outstanding, together with interest accrued thereon, either on the last day of the Interest Period thereof if Lenders may lawfully continue to maintain such LIBOR Rate Loans to such day, or immediately, if Lenders may not lawfully continue to maintain such LIBOR Rate Loans, together with any amounts required to be paid in connection therewith pursuant to Section 3A(c), or (B) to immediately convert such LIBOR Rate Loans to Base Rate Loans in accordance with Section 2(b)(ii). (iii) If the obligation of Lenders to make or maintain LIBOR Rate Loans has been terminated, Borrower may elect, by giving notice to Lenders that all Revolver Loans which would otherwise be made by Lenders as LIBOR Rate Loans shall be instead Base Rate Loans. (c) Increased Costs and Reduction of Return. --------------------------------------- (i) If Lenders shall determine that, due to either (A) the introduction 11 of or any change (other than any change by way of imposition of or increase in reserve requirements included in the calculation of the LIBOR Rate) in or in the interpretation of any law or regulation or (B) the compliance with any guideline, or request from any central bank or other governmental authority (whether or not having the force of law) issued after September 5, 1995, there shall be any increase in the cost to Lenders of agreeing to make or making, funding or maintaining any LIBOR Rate Loans (other than changes in the rate of taxes on the overall net income of Lender), then Agent shall give notice of such determination to Borrower, and Borrower shall have the option either (X) to immediately convert all outstanding LIBOR Rate Loans to Base Rate Loans in accordance with Section 2(b)(ii) or (Y) Borrower shall be liable for, and shall from time to time, upon demand therefor by Lenders, pay to Lenders additional amounts as are sufficient to compensate Lenders for such increased costs. If Borrower elects to convert to Base Rate Loans, it shall nevertheless be liable for any increased costs incurred by Lenders regarding LIBOR Rate Loans accrued prior to the date of conversion. (ii) If Lenders shall have determined that (A) the introduction of any Capital Adequacy Regulation, (B) any change in any Capital Adequacy Regulation, (C) any change in the interpretation or administration of any Capital Adequacy Regulation by any central bank or other governmental authority charged with the interpretation or administration thereof, or (D) compliance by Lenders or any corporation controlling any of Lenders, with any Capital Adequacy Regulation; affects or would affect the amount of capital required or expected to be maintained by Lenders or any corporation controlling any of Lenders and (taking into consideration Lenders' or such corporations' policies with respect to capital adequacy and Lenders' desired return on capital) determines that the amount of such capital is increased as a consequence of its commitment to make Revolver Loans, credits or other obligations under this Agreement, then, Agent shall give notice of such determination to Borrower, and Borrower shall have the option either (X) to immediately convert all outstanding LIBOR Rate Loans to Base Rate Loans in accordance with Section 2(b)(ii) or (Y) upon demand of Lenders, Borrower shall upon demand pay to Lenders, from time to time as specified by Lenders, additional amounts sufficient to compensate Lenders for such increase. (d) Funding Losses. Borrower agrees to reimburse Lenders and to hold -------------- Lenders harmless from any loss or expense which Lenders may sustain or incur as a consequence of: (i) the failure of Borrower to make any payment or mandatory prepayment of principal of any LIBOR Rate Loan (including payments made after any acceleration thereof); 12 (ii) the failure of Borrower to borrow, continue or convert a Revolver Loan after Borrower has given (or is deemed to have given) a Request for Advance or a Notice of Conversion/Continuation; (iii) the failure of Borrower to make any prepayment after Borrower has given a notice in accordance with Section 2(b)(iv); ---------------- (iv) the prepayment (including pursuant to Section 2(b)(iv)) ---------------- of a LIBOR Rate Loan on a day which is not the last day of the Interest Period with respect thereto; or (v) the conversion pursuant to Section 2(b)(ii) of any LIBOR ---------------- Rate Loan to a Base Rate Loan on a day that is not the last day of the respective Interest Period; including any such loss or expense arising from the liquidation or reemployment of funds obtained by it to maintain its LIBOR Rate Loans hereunder or from fees payable to terminate the deposits from which such funds were obtained. (e) Inability to Determine Rates. If Agent shall have determined ---------------------------- that for any reason adequate and reasonable means do not exist for ascertaining the LIBOR Rate for any requested Interest Period with respect to a proposed LIBOR Rate Loan or that the LIBOR Rate applicable for any requested Interest Period with respect to a proposed LIBOR Rate Loan does not adequately and fairly reflect, in Agent's reasonable judgment, the cost to Lenders of funding such Loan, Agent will forthwith give notice of such determination to Borrower. Thereafter, the obligation of Lenders to make or maintain LIBOR Rate Loans, as the case may be, hereunder shall be suspended until Agent revokes such notice in writing, unless means exist for ascertaining the LIBOR Rate and Borrower agrees to pay such amount as Agent determines in its sole and absolute discretion is necessary to reflect the cost to Lenders of funding such Revolver Loan. Upon receipt of such notice, Borrower may revoke any Request for Advance or Notice of Conversion/Continuation then submitted by it. If Borrower does not revoke such request or notice prior to the time that such Revolver Loan is made, Lenders shall make, convert or continue the Revolver Loans, as proposed by Borrower in the amount specified in the applicable request or notice submitted by Borrower, but such Revolver Loans shall be made, converted or continued as Base Rate Loans instead of LIBOR Rate Loans. (f) Certificate of Lender. If Lenders claim reimbursement or --------------------- compensation pursuant to this Section 3A, Agent shall deliver to Borrower a certificate setting forth in reasonable detail the amount payable to Lenders hereunder and such certificate shall be 13 binding on Borrower unless Borrower objects to the contents of such certificate within five Business Days after receipt thereof. If Borrower objects, Agent and Borrower shall attempt to resolve their differences within 10 days, and if agreement is not reached within such period then all LIBOR Rate Loans shall be immediately converted to Base Rate Loans. (g) Survival. The agreements and obligations of Borrower in this -------- Section 3A shall survive the payment of all other Obligations. 10. Amendment of Section 4(a). Section 4(a) is hereby amended to delete ------------------------- the figure "20,000,000" in the fourth line and substitute the phrase "the Maximum Principal Amount" therefor. 11. Amendment of Section 8(1). Section 8(1) is hereby amended to delete ------------------------- the figure "65%" in the second line and substitute the figure "60%" therefor. 12. Amendment of Section 8(m). Section 8(m) is hereby deleted and ------------------------- restated in its entirety to read as follows: (m) Tangible Net Worth. Borrower shall maintain a Tangible Net Worth equal ------------------ to or greater than the sum of $18,000,000 plus 40 percent of consolidated net income determined in accordance with GAAP and earned by Borrower after December 31, 1994 (but excluding any net losses). 13. Amendment of Section 8(n). Section 8(n) is hereby amended to delete ------------------------- the figure "1.5" in the last line and substitute the figure "2.0" therefor. 14. Amendment of Section 9(j)(i). Section 9(j)(i) is hereby amended by ---------------------------- adding the following phrase to the end of the first sentence in line 8: , including without limitation distributions to its partners in the aggregate not to exceed $1,250,000 associated with the deferred gain on the sale of oil and gas properties; provided that such distributions associated with deferred gain are made on or before April 15, 1996, and after which date distributions associated with deferred gain may not be made by Borrower. 15. Amendment of Section 9(j)(ii). Section 9(j)(ii) of the Loan Agreement ----------------------------- is hereby deleted and restated in its entirety to read as follows: (ii) So long as a Borrowing Base Deficiency does not exist and no Event of 14 Default or Unmatured Event of Default has occurred and is continuing, Borrower may make distributions in an aggregate cumulative amount not to exceed 60 percent of Borrower's net income, determined in accordance with GAAP and computed on a cumulative basis for all periods since December 31, 1994, taking into account allowable distributions previously declared or made since December 31, 1994; provided, however, that the distribution of $2,078,297 made in 1995 ----------------- relating to 1994 earnings shall not be included in the calculation of distributions declared or made since December 31, 1994; notwithstanding any of the foregoing, distributions are allowable only so long as they would not cause Borrower to be in contravention of the financial covenants contained in Section 8(k), (l), (m) and (n). 16. Amendment of Section 13(b). Section 13(b) shall be amended by adding -------------------------- the following address of Rothschild to the Lenders section: N M Rothschild and Sons Limited New Court, St. Swithin's Lane London, England EC4 P 4DU Fax No.: 071-280-5139 With a copy to: Rothschild Denver Inc. 3020 Republic Plaza 370 Seventeenth Street Denver, Colorado 80202 Fax No.: (303) 607-0998 17. New Exhibit N. A new Exhibit N is hereby added to read in its ------------- entirety as Exhibit N attached hereto--"Notice of Conversion/Continuation." 18. Conditions Precedent. The amendments provided for in this Amendment -------------------- shall not become effective until Agent has received each of the following: A. This Amendment, executed by Borrower, Agent and Lenders; B. The Replacement Note, executed by Borrower for each of the Lenders; C. Counterparts of the Second Mortgage Amendments, duly executed and acknowledged by Borrower and Agent, and to the extent applicable, the trustee thereunder; D. A letter from each of John Fox and the General Partner reconfirming their 15 respective Covenant Agreement; E. Evidence acceptable to Agent that the indebtedness secured by the RIMCO Mortgages (as defined in that certain Subordination Agreement dated as of September 14, 1993 between RIMCO Partners, L.P., Resource Investors Management Company Limited Partnership and the Agent) has been fully paid and that the RIMCO Mortgages have been released or will be released in due course. F. Results of UCC lien searches as to Borrower for the States of Arkansas, Colorado and West Virginia and for the following counties: Crittenden County, Arkansas; Boyd, Greenup and Pike Counties, Kentucky; and Wayne and Kanawha Counties, West Virginia, and for all other relevant filing jurisdictions as to the Collateral; G. All legal matters incident to the Loans and the Amendment Documents shall be satisfactory to counsel to Agent, and Agent shall have received a favorable opinion addressed to Agent and Lenders of Barry W. Spector, Esq., counsel for Borrowers, in form and substance satisfactory to Agent; and H. All other documents and assurances which Agent reasonably requires or which it may reasonably request in connection with the transactions contemplated by this Agreement, and such documents shall be certified, when appropriate by proper authorities. 19. Representations and Warranties. To induce Agent and Lenders to enter ------------------------------ into this Amendment, Borrower hereby represents and warrants to Agent and each Lender that: A. Non-Contravention. The execution, delivery and performance by ----------------- Borrower of this Amendment, and the other Amendment Documents and the borrowings thereunder, and the consummation of the transactions contemplated herein and therein will not conflict with the limited partnership agreement or other organizational or governing documents of any Related Person, or conflict with or result in any breach of any mortgage, lien, lease, agreement, instrument, order, judgment, decree, law, rule, regulation or any other restriction of any kind or character to which any Related Person is a party or is subject or by which any Related Person or its properties are bound or affected or result in the creation or imposition of any lien, charge or encumbrance upon any property of any Related Person. B. Third Party Authorization. No consent, approval, exemption, ------------------------- authorization or order of or other action by, and no notice to or filing with, any court or governmental authority or third party is required by any Related Person in connection with the execution, delivery or performance by Borrower of this Amendment, or any other Amendment Document or to consummate any transactions contemplated hereby or thereby. 16 C. Authorization; Binding Effect. Borrower has full power and ----------------------------- authority to enter into this Amendment and the other Amendment Documents. The execution and delivery of this Amendment, and the other Amendment Documents, and the performance and observance of their terms, conditions and obligations, have been duly authorized by all necessary action by Borrower and the General Partner. This Amendment and the other Amendment Documents are the legal, valid and binding obligations of Borrower, enforceable in accordance with their respective terms, except as such enforcement may be limited by bankruptcy, insolvency or similar laws of general application relating to the enforcement of creditors' rights. D. Representations and Warranties. All representations and ------------------------------ warranties contained in Section 7 of the Original Loan Agreement and in the Security Documents shall be true on the date hereof as if then given, and Borrower shall have performed or observed all terms, agreements, conditions and obligations under the Loan Agreement and under the Security Documents to be performed or observed on or prior to the date hereof. E. No Default. No Event of Default or Unmatured Event of Default ---------- under the Loan Agreement shall have occurred and be continuing or would result from the entering into of this Amendment. The foregoing representations and warranties shall be deemed to be representations and warranties made in the Loan Agreement for all purposes. 20. Continuing Effect. Except as expressly amended hereby, the Loan ----------------- Agreement shall continue to be and shall remain in full force and effect in accordance with its terms. References in the Loan Agreement to "this Agreement", "this instrument" and like terms shall be deemed to be references to the Loan Agreement as amended by this Amendment. When used in this Amendment or in the Loan Agreement, each reference to a term defined in the Loan Agreement, which is amended by this Amendment, shall be deemed to be the term as amended by this Amendment. Any reference to the "Revolver/Term Loan Agreement" in the Collateral Documents shall be deemed to be a reference to the Loan Agreement as amended by this Amendment. Borrower hereby confirms and acknowledges that the term "Obligations" as used in the Security Agreement, includes all obligations of Borrower with respect to the Revolver Loans as extended hereby and the Replacement Notes and all other costs, fees, indemnities and expenses in connection therewith. In connection with the execution of this Amendment and the issuance by Borrower of the Replacement Notes, the Lenders acknowledge and agree that the original notes dated as of November 20, 1992 (as amended by the First and Second Allonges) held by Norwest and First American have been marked "Replaced in rearrangement, but not in extinguishment or discharge, of indebtedness represented hereby by Replacement Notes dated September 8, 1995" and evidence of such notation has been provided to Borrower. 17 21. Governing Law. This Amendment shall be governed by and construed ------------- under the laws of the State of Colorado and shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. 22. Assignment. Norwest and First American hereby assign and transfer to ---------- Rothschild, without any warranties either express or implied, a sufficient part of all their rights, title and interest in, to and under the Loan Agreement, the Loans, the Revolver Notes and all other Loan Documents, so that all such rights shall be owned and held by Lenders on the date hereof in the following percentages: Norwest - 40% First American - 40% Rothschild - 20% 23. Counterparts. This Amendment may be executed in one or more ------------ counterparts, with each party signing on different counterparts, each of which shall be deemed an original, and all of which together shall constitute but one and the same instrument. BORROWER: MARKWEST HYDROCARBON PARTNERS, LTD., a Colorado limited partnership By: MARKWEST HYDROCARBON, INC., General Partner By: _____________________________ John M. Fox President LENDERS: NORWEST BANK COLORADO, NATIONAL ASSOCIATION (successor to Norwest Bank Denver, 18 National Association), a national banking association By:_____________________________ Thomas M. Foncannon Vice President FIRST AMERICAN NATIONAL BANK, a national banking association By:______________________________ David C. May Executive Vice President N M ROTHSCHILD AND SONS LIMITED, a company organized and existing under the laws of England By:______________________________ Name:_________________________ Title:________________________ AGENT: NORWEST BANK COLORADO, NATIONAL ASSOCIATION (successor to Norwest Bank Denver, National Association), a national banking association By:_____________________________ Thomas M. Foncannon Vice President 19 Exhibit A-1 ----------- REPLACEMENT REVOLVER NOTE ------------------------- $10,000,000.00 Denver, Colorado September 8, 1995 MARKWEST HYDROCARBON PARTNERS, LTD., a Colorado limited partnership, ("Borrower"), with an address of 5613 DTC Parkway, Suite 400, Englewood, CO -------- 80111, for value received, hereby promises to pay to the order of Norwest Bank Colorado, National Association (successor to Norwest Bank Denver, National Association), a national banking association ("Lender"), on or before June 30, ------ 2001, the principal sum of Ten Million Dollars ($10,000,000.00), or so much thereof as may be advanced by Lender pursuant to the Loan Agreement dated November 20, 1992, as amended, between Borrower, Norwest Bank Colorado, National Association, individually and as agent, First American National Bank and N M Rothschild and Sons Limited (the "Loan Agreement"), together with interest on -------------- the outstanding unpaid principal amount at a rate equal to the LIBOR Rate or the Base Rate, plus the Applicable Margin, as provided in the Loan Agreement. This Note is one of the notes referred to in the Loan Agreement as the Revolver Notes, and is issued pursuant to, and is subject to the terms and provisions of, the Loan Agreement. This Note is issued in replacement and rearrangement, but not in extinguishment or discharge, of the original Revolver Notes, as amended by the First and Second Allonges, in connection with the assignment by Norwest and First American to Rothschild of a portion of their interests in the Loan. All capitalized terms used herein but not otherwise defined shall have the meanings set forth in the Loan Agreement. All references herein to the "Loan Agreement" refer to such agreement as it has been amended by First Amendment to Loan Agreement dated September 14, 1993, by Second Amendment to Loan Agreement dated as of March 23, 1994, and by Third Amendment to Loan Agreement dated as of the date hereof, and as such agreement may be further amended from time to time. As of June 30, 1997, the aggregate unpaid principal amount outstanding under this Note shall be repaid to Lender in sixteen equal quarterly installments, commencing September 30, 1997, as more fully provided in the Loan Agreement, together with accrued and unpaid interest thereon. All remaining outstanding principal of and interest on this Note shall be due and payable no later than June 30, 2001. Interest shall accrue daily, shall be payable in arrears on the Interest Payment Date, commencing September 30, 1995 and at the maturity of this Note, and shall be calculated on the A-1-1 basis of a 365 or 366-day year, as appropriate for Base Rate Loans, and a year of 360 days for LIBOR Rate Loans. All payments of principal and interest hereof shall be made as provided in the Loan Agreement in immediately available funds and without set-off or counterclaim or deduction of any kind. Notwithstanding anything to the contrary contained in this Note, overdue principal, and (to the extent permitted under applicable law) overdue interest, whether caused by acceleration of maturity or otherwise, shall bear interest at the Late Payment Rate and shall be immediately due and payable. It is not intended hereby to charge interest at a rate in excess of the maximum rate of interest that Lender may charge to Borrower under applicable usury and other laws, but if, notwithstanding, interest in excess of such rate shall be paid hereunder, the interest rate on this Note shall be adjusted to the maximum permitted under applicable law during the period or periods that the interest rate otherwise provided herein would exceed such rate and any excess amount applied at Lender's option to reduce the outstanding principal balance of this Note or to be returned to Borrower. This Note is secured by, and the holder of this Note is entitled to the benefits of the Security Documents described in the Loan Agreement, and the liens and security interests under the Security Documents that secure the obligations under this Note are hereby ratified and confirmed in all respects and remain in full force and effect. Reference is made to the Security Documents for a description of the property covered thereby and the rights, remedies and obligations of the holder hereof in respect thereto. Lender shall maintain a record of all advances hereunder and all payments made on this Note until Lender has been repaid in full; provided, however that ----------------- the failure, error or omission by Lender to maintain such a record shall not diminish or otherwise affect the obligation of Borrower to repay the amount outstanding hereunder and any other amounts due to Lender. If Borrower fails to pay any amount due under this Note and Lender has to take any action to collect the amount due or to exercise its rights under this Note or the Security Documents, including without limitation retaining attorneys for collection of this Note, or if any suit or proceeding is brought for the recovery of all or any part of or for protection of the Obligations or to foreclose the Security Documents or to enforce Lender's rights under the Security Documents, then Borrower agrees to pay on demand all costs and expenses of any such action to collect, suit or proceeding, or any appeal of any such suit or proceeding, incurred by the holder hereof, including without limitation the fees and disbursements of attorneys for the holder hereof. A-1-2 Borrower, and all endorsers, sureties and guarantors of this Note, hereby severally waive demand, presentment for payment, notice of dishonor, notice of acceleration or intent to accelerate, protest, notice of protest, diligence in collecting and assents to any extension of time with respect to any payment due under this Note, to any substitution or release of collateral and to the addition or release of any party. No waiver by Lender of any payment or other right under this Note shall operate as a waiver of any other payment or right. If any provision in this Note shall be held invalid, illegal or unenforceable in any jurisdiction, the validity, legality or enforceability of any defective provisions shall not be in any way affected or impaired in any other jurisdiction, nor shall the invalid, illegal or unenforceable provision affect or impair any other provision of this Note. No delay or failure of the holder of this Note in the exercise of any right or remedy provided for hereunder shall be deemed a waiver of such right or remedy by the holder hereof, and no exercise of any right or remedy shall be deemed a waiver of any other right or remedy that the holder may have. Any notices given hereunder shall be in writing and shall be given as provided in the Loan Agreement. At the option of Lender, an action may be brought to enforce this Note in the District Court in and for the City and County of Denver, State of Colorado, in the United States District Court for the District of Colorado or in any other court in which venue and jurisdiction are proper. Borrower and all endorsers, sureties and guarantors hereof consent to venue and jurisdiction in the District Court in and for the City and County of Denver, State of Colorado and in the United States District Court for the District of Colorado and to jurisdiction and service of process under Sections 13-1-124(1)(a) and 13-1-125, Colorado Revised Statutes (1973), as amended, in any action commenced to enforce this Agreement. THIS NOTE IS TO BE GOVERNED BY AND CONSTRUED ACCORDING TO THE LAWS OF THE STATE OF COLORADO. MARKWEST HYDROCARBON PARTNERS, LTD. By: MarkWest Hydrocarbon, Inc., General Partner By ___________________________________________ John M. Fox, President A-1-3 Exhibit A-2 ----------- REPLACEMENT REVOLVER NOTE ------------------------- $10,000,000.00 Denver, Colorado September 8, 1995 MARKWEST HYDROCARBON PARTNERS, LTD., a Colorado limited partnership, ("Borrower"), with an address of 5613 DTC Parkway, Suite 400, Englewood, CO -------- 80111, for value received, hereby promises to pay to the order of First American National Bank ("Lender"), on or before June 30, 2001, the principal sum of Ten ------ Million Dollars ($10,000,000.00), or so much thereof as may be advanced by Lender pursuant to the Loan Agreement dated November 20, 1992, as amended, between Borrower, Norwest Bank Colorado, National Association, individually and as agent, First American National Bank and N M Rothschild and Sons Limited (the "Loan Agreement"), together with interest on the outstanding unpaid principal -------------- amount at a rate equal to the LIBOR Rate or the Base Rate, plus the Applicable Margin, as provided in the Loan Agreement. This Note is one of the notes referred to in the Loan Agreement as the Revolver Notes, and is issued pursuant to, and is subject to the terms and provisions of, the Loan Agreement. This Note is issued in replacement and rearrangement, but not in extinguishment or discharge, of the original Revolver Notes, as amended by the First and Second Allonges, in connection with the assignment by Norwest and First American to Rothschild of a portion of their interests in the Loan. All capitalized terms used herein but not otherwise defined shall have the meanings set forth in the Loan Agreement. All references herein to the "Loan Agreement" refer to such agreement as it has been amended by First Amendment to Loan Agreement dated September 14, 1993, by Second Amendment to Loan Agreement dated as of March 23, 1994, and by Third Amendment to Loan Agreement dated as of the date hereof, and as such agreement may be further amended from time to time. As of June 30, 1997, the aggregate unpaid principal amount outstanding under this Note shall be repaid to Lender in sixteen equal quarterly installments, commencing September 30, 1997, as more fully provided in the Loan Agreement, together with accrued and unpaid interest thereon. All remaining outstanding principal of and interest on this Note shall be due and payable no later than June 30, 2001. Interest shall accrue daily, shall be payable in arrears on the Interest Payment Date, commencing September 30, 1995 and at the maturity of this Note, and shall be calculated on the basis of a 365 or 366-day year, as appropriate for Base Rate Loans, and a year of 360 days for A-2-1 LIBOR Rate Loans. All payments of principal and interest hereof shall be made as provided in the Loan Agreement in immediately available funds and without set- off or counterclaim or deduction of any kind. Notwithstanding anything to the contrary contained in this Note, overdue principal, and (to the extent permitted under applicable law) overdue interest, whether caused by acceleration of maturity or otherwise, shall bear interest at the Late Payment Rate and shall be immediately due and payable. It is not intended hereby to charge interest at a rate in excess of the maximum rate of interest that Lender may charge to Borrower under applicable usury and other laws, but if, notwithstanding, interest in excess of such rate shall be paid hereunder, the interest rate on this Note shall be adjusted to the maximum permitted under applicable law during the period or periods that the interest rate otherwise provided herein would exceed such rate and any excess amount applied at Lender's option to reduce the outstanding principal balance of this Note or to be returned to Borrower. This Note is secured by, and the holder of this Note is entitled to the benefits of the Security Documents described in the Loan Agreement, and the liens and security interests under the Security Documents that secure the obligations under this Note are hereby ratified and confirmed in all respects and remain in full force and effect. Reference is made to the Security Documents for a description of the property covered thereby and the rights, remedies and obligations of the holder hereof in respect thereto. Lender shall maintain a record of all advances hereunder and all payments made on this Note until Lender has been repaid in full; provided, however that ----------------- the failure, error or omission by Lender to maintain such a record shall not diminish or otherwise affect the obligation of Borrower to repay the amount outstanding hereunder and any other amounts due to Lender. If Borrower fails to pay any amount due under this Note and Lender has to take any action to collect the amount due or to exercise its rights under this Note or the Security Documents, including without limitation retaining attorneys for collection of this Note, or if any suit or proceeding is brought for the recovery of all or any part of or for protection of the Obligations or to foreclose the Security Documents or to enforce Lender's rights under the Security Documents, then Borrower agrees to pay on demand all costs and expenses of any such action to collect, suit or proceeding, or any appeal of any such suit or proceeding, incurred by the holder hereof, including without limitation the fees and disbursements of attorneys for the holder hereof. Borrower, and all endorsers, sureties and guarantors of this Note, hereby severally waive A-2-2 demand, presentment for payment, notice of dishonor, notice of acceleration or intent to accelerate, protest, notice of protest, diligence in collecting and assents to any extension of time with respect to any payment due under this Note, to any substitution or release of collateral and to the addition or release of any party. No waiver by Lender of any payment or other right under this Note shall operate as a waiver of any other payment or right. If any provision in this Note shall be held invalid, illegal or unenforceable in any jurisdiction, the validity, legality or enforceability of any defective provisions shall not be in any way affected or impaired in any other jurisdiction, nor shall the invalid, illegal or unenforceable provision affect or impair any other provision of this Note. No delay or failure of the holder of this Note in the exercise of any right or remedy provided for hereunder shall be deemed a waiver of such right or remedy by the holder hereof, and no exercise of any right or remedy shall be deemed a waiver of any other right or remedy that the holder may have. Any notices given hereunder shall be in writing and shall be given as provided in the Loan Agreement. At the option of Lender, an action may be brought to enforce this Note in the District Court in and for the City and County of Denver, State of Colorado, in the United States District Court for the District of Colorado or in any other court in which venue and jurisdiction are proper. Borrower and all endorsers, sureties and guarantors hereof consent to venue and jurisdiction in the District Court in and for the City and County of Denver, State of Colorado and in the United States District Court for the District of Colorado and to jurisdiction and service of process under Sections 13-1-124(1)(a) and 13-1-125, Colorado Revised Statutes (1973), as amended, in any action commenced to enforce this Agreement. THIS NOTE IS TO BE GOVERNED BY AND CONSTRUED ACCORDING TO THE LAWS OF THE STATE OF COLORADO. MARKWEST HYDROCARBON PARTNERS, LTD. By: MarkWest Hydrocarbon, Inc., General Partner By ___________________________________________ John M. Fox, President A-2-3 Exhibit A-3 ----------- REPLACEMENT REVOLVER NOTE ------------------------- $5,000,000.00 Denver, Colorado September 8, 1995 MARKWEST HYDROCARBON PARTNERS, LTD., a Colorado limited partnership, ("Borrower"), with an address of 5613 DTC Parkway, Suite 400, Englewood, CO -------- 80111, for value received, hereby promises to pay to the order of N M Rothschild and Sons Limited, a company organized and existing under the laws of England ("Lender"), on or before June 30, 2001, the principal sum of Five Million ------- Dollars ($5,000,000.00), or so much thereof as may be advanced by Lender pursuant to the Loan Agreement dated November 20, 1992, as amended, between Borrower, Norwest Bank Colorado, National Association, individually and as agent, First American National Bank and N M Rothschild and Sons Limited (the "Loan Agreement"), together with interest on the outstanding unpaid principal -------------- amount at a rate equal to the LIBOR Rate or the Base Rate, plus the Applicable Margin, as provided in the Loan Agreement. This Note is one of the notes referred to in the Loan Agreement as the Revolver Notes, and is issued pursuant to, and is subject to the terms and provisions of, the Loan Agreement. This Note is issued in replacement and rearrangement, but not in extinguishment or discharge, of the original Revolver Notes, as amended by the First and Second Allonges, in connection with the assignment by Norwest and First American to Rothschild of a portion of their interests in the Loan. All capitalized terms used herein but not otherwise defined shall have the meanings set forth in the Loan Agreement. All references herein to the "Loan Agreement" refer to such agreement as it has been amended by First Amendment to Loan Agreement dated September 14, 1993, by Second Amendment to Loan Agreement dated as of March 23, 1994, and by Third Amendment to Loan Agreement dated as of the date hereof, and as such agreement may be further amended from time to time. As of June 30, 1997, the aggregate unpaid principal amount outstanding under this Note shall be repaid to Lender in sixteen equal quarterly installments, commencing September 30, 1997, as more fully provided in the Loan Agreement, together with accrued and unpaid interest thereon. All remaining outstanding principal of and interest on this Note shall be due and payable no later than June 30, 2001. Interest shall accrue daily, shall be payable in arrears on the Interest Payment Date, commencing September 30, 1995 and at the maturity of this Note, and shall be calculated on the basis of a 365 or 366-day year, as appropriate for Base Rate Loans, and a year of 360 days for A-3-1 LIBOR Rate Loans. All payments of principal and interest hereof shall be made as provided in the Loan Agreement in immediately available funds and without set- off or counterclaim or deduction of any kind. Notwithstanding anything to the contrary contained in this Note, overdue principal, and (to the extent permitted under applicable law) overdue interest, whether caused by acceleration of maturity or otherwise, shall bear interest at the Late Payment Rate and shall be immediately due and payable. It is not intended hereby to charge interest at a rate in excess of the maximum rate of interest that Lender may charge to Borrower under applicable usury and other laws, but if, notwithstanding, interest in excess of such rate shall be paid hereunder, the interest rate on this Note shall be adjusted to the maximum permitted under applicable law during the period or periods that the interest rate otherwise provided herein would exceed such rate and any excess amount applied at Lender's option to reduce the outstanding principal balance of this Note or to be returned to Borrower. This Note is secured by, and the holder of this Note is entitled to the benefits of the Security Documents described in the Loan Agreement, and the liens and security interests under the Security Documents that secure the obligations under this Note are hereby ratified and confirmed in all respects and remain in full force and effect. Reference is made to the Security Documents for a description of the property covered thereby and the rights, remedies and obligations of the holder hereof in respect thereto. Lender shall maintain a record of all advances hereunder and all payments made on this Note until Lender has been repaid in full; provided, however that ----------------- the failure, error or omission by Lender to maintain such a record shall not diminish or otherwise affect the obligation of Borrower to repay the amount outstanding hereunder and any other amounts due to Lender. If Borrower fails to pay any amount due under this Note and Lender has to take any action to collect the amount due or to exercise its rights under this Note or the Security Documents, including without limitation retaining attorneys for collection of this Note, or if any suit or proceeding is brought for the recovery of all or any part of or for protection of the Obligations or to foreclose the Security Documents or to enforce Lender's rights under the Security Documents, then Borrower agrees to pay on demand all costs and expenses of any such action to collect, suit or proceeding, or any appeal of any such suit or proceeding, incurred by the holder hereof, including without limitation the fees and disbursements of attorneys for the holder hereof. Borrower, and all endorsers, sureties and guarantors of this Note, hereby severally waive A-3-2 demand, presentment for payment, notice of dishonor, notice of acceleration or intent to accelerate, protest, notice of protest, diligence in collecting and assents to any extension of time with respect to any payment due under this Note, to any substitution or release of collateral and to the addition or release of any party. No waiver by Lender of any payment or other right under this Note shall operate as a waiver of any other payment or right. If any provision in this Note shall be held invalid, illegal or unenforceable in any jurisdiction, the validity, legality or enforceability of any defective provisions shall not be in any way affected or impaired in any other jurisdiction, nor shall the invalid, illegal or unenforceable provision affect or impair any other provision of this Note. No delay or failure of the holder of this Note in the exercise of any right or remedy provided for hereunder shall be deemed a waiver of such right or remedy by the holder hereof, and no exercise of any right or remedy shall be deemed a waiver of any other right or remedy that the holder may have. Any notices given hereunder shall be in writing and shall be given as provided in the Loan Agreement. At the option of Lender, an action may be brought to enforce this Note in the District Court in and for the City and County of Denver, State of Colorado, in the United States District Court for the District of Colorado or in any other court in which venue and jurisdiction are proper. Borrower and all endorsers, sureties and guarantors hereof consent to venue and jurisdiction in the District Court in and for the City and County of Denver, State of Colorado and in the United States District Court for the District of Colorado and to jurisdiction and service of process under Sections 13-1-124(1)(a) and 13-1-125, Colorado Revised Statutes (1973), as amended, in any action commenced to enforce this Agreement. THIS NOTE IS TO BE GOVERNED BY AND CONSTRUED ACCORDING TO THE LAWS OF THE STATE OF COLORADO. MARKWEST HYDROCARBON PARTNERS, LTD. By: MarkWest Hydrocarbon, Inc., General Partner By _____________________________________________ John M. Fox, President A-3-3 EXHIBIT N MARKWEST HYDROCARBON PARTNERS, LTD. Notice of Conversion/Continuation To Norwest Bank Colorado, National Association: This Notice of Conversion/Continuation is given pursuant to Section 2(b)(ii) of that certain Loan Agreement, dated as of November 20, 1992 as the same may have been amended to the date hereof (the "Loan Agreement"), between Markwest Hydrocarbon Partners, Ltd. ("Borrower"), Norwest Bank Colorado, National Association ("Norwest"), First American National Bank ("First American"), N M Rothschild and Sons Limited ("Rothschild") (Norwest, First American and Rothschild being referred to as "Lenders"), and Norwest, as Agent on behalf of Lenders. Terms defined in the Loan Agreement are used herein with the same meanings. The undersigned hereby gives Agent irrevocable notice that Borrower requests a Revolver Advance under the Loan Agreement as follows: 1. Date of Conversion/Continuation. The requested date of the proposed conversion/continuation of Loan(s) is _____________, 19__, which is a Business Day. 2. Details of Conversion/Continuation (check and complete (A), (B), or (C) as applicable): [ ] (A) Convert $____________ in principal amount of Base Rate Loans to a LIBOR Rate Loan; with an interest period of ____ months to expire on _______________, 19__; [ ] (B) Convert $____________ in principal amount of LIBOR Rate Loans (with the Interest Period presently ending on _______________, 19__) to a Base Rate Loan; [ ] (C) Continue $___________ in principal amount of presently outstanding LIBOR Rate Loans (with the Interest Period presently ending on _______________, 19__), as a LIBOR Rate Loan with an interest period of ___ months to expire on _______________, 19__. Dated: _______________, 19__. MARKWEST HYDROCARBON PARTNERS, LTD. By: Markwest Hydrocarbon, Inc., General Partner By:_______________________________________________ Title:____________________________________________ N-2 FOURTH AMENDMENT TO LOAN AGREEMENT ---------------------------------- This Fourth Amendment to Loan Agreement (this "Amendment") dated as of May --------- 31, 1996, is by and among MARKWEST HYDROCARBON PARTNERS, LTD., a Colorado limited partnership (the "Borrower"), NORWEST BANK COLORADO, NATIONAL -------- ASSOCIATION (successor to Norwest Bank Denver, National Association), a national banking association, ("Norwest"), FIRST AMERICAN NATIONAL BANK, a national ------- banking association ("First American"), and N M ROTHSCHILD AND SONS LIMITED, a -------------- company organized and existing under the laws of England ("Rothschild") ---------- (Norwest, First American and Rothschild are referred to individually as a "Lender" and collectively as the "Lenders"), and NORWEST, AS AGENT FOR THE - ------- ------- LENDERS (in such capacity, the "Agent"). ----- RECITALS -------- 1. Borrower, Norwest, First American and Agent executed a Loan Agreement dated as of November 20, 1992 (the "Original Loan Agreement"), whereby Lenders ----------------------- agreed to make Revolver Loans and a Term Loan to Borrower in accordance with the terms and conditions set forth therein. The principal of and interest on the Term Loan have been paid in full. Borrower, Norwest, First American and Agent executed a First Amendment to Loan Agreement dated as of September 14, 1993 (the "First Amendment") whereby various terms of the Original Loan Agreement were --------------- amended. Borrower, Norwest, First American and Agent executed a Second Amendment to Loan Agreement dated as of March 23, 1994 (the "Second Amendment") ---------------- whereby various terms of the Original Loan Agreement were further amended. Borrower, Norwest, First American, Rothschild, and Agent executed a Third Amendment to Loan Agreement dated as of September 8, 1995 (the "Third ----- Amendment") whereby various terms of the Original Loan Agreement were further - --------- amended and Rothschild was added as one of the Lenders. The Original Loan Agreement, as amended by the First Amendment, Second Amendment and Third Amendment, is herein referred to as the "Loan Agreement". Unless otherwise -------------- defined herein, capitalized terms used herein shall have the meaning assigned to them in the Loan Agreement. 2. Borrower, Agent and Lenders now desire to amend the Loan Agreement, among other things, to increase the principal amount of the Revolver Loan from $25,000,000 to $40,000,000, to extend the Revolver Commitment Period from June 30, 1997 to June 30, 1998, to extend the maturity date from June 30, 2001 to June 30, 2002, and to add additional collateral to secure the Loans. AGREEMENT --------- NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Borrower, Agent, and each of Lenders hereby agree as follows: 1. Amendment of Section 1. A. The definitions of Allonge, Columbia ---------------------- Contracts, Fixed Charge Coverage Ratio, Loan Documents, Loan Share, Maximum Principal Amount, Revolver Commitment Period and Revolver Note set forth in Section 1 of the Loan Agreement shall be amended by restating the definition of each of the following terms in their entirety to read as follows: "Allonge" shall refer individually to each First Allonge dated as of ------- May 31, 1996, between Borrower and Norwest, First American, or Rothschild, as appropriate, which amends the Replacement Revolver Note payable to such Lender to increase the principal amount of such note to $13,333,333.33, to extend the Revolver Commitment Period from June 30, 1997 to June 30, 1998, and to extend the maturity date from June 30, 2001 to June 30, 2002, and which are in the form attached hereto as Exhibits A-1, A-2 and A-3. The term "Allonges" shall refer to all three Allonges. "Columbia Contracts" shall mean (a) Natural Gas Liquids Purchase ------------------ Agreement dated as of April 26, 1988 between Columbia Gas Transmission Corporation ("Columbia") and Borrower as amended November 4, 1988, July 31, 1989, December 24, 1990 and January 28, 1991 (Siloam); (b) Natural Gas Liquids Purchase Agreement dated as of December 24, 1990, between Columbia and Borrower as amended January 28, 1991 (Boldman); (c) Contract for Construction and Lease of Boldman Plant dated December 24, 1990 between Columbia and Borrower; (d) Letter Agreement dated March 9, 1995 between Columbia and Borrower; and (e) the following agreements relating to the Kenova Processing Plant: (i) Agreement to Design and Construct New Facilities (the "Construction Agreement"), (ii) ---------------------- Purchase and Demolition Agreement-Construction Premises (the "Demolition ---------- Agreement"), (iii) Purchase and Demolition Agreement-Remaining Premises (the - --------- "Purchase Agreement"), and (iv) Processing Agreement-Kenova Processing Plant - ------------------- (the "Processing Agreement"), all dated March 15, 1995 between Columbia and -------------------- Borrower, together with any and all amendments now existing or hereafter created to any of the foregoing to the extent such amendments are otherwise permitted hereunder, and together with any gas processing contracts between Borrower and any shippers on Columbia's system covering processing of such shippers' gas at the Kenova Processing Plant. "Fixed Charge Coverage Ratio" shall mean for the 12 most recent --------------------------- consecutive months, the ratio for such period of (a) the sum of net income (or net loss) plus interest expense and non-cash charges included in determining net income (or net loss), all as determined in accordance with GAAP, to (b) the sum of interest expense included in calculating (a). "Loan Documents" shall mean the Loan Agreement, as amended by this -------------- Amendment, the Amended Notes, the Security Documents, the Covenant Agreements and all other documents executed and delivered, from time to time, by or on behalf of Borrower to Agent or Lenders in connection herewith or therewith. "Loan Share" means with respect to each of Norwest, First American, ---------- and Rothschild, thirty-three and one-third percent. "Maximum Principal Amount" shall be $40,000,000. ------------------------ "Revolver Commitment Period" shall mean the period from November 20, -------------------------- 1992, -2- to and including June 30, 1998, or such earlier date on which the Revolver Notes become due and payable. "Revolver Note" shall mean a Replacement Revolver Note dated September ------------- 8, 1995, substantially in the form of Exhibits A-1, A-2 and A-3 attached to the Third Amendment, made by Borrower and payable to the order of Norwest, First American or Rothschild, as appropriate, with appropriate insertions, as amended by a First Allonge dated as of May 31, 1996, to increase the principal amount of such note to $13,333,333.33 and to change the maturity date from June 30, 2001 to June 30, 2002, together with any and all renewals, extensions, amendments and changes of, or substitutions for said note; collectively the "Revolver Notes." -------------- B. The following additional definitions are hereby added to Section 1 of the Loan Agreement in their appropriate alphabetical order: "Amended Notes" shall refer to each Replacement Revolver Note as ------------- amended by the Allonge for the appropriate lender. "Amendment to Security Agreement" shall refer to the Amendment to ------------------------------- Security Agreement dated as of May 31, 1996, executed by Borrower and Agent in connection with this Amendment, covering Borrower's interest in the Church Hill Facility, Hawkins County, Tennessee and all leasehold rights, equipment, inventory, accounts, contracts, contract rights, documents, instruments, general intangibles, and all other personal property and proceeds related thereto. "Third Mortgage Amendments" shall refer to the amendments dated as of ------------------------- May 31, 1996, to each of the mortgages and deeds of trust executed by the Borrower in connection with this Amendment and described as follows: (i) Third Amendment to Arkansas Leasehold Deed of Trust with Security Agreement, Assignment of Rents and Leases and Financing Statement (Revolving Credit); (ii) Third Amendment to Mortgage, Security Agreement, Assignment of Profits and Proceeds and Financing Statement relating to Siloam, (iii) Third Amendment to Mortgage, Security Agreement, Assignment of Profits and Proceeds and Financing Statement (Boldman); and (iv) Third Amendment to A Credit Line Deed of Trust with Security Agreement, Assignment of Profits and Proceeds and Financing Statement relating to West Virginia Property, covering Borrower's Kenova Processing Plant, all personal property, inventory and equipment related thereto, and all processing contracts related thereto. C. The definition of Second Allonge set forth in Section 1 of the Loan Agreement shall be deleted in its entirety. D. The term "Amendment Documents" when used in this Agreement shall ------------------- refer to this Amendment, the Allonges, the Amendment to Security Agreement, the Third Mortgage Amendments and any necessary amendments to Financing Statements. 2. Amendment of Section 2(b)(iii). Section 2(b)(iii) is hereby ------------------------------ amended to (a) delete the date "September 30, 1997" in the twelfth and thirteenth lines and substitute the date -3- "September 30, 1998" therefor, and (b) delete the date "June 30, 2001" in the fourteenth line and substitute the date "June 30, 2002" therefor. 3. Amendment of Section 4(c)(i). Section 4(c)(i) is hereby deleted and ---------------------------- restated in its entirety to read as follows: (i) The Lenders shall determine the Borrowing Base (which shall never exceed the Maximum Principal Amount) semi-annually, as of June 15 and December 15 of each year that this Agreement is in effect, commencing June 15, 1996, based upon the Obligations then outstanding, the value and associated cash flow available for debt service which the Lenders assign, in their sole discretion, to Borrower's natural gas liquids processing plants, fractionator, propane terminals and any other assets of Borrower now subject to the Security Documents or as may become subject thereto in the future, but only to the extent each of the same are subject to a perfected first priority lien in favor of the Agent for the benefit of the Lenders, and based upon such other factors, assumptions, criteria and general credit considerations as the Lenders in their sole discretion deem appropriate. 4. Amendment of Section 8(b). Section 8(b) is hereby amended by ------------------------- adding the following new subsection 8(b)(vii) at the end, to read as follows: "(vii) On or before November 15 of each year an annual budget for Borrower's operations for the next calendar year." 5. Amendment of Section 8(m). Section 8(m) is hereby amended by adding ------------------------- the following phrase to the end of such section: "plus 50 percent of the net proceeds of any public offering by Borrower." 6. New Section 8(q). A new Section 8(q) is hereby added to Section 8 to ---------------- read as follows: "(q) Capital Expenditure Review. Borrower shall consult with Lenders -------------------------- concerning the details of any single project with estimated capital expenditures in excess of $10,000,000. Not less than 45 days prior to entering into a binding commitment to make such expenditure, Borrower will provide a complete description of the proposed capital expenditure, the economic analysis of the project and the projected impact on Borrower's financial condition and business. 7. Amendment of Section 9(c). Section 9(c) is hereby amended to insert ------------------------- the following phrase after the word "except" in line 12 and before the phrase "endorsements of negotiable instruments": "(i) guarantees by Borrower of Debt incurred by MarkWest Coalseam Development Company L.L.C. in connection with San Juan and Piceance Basin projects, so long as such guarantees do not exceed $1,000,000 in the aggregate at any one time (copies of each -4- such guarantee shall be provided to Agent within ten days after execution), (ii) the guarantee by Borrower contained in Section 2.5 of the Participation, Ownership and Operating Agreement for West Shore Processing Company, LLC dated May 2, 1996, (iii) the Secured Guarantees dated May 2, 1996 executed by MarkWest Michigan, L.L.C. as Manager of West Shore Processing Company, LLC and Basin Pipeline, L.L.C. in favor of Bank of America Illinois, and (iv) ..." 8. Conditions Precedent. The amendments provided for in this Amendment -------------------- shall not become effective until Agent has received each of the following: A. A commitment fee of $75,000, representing 1/2 of one percent of $15,000,000, the increase in the Maximum Principal Amount from $25,000,000 to $40,000,000. B. This Amendment, executed by Borrower, Agent and Lenders; C. The Allonge, executed by Borrower for each of the Lenders; D. Counterparts of the Third Mortgage Amendments, the Amendment to Security Agreement, and any financing statements or amendments to financing statements necessary to perfect security interests in any personal property included in the collateral covered by the Third Mortgage Amendments or the Amendment to Security Agreement, duly executed and acknowledged by Borrower and Agent, and to the extent applicable, the trustee thereunder; E. A letter from each of John Fox and the General Partner reconfirming their respective Covenant Agreement; F. The following items concerning the Kenova Processing Plant: (i) The Columbia Assessment and Remediation Plan (as defined in the Construction Agreement) shall be acceptable to the Lenders in their sole discretion; (ii) A Certificate executed by the President of Borrower's general partner certifying that (a) the Kenova Processing Plant has satisfactorily passed the performance tests required to be ready for "Unrestricted Service" as set forth in the Construction Agreement or setting forth in reasonable detail deficiencies still to be corrected; (b) such plant is currently operating in substantial compliance with the Processing Agreement; (c) Borrower has obtained with regard to the Kenova Processing Plant all governmental permits, licenses and approvals (other than FERC approvals) necessary for the construction and operation of such plant by Borrower; and (d) such plant is ready for Unrestricted Service and has been accepted in such condition by Columbia. G. Updated title commitment covering the Siloam Facility demonstrating to Lenders' satisfaction that Agent will have a valid first lien on such collateral to the full extent of the Maximum Principal Amount; -5- H. Results of UCC lien searches as to Borrower for the States of Arkansas, Colorado, Kentucky, Tennessee, and West Virginia and for the following counties: Crittenden County, Arkansas; Boyd, Greenup and Pike Counties, Kentucky; Hawkins County, Tennessee; and Wayne and Kanawha Counties, West Virginia, and for all other relevant filing jurisdictions as to the Collateral; I. All legal matters incident to the Loans and the Amendment Documents shall be satisfactory to counsel to Agent, and Agent shall have received a favorable opinion addressed to Agent and Lenders of Barry W. Spector, Esq., counsel for Borrower, in form and substance satisfactory to Agent; J. Revised versions of Exhibits I, J, K and L to the Loan Agreement, current as of May 22, 1996; K. Photocopies of all executed documents relating to Borrower's investment in West Shore Processing Company, LLC and Basin Pipeline, L.L.C. and the related refinancing transaction with Bank of America Illinois; and L. All other documents and assurances which Agent reasonably requires or which it may reasonably request in connection with the transactions contemplated by this Agreement, and such documents shall be certified, when appropriate by proper authorities. 9. Amended Exhibits. Exhibits I, J, K and L to the Loan Agreement shall ---------------- be amended and restated in the form of Exhibits I, J, K and L attached hereto. 10. Representations and Warranties. To induce Agent and Lenders to enter ------------------------------ into this Amendment, Borrower hereby represents and warrants to Agent and each Lender that: A. Non-Contravention. The execution, delivery and performance by ----------------- Borrower of this Amendment, and the other Amendment Documents and the borrowings thereunder, and the consummation of the transactions contemplated herein and therein will not conflict with the limited partnership agreement or other organizational or governing documents of any Related Person, or conflict with or result in any breach of any mortgage, lien, lease, agreement, instrument, order, judgment, decree, law, rule, regulation or any other restriction of any kind or character to which any Related Person is a party or is subject or by which any Related Person or its properties are bound or affected or result in the creation or imposition of any lien, charge or encumbrance upon any property of any Related Person. B. Third Party Authorization. No consent, approval, exemption, ------------------------- authorization or order of or other action by, and no notice to or filing with, any court or governmental authority or third party is required by any Related Person in connection with the execution, delivery or performance by Borrower of this Amendment, or any other Amendment Document or to consummate any transactions contemplated hereby or thereby. -6- C. Authorization; Binding Effect. Borrower has full power and ----------------------------- authority to enter into this Amendment and the other Amendment Documents. The execution and delivery of this Amendment, and the other Amendment Documents, and the performance and observance of their terms, conditions and obligations, have been duly authorized by all necessary action by Borrower and the General Partner. This Amendment and the other Amendment Documents are the legal, valid and binding obligations of Borrower, enforceable in accordance with their respective terms, except as such enforcement may be limited by bankruptcy, insolvency or similar laws of general application relating to the enforcement of creditors' rights. D. Representations and Warranties. All representations and ------------------------------ warranties contained in Section 7 of the Original Loan Agreement and in the Security Documents shall be true on the date hereof as if then given, and Borrower shall have performed or observed all terms, agreements, conditions and obligations under the Loan Agreement and under the Security Documents to be performed or observed on or prior to the date hereof. E. No Default. No Event of Default or Unmatured Event of Default ---------- under the Loan Agreement shall have occurred and be continuing or would result from the entering into of this Amendment. F. First Priority Security Interest. Upon proper filing and -------------------------------- recording of the Third Mortgage Amendment and related financing statements covering the Kenova Processing Plant, the Agent, on behalf of Lenders will have a perfected first priority lien or security interest in all of the Collateral subject to such mortgage. The foregoing representations and warranties shall be deemed to be representations and warranties made in the Loan Agreement for all purposes. 11. Kenova Title. Within 45 days after the receipt of FERC approval to ------------ the closure of the old Columbia Kenova plant and the transfer of its site to Borrower, Borrower shall provide Agent with evidence acceptable to Agent that Borrower has marketable title to the Construction Premises as defined in the Demolition Agreement together with an ALTA form B (or other form acceptable to the Agent) mortgagee title insurance or a binder issued by a title insurance company satisfactory to the Agent, insuring or undertaking to insure, in the case of a binder, that the applicable Third Mortgage Amendment creates and constitutes a valid first lien against such collateral in favor of the Agent, subject only to permitted exceptions, with such endorsements and affirmative insurance as the Agent may reasonably request. 12. Continuing Effect. Except as expressly amended hereby, the Loan ----------------- Agreement shall continue to be and shall remain in full force and effect in accordance with its terms. References in the Loan Agreement to "this Agreement", "this instrument" and like terms shall be deemed to be references to the Loan Agreement as amended by this Amendment. When used in this Amendment or in the Loan Agreement, each reference to a term defined in the Loan Agreement, which is amended by this Amendment, shall be deemed to be the term as amended by this Amendment. Any reference to the "Revolver/Term Loan Agreement" in the Collateral -7- Documents shall be deemed to be a reference to the Loan Agreement as amended by this Amendment. Borrower hereby confirms and acknowledges that the term "Obligations" as used in the Security Agreement, includes all obligations of Borrower with respect to the Revolver Loans as increased hereby and the Amended Notes and all other costs, fees, indemnities and expenses in connection therewith. 13. Governing Law. This Amendment shall be governed by and construed ------------- under the laws of the State of Colorado and shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. 14. Assignment. Norwest and First American hereby assign and transfer to ---------- Rothschild, without any warranties either express or implied, a sufficient part of all their rights, title and interest in, to and under the Loan Agreement, the Loans, the Amended Notes and all other Loan Documents, so that all such rights shall be owned and held by Lenders on the date hereof in the following percentages: Norwest - 33-1/3 % First American - 33-1/3 % Rothschild - 33-1/3 % 15. Counterparts. This Amendment may be executed in one or more ------------ counterparts, with each party signing on different counterparts, each of which shall be deemed an original, and all of which together shall constitute but one and the same instrument. BORROWER: MARKWEST HYDROCARBON PARTNERS, LTD., a Colorado limited partnership By: MARKWEST HYDROCARBON, INC., General Partner By: _____________________________ John M. Fox President LENDERS: NORWEST BANK COLORADO, NATIONAL -8- ASSOCIATION (successor to Norwest Bank Denver, National Association), a national banking association By:_____________________________ Thomas M. Foncannon Vice President FIRST AMERICAN NATIONAL BANK, a national banking association By:______________________________ Mariah G. Lundberg Assistant Vice President N M ROTHSCHILD AND SONS LIMITED, a company organized and existing under the laws of England By:______________________________ By:________________________________ Name: ________________________ Name:___________________________ Title: _________________________ Title:__________________________ AGENT: NORWEST BANK COLORADO, NATIONAL ASSOCIATION (successor to Norwest Bank Denver, National Association), a national banking association By:_____________________________ Thomas M. Foncannon Vice President -9- REVOLVER NOTE ------------- $10,000,000.00 Denver, Colorado November 20, 1992 MARKWEST HYDROCARBON PARTNERS, LTD., a Colorado limited partnership, ("Borrower"), with an address of 5613 DTC Parkway, Suite 400, Englewood, CO 80111, for value received, hereby promises to pay to the order of Norwest Bank Denver, National Association, a national banking association ("Lender"), on or before December 31, 1998, the principal sum of Ten Million - ---------- Dollars ($10,000,000.00), or so much thereof as may be advanced by Lender pursuant to the Loan Agreement of even date herewith between Borrower, Norwest Bank Denver, National Association, individually and as agent, and First American National Bank (the "Loan Agreement"), together with interest on the outstanding ---- --------- unpaid principal balance at the Adjusted Prime Rate as provided in the Loan Agreement. This Note is one of the notes referred to in the Loan Agreement as the Revolver Notes, and is issued pursuant to, and is subject to the terms and provisions of, the Loan Agreement. All capitalized terms used herein but not otherwise defined shall have the meanings set forth in the Loan Agreement. As of December 31, 1994, the aggregate unpaid principal amount outstanding under this Note shall be repaid to Lender in sixteen equal quarterly installments, commencing March 31, 1993, as more fully provided in the Loan Agreement, together with accrued and unpaid interest thereon. All remaining outstanding principal of and interest on this Note shall be due and payable no later than December 31, 1998. Interest shall accrue daily, shall be payable on the last day of each calendar quarter, commencing December 31, 1992 and at the maturity of this Note, and shall be calculated on the basis of a 365 or 366-day year, as appropriate. All payments of principal and interest hereof shall be made as provided in the Loan Agreement in immediately available funds and without set- off or counterclaim or deduction of any kind. Notwithstanding anything tot he contrary contained in this Note, overdue principal, and (to the extent permitted under applicable law) overdue interest, whether caused by acceleration of maturity or otherwise, shall bear interest at the Late Payment Rate and shall be immediately due and payable. It is not intended hereby to charge interest at a rate in excess of the maximum rate of interest that Lender may charge to Borrower under applicable usury and other laws, but if, notwithstanding, interest in excess of such rate shall be paid hereunder, the interest rate on this Note shall be adjusted to the maximum permitted under applicable law during the period or periods that the interest rate otherwise provided herein would exceed such rate and any excess amount applied at Lender's option to reduce the outstanding principal balance of this Note or to be returned to Borrower. This Note is secured by, and the holder of this Note is entitled to the benefits of the Security Documents described in the Loan Agreement. Reference is made to the Security Documents for a description of the property covered thereby and the rights, remedies and obligations of the holder hereof in respect thereto. Lender shall maintain a record of all advances hereunder and all payments made on this Note until Lender has been repaid in full, as set forth on Schedule I hereto; provided, however that the failure, error or omission by ----------------- Lender to maintain such a record shall not diminish or otherwise affect the obligation of Borrower to repay the amount outstanding hereunder and any other amounts due to Lender. If Borrower fails to pay any amount due under this Note and Lender has to take any action to collect the amount due or to exercise its rights under this Note or the Security Documents, including without limitation retaining attorneys for collection of this Note, or if any suit or proceeding is brought for the recovery of all or any part of or for protection of the Obligations or to foreclose the Security Documents or to enforce Lender's rights under the Security Documents, then Borrower agrees to pay on demand all costs and expenses of any such action to collect, suit or proceeding, or any appeal of any such suit or proceeding, incurred by the holder hereof, including without limitation the fees and disbursements of attorneys for the holder hereof. Borrower, and all endorsers, sureties and guarantors of this Note, hereby severally waive demand, presentment for payment, notice of dishonor, notice of acceleration or intent to accelerate, protest, notice of protest, diligence in collecting and assents to any extension of time with respect -2- to any payment due under this Note, to any substitution or release of collateral and to the addition or release of any party. No waiver by Lender of any payment or other right under this Note shall operate as a waiver of any other payment or right. If any provision in this Note shall be held invalid, illegal or unenforceable in any jurisdiction, the validity, legality or enforceability of any defective provisions shall not be in any way affected or impaired in any other jurisdiction, nor shall the invalid, illegal or unenforceable provision affect or impair any other provision of this Note. No delay or failure of the holder of this Note in the exercise of any right or remedy provided for hereunder shall be deemed a waiver of such right or remedy by the holder hereof, and no exercise of any right or remedy shall be deemed a waiver of any other right or remedy that the holder may have. Any notices given hereunder shall be in writing and shall be given as provided in the Loan Agreement. At the option of Lender, an action may be brought to enforce this Note in the District. Court in and for the City and County of Denver, State of Colorado, in the United States District Court for the District of Colorado or in any other court in which venue and jurisdiction are proper. Borrower and all endorsers, sureties and guarantors hereof consent to venue and jurisdiction in the District Court in and for the City and County of Denver, State of Colorado and in the United States District Court for the District of Colorado and to jurisdiction and service of process under Sections 13-1-124(1)(a) and 13-1-125, Colorado Revised Statutes (1973), as amended, in any action commenced to enforce this Agreement. THIS NOTE IS TO BE GOVERNED BY AND CONSTRUED ACCORDING TO THE LAWS OF THE STATE OF COLORADO. MARKWEST HYDROCARBON PARTNERS, LTD. By: MarkWest Hydrocarbon, Inc. General Partner By: Patrick W. Murray, Vice President -3- Schedule I ---------- Principal Outstanding Amount Amount of Principal Date of Advance Payment Balance - ---- ---------- ------- ------- A-1 REVOLVER NOTE ------------- $10,000,000.00 Denver, Colorado November 20, 1992 MARKWEST HYDROCARBON PARTNERS, LTD., a Colorado limited partnership, ("Borrower"), with an address of 5613 DTC Parkway, Suite 400, Englewood, CO 80111, for value received, hereby promises to pay to the order of First American National Bank, a national banking association ("Lender"), on or before December 31, 1998, the principal sum of Ten Million Dollars ($10,000,000.00), or so much thereof as may be advanced by Lender pursuant to the Loan Agreement of even date herewith between Borrower, Norwest Bank Denver, National Association, individually and as agent, and First American National Bank (the "Loan Agreement"), together with interest on the outstanding unpaid ------ principal balance at the Adjusted Prime Rate as provided in the Loan Agreement. This Note is one of the notes referred to in the Loan Agreement as the Revolver Notes, and is issued pursuant to, and is subject to the terms and provisions of, the Loan Agreement. All capitalized terms used herein but not otherwise defined shall have the meanings set forth in the Loan Agreement. As of December 31, 1994, the aggregate unpaid principal amount outstanding under this Note shall be repaid to Lender in sixteen equal quarterly installments, commencing March 31, 1993, as more fully provided in the Loan Agreement, together with accrued and unpaid interest thereon. All remaining outstanding principal of and interest on this Note shall be due and payable no later than December 31, 1998. Interest shall accrue daily, shall be payable on the last day of each calendar quarter, commencing December 31, 1992 and at the maturity of this Note, and shall be calculated on the basis of a 365 or 366-day year, as appropriate. All payments of principal and interest hereof shall be made as provided in the Loan Agreement in immediately available funds and without set- off or counterclaim or deduction of any kind. Notwithstanding anything to the contrary contained in this Note, overdue principal, and (to the extent permitted under applicable law) overdue interest, whether caused by acceleration of maturity or otherwise, shall bear interest at the Late Payment Rate and shall be immediately due and payable. It is not intended hereby to charge interest at a rate in excess of the maximum rate of interest that Lender may charge to Borrower under applicable usury and other laws, but if, notwithstanding, interest in excess of such rate shall be paid hereunder, the interest rate on this Note shall be adjusted to the maximum permitted under applicable law during the period or periods that the interest rate otherwise provided herein would exceed such rate and any excess amount applied at Lender's option to reduce the outstanding principal balance of this Note or to be returned to Borrower. This Note is secured by, and the holder of this Note is entitled to the benefits of the Security Documents described in the Loan Agreement. Reference is made to the Security Documents for a description of the property covered thereby and the rights, remedies and obligations of the holder hereof in respect thereto. Lender shall maintain a record of all advances hereunder and all payments made on this Note until Lender has been repaid in full, as set forth on Schedule I hereto; provided, however that the failure, error or omission by ------------------ Lender to maintain such a record shall not diminish or otherwise affect the obligation of Borrower to repay the amount outstanding hereunder and any other amounts due to Lender. If Borrower fails to pay any amount due under this Note and Lender has to take any action to collect the amount due or to exercise its rights under this Note or the Security Documents, including without limitation retaining attorneys for collection of this Note, or if any suit or proceeding is brought for the recovery of all or any part of or for protection of the Obligations or to foreclose the Security Documents or to enforce Lender's rights under the Security Documents, then Borrower agrees to pay on demand all costs and expenses of any such action to collect, suit or proceeding, or any appeal of any such suit or proceeding, incurred by the holder hereof, including without limitation the fees and disbursements of attorneys for the holder hereof. Borrower, and all endorsers, sureties and guarantors of this Note, hereby severally waive demand, presentment for payment, notice of dishonor, notice of acceleration or intent to accelerate, protest, notice of protest, diligence in collecting and assents to any extension of time with respect -2- to any payment due under this Note, to any substitution or release of collateral and to the addition or release of any party. No waiver by Lender of any payment or other right under this Note shall operate as a waiver of any other payment or right. If any provision in this Note shall be held invalid, illegal or unenforceable in any jurisdiction, the validity, legality or enforceability of any defective provisions shall not be in any way affected or impaired in any other jurisdiction, nor shall the invalid, illegal or unenforceable provision affect or impair any other provision of this Note. No delay or failure of the holder of this Note in the exercise of any right or remedy provided for hereunder shall be deemed a waiver of such right or remedy by the holder hereof, and no exercise of any right or remedy shall be deemed a waiver of any other right or remedy that the holder may have. Any notices given hereunder shall be in writing and shall be given as provided in the Loan Agreement. At the option of Lender, an action may be brought to enforce this Note in the District Court in and for the City and County of Denver, State of Colorado, in the United States District Court for the District of Colorado or in any other court in which venue and jurisdiction are proper. Borrower and all endorsers, sureties and guarantors hereof consent to venue and jurisdiction in the District Court in and for the City and County of Denver, State of Colorado and in the United States District Court for the District of Colorado and to jurisdiction and service of process under Sections 13-1-124(1)(a) and 13-1-125, Colorado Revised Statutes (1973), as amended, in any action commenced to enforce this Agreement. THIS NOTE IS TO BE GOVERNED BY AND CONSTRUED ACCORDING TO THE LAWS OF THE STATE OF COLORADO. MARKWEST HYDROCARBON PARTNERS, LTD. By: MarkWest Hydrocarbon, Inc. General Partner By: Patrick W. Murray, Vice President -3- Schedule I ---------- Principal Outstanding Amount Amount of Principal Date of Advance Payment Balance - ---- ---------- ------- ------- A-1 TERM NOTE --------- $6,750,000.00 Denver, Colorado November 20, 1992 MARKWEST HYDROCARBON PARTNERS, LTD., a Colorado limited partnership, ("Borrower"), with an address of 5613 DTC Parkway, Suite 400, Englewood, CO 80111, for value received, hereby promises to pay to the order of Norwest Bank Denver, National Association, a national banking association ("Lender"), on or before December 31, 1998, the principal sum of Six Million Seven Hundred Fifty Thousand Dollars ($6,750,000.00), together with interest on the outstanding unpaid principal balance at the Adjusted Prime Rate as provided in the Loan Agreement of even date herewith between Borrower, Norwest Bank Denver, National Association, individually and as agent, and First American National Bank (the "Loan Agreement"). - ----- This Note is one of the notes referred to in the Loan Agreement as the Term Notes, and is issued pursuant to, and is subject to the terms and provisions of, the Loan Agreement. All capitalized terms used herein but not otherwise defined shall have the meanings set forth in the Loan Agreement. The outstanding principal amount of this Note shall be payable as provided in the Loan Agreement, in twenty-four equal quarterly installments due on the last day of each calendar quarter, commencing March 31, 1993, as more fully described in the Loan Agreement. The entire outstanding principal balance of this Note shall be due and payable on or before December 31, 1998 (unless payable sooner pursuant to the terms of the Loan Agreement), together with accrued and unpaid interest thereon. Interest shall accrue daily, shall be payable on the last day of each calendar quarter, commencing December 31, 1992 and at the maturity of this Note, and shall be calculated on the basis of a 365 or 366-day year, as appropriate. All payments of principal and interest hereof shall be made as provided in the Loan Agreement in immediately available funds and without set- off or counterclaim or deduction of any kind. Notwithstanding anything to the contrary contained in this Note, overdue principal, and (to the extent permitted under applicable law) overdue interest, whether caused by acceleration of maturity or otherwise, shall bear interest at the Late Payment Rate and shall be immediately due and payable. It is not intended hereby to charge interest at a rate in excess of the maximum rate of interest that Lender may charge to Borrower under applicable usury and other laws, but if, notwithstanding, interest in excess of such rate shall be paid hereunder, the interest rate on this Note shall be adjusted to the maximum permitted under applicable law during the period or periods that the interest rate otherwise provided herein would exceed such rate and any excess amount applied at Lender's option to reduce the outstanding principal balance of this Note or to be returned to Borrower. This Note is secured by, and the holder of this Note is entitled to the benefits of the Security Documents described in the Loan Agreement. Reference is made to the Security Documents for a description of the property covered thereby and the rights, remedies and obligations of the holder hereof in respect thereto. Lender shall maintain a record of the advances hereunder and all payments made on this Note until Lender has been repaid in full, as set forth on Schedule I hereto; provided however, that the failure, error or omission by ----------------- Lender to maintain such a record shall not diminish or otherwise affect the obligation of Borrower to repay the amount outstanding hereunder and any other amounts due to Lender. If Borrower fails to pay any amount due under this Note and Lender has to take any action to collect the amount due or to exercise its rights under this Note or the Security Documents, including without limitation retaining attorneys for collection of this Note, or if any suit or proceeding is brought for the recovery of all or any part of or for protection of the Obligations or to foreclose the Security Documents or to enforce Lender's rights under the Security Documents, then Borrower agrees to pay on demand all costs and expenses of any such action to collect, suit or proceeding, or any appeal of any such suit or proceeding, incurred by the holder hereof, including without limitation the fees and disbursements of attorneys for the holder hereof. Borrower, and all endorsers, sureties and guarantors of this Note, hereby severally waive demand, presentment for payment, notice of dishonor, notice of acceleration or intent to accelerate, protest, notice of protest, diligence in collecting and assents to any extension of time with respect -2- to any payment due under this Note, to any substitution or release of collateral and to the addition or release of any party. No waiver by Lender of any payment or other right under this Note shall operate as a waiver of any other payment or right. If any provision in this Note shall be held invalid, illegal or unenforceable in any jurisdiction, the validity, legality or enforceability of any defective provisions shall not be in any way affected or impaired in any other jurisdiction, nor shall the invalid, illegal or unenforceable provision affect or impair any other provision of this Note. No delay or failure of the holder of this Note in the exercise of any right or remedy provided for hereunder shall be deemed a waiver of such right by the holder hereof, and no exercise of any right or remedy shall be deemed a waiver of any other right or remedy that the holder-may have. Any notices given hereunder shall be in writing and shall be given as provided in the Loan Agreement. At the option of Lender, an action may be brought to enforce this Note in the District Court in and for the City and County of Denver, State of Colorado, in the United States District Court for the District of Colorado or in any other court in which venue and jurisdiction are proper. Borrower and all endorsers, sureties and guarantors hereof consent to venue and jurisdiction in the District Court in and for the City and County of Denver, State of Colorado and in the United States District Court for the District of Colorado and to jurisdiction and service of process under Sections 13-1-124(1)(a) and 13-1-125, Colorado Revised Statutes (1973), as amended, in any action commenced to enforce this Agreement. THIS NOTE IS TO BE GOVERNED BY AND CONSTRUED ACCORDING TO THE LAWS OF THE STATE OF COLORADO. MARKWEST HYDROCARBON PARTNERS, LTD. By: MarkWest Hydrocarbon, Inc. General Partner By: Patrick W. Murray, Vice President -3- Schedule I ---------- Principal Outstanding Amount Amount of Principal Date of Term Loan Payment Balance - ---- ------------ ------- ------- A-1 TERM NOTE $6,750,000.00 Denver, Colorado November 20, 1992 MARKWEST HYDROCARBON PARTNERS, LTD., a Colorado limited partnership, ("Borrower"), with an address of 5613 DTC Parkway, Suite 400, Englewood, CO 80111, for value received, hereby promises to pay to the order of First American National Bank, a national banking association ("Lender"), on or before December 31, 1998, the principal sum of Six Million Seven Hundred Fifty Thousand Dollars ($6,750,000.00), together with interest on the outstanding unpaid principal balance at the Adjusted Prime Rate as provided in the Loan Agreement of even date herewith between Borrower, Norwest Bank Denver, National Association, individually and as agent, and First American National Bank (the "Loan ---- Agreement"). This Note is one of the notes referred to in the Loan Agreement as the Term Notes, and is issued pursuant to, and is subject to the terms and provisions of, the Loan Agreement. All capitalized terms used herein but not otherwise defined shall have the meanings set forth in the Loan Agreement. The outstanding principal amount of this Note shall be payable as provided in the Loan Agreement, in twenty-four equal quarterly installments due on the last day of each calendar quarter, commencing March 31, 1993, as more fully described in the Loan Agreement. The entire outstanding principal balance of this Note shall be due and payable on or before December 31, 1998 (unless payable sooner pursuant to the terms of the Loan Agreement), together with accrued and unpaid interest thereon. Interest shall accrue daily, shall be payable on the last day of each calendar quarter, commencing December 31, 1992 and at the maturity of this Note, and shall be calculated on the basis of a 365 or 366-day year, as appropriate. All payments of principal and interest hereof shall be made as provided in the Loan Agreement in immediately available funds and without set- off or counterclaim or deduction of any kind. Notwithstanding anything to the contrary contained in this Note, overdue principal, and (to the extent permitted under applicable law) overdue interest, whether caused by acceleration of maturity or otherwise, shall bear interest at the Late Payment Rate and shall be immediately due and payable. It is not intended hereby to charge interest at a rate in excess of the maximum rate of interest that Lender may charge to Borrower under applicable usury and other laws, but if, notwithstanding, interest in excess of such rate shall be paid hereunder, the interest rate on this Note shall be adjusted to the maximum permitted under applicable law during the period or periods that the interest rate otherwise provided herein would exceed such rate and any excess amount applied at Lender's option to reduce the outstanding principal balance of this Note or to be returned to Borrower. This Note is secured by, and the holder of this Note is entitled to the benefits of the Security Documents described in the Loan Agreement. Reference is made to the Security Documents for a description of the property covered thereby and the rights, remedies and obligations of the holder hereof in respect thereto. Lender shall maintain a record of the advances hereunder and all payments made on this Note until Lender has been repaid in full, as set forth on Schedule I hereto; provided however, that the failure, error or omission by ---------------- Lender to maintain such a record shall not diminish or otherwise affect the obligation of Borrower to repay the amount outstanding hereunder and any other amounts due to Lender. If Borrower fails to pay any amount due under this Note and Lender has to take any action to collect the amount due or to exercise its rights under this Note or the Security Documents, including without limitation retaining attorneys for collection of this Note, or if any suit or proceeding is brought for the recovery of all or any part of or for protection of the Obligations or to foreclose the Security Documents or to enforce Lender's rights under the Security. Documents, then Borrower agrees to pay on demand all costs and expenses of any such action to collect, suit or proceeding, or any appeal of any such suit or proceeding, incurred by the holder hereof, including without limitation the fees and disbursements of attorneys for the holder hereof. Borrower, and all endorsers, sureties and guarantors of this Note, hereby severally waive demand, presentment for payment, notice of dishonor, notice of acceleration or intent to accelerate, protest, notice of protest, diligence in collecting and assents to any extension of time with respect -2- to any payment due under this Note, to any substitution or release of collateral and to the addition or release of any party. No waiver by Lender of any payment or other right under this Note shall operate as a waiver of any other payment or right. If any provision in this Note shall be held invalid, illegal or unenforceable in any jurisdiction, the validity, legality or enforceability of any defective provisions shall not be in any way affected or impaired in any other jurisdiction, nor shall the invalid, illegal or unenforceable provision affect or impair any other provision of this Note. No delay or failure of the holder of this Note in the exercise of any right or remedy provided for hereunder shall be deemed a waiver of such right by the holder hereof, and no exercise of any right or remedy shall be deemed a waiver of any other right or remedy that the holder may have. Any notices given hereunder shall be in writing and shall be given as provided in the Loan Agreement. At the option of Lender, an action may be brought to enforce this Note in the District Court in and for the City and County of Denver, State of Colorado, in the United States District Court for the District of Colorado or in any other court in which venue and jurisdiction are proper. Borrower and all endorsers, sureties and guarantors hereof consent to venue and jurisdiction in the District Court in and for the City and County of Denver, State of Colorado and in the United States District Court for the District of Colorado and to jurisdiction and service of process under Sections 13-1-124(1)(a) and 13-1-125, Colorado Revised Statutes (1973), as amended, in any action commenced to enforce this Agreement. THIS NOTE IS TO BE GOVERNED BY AND CONSTRUED ACCORDING TO THE LAWS OF THE STATE OF COLORADO. MARKWEST HYDROCARBON PARTNERS, LTD. By: MarkWest Hydrocarbon, Inc. General Partner By: Patrick W. Murray, Vice President -3- Schedule I ---------- Principal Outstanding Amount Amount of Principal Date of Term Loan Payment Balance - ---- ------------ ------- ------- A-1 WORKING CAPITAL NOTE -------------------- $2,500,000.00 Denver, Colorado November 20, 1992 MARKWEST HYDROCARBON PARTNERS, LTD., a Colorado limited partnership, ("Borrower"), with an address of 5613 DTC Parkway, Suite 400, Englewood, CO 80111, for value received, hereby promises to pay to the order of Norwest Bank Denver, National Association, a national banking association ("Lender"), on or before December 31, 1994, the principal sum of Two Million Five Hundred Thousand Dollars ($2,500,000.00), or so much thereof as may be advanced by Lender pursuant to the Working Capital Loan Agreement of even date herewith between Borrower, Norwest Bank Denver, National Association, individually and as agent, and First American National Bank (the "Loan Agreement"), together with interest on the outstanding unpaid principal balance at the Adjusted Prime Rate as provided in the Loan Agreement. This Note is one of the notes referred to in the Loan Agreement as the Working Capital Notes and is issued pursuant to, and is subject to the terms and provisions of, the Loan Agreement. All capitalized terms used herein but not otherwise defined shall have the meanings set forth in the Loan Agreement. The entire outstanding principal balance of this Note shall be due on or before December 31, 1994 (unless payable sooner pursuant to the terms of the Loan Agreement), together with accrued and unpaid interest thereon. Interest shall accrue daily, shall be payable on the last day of each calendar quarter, commencing December 31, 1992, and at the maturity of this Note, and shall be calculated on the basis of a 365 or 366-day year, as appropriate. All payments of principal and interest hereof shall be made as provided in the Loan Agreement in immediately available funds and without set-off or counterclaim or deduction of any kind. Notwithstanding anything to the contrary contained in this Note, overdue principal, and (to the extent permitted under applicable law) overdue interest, whether caused by acceleration of maturity or otherwise, shall bear interest at the Late Payment Rate and shall be immediately due and payable. It is not intended hereby to charge interest at a rate in excess of the maximum rate of interest that Lender may charge to Borrower under applicable usury and other laws, but if, notwithstanding, interest in excess of such rate shall be paid hereunder, the interest rate on this Note shall be adjusted to the maximum permitted under applicable law during the period or periods that the interest rate otherwise provided herein would exceed such rate and any excess amount applied at Lender's option to reduce the outstanding principal balance of this Note or to be returned to Borrower. This Note is secured by, and the holder of this Note is entitled to the benefits of the Security Documents described in the Loan Agreement. Reference is made to the Security Documents for a description of the property covered thereby and the rights, remedies and obligations of the holder hereof in respect thereto. Lender shall maintain a record of advances hereunder and all payments made on this Note until Lender has been repaid in full, as set forth on Schedule I hereto; provided, however that the failure, error or omission by Lender to ------------------ maintain such a record shall not diminish or otherwise affect the obligation of Borrower to repay the amount outstanding hereunder and any other amounts due to Lender. Lender shall maintain a record of all advances hereunder and payments made on this Note and letters of credit issued under this Note until Lender has been repaid in full, as set forth on Schedule I hereto; provided, however that ------------------ the failure, error or omission by Lender to maintain such a record shall not diminish or otherwise affect the obligation of Borrower to repay the amount outstanding hereunder and any other amounts due to Lender. If Borrower fails to pay any amount due under this Note and Lender has to take any action to collect the amount due or to exercise its rights under this Note or the Security Documents, including without limitation retaining attorneys for collection of this Note; or if any suit or proceeding is brought for the recovery of all or any part of or for protection of the Obligations or to foreclose the Security Documents or to enforce Lender's rights under the Security Documents, then Borrower agrees to pay on demand all costs and expenses of any such action to collect, suit or proceeding, or any appeal of any such suit or proceeding, incurred by the holder hereof, including without limitation the fees and disbursements of attorneys for the holder hereof. Borrower, and all endorsers, sureties and guarantors of this Note, hereby severally waive demand, presentment for payment, notice of dishonor, notice of acceleration or intent -2- to accelerate, protest, notice of protest, diligence in collecting, and assents to any extension of time with respect to any payment due under this Note, to any substitution or release of collateral and to the addition or release of any party. No waiver by Lender of any payment or other right under this Note shall operate as a waiver of any other payment or right. If any provision in this Note shall be held invalid, illegal or unenforceable in any jurisdiction, the validity, legality or enforceability of any defective provisions shall not be in any way affected or impaired in any other jurisdiction, nor shall the invalid, illegal or unenforceable provision affect or impair any other provision of this Note. No delay or failure of the holder of this Note in the exercise of any right or remedy provided for hereunder shall be deemed a waiver of such right or remedy by the holder hereof, and no exercise of any right or remedy shall be deemed a waiver of any other right or remedy that the holder may have. Any notices given hereunder shall be in writing and shall be given as provided in the Loan Agreement. At the option of Lender, an action may be brought to enforce this Note in the District Court in and for the City and County of Denver, State of Colorado, in the United States District Court for the District of Colorado or in any other court in which venue and jurisdiction are proper. Borrower and all endorsers, sureties and guarantors hereof consent to venue and jurisdiction in the District Court in and for the City and County of Denver, State of Colorado and in the United States District Court for the District of Colorado and to jurisdiction and service of process under Sections 13-1-124(1)(a) and 13-1-125, Colorado Revised Statutes (1973), as amended, in any action commenced to enforce this Agreement. -3- THIS NOTE IS TO BE GOVERNED BY AND CONSTRUED' ACCORDING TO THE LAWS OF THE STATE OF COLORADO. MARKWEST HYDROCARBON PARTNERS, LTD. By: MarkWest Hydrocarbon, Inc. General Partner By: Patrick W. Murray, Vice President -4- Schedule I ---------- Principal Outstanding Amount Principal of Advance Balance (plus draws (including draws under Letters Amount of under letters Date of Credit) Payment of Credit) - ---- ---------- ------- ---------- A-1 WORKING CAPITAL NOTE -------------------- $2,500,000.00 Denver, Colorado November 20, 1992 MARKWEST HYDROCARBON PARTNERS, LTD., a Colorado limited partnership, ("Borrower"), with an address of 5613 DTC Parkway, Suite 400, Englewood, CO 80111, for value received, hereby promises to pay to the order of First American National Bank, a national banking association ("Lender"), on or before December 31, 1994, the principal sum of Two Million Five Hundred Thousand Dollars ($2,500,000.00), or so much thereof as may be advanced by Lender pursuant to the Working Capital Loan Agreement of even date herewith between Borrower, Norwest Bank Denver, National Association, individually and as agent, and First American National Bank (the "Loan Agreement"), together with interest on the outstanding unpaid principal balance at the Adjusted Prime Rate as provided in the Loan Agreement. This Note is one of the notes referred to in the Loan Agreement as the Working Capital Notes and is issued pursuant to, and is subject to the terms and provisions of, the Loan Agreement. All capitalized terms used herein but not otherwise defined shall have the meanings set forth in the Loan Agreement. The entire outstanding principal balance of this Note shall be due on or before December 31, 1994 (unless payable sooner pursuant to the terms of the Loan Agreement), together with accrued and unpaid interest thereon. Interest shall accrue daily, shall be payable on the last day of each calendar quarter, commencing December 31, 1992, and at the maturity of this Note, and shall be calculated on the basis of a 365 or 366-day year, as appropriate. All payments of principal and interest hereof shall be made as provided in the Loan Agreement in immediately available funds and without set-off or counterclaim or deduction of any kind. Notwithstanding anything to the contrary contained in this Note, overdue principal, and (to the extent permitted under applicable law) overdue interest, whether caused by acceleration of maturity or otherwise, shall bear interest at the Late Payment Rate and shall be immediately due and payable. It is not intended hereby to charge interest at a rate in excess of the maximum rate of interest that Lender may charge to Borrower under applicable usury and other laws, but if, notwithstanding, interest in excess of such rate shall be paid hereunder, the interest rate on this Note shall be adjusted to the maximum permitted under applicable law during the period or periods that the interest rate otherwise provided herein would exceed such rate and any excess amount applied at Lender's option to reduce the outstanding principal balance of this Note or to be returned to Borrower. This Note is secured by, and the holder of this Note is entitled to the benefits of the Security Documents described in the Loan Agreement. Reference is made to the Security Documents for a description of the property covered thereby and the rights, remedies and obligations of the holder hereof in respect thereto. Lender shall maintain a record of advances hereunder and all payments made on this Note until Lender has been repaid in full, as set forth on Schedule I hereto; provided, however that the failure, error or omission by Lender to ----------------- maintain such a record shall not diminish or otherwise affect the obligation of Borrower to repay the amount outstanding hereunder and any other amounts due to Lender. Lender shall maintain a record of all advances hereunder and payments made on this Note and letters of credit issued under this Note until Lender has been repaid in full, as set forth on Schedule I hereto; provided, however that ------------------ the failure, error or omission by Lender to maintain such a record shall not diminish or otherwise affect the obligation of Borrower to repay the amount outstanding hereunder and any other amounts due to Lender. If Borrower fails to pay any amount due under this Note and Lender has to take any action to collect the amount due or to exercise its rights under this Note or the Security Documents, including without limitation retaining attorneys for collection of this Note, or if any suit or proceeding is brought for the recovery of all or any part of or for protection of the Obligations or to foreclose the Security Documents or to enforce Lender's rights under the Security Documents, then Borrower agrees to pay on demand all costs and expenses of any such action to collect, suit or proceeding, or any appeal of any such suit or proceeding, incurred by the holder hereof, including without limitation the fees and disbursements of attorneys for the holder hereof. Borrower, and all endorsers, sureties and guarantors of this Note, hereby severally waive demand, presentment for payment, notice of dishonor, notice of acceleration or intent -2- to accelerate, protest, notice of protest, diligence in collecting, and assents to any extension of time with respect to any payment due under this Note, to any substitution or release of collateral and to the addition or release of any party. No waiver by Lender of any payment or other right under this Note shall operate as a waiver of any other payment or right. If any provision in this Note shall be held invalid, illegal or unenforceable in any jurisdiction, the validity, legality or enforceability of any defective provisions shall not be in any way affected or impaired in any other jurisdiction, nor shall the invalid, illegal or unenforceable provision affect or impair any other provision of this Note. No delay or failure of the holder of this Note in the exercise of any right or remedy provided for hereunder shall be deemed a waiver of such right or remedy by the holder hereof, and no exercise of any right or remedy shall be deemed a waiver of any other right or remedy that the holder may have. Any notices given hereunder shall be in writing and shall be given as provided in the Loan Agreement. At the option of Lender, an action may be brought to enforce this Note in the District Court in and for the City and County of Denver, State of Colorado, in the United States District Court for the District of Colorado or in any other court in which venue and jurisdiction are proper. Borrower and all endorsers, sureties and guarantors hereof consent to venue and jurisdiction in the District Court in and for the City and County of Denver, State of Colorado and in the United States District Court for the District of Colorado and to jurisdiction and service of process under Sections 13-1-124(1)(a) and 13-1-125, Colorado Revised Statutes (1973), as amended, in any action commenced to enforce this Agreement. -3- THIS NOTE IS TO BE GOVERNED BY AND CONSTRUED ACCORDING TO THE LAWS OF THE STATE OF COLORADO. MARKWEST HYDROCARBON PARTNERS, LTD. By: MarkWest Hydrocarbon, Inc. General Partner By: Patrick W. Murray, Vice President --4-- Schedule I ---------- Principal Outstanding Amount Principal of Advance Balance (plus draws (including draws under letters Amount of under Letters Date of Credit) Payment of Credit) - ---- ---------- ------- ---------- A-1 WORKING CAPITAL LOAN AGREEMENT Among MARKWEST HYDROCARBON PARTNERS, LTD. and NORWEST BANK DENVER, NATIONAL ASSOCIATION, individually and as Agent, and FIRST AMERICAN NATIONAL BANK November 20, 1992
TABLE OF CONTENTS ----------------- Page ---- SECTION 1. DEFINITIONS 1 SECTION 2. THE WORKING CAPITAL LOAN 13 (a) Terms of the Working Capital Loan 13 (b) Borrowing Procedures 13 (c) The Loan Date 14 (d) Computation and Payment of Interest; Late Payment Rate 14 (e) Payments by Borrower 14 (f) Payments to Lenders 15 (g) Optional Payments 15 (h) Mandatory Payments. 15 (i) Fees 16 (j) Adjustments 16 (k) Increased Capital 17 SECTION 3. LETTERS OF CREDIT 17 (a) Issuance of Standby Letters of Credit 17 (b) Payments Treated as an Advance 18 (c) Restriction on Liability 18 (d) No Duty to Inquire 19 (e) Reimbursement by Lenders 20 SECTION 4. CONDITIONS OF LENDING 20 (a) Initial Advance 20 (b) Subsequent Advances 23 SECTION 5. BORROWING BASE 24 (a) Initial Borrowing Base 24 (b) Information 24 (c) Subsequent Determinations of Borrowing Base 24 SECTION 6. BORROWING BASE DEFICIENCY 26 (a) Add Additional Collateral 26 (b) Repay Excess Debt 26 SECTION 7. SECURITY 26 SECTION 8. REPRESENTATIONS AND WARRANTIES 27 (a) Existence 27 (b) Non-Contravention 27 (c) Third Party Authorization 28 (d) Authorization; Binding Effect 28 (e) Litigation 28 (f) Taxes 28 (g) Liens 29 (h) Names and Places of Business 29 (i) Use of Proceeds 29 (j) Other Obligations 29 (k) Full Disclosure 29 (l) Margin Stock 30 (m) ERISA 30 (n) Security Documents 30
-2- (o) Compliance with Laws 30 (p) Financial Condition 31 (q) Environmental Matters 31 (r) Investment Company Act 31 (s) Public Utility Holding Company Act 31 (t) Title to Properties; First Priority Security Interest 31 (u) Partners, Shareholders and Subsidiaries of Borrower and of Related Persons 32 (v) Location of Inventory 32 (w) Eligibility of Items Included in Borrowing Base 32 SECTION 9. AFFIRMATIVE COVENANTS 32 (a) Payment and Performance of Working Capital Loan 32 (b) Financial Statements 32 (c) Preservation of Existence, Etc. 34 (d) Maintenance of Property 34 (e) Payment of Other Obligations 34 (f) Insurance 35 (g) Inspection of Property, Books and Records; Confidentiality Agreement 36 (h) Notices 37 (i) Compliance with Laws 38 (j) Further Assurances 38 (k) Current Ratio 39 (l) Funded Debt to Total Capitalization 39 (m) Tangible Net Worth 39 (n) Fixed Charge Coverage Ratio 39 (o) Environmental Matters 39 SECTION 10. NEGATIVE COVENANTS 39 (a) Debt 40 (b) Liens 40 (c) Guaranty Obligations 41 (d) Loans and Advances 41 (e) Limitation on Investments and New Businesses 42 (f) Mergers and Consolidations 42 (g) Location of Inventory 43 (h) Burdensome Undertakings 43 (i) Change in Location of Business 43 (j) Restricted Distributions 43 (k) Disposition of Assets 44 (l) ERISA 44 (m) Use of Proceeds 44 (n) Transactions with Affiliates 45 (o) Contracts; Take-or-Pay Agreements 45 (p) Amendments to Organizational Documents 45 (q) Amendments to RIMCO Loan Documents 46 SECTION 11. EVENTS OF DEFAULT 46 (a) Non-Payment 46 (b) Certain Default 46 (c) Other Defaults 46 (d) Representation or Warranty 46 (e) Security Documents and Covenant Agreements 46 (f) Judgments 47
-3- (g) Insolvency 47 (h) Bankruptcy, Etc. 47 (i) Cross-Default 48 (j) ERISA 48 (k) Loan Documents 48 (l) Material Adverse Change 48 (m) Partners of Borrower 49 (n) Ownership of the General Partner 49 (o) Failure to be a Partnership 49 (p) Columbia Contracts 49 (q) Regulatory Change 49 SECTION 12. REMEDIES 49 (a) Automatic Acceleration of Loan 49 (b) Optional Acceleration of Loan 49 (c) Setoff 50 SECTION 13. THE AGENT 51 (a) Appointment 51 (b) Delegation of Duties 51 (c) Exculpatory Provisions 51 (d) Reliance by Agent 52 (e) Notice of Default 52 (f) Non-Reliance on Agent and Other Lenders 52 (g) Indemnification 53 (h) Agent and Lenders in Their Individual Capacity 54 (i) Successor Agent 54 (j) Borrower Entitled to Rely on Agent 54 SECTION 14. MISCELLANEOUS 54 (a) No Waiver; Cumulative Remedies 54 (b) Notices 55 (c) Counterpart Execution 56 (d) Governing Law; Entire Agreement 56 (e) Amendments and Waivers 56 (f) Costs, Expenses and Indemnity 56 (g) Inconsistent Provisions; Severability 58 (h) Incorporation of Exhibits and Schedules 58 (i) Amendment of Defined Instruments 58 (j) References and Titles 59 (k) Calculations and Determinations 59 (l) Usury 59 (m) Waiver of Right to Trial by Jury 59 (n) Successors and Assigns 60 (o) Term of Agreement 60 (p) Jurisdiction 60
LIST OF EXHIBITS ----------------
Exhibit Title - ------- ----- A Form of Working Capital Note B Credit and Collection Policy of Borrower C Request for Advance
-4- D Covenant Agreement E Borrower's Counsel Opinion F Local Counsel Opinion G Borrowing Base Certification H Litigation I Limited Partners of Borrower and Shareholders of the General Partner J Location of Borrower's Products and Inventory K Compliance Certificate L Loans and Advances to Officers and Employees M Letter of Credit Application Form
-5- WORKING CAPITAL LOAN AGREEMENT ------------------------------ THIS WORKING CAPITAL LOAN AGREEMENT (this "Agreement"), dated as of --------- November 20, 1992, is among MARKWEST HYDROCARBON PARTNERS, LTD., a Colorado limited partnership, ("Borrower") with an address of 5613 DTC Parkway, Suite -------- 400, Englewood, Colorado 80111, NORWEST BANK DENVER, NATIONAL ASSOCIATION, a national banking association ("Norwest"), with an address of 1740 Broadway, ------- Denver, Colorado 80274-8699, FIRST AMERICAN NATIONAL BANK, a national banking association ("First American"), with an address of 4894 Poplar Ave., Memphis, -------------- Tennessee 38117, (Norwest and First American are referred to individually as a "Lender" and collectively as the "Lenders"), and NORWEST, AS AGENT FOR THE BANKS - ------- ------- (in such capacity, the "Agent"). ----- Borrower desires to borrow from the Lenders to provide funds for the purposes set forth below, and the Lenders are willing to lend such funds to Borrower to accomplish those purposes, subject to the terms and conditions contained or referred to herein. Accordingly, in consideration of the mutual agreements, provisions and covenants contained herein, the parties agree as follows: SECTION #. DEFINITIONS. As used herein, each of the following ----------- capitalized terms shall have the meaning given it in this Section 1: "Adjusted Prime Rate" shall mean an annual rate which equals the ------------------- sum of the floating commercial loan rate of the Agent announced from time to time as its prime rate but which may not be the lowest or best rate charged by the Agent to any customer (the "Prime Rate") plus one percentage point per year, adjusted in each case as of the banking day in which a change in the Prime Rate occurs. "Advances" shall have the meaning given it in Section 2(a). -------- "Affiliate" shall mean as to any Person, each other Person which, --------- directly or indirectly (through one or more intermediaries or otherwise), is in control of, is controlled by, or is under common control with, such Person. "Borrowing Base" shall mean, at the particular time in question, -------------- either the amount provided for in Section 5(a) or the amount determined by the Lenders in accordance with the provisions of Section 5(c); provided, however, that in no event shall the Borrowing Base exceed $5,000,000. "Borrowing Base Certification" shall have the meaning set forth ---------------------------- in Section 5(b). "Borrowing Base Deficiency" shall have the meaning set forth in ------------------------- Section 6. "Business Day" shall mean a day other than Saturdays or Sundays on which commercial banks are open for business with the public in Denver, Colorado and Memphis, Tennessee . "Cash Collateral" means Cash Collateral Instruments pledged by --------------- Borrower to the Agent on behalf of the Lenders in which the Agent has a perfected, first priority security interest, together with any funds on deposit in, or otherwise to the credit of, any deposit account of Borrower with the Agent, to the extent such deposit account is pledged as collateral to the Agent on behalf of the Lenders. "Cash Collateral Instruments" means, collectively, (a) open --------------------------- market commercial paper maturing within 120 days after acquisition therof, which has the highest credit rating of either Standard & Poor's Corporation or Moody's Investors Service, Inc., (b) certificates of deposit maturing within six (6) months from the date thereof issued by the Agent, (c) direct obligations of the United States Government or any agency thereof maturing within one hundred eighty (180) days after the acquisition thereof, and (d) other instruments that have been previously approved by the Lenders in writing for inclusion as Cash Collateral Instruments. "Code" means the Internal Revenue Code of 1986, as amended, ---- together with the regulations promulgated thereunder. "Collateral" shall mean all tangible or intangible, real or ---------- personal property subject to any of the Security Agreements, including without limitation, all right, title and interest of Borrower in and to its Receivables, Products, inventory, Eligible -6- Product Inventory, Exchange Balances, contract rights (including the Contracts), general intangibles and Cash Collateral. "Columbia Contracts" shall mean (a) the Natural Gas Liquids ------------------ Purchase Agreement dated as of April 26, 1988 between Columbia Gas Transmission Corporation and Borrower as amended November 4, 1988, July 31, 1989, December 24, 1990 and January 28, 1991 (Siloam); (b) the Natural Gas Liquids Purchase Agreement dated as of December 24, 1990, between Columbia Gas Transmission Corporation and Borrower as amended January 28, 1991 (Boldman); and (c) the Contract for Construction and Lease of Boldman Plant dated December 24, 1990 between Columbia Gas Transmission Corporation and Borrower, together with any and all amendments now existing or hereafter created to any of the foregoing to the extent such amendments are otherwise permitted hereunder. "Commitment" means the amount of the Borrowing Base at the time ---------- in question minus the aggregate face amount of all outstanding Letters of Credit at the time in question; provided that in no event shall the Commitment exceed $5,000,000 at any time from the date hereof until and including December 31, 1994. "Commitment Period" shall mean the period from the date of this ----------------- Agreement to and including December 31, 1994, or such earlier date on which the Working Capital Notes become due and payable. "Consolidated" refers to the consolidation of any Person, in ------------ accordance with GAAP, with its properly consolidated subsidiaries. Reference herein to Borrower's financial statements, financial position, financial condition, liabilities, etc. refer to the consolidated financial statements, position, condition, liabilities, etc. of Borrower and its properly consolidated subsidiaries. "Contract" means a contract or contractual arrangement, whether -------- oral or written (or both), between Borrower and an Obligor evidencing a valid and binding obligation of such Obligor to pay for Products purchased from, or services rendered by, Borrower. "Controlled Group" means the Borrower and all Persons under common control or treated as a single employer with the Borrower pursuant to Section 414(b), (c), (n) or (o) of the Internal Revenue Code of 1986, as amended, and regulations promulgated thereunder. "Covenant Agreements" shall mean a letter agreement in the form ------------------- of Exhibit D attached hereto, one from each of the General Partner and John Fox. "Credit and Collection Policy" means those credit and collection ---------------------------- policies and practices of Borrower in effect on the date hereof relating to Borrower's Receivables, except for modifications that would not impair the collectability of any Eligible Receivable of Borrower or any Eligible Hidro Gas Receivable, and modifications consented to by Agent. The Credit and Collection Policy of Borrower is described in Exhibit B hereto. "Current Ratio" shall mean the ratio of Borrower's current assets ------------- to current liabilities, both determined in accordance with GAAP. "Debt" shall mean as to any Person, at a particular date, the sum ---- (without duplication) of (a) all indebtedness of such Person for borrowed money or for the deferred purchase price of property or services, (b) all obligations of such Person in respect of surety bonds, letters of credit, bankers' acceptances, or similar obligations issued or created for the account of such Person, (c) all capitalized lease obligations of such Person, (d) all indebtedness created or arising under any conditional sale or other title retention agreement, (e) open lines of credit to finance futures contracts, commodities and/or options contracts, (f) all indebtedness referred to in clauses (a) through (e) above secured by a lien, encumbrance or security interest on or in property owned by such Person, even though such Person has not assumed or become liable for the payment of such indebtedness, and (g) all guaranties in respect of indebtedness or obligations of other Persons of the kinds referred to in clauses (a) through (f) above. "Delinquent Receivable" means a Receivable of Borrower: (i) as to which any payment, or part thereof, remains unpaid for 45 days from the original invoice date for such payment; or (ii) which, consistent with the Credit and Collection Policy of Borrower, would otherwise be classified as delinquent by Borrower. -7- "Designated Obligor" means, at any time, all Obligors except ------------------ Hidro Gas; provided, however, that any Obligor shall cease to be a Designated Obligor with respect to receivables or Exchange Balances upon five (5) Business Days' notice thereof by Agent to Borrower, which notice shall set forth the reason for such cessation. "Determination Date" has the meaning given it in Section ------------------ 5(c)(ii). "Eligible Exchange Balances" means an Exchange Balance which: -------------------------- (i) arises under a Products Agreement; (ii) arises with a customer located in the United States and relates to refined petroleum products in good and salable condition located in the United States; (iii) is not in dispute in any material respect; (iv) is not owed by an Obligor who is generally unable to fulfill its obligations; (v) with respect to which the likelihood of payment or performance thereof is not impaired by virtue of three-party exchange or circumstances whereby the Obligor might satisfy its obligations by means of satisfying an obligation of Borrower to a third party; (vi) the Obligor of which is a Designated Obligor; and (vii) has been previously approved in writing by the Lenders for inclusion in Eligible Exchange Balances. "Eligible Hidro Gas Receivables" shall mean at any time those ------------------------------ Receivables of Borrower for which Hidro Gas is the Obligor and which otherwise satisfy the provisions of paragraphs (iii) through (x) of the definition of Eligible Receivable; provided, however, that the amount of such Receivables to -------- ------- be included in determining the Borrowing Base hereunder shall never exceed the amount of all outstanding letters of credit that have been issued in support of such Receivables, which letters of credit shall each be in form and substance satisfactory to Agent and shall have been issued or confirmed by a United States bank (state or national bank) acceptable to the Lenders, and which letter of credit shall have been assigned to the Agent as additional collateral under the Security Agreement, if so requested by the Agent. "Eligible Product Inventory" means any Products: -------------------------- (i) to which Borrower has title and which are stored in Borrower owned facilities or facilities for which Borrower has contracted for storage, whether by lease or otherwise, and such contract is subject to a perfected, first priority lien in favor of Agent on behalf of the Lenders; (ii) in which the Agent on behalf of the Lenders has a perfected, first priority security interest; and (iii) as to which Borrower has furnished to Agent reasonably detailed information in a Borrowing Base Certification; reduced by all charges of all kinds against such Products, and transportation, processing and other handling charges for such Products. "Eligible Product Inventory Value" means as of any Determination -------------------------------- Date an amount equal to the market value of the Products comprising the Eligible Product Inventory. The market value of the Products comprising the Eligible Product Inventory for any Determination Date shall be the price determined by reference to a published index, such price to be adjusted for transportation, and market differential; which determination, including the index and the adjustments, must be acceptable to Lenders. Oil Price Information Service is acceptable to all parties hereto. -8- "Eligible Receivable" means a Receivable of Borrower: ------------------- (i) the Obligor of which is a United States resident, is not an Affiliate of any of the parties to this Agreement, and is not a government or a governmental subdivision or agency; (ii) the Obligor of which is a Designated Obligor; (iii) the Obligor of which is not the Obligor of any Delinquent Receivables; (iv) which is not a Delinquent Receivable; (v) the Products for which such Receivable represents the right to payment have been delivered to the purchaser thereof; (vi) in which Lender has a perfected, first priority security interest prior to all other Liens; (vii) which is denominated and payable only in United States dollars in the United States; (viii) which arises under a Contract which has been duly authorized and which, together with the Receivable, is in full force and effect and constitutes the legal, valid and binding obligation of the Obligor of such receivable enforceable in accordance with its terms and is not subject to any dispute, offset, counterclaim or defense whatsoever; (ix) which, together with the Contract related thereto, does not contravene in any material respect any laws, rules or regulations applicable thereto (including, without limitation, laws, rules and regulations relating to truth in lending, fair credit billing, fair credit reporting, equal credit opportunity, fair debt collection practices and privacy) and with respect to which no party to the Contract related thereto is in violation of any such law, rule or regulation in any material respect; (x) which satisfies all applicable requirements of the Credit and Collection Policy; and (xi) as to which the Agent has not notified Borrower that the Lenders have determined, in their sole discretion, that such Receivable (or class of Receivables) is not acceptable collateral. "Employee Option Agreement" shall mean the Option Plan of ------------------------- MarkWest Hydrocarbon Partners, Ltd. dated April 6, 1992 (without regard to any future amendments, modifications or changes thereto without the Required Lenders prior consent). "ERISA" shall mean the Employee Retirement Income Security Act of ----- 1974, as amended from time to time, together with all rules and regulations promulgated with respect thereto. "ERISA Plan" shall mean any pension benefit plan subject to ---------- Section 302 of ERISA or Title IV of ERISA maintained by Borrower or any member of a controlled group (as defined in Section 4001 (a)(14) of ERISA). "Event of Default" shall have the meaning set forth in Section ---------------- 11. "Exchange Balance" means a right of Borrower to the delivery of ---------------- refined petroleum products created as a result of a Products Agreement between Borrower and a customer. "First American Loan" shall mean the loan to Borrower pursuant to ------------------- a Loan Agreement dated June 19, 1992 in the principal amount not to exceed $3,500,000 and secured by an Arkansas Leasehold Deed of Trust with Security Agreement and Assignment of Rents and Leases dated June 19, 1992. -9- "Fiscal Quarter" shall mean a three-month period ending on the -------------- last day of each March, June, September and December of any year. "Fiscal Year" shall mean a twelve-month period ending on December ----------- 31 of any year. "Fixed Charge Coverage Ratio" shall mean for any period, the --------------------------- ratio for such period of (a) the sum of net income (or net loss) plus interest expense and non-cash charges included in determining net income (or net loss), all as determined in accordance with GAAP, to (b) the sum of interest expense included in calculating (a) and the principal portion of Debt required to be repaid during such period. "Florida Mesa Project" shall mean the project in which the -------------------- Borrower has invested, whose purpose is the drilling, production, and gathering of coal bed methane gas located in La Plata County, Colorado. "Funded Debt" shall mean the aggregate amount of Debt for ----------- borrowed money with a maturity in excess of one year (including guarantees of such Debt) and capitalized leases, minus the outstanding principal balance, if any, under this Working Capital Loan. "GAAP" shall mean generally accepted accounting principles and ---- practices as consistently applied (except as otherwise required due to changes in GAAP) by Borrower and certified to by the firm of independent certified public accountants regularly employed as Borrower's auditors, such principles and practices at all times being consistent with requirements of the Financial Accounting Standards Board of the American Institute of Certified Public Accountants in effect from time to time, as applicable to the nature of the business conducted by Borrower; provided, however, if any change in any -------- ------- accounting principle or practice is required by the Financial Accounting Standards Board (or any such successor), all financial covenants provided for herein may be prepared in accordance with such change only after notice of such change is given to the Agent, and the Lenders agree to such change insofar as it affects the financial covenants. "General Partner" means MarkWest Hydrocarbon, Inc., a Colorado --------------- corporation. "Hidro Gas" shall mean Hidro Gas Juarez S.A. DE C.V., a --------- corporation formed under the laws of Mexico, or its affiliate, Texas Gas and Oil, Ltd., a corporation formed under the laws of the Bahamas. "Initial Financial Statements" shall mean the audited financial ---------------------------- statements of Borrower for the Fiscal Year ending December 31, 1991, and the unaudited quarterly financial statements (consisting of a current balance sheet and profit and loss statement) for Borrower as of September 30, 1992. "Issuer" shall mean Norwest, in its capacity as the issuer of ------ Letters of Credit hereunder, and its successors in such capacity. "Late Payment Rate" shall have the meaning set forth in Section ----------------- 2(d)(ii). "Letter of Credit" shall mean any standby letter of credit issued ---------------- by the Issuer pursuant to Section 3, and all letters of credit so issued shall be collectively referred to as the "Letters of Credit." ----------------- "Letter of Credit Balance" shall mean the Lenders' maximum ------------------------ aggregate liability under all Letters of Credit outstanding at the time in question. "Loan Date" shall have the meaning set forth in Section 2(c). --------- "Loan Documents" means this Agreement, the Working Capital Notes, -------------- the Letters of Credit, the Security Documents, the Covenant Agreements and all other documents executed and delivered by or on behalf of Borrower to the Agent or the Lenders in connection herewith or therewith. "Loan Share" means with respect to each of Norwest and First ---------- American, fifty percent. "Mortgages" shall have the meaning set forth in the Revolver/Term --------- Facility. -10- "NationsBank Loan" shall mean the loan to Borrower pursuant to a ---------------- Credit Agreement with NationsBank of Texas, N.A., formerly known as NCNB Texas National Bank, dated April 16, 1990, as may have been amended prior to the date hereof, in the principal amount of $7,000,000 and secured by a Security Agreement dated as of April 16, 1990 by Borrower in favor of NationsBank of Texas, N.A. "Net Eligible Exchange Balance" means an amount as of any ----------------------------- Determination Date determined as the difference between (i) the aggregate amount presently due to Borrower under all Eligible Exchange Balances (such amount to be determined by multiplying the quantities of Products due Borrower in accordance with the terms of the Products Agreement giving rise to such Eligible Exchange Balances times the then applicable Mt. Belvieu price for such Products; provided that such amounts shall be included only to the extent they satisfy all - -------- applicable requirements of the Credit and Collection Policy), and (ii) the aggregate amount owed by Borrower under all Eligible Exchange Balances (such amount to be determined by multiplying the quantities of Products Borrower owes to third parties in accordance with the terms of the Products Agreement giving rise to such Eligible Exchange Balance times the then applicable Mt. Belvieu price for such Products). "Obligations" means all Debt from time to time owing by Borrower ----------- to the Lenders under or pursuant to any of the Loan Documents. "Obligor" shall mean when used with respect to Receivables, a ------- Person party to a Contract and obligated to make payments pursuant thereto and when used with respect to Exchange Balances, the party obligated to Borrower pursuant to a Products Agreement. "Ordinary Course of Business" shall mean, in respect of any --------------------------- transaction, the ordinary course of such Person's business, substantially as conducted by such Person prior to or as of the date hereof, and undertaken by such Person in good faith and not for purposes of evading any covenant or restriction in any Loan Document, and, as applied to Borrower, shall include the acquisition of natural gas reserves and investments or participation in the Florida Mesa Project or other coal bed methane gas projects. "Person" shall mean an individual, partnership, corporation, ------ association, business trust, joint stock company, trust or trustee thereof, unincorporated association, joint venture, governmental unit or any agency or subdivision thereof, or any other legally recognizable entity. "Products" shall mean all oil, natural gas, unprocessed natural -------- gas, natural gas liquids, gaseous or liquid hydrocarbons, processed natural gas, butane, isobutane, propane, natural gasoline, gasoline, MTBE, other products obtained from the processing of natural gas or fractionating or processing of natural gas liquids, now or hereafter located in or on, transported through, processed in or otherwise related to the Collateral subject to any of the Mortgages including, without limitation, any and all of the same held as inventory. "Products Agreement" shall mean a standard written refined ------------------ petroleum products reciprocal exchange agreement. "Receivable" means the indebtedness of any Obligor under a ---------- Contract arising from a sale of Products by Borrower or from services rendered by Borrower, and includes the right to payment of any interest or finance charges and other obligations of such Obligor with respect thereto. "Related Person" shall mean any of Borrower and each Subsidiary -------------- of Borrower. "Request for Advance" shall mean a request for Advance meeting ------------------- the requirements of Section 2(b) hereof. "Required Lenders" shall mean at any time Lenders, the Loan ---------------- Shares of which aggregate 100 percent. "Responsible Person" shall mean any officer of the General ------------------ Partner and any other Person employed by either a Related Person or the General Partner and who should be aware of the terms of this Agreement. "Revolver/Term Facility" shall mean the loan provided for ---------------------- pursuant to that certain Loan Agreement of even date herewith between Borrower, the Lenders and the Agent, providing for (a) a six-year term loan, and (b) a two-year revolving loan, the principal balance of which at the termination of the revolving period shall be amortized over sixteen equal quarterly principal -11- payments; which loans shall not exceed $20,000,000 in aggregate principal amount outstanding at any one time and are secured by various "Security Documents" (as such term is defined therein). "RIMCO Loan" shall mean the loan to Borrower pursuant to the Note ---------- Agreement dated December 15, 1989 in principal amount up to $11,500,000, and secured by a Mortgage and Security Agreement dated as of April 29, 1988, to Rimco Partners, L.P., as modified by a First Modification and Amendment of Mortgage and Security Agreement dated as of January 15, 1990 between Borrower and Rimco Partners, L.P., as agent for itself and others, and by Second Modification and Amendment of Mortgage and Security Agreement dated as of October 1, 1990, between Borrower and RIMCO Partners, L.P., the Resigning Agent, and Resource Investors Management Company Limited Partnership, the Successor Agent. "Security Agreements" shall mean one or more chattel mortgages, ------------------- acts of collateral mortgage, security agreements and assignments of proceeds of even date herewith, in favor of the Agent on behalf of the Lenders, covering all or any part of the Collateral. "Security Documents" means the Mortgages and Security Agreements ------------------ and all other security agreements, deeds of trust, mortgages, chattel mortgages, assignments, pledges, guaranties, financing statements, continuation statements, extension agreements and other agreements or instruments now or hereafter delivered by Borrower to the Agent on behalf of the Lenders or to the Lenders in connection with this Agreement or any transaction contemplated hereby to secure or guarantee the payment of any part of the Obligations or the performance of any other duties and obligations of Borrower under the Loan Documents, whenever made or delivered, and shall also include all of the "Security Documents" as defined in the Revolver/Term Facility. "Subsidiary" means, with respect to any Person, any corporation, ---------- association, partnership, joint venture, or other business or corporate entity, enterprise or organization which is directly or indirectly (through one or more intermediaries) controlled by or owned fifty-one percent or more by such Person. "Tangible Net Worth" shall mean the partners' equity of Borrower ------------------ less intangible assets. "Total Capitalization" means the sum of Funded Debt plus -------------------- partners' equity. "Unmatured Event of Default" shall mean any event that with the -------------------------- passage of time or giving of notice, or both, would constitute an Event of Default under Section 11. "Working Capital Loan" or "Loan" shall mean the loan provided for -------------------- in Section 2(a) hereof, together with each additional loan, if any, made to Borrower by the Lenders, at the option of the Lenders, existing as well as contemplated, excluding the Revolver/Term Facility. "Working Capital Note" or "Note" shall mean a note substantially ------------------------------ in the form of Exhibit A attached hereto, made by Borrower and payable to the order of Norwest or to First American, as appropriate, with appropriate insertions as to date, together with any and all renewals, extensions, amendments and changes of, or substitutions for said note; collectively, the "Working Capital Notes" or "Notes." -------------------------------- SECTION #. THE WORKING CAPITAL LOAN. ------------------------ (a) Terms of the Working Capital Loan. --------------------------------- Subject to the terms and conditions of this Agreement, each Lender agrees to make advances to Borrower (such advances are called the "Advances") from time to time during the Commitment Period, in an aggregate principal amount not to exceed its Loan Share of the Commitment. Advances under the Working Capital Loan shall be evidenced by the Working Capital Notes. So long as an Event of Default or an Unmatured Event of Default has not occurred, during the Commitment Period Borrower may borrow, repay and reborrow under the Working Capital Notes in accordance with Section 2(b) below. The entire outstanding principal balance of, together with accrued interest on, the Working Capital Loan shall be due and payable on December 31, 1994. (b) Borrowing Procedures. (i) Each Request for Advance under -------------------- the Working Capital Loan shall be in the form of Exhibit C attached hereto and --------- shall be submitted to the Agent on or before 11:00 a.m. Denver, Colorado time on the Business Day immediately preceding the day such Advance is requested to be made. Upon receipt of a Request for Advance, the Agent shall promptly notify each Lender thereof. Not later than 11:00 a.m. Denver time on the next Business Day, each -12- Lender shall make available to the Agent the amount of such Lender's Loan Share of the amount specified in the Request for Advance in immediately available funds; provided, however, that the Lenders shall not be obligated to make any -------- ------- Advance to Borrower that would result in the aggregate unpaid principal balance outstanding under the Working Capital Notes exceeding the Commitment. If all conditions precedent to such Advance have been met, Agent will on the date requested make such Advance available to Borrower in immediately available funds at Agent's office in Denver, Colorado. (ii) Each Advance under the Working Capital Loan shall be in an amount of at least $100,000 or such lesser amount equal to the unadvanced portion of the Working Capital Loan. Each Advance shall be evidenced by the Working Capital Notes. (iii) All Advances requested by Borrower shall be made pro rata by each Lender in proportion to such Lender's Loan Share. (c) The Loan Date. The initial Advance under the Working ------------- Capital Loan shall be made on a date and at a time (the "Loan Date") selected by --------- Borrower, but in no event earlier than the time all conditions of lending described in Section 4(a) below have been satisfied or waived by the Lenders. (d) Computation and Payment of Interest; Late Payment Rate. ------------------------------------------------------ (i) Interest on the Working Capital Loan shall accrue daily and shall be computed on the basis of a year of 365 or 366 days, as appropriate. Interest on the Working Capital Loan shall be payable in arrears on the last day of each Fiscal Quarter, beginning December 31, 1992. (ii) Notwithstanding anything to the contrary contained in this Agreement, overdue principal, and (to the extent permitted under applicable law) overdue interest, whether caused by acceleration of maturity or otherwise, shall bear interest at a fluctuating rate, adjustable the day of any change in such rate, equal to three percentage points above the Adjusted Prime Rate (the "Late Payment ---- ------- Rate)", until paid, and shall be due and payable immediately. ---- (e) Payments by Borrower. All payments of principal and -------------------- interest hereunder shall be made at the Agent's offices at 1740 Broadway, Denver, Colorado 80274-8699 (or at such other place as the Agent shall have designated to Borrower in writing at least one Business Day prior to the due date or prepayment date, as the case may be) by 12:00 noon Denver time on the date due or the date of prepayment (as the case may be) in immediately available funds and without set-off or counterclaim or deduction of any kind. If any payment to be made by Borrower hereunder or under the Working Capital Notes shall become due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day and such extension of time shall be included in computing any interest and fees in respect of such payment. (f) Payments to Lenders. Each payment by Borrower to the Agent ------------------- on account of principal of and interest on the Working Capital Loan or otherwise hereunder shall be distributed the same day in like funds as received from Borrower by Agent pro rata according to the Loan Share of each Lender in like funds; provided that in the event Agent receives less than the aggregate amount -------- ---- due to all Lenders on any day, Agent shall distribute ratably to each Lender in the case of any payment, the portion of the aggregate amount received by Agent on such day multiplied by the Loan Share of such Lender. (g) Optional Payments. During the Commitment Period, Borrower ----------------- may make optional payments on the outstanding principal balance of the Working Capital Loan without penalty or premium, at any time, and from time to time, in integral multiples of $100,000, or such lesser amount equal to the then outstanding principal balance, together with accrued interest on the principal amount so paid. Borrower shall give the Agent one Business Day's notice in advance of any optional payment on the Working Capital Loan. (h) Mandatory Payments. If at any time, or from time to time, a ------------------ Borrowing Base Deficiency exists, Borrower shall, within three Business Days after Agent on behalf of Lenders gives written notice of such fact to Borrower pursuant to Section 6 hereof, make a mandatory prepayment to Agent for distribution to Lenders in the principal amount of such Borrowing Base Deficiency, together with all accrued and unpaid interest on, and fees related to, the principal amount so prepaid, unless Borrower has satisfied the condition set out in Section 6(a) hereof. Any such prepayment of principal under this Section 2 shall be applied pro rata in accordance with each Lender's Loan Share to the unpaid principal balance of the Working Capital Loan thereof until -13- the Working Capital Loan is paid in full. (i) Fees. ---- (i) During the Commitment Period, Borrower shall pay to the Lenders an unused commitment fee on the average daily difference between the Commitment and the aggregate outstanding principal amount under the Working Capital Notes, at an annual rate of one-half of one percent (0.5%), payable quarterly in arrears, with the first such payment due December 31, 1992 (for the period from the date hereof through December 31, 1992) and ending on the last day of the Commitment Period. (ii) Borrower shall pay to the Lenders on the Loan Date a one-time commitment fee of $25,000 in the aggregate. (iii) The fee for each Letter of Credit shall be an amount equal to the greater of 1.25% per annum of the face amount of such Letter of Credit, or $250. The Agent shall retain for its own account annually the first $250.00 of the Letter of Credit fee for each Letter of Credit, and shall promptly remit to each Lender pro rata according to the Loan Share of such Lender, the Letter of Credit fee actually received in excess of $250.00. The first year's fee shall be payable by Borrower at the time a Letter of Credit is issued. Subsequent annual fees shall be due and payable on the anniversary date of the applicable Letter of Credit. Annual fees shall be prorated for any period less than a year that any Letter of Credit remains outstanding pursuant to the terms of such Letter of Credit other than as the result of one or more draws thereunder. (j) Adjustments. If any Lender (a "benefitted Lender") shall at ----------- any time receive any payment of all or part of its Working Capital Loan, or interest thereon, or receive any collateral in respect thereof (whether voluntarily or involuntarily, by set-off, pursuant to events or proceedings of the nature referred to in Section 12(c), or otherwise), in a greater proportion than its Loan Share, such benefitted Lender shall purchase for cash from the other Lender such portion of such other Lender's Working Capital Loan, or shall provide such other Lender with the benefits of any such collateral, or the proceeds thereof, as shall be necessary to cause such benefitted Lender to share the excess payment or benefits of such collateral or proceeds ratably with the other Lender; provided, however, that if all or any portion of such excess payment or benefits is thereafter recovered from such benefitted Lender, such purchase shall be rescinded, and the purchase price and benefits returned, to the extent of such recovery, but without interest. Borrower agrees that any Lender so purchasing a portion of another Lender's Working Capital Loan may exercise all rights of payment (including, without limitation, rights of set- off) with respect to such portion as fully as if such Lender were the direct holder of such portion. (k) Increased Capital. If either (A) the introduction of or any ----------------- change in or in the interpretation of any law or regulation after the date hereof (and excluding any new laws or changes presently known to Agent even if they have not yet become effective) or (B) compliance by Issuer or any Lender with any guideline or request from any central bank or other governmental authority (whether or not having the force of law) affects or would affect the amount of capital required or expected to be maintained by Issuer or any Lender or any corporation controlling Issuer or any Lender and Issuer or such Lender determines that the amount of such capital is increased by or based upon the existence of the Letters of Credit or similar contingent obligations or the existence of the Revolver Commitment and other commitments of this type then, upon demand by Issuer or such Lender, Borrower shall immediately pay to Issuer or such Lender, from time to time as specified by Issuer or such Lender, additional amounts sufficient to compensate Issuer or such Lender in light of such circumstances, to the extent that Issuer or such Lender reasonably determines such increase in capital to be allocable to the issuance or maintenance of Letters of Credit or the Revolver Commitment. Issuer or such Lender claiming compensation under this Section 2(k) shall provide Borrower with a certificate setting forth in reasonable detail the amount payable to Issuer or such Lender, the reason for the additional compensation and the calculation of the additional compensation. SECTION #. LETTERS OF CREDIT. ----------------- (a) Issuance of Standby Letters of Credit. Each request of ------------------------------------- Borrower for the issuance of a Letter of Credit hereunder shall be on the form of the application for issuance of a Letter of Credit attached hereto as Exhibit ------- M, properly completed, and shall be received by the Issuer at least three - - Business Days prior to the date of proposed issuance. Upon receipt of an application for the issuance of a Letter of Credit and upon meeting the Conditions of Lending set forth in Section 4 hereof, the Issuer shall issue standby Letters of Credit during the Commitment Period, and such Letters of Credit shall be issued in such amounts and -14- under such circumstances as the Issuer deems appropriate consistent with its existing policies. Notwithstanding anything to the contrary set forth herein, the Issuer shall not be obligated to issue, extend or amend any Letter of Credit such that the Letter of Credit (i) would result in an aggregate unpaid principal balance outstanding under the Working Capital Notes (including, without limitation, the face amount of any other Letters of Credit that are still in effect) which exceeds the Commitment, or (ii) has an expiration date later than the Commitment Period. (b) Payments Treated as an Advance. Each payment by the Issuer ------------------------------ under any outstanding Letter of Credit shall be deemed to be an Advance bearing interest at the Adjusted Prime Rate from the date of such payment, shall be entitled to all of the benefits of the Security Documents and shall be subject to all terms of this Agreement. Each Lender, upon receipt of a written advice of any payment under a Letter of Credit, shall make available to the Agent for the account of the Issuer, whether or not the conditions of lending set forth in Section 4 have been complied with, an amount in immediately available funds equal to its Loan Share of the amount of the drawing, whereupon the Lenders shall each be deemed to have made an Advance. A written advice(s) setting forth in reasonable detail the amounts owing under this Section 3, submitted by Issuer to Borrower from time to time, shall be conclusive, absent manifest error, as to the amounts thereof. (c) Restriction on Liability. The beneficiary of each Letter of ------------------------ Credit shall be deemed the agent of Borrower (provided that this shall not preclude Borrower from pursuing such rights and remedies it may have against such beneficiary at law or under any other agreement) and none of the Issuer, the Agent, either Lender or their respective correspondents shall be responsible for: (i) the use which may be made of any Letter of Credit or for any actions or omissions of the beneficiary of any Letter of Credit; (ii) the existence or nonexistence of a default under any instrument secured or supported by any Letter of Credit or any other event which gives rise to a right to call upon any Letter of Credit; (iii) the validity, sufficiency or genuineness of any document delivered in connection with any Letter of Credit, even if such document should in fact prove to be in any or all respects invalid, fraudulent or forged; (iv) except as specifically required by a Letter of Credit, failure of any instrument to bear any reference or adequate reference to any Letter of Credit, or failure of documents to accompany any draft at negotiation, or failure of any person to note the amount of any draft on the reverse of any Letter of Credit or to surrender or take up any Letter of Credit; or (v) errors, omissions, interruptions or delays in transmission or delivery of any messages by mail, cable, telegraph, wireless, or otherwise. The Issuer, the Agent and the Lenders shall not be responsible for any act, error, neglect or default, omissions, insolvency or failure in the business of any of the correspondents of the Issuer, for any refusal by the Issuer or any of its correspondents to pay or honor drafts drawn under any Letter of Credit because of any applicable law, decree or edict, legal or illegal, of any governmental agency now or hereafter in force, or for any matter beyond the control of such Person. The happening of any one or more of the contingencies referred to in the preceding clauses of this Section shall not affect, impair or prevent the vesting of any of the rights or powers of the Issuer, the Agent and the Lenders under this Agreement or the obligation of Borrower to make reimbursements hereunder. In furtherance and extension and not in limitation of the specific provisions hereinabove set forth, Borrower agrees that any action, not contrary to the terms of any Letter of Credit, which is taken by Issuer in issuing such Letter of Credit or by any correspondent of Issuer under or in connection with such Letter of Credit shall be binding on Borrower and shall not put Issuer or any of Issuer's correspondents under any resulting liability to Borrower unless it is the result of such Person's gross negligence or willful misconduct and Borrower makes a like agreement as to any inaction or omission on the part of Issuer or any of its correspondents unless it is the result of such Person's gross negligence or willful misconduct. (d) No Duty to Inquire. Borrower agrees that Issuer is ------------------ authorized and instructed to accept and pay drafts under any Letter of Credit without requiring, and without responsibility for, the determination as to the existence of any event giving rise to said draft, either at the time of acceptance of payment or thereafter, other than obtaining any documents expressly required by the Letter of Credit. Borrower agrees that Issuer is under no duty to ascertain or inquire as to the validity or accuracy of any such -15- document or the authority of the Person executing or delivering such document or draft or making such a demand (whether by tested telex or otherwise). Borrower agrees to hold the Issuer, the Agent and the Lenders harmless from and indemnified against any liability or claim in connection with or arising out of the foregoing provisions and the subject matter of this Section 3. (e) Reimbursement by Lenders. Issuer irrevocably agrees to grant ------------------------ and hereby grants to each Lender, and, to induce Issuer to issue Letters of Credit hereunder, each Lender irrevocably agrees to accept and purchase and hereby accepts and purchases from Issuer, on the terms and conditions hereinafter stated, for such Lender's own account and risk an undivided interest equal to such Lender's Loan Share of Issuer's obligations and rights under each Letter of Credit issued hereunder and the amount of each draft paid by Issuer thereunder. SECTION #. CONDITIONS OF LENDING. --------------------- (a) Initial Advance. (i) The Lenders shall have no obligation to --------------- make the initial Advance under the Working Capital Loan unless the Agent shall have received all of the following, at the Agent's office in Denver, Colorado, duly executed and delivered and in form and substance satisfactory to the Agent and its counsel: (A) This Agreement, executed by Borrower, the Agent and the Lenders; (B) The Working Capital Notes; (C) Counterparts of the Security Documents, duly executed and acknowledged by Borrower, together with the appropriate financing statements, as may be necessary or advisable under applicable law in order to perfect and maintain, to the full extent permitted by applicable law, the first priority liens and security interests created thereby; (D) Evidence satisfactory to the Agent that all amounts outstanding under each of the First American Loan and the NationsBank Loan are being simultaneously paid in full from the proceeds of the Revolver/Term Facility, or, as to the NationsBank Loan, from the proceeds hereof, by Borrower and all commitments of the lenders thereunder have been terminated and released and the liens and security interests securing such loans have been or simultaneously herewith are being fully released or reconveyed; (E) Results of UCC lien searches as to Borrower for the Secretaries of State of Arizona, Arkansas, Colorado, Kansas, Michigan, Texas and West Virginia and for the following counties: Crittenden County, Arkansas; Boyd, Greenup and Pike Counties, Kentucky and Wayne County, West Virginia, and for all other relevant filing jurisdictions as to the Collateral; (F) Evidence that the Agent has been named as mortgagee/loss payee under all policies of casualty insurance, and as an additional insured under all policies of liability insurance, as required by Section 9(f); (G) The Covenant Agreements, executed by the parties thereto; (H) A duly executed and acknowledged subordination agreement between Resource Investors Management Company Limited Partnership and the Agent, in form and substance acceptable to the Agent; (I) A certificate, dated the Loan Date and executed on behalf of Borrower by the president or a vice president of the General Partner, stating the substance of Subsections 4(a)(ii)(A), (C) and (D); (J) A certificate, dated the Loan Date and executed on behalf of Borrower by an appropriate party, which shall certify to the correctness and completeness of the following exhibits attached thereto: copies of any partnership authorization of Borrower authorizing the execution of the Loan Documents and the consummation of the transactions contemplated herein and therein; copies of the limited partnership agreement of Borrower and all amendments thereto, and the certificate of limited partnership of Borrower; -16- (K) A certificate, dated the Loan Date and executed by the Secretary or assistant Secretary of the General Partner, which shall contain the names and signature of the officers of the General Partner authorized to execute the Loan Documents on behalf of the Borrower, and which shall certify to the correctness and completeness of the articles of incorporation and bylaws of the General Partner, and the resolutions duly adopted by the Board of Directors of the General Partner authorizing the execution of the Loan Documents and the consummation of the transactions contemplated herein and therein; (L) Certificates from the Colorado Secretary of State as to the good standing of Borrower and of the General Partner; and (M) All other documents and assurances which the Agent reasonably requires or which it may reasonably request in connection with the transactions contemplated by this Agreement, and such documents shall be certified, when appropriate, by proper authorities. (ii) The Lenders shall have no obligation to make any Advances hereunder unless the following shall be true and correct on and as of the date of such Advance: (A) All representations and warranties contained in Section 8 and in the Security Documents shall be true on the Loan Date as if then given, and Borrower shall have performed or observed all terms, agreements, conditions and obligations hereunder and under the Security Documents to be performed or observed on or prior to the Loan Date; (B) All legal matters incident to the Working Capital Loan shall be satisfactory to counsel to the Agent, and the Agent shall have received on the Loan Date a favorable opinion addressed to the Agent and the Lenders of (x) Barry Spector, Esq., counsel for Borrower, substantially in the form set forth in Exhibit E, together with the certificate provided for in such Exhibit, which opinion shall cover the matters set forth in Sections 8(a)(i), (ii) and (iii), (b), (c), (d), (e), (r) and (s), and such other matters as the Agent or its counsel may reasonably request, and (y) Rex M. Terry, Esq. of Hardin, Jesson, Dawson & Terry, local counsel for Arkansas; and P. Bruce Leslie, Esq. of McBrayer, McGinnis, Leslie & Kirkland, local counsel for Kentucky, substantially in the form of Exhibit F attached hereto; (C) No Event of Default or Unmatured Event of Default shall have occurred and be continuing or would result from the making of the requested Advance; and (D) Since December 31, 1991, there has been no material adverse change in the business, financial position or results of operations of Borrower. (b) Subsequent Advances.The obligation of the Lenders to make ------------------- subsequent Advances under the Working Capital Loan as set forth in Section 2 and issue Letters of Credit is subject to satisfaction of the conditions set forth in such Section and the following conditions precedent: (i) A certificate, dated the date of the requested Advance or issuance of the Letter of Credit, and executed on behalf of Borrower by the president or a vice president of the General Partner, stating the substance of Subsections 4(a)(ii)(A), (C) and (D); (ii) All representations and warranties contained in Section 8 hereof and in the Security Documents shall be true on the date of such requested Advance as if then given, and Borrower shall have performed or observed all terms, agreements, conditions and obligations hereunder and under the Security Documents to be performed or observed on or prior to the date of such requested Advance; (iii) No Event of Default or Unmatured Event of Default shall have occurred and be continuing or would result from the making of the requested Advance; (iv) Since December 31, 1991, there has been no material adverse change in the -17- business, financial position or results of operations of Borrower; (v) All legal matters relating to the Loan Documents, such Advance and the consummation of the transactions contemplated thereby shall be reasonably satisfactory to the Agent's counsel; and (vi) Such Advance shall not be prohibited by any laws or any regulation or order of any court or governmental authority or agency and shall not subject the Lender to any penalty or other onerous condition under or pursuant to any such law, regulation or order. SECTION #. BORROWING BASE. -------------- (a) Initial Borrowing Base. During the period from the date ---------------------- hereof to the first Determination Date, the Borrowing Base shall be $4,343,278.00. (b) Information. Within 10 days of the end of each calendar ----------- month, commencing November 10, 1992, Borrower shall submit to the Agent, a "Borrowing Base Certification," which shall be substantially in the form of ---------------------------- Exhibit G hereto, incorporating the requested information as of the end of the - --------- month for the immediately preceding calendar month as to Borrower's Eligible Receivables, Eligible Hidro Gas Receivables, Eligible Product Inventory Value, Net Eligible Exchange Balances and Cash Collateral and such other information requested by the Agent, all in form and substance acceptable to the Agent relating to the Collateral, to be used by the Lenders in determining the Borrowing Base. (c) Subsequent Determinations of Borrowing Base. (i) Subject to ------------------------------------------- the other provisions of this Section 5(c), the Borrowing Base shall be designated on each Determination Date (as defined below) as the amount equal to the sum of: (A) eighty percent (80%) of the Eligible Receivables, plus (B) one hundred percent (100%) of the Eligible Hidro Gas Receivables, plus (C) eighty percent (80%) of the Eligible Products Inventory Value, plus (D) eighty percent (80%) of the Net Eligible Exchange Balances, plus (E) one hundred percent (100%) of the Cash Collateral as set forth in the Borrowing Base Certification provided to Agent pursuant to Section 5(b); provided that the aggregate of the Eligible -------- Products Inventory Value and the Net Eligible Exchange Balances included as components of the Borrowing Base shall never exceed $3,000,000 of the Borrowing Base in any calendar month (except that such $3,000,000 limit shall not apply in the months of August, September and October of any Fiscal Year); and provided further that -------- ------- if in any calendar month the Net Eligible Exchange Balances is a negative amount, then such negative amount will be deducted from the Eligible Products Inventory Value in determining the Borrowing Base for such calendar month. (ii) Lenders shall have five (5) days after the receipt of a Borrowing Base Certification to dispute the calculation of the Borrowing Base in such Borrowing Base Certification. If either Lender disputes the calculation it shall give Agent notice thereof within the five-day period. If Agent has received notice from any Lender of any dispute, it shall within the same five-day period notify Borrower of such dispute and of the amount of the Borrowing Base as recalculated by the Lenders. The amount of the Borrowing Base as so recalculated by the Lenders and set forth in such notice shall take effect on the date specified therein which may not be earlier than the date on which such notice is received by Borrower and shall continue in effect until the next Determination Date. Any such recalculation shall be made by the Lenders in good faith based on the information in such Borrowing Base Certification and any other information available to the Lenders at the time in question regarding the Eligible Receivables, Eligible Hidro Gas Receivables, Eligible Product Inventory, Eligible Product Inventory Value, Net Eligible Exchange -18- Balances and Cash Collateral. The date on which the Borrowing Base is so designated either by Agent or by operation of the Borrowing Base Certification if Agent does not give timely notice objecting thereto, shall be called a "Determination Date". A Determination Date may occur during the period between the date on which a Request for Advance is submitted and the day on which such Advance is to be made. Until the Borrowing Base has been determined pursuant to this Section 5(c) for any period, the Borrowing Base shall be the amount determined pursuant to this Section 5 for the immediately preceding period. (iii) If Borrower does not furnish to the Agent the information required by Section 5(b) by the date specified therein, the Agent may designate the Borrowing Base at any amount which the Lenders determine based on the relevant information then available to the Lenders and the Agent. The Agent may redesignate the Borrowing Base from time to time thereafter until the Lenders receive the required information, whereupon a new Borrowing Base shall be determined as described above. SECTION #. BORROWING BASE DEFICIENCY. If the aggregate unpaid ------------------------- principal amount outstanding under the Working Capital Notes plus the aggregate face amount of all outstanding Letters of Credit exceeds the Borrowing Base then in effect (the "Borrowing Base Deficiency"), Borrower shall take one of the ------------------------- following actions following receipt of notice from the Agent of the existence of such Borrowing Base Deficiency: (a) Add Additional Collateral. Within 3 Business Days following ------------------------- receipt of such notice from the Agent, provide sufficient additional collateral or security for the Working Capital Loan, in form and substance acceptable to the Lenders in their sole discretion; or (b) Repay Excess Debt. Within 3 Business Days following receipt ----------------- of such notice from the Agent, make a mandatory prepayment on the Working Capital Loan in accordance with Section 2(h) in an amount equal to the Borrowing Base Deficiency. Failure of Borrower to comply with this Section 6 shall be an immediate Event of Default. SECTION #. SECURITY. The repayment of the Working Capital Loan and -------- the Working Capital Notes and all extensions and renewals thereof, and the performance of all obligations of Borrower hereunder, shall be secured by the Security Documents. SECTION #. REPRESENTATIONS AND WARRANTIES. Borrower represents and ------------------------------ warrants to the Agent and each Lender that: (a) Existence. --------- (i) Borrower is a limited partnership duly organized, validly existing and in good standing under the laws of the State of Colorado, and is qualified to do business in Arkansas, Kentucky, Texas and West Virginia and in every other jurisdiction in which the nature of its business or the ownership of its assets requires such qualification and failure to so qualify could have a material adverse effect on Borrower, its business, operations, assets, property, prospects or condition (financial or otherwise); (ii) Each of the Related Persons other than Borrower is duly organized, validly existing and in good standing under the laws of the state of its incorporation or formation and is qualified to do business in every jurisdiction in which the nature of its business or the ownership of its assets requires such qualification and failure to so qualify could have a material adverse effect on Borrower or such Related Person, its business, operations, assets, property, prospects or condition (financial or otherwise); (iii) Each Related Person has the power and authority to own the property which it owns and to carry on its business as such business is now conducted; and (iv) Each Related Person has all franchises, permits, licenses and similar agreements -19- necessary to carry on its business as now conducted, and has not received any notices of default or termination under any of such agreements. (b) Non-Contravention. The execution, delivery and performance ----------------- by the Borrower of this Agreement, and the other Loan Documents and the borrowings hereunder and the consummation of the transactions contemplated herein and therein will not conflict with the limited partnership agreement or other organizational or governing documents of any Related Person, or conflict with or result in any breach of any mortgage, lien, lease, agreement, instrument, order, judgment, decree, law, rule, regulation or any other restriction of any kind or character to which any Related Person is a party or is subject or by which any Related Person or its properties are bound or affected or result in the creation or imposition of any lien, charge or encumbrance upon any property of any Related Person. (c) Third Party Authorization. No consent, approval, exemption, ------------------------- authorization or order of or other action by, and no notice to or filing with, any court or governmental authority or third party is required by any Related Person in connection with the execution, delivery or performance by Borrower of this Agreement, or any other Loan Document or to consummate any transactions contemplated hereby or thereby. (d) Authorization; Binding Effect. Borrower has full power and ----------------------------- authority to enter into this Agreement and the other Loan Documents. The execution and delivery of this Agreement, and the other Loan Documents, and the performance and observance of their terms, conditions and obligations, have been duly authorized by all necessary action by Borrower and the General Partner. This Agreement and the Working Capital Notes are, and the other Loan Documents when duly executed and delivered will be, legal, valid and binding obligations of Borrower, enforceable in accordance with their respective terms, except as such enforcement may be limited by bankruptcy, insolvency or similar laws of general application relating to the enforcement of creditors' rights. (e) Litigation. Except as disclosed in Exhibit H attached ---------- --------- hereto, there are no actions, suits, proceedings or claims against any Related Person or the General Partner or any of their respective properties pending or, to the knowledge of Borrower, threatened before any court or by or before any governmental instrumentality, which could have a material adverse effect on the business, operations, property, prospects or condition (financial or otherwise) of any Related Person or the ability of Borrower to perform its obligations under this Agreement, or any of the other Loan Documents. There exists no default or breach by any Related Person with respect to any order, writ, injunction, decree or demand of any court or governmental instrumentality, nor does the execution, delivery or performance by Borrower of this Agreement or any of the other Loan Documents result in any such default or breach. (f) Taxes. Each Related Person has filed all required tax ----- returns and paid all taxes and other governmental charges or levies imposed upon or against it or its properties, including the Security Agreements and the Collateral, or profits before the same became in default, except those being contested in good faith and by appropriate proceedings, for which adequate reserves have been set up by such Person, and for which there is no risk of loss of any of the Collateral. (g) Liens. All property and assets of Borrower are free and ----- clear of all liens and encumbrances except (i) the liens permitted by Section 10(b) hereof, and (ii) the liens pursuant to the First American Loan and the NationsBank Loan both of which will be released simultaneously with the execution of this Agreement. (h) Names and Places of Business. No Related Person has been ---------------------------- known by, or used any other partnership, trade, or fictitious name. The chief executive office and principal place of business of Borrower and the General Partner have been located at the address of Borrower set out in Section 14(b) for at least the four months immediately preceding the date hereof. The places where Borrower keeps its books and records concerning the Collateral is at Borrower's address set forth for notices in Section 14(b), and has been there for at least the four months immediately preceding the date hereof. (i) Use of Proceeds. The proceeds of the Working Capital Loan --------------- shall be used solely for working capital purposes of Borrower, including repayment in full of any outstanding loans or obligations under the NationsBank Loan, and the issuance of standby Letters of Credit pursuant to the terms of this Agreement. In no event shall funds from any Advance be used directly or indirectly by any Person for personal, family, household or agricultural purposes. (j) Other Obligations. No Related Person has any outstanding ----------------- Debt of any kind (including contingent obligations, tax assessments, and unusual forward or long-term commitments) which is, in the aggregate, material to such -20- Related Person or material with respect to Borrower's Consolidated financial condition and not shown in the Initial Financial Statements. (k) Full Disclosure. No certificate, statement, report or other --------------- information delivered herewith or heretofore by any Related Person or the General Partner to Agent or the Lenders in connection with the negotiation of this Agreement or in connection with any transaction contemplated hereby contains any untrue statement of a material fact or omits to state any material fact known to such Person necessary to make the statements contained herein or therein not materially misleading as of the date made or deemed made. There is no fact known to any Related Person or the General Partner that has not been disclosed to the Agent or the Lenders in writing that could materially and adversely affect Borrower's properties, business, prospects or condition (financial or otherwise). (l) Margin Stock. No Related Person is engaged principally, or ------------ as one of its important activities, in the business of extending credit to others for the purpose of purchasing or carrying any "margin stock" or any "margin securities" (as such terms are defined respectively in Regulation U and Regulation G promulgated by the Board of Governors of the Federal Reserve System). (m) ERISA. Neither Borrower nor any member of its Controlled ----- Group maintains, or has ever maintained any ERISA Plan. Borrower and the members of its Controlled Group are in compliance with ERISA and the Code in all material respects as to all employee benefit plans maintained by Borrower and the members of its Controlled Group. Neither Borrower nor any member of its Controlled Group is, or has ever been, required to contribute to, or has, or has ever had, any other absolute or contingent liability in respect of, any "multiemployer plan" as defined in Section 4001 of ERISA. Neither the Borrower nor any member of its Controlled Group has ever represented, promised, or contracted (whether in oral or written form) to any current or former employee (either individually or as a group) that such current or former employee(s) would be provided, at any cost to any member of the Controlled Group, with any employee welfare benefits (within the meaning of Section 3(1) of ERISA) following retirement or termination of employment. All members of the Controlled Group have complied in all material respects with the notice and continuation coverage requirements of Section 4980B of the Code. (n) Security Documents. The warranties and representations ------------------ contained in the Security Documents are true and correct in all material respects. (o) Compliance with Laws. Each Related Person is in material -------------------- compliance with all laws, rules and regulations, and determination of any arbitrator or governmental authority applicable to or binding upon it or any of its property or to which it or any of its property is subject. (p) Financial Condition. The Initial Financial Statements fairly ------------------- present Borrower's financial position at the date thereof and the results of Borrower's operations and cash flows for the period thereof. Since December 31, 1991, there has been no material adverse change in the business, financial position or results of operations of Borrower. (q) Environmental Matters. (i) The operations of each Related --------------------- Person comply in all material respects with all federal, state or local laws, statutes, rules, regulations, and all administrative orders, licenses, authorizations and permits of any governmental authority, relating to environmental or public health and safety; (ii) none of the operations of any Related Person is the subject of federal, state or local investigation evaluating whether any material remedial action is needed to respond to a release of any hazardous or toxic waste, substance or constituent into the environment; (iii) no Related Person has (and to the best knowledge of Borrower, nor has any other person) filed any notice under any federal, state or local law indicating that such Person is responsible for the release into the environment, or the improper storage, of any material amount of any hazardous or toxic waste, substance or constituent or that any such waste, substance or constituent has been released, or is improperly stored, upon any property of such Person; and (iv) no Related Person otherwise has any known material contingent liability in connection with the release into the environment, or the improper storage, of any such waste, substance or constituent. (r) Investment Company Act. No Related Person is an "investment ---------------------- company" or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. (s) Public Utility Holding Company Act. No Related Person is a ---------------------------------- "holding company", or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company", within the meaning of the Public Utility Holding Company Act of 1935, as amended. -21- (t) Title to Properties; First Priority Security Interest. Each ----------------------------------------------------- Related Person and the General Partner have good and indefeasible title to all of their respective material properties and assets, free and clear of all liens except those permitted by Section 10(b) hereof. Upon filing and recording of the Security Agreements and the related financing statements in the locations specified in the opinions provided to the Lenders pursuant to Section 4(a)(ii)(B) hereof, the Agent, on behalf of the Lenders will have a perfected first priority lien or security interest in all of the Collateral. (u) Partners, Shareholders and Subsidiaries of Borrower and of ---------------------------------------------------------- Related Persons. The General Partner is the sole general partner of Borrower. - --------------- The identity of the limited partners of Borrower and their respective limited partnership interests are set forth in Exhibit I hereto and the identity and --------- percentage ownership interest of the shareholders of the General Partner are set forth in Exhibit I. Borrower does not presently have any Subsidiaries or own any --------- stock or equity interest in any corporation, partnership, joint venture or association, except for Borrower's interests in the Florida Mesa Project and except, after the date hereof, interests acquired as permitted by Section 10(e) hereof. (v) Location of Inventory. The location of all of Borrower's --------------------- Products and inventory is set forth in Exhibit J hereto. --------- (w) Eligibility of Items Included in Borrowing Base. Borrower ----------------------------------------------- represents and covenants to and with the Agent and Lenders that each item included in a Borrowing Base Certificate at any time and from time to time is one of the following: an Eligible Receivable, an Eligible Hidro Gas Receivable, Eligible Product Inventory, an Eligible Exchange Balance or Cash Collateral. SECTION #. AFFIRMATIVE COVENANTS. Until payment in full of the --------------------- Working Capital Loan and termination of all Commitments by the Lenders to make Advances hereunder, without the prior written consent of the Required Lenders: (a) Payment and Performance of Working Capital Loan. Borrower ----------------------------------------------- shall duly and punctually pay or cause to be paid in lawful money of the United States, the principal and interest on the Working Capital Loan upon the dates, at the place and in the manner set forth in Section 2 hereof, and perform and observe all other obligations of Borrower under this Agreement and the other Loan Documents. (b) Financial Statements. Each of the Related Persons shall keep -------------------- proper books of record and account in which full, true and correct entries will be made of all business, dealings and affairs in accordance with GAAP, and Borrower shall deliver to the Agent sufficient copies for each Lender, at Borrower's expense and in an acceptable format: (i) Within 120 calendar days after the end of each Fiscal Year, complete audited annual financial statements of Borrower, together with all notes thereto, prepared in reasonable detail in accordance with GAAP, together with an unqualified opinion, based on an audit conducted by Price Waterhouse or other independent certified public accountants selected by Borrower and acceptable to the Lenders, stating that such financial statements present fairly the financial position for the periods indicated in conformity with GAAP applied on a basis consistent with prior years (except as otherwise required due to changes in GAAP); (ii) Within 45 calendar days after the end of each calendar month, an unaudited monthly income statement, balance sheet and statement of cash flows for the subject month, prepared in reasonable detail and in accordance with GAAP; (iii) Together with delivery of each of the financial statements described in Subsection (i) and (ii) above, a certificate signed by the president or chief financial officer of the General Partner of Borrower in the form of Exhibit K attached hereto, stating ---------- that he or she has read this Agreement and made all other necessary investigations, attesting to the authenticity of such financial statements, showing the calculation of and compliance with the financial covenants contained in this Agreement, and stating that in making the examination and reporting on such financial statements, he or she concluded that there did not exist any condition or event at the end of such Fiscal Year or at the time of such certificate which constituted an Event of Default or an Unmatured Event of Default, or, if such condition or event existed, specifying the nature and period of existence of any such condition or event; -22- (iv) Within 120 calendar days after the end of each Fiscal Year, annual unaudited Consolidated financial statements of the General Partner, together with all notes thereto, prepared in reasonable detail in accordance with GAAP applied on a basis consistent with prior years; provided, however, that if the General -------- ------- Partner has an audited financial statement prepared for any reason, at any time, then such audited financial statement shall be promptly furnished to the Agent together with any opinion obtained from its independent certified public accountants relating thereto; (v) As soon as available, and in any event within 10 days after the end of each month, a Borrowing Base Certification as provided in Section 5(b); (vi) Within 30 days after the same are filed, copies of all financial statements, registration statements and regular, periodical or special reports that any Related Person or the General Partner may make to, or file with, the Securities and Exchange Commission or any stock exchange; and (vii) Within 30 days, such additional financial and other information as any of the Agent or either of the Lenders may from time to time reasonably request, including without limitation reasonable detail with respect to the information provided on an aggregate basis. (c) Preservation of Existence, Etc. (i) Borrower shall maintain ------------------------------- in full force and effect Borrower's existence as a limited partnership and its good standing under the laws of the State of Colorado and its right to transact business in the States of Arkansas, Kentucky, Texas and West Virginia; and (ii) each Related Person shall maintain its good standing under the laws of the state of its formation and its right to transact business in all states where its activities and ownership of assets are such that qualification to transact business is necessary under the laws of such states and failure to so qualify could have a material adverse effect on such Person or on Borrower, or on Borrower's business, property, prospects, assets, operations or condition (financial or otherwise). (d) Maintenance of Property. Borrower shall maintain, preserve, ----------------------- protect and keep in good repair and in good working order and condition the Collateral; and each Related Person shall maintain all other properties, real or personal, used or useful in its business in good repair and in good working order and condition. (e) Payment of Other Obligations. (i) Each Related Person shall ---------------------------- duly and punctually pay and discharge (A) all taxes, assessments and other governmental charges assessed against or imposed upon or with respect to such Person or its properties or assets prior to the date when they shall become delinquent unless the same are being contested in good faith and by appropriate proceedings and appropriate reserves have been established in accordance with GAAP and there is no risk of loss of any of the Collateral; (B) all charges for labor, materials and supplies which if unpaid might become a lien against any part of the property of such Person unless the same are being contested in good faith and by appropriate proceedings and appropriate reserves have been established in accordance with GAAP and there is no risk of loss of any of the Collateral; and (C) all federal and state social security, worker's compensation and similar taxes, payments and contributions for which such Person may be liable, before the same become delinquent unless the same are being contested in good faith and by appropriate proceedings and appropriate reserves have been established in accordance with GAAP and there is no risk of loss of any of the Collateral; and (ii) duly and punctually pay all Debt obligations (principal and interest), including without limitation, accounts payable and lease obligations, unless the same are being contested in good faith and by appropriate proceedings and appropriate reserves have been established in accordance with GAAP. (f) Insurance. Each Related Person shall keep all of its --------- insurable property, real and personal, adequately insured at all times against fire and against such other risks as are customarily insured against by similar businesses of a comparable size, and fully insure against its employer's and public liability risks in financially sound and reputable insurance companies, all in such amounts and upon such terms and conditions, including deductibles, consistent with industry standards. Each insurance policy covering Collateral shall be endorsed (i) to provide for payment of losses to the Agent for the benefit of the Lenders as its interests may appear, (ii) to provide that such policies may not be cancelled, reduced or affected in any manner for any reason without fifteen days prior notice to the Agent, (iii) to provide for any other matters specified in any applicable Security Document or which the Lenders or the Agent may reasonably require; (iv) to provide for insurance against fire, casualty and any other hazards normally insured against, in the amount of the full value (less a reasonable deductible not to exceed amounts customary in the industry for similarly situated -23- businesses and properties) of the property insured, and (v) business interruption insurance in an amount equal to the cost of operating Borrower's business as reasonably determined by Borrower for a six-month period, which may change from time to time depending upon Borrower's costs of operation at the time in question. Each Related Person shall at all times maintain adequate insurance against its liability for injury to persons or property, which insurance shall be by financially sound and reputable insurers. A true and complete list of all currently existing insurance of Borrower has been furnished to the Agent prior to the date hereof. It is understood, and Agent and Lenders agree, that based on existing circumstances Borrower has no obligation to insure inventory. (g) Inspection of Property, Books and Records; Confidentiality ---------------------------------------------------------- Agreement. Borrower shall permit the Agent's and any Lender's duly authorized - --------- officers, employees and agents to inspect (and make copies of or abstracts therefrom) the Collateral and the other property, books and records of Borrower and to discuss Borrower's affairs, finances and accounts with Borrower's officers and its independent accountants, and furnish any other data which the Agent or any Lender may reasonably request, all at the expense of Borrower and at any reasonable time and as often as the Agent or any Lender may reasonably request; provided that Borrower shall not be liable for expenses arising out of -------- ---- the gross negligence or willful misconduct of the inspecting party; provided, -------- further, that Borrower shall not be required to give access to any party - ------- inspecting the property subject to any of the Mortgages, if such inspecting party refuses or is unwilling or unable to comply with the reasonable safety requirements of Borrower relating to the property to be inspected. Each Lender agrees that, until the occurrence of an Event of Default, it will take all reasonable steps to keep confidential any proprietary information given to it by any Related Person, including without limitation any environmental information or reports pertaining to the property subject to the Mortgages; provided, -------- however, that this restriction shall not apply to information which (i) has at - ------- the time in question entered the public domain, (ii) is required to be disclosed by law or by any order, rule or regulation (whether valid or invalid) of any court or governmental agency, or authority, (iii) is disclosed to such Lender's external auditors, (iv) is disclosed to such Lender's affiliates', agents or attorneys, or (v) is furnished to purchasers or prospective purchasers of participations or other interests in the Working Capital Loan or the Working Capital Notes; provided that before making the disclosures described in the -------- ---- immediately preceding clauses (iv) and (v), such Lender shall direct in writing the Persons to whom such proprietary information is to be disclosed to comply with the confidentiality provisions set forth in this Section 9(g). Borrower agrees that if either Lender breaches its confidentiality agreement contained in this Section 9(g), Borrower's exclusive remedy shall be an action for actual damages and such breach shall not be asserted in any action for payment hereunder or under the Working Capital Notes or in a foreclosure of any of the Security Documents. (h) Notices. Borrower shall give written notice to the Agent ------- within 3 days after a Responsible Person becomes aware of any of the following: (i) Any material adverse change in the business, property, prospects, assets, operations or condition (financial or otherwise), of Borrower or any other Related Person; (ii) Any Event of Default or Unmatured Event of Default; (iii) The institution of any litigation or other proceeding before any governmental body or official against any Related Person or any of their respective assets and any developments in any pending litigation or other proceeding before any governmental body or official that could materially affect Borrower or such Related Person, its business, property, prospects, assets, operations or condition (financial or otherwise); (iv) Any existing or pending investigation or inquiry by any governmental authority in connection with any applicable Environmental Laws (as such term is defined in the Mortgages); (v) The institution of, or material development in, any litigation affecting any of the Collateral, or any other dispute or claim that could have a material adverse effect on any of the Collateral or the calculation of the Borrowing Base; (vi) Any fact that causes or may cause the Agent, on behalf of the Lenders, or the Lenders to fail to have a valid, enforceable and perfected first priority lien on or security interest in any of the Collateral, except as expressly permitted by this Agreement or the Security Documents and except as a result of the acts or omissions of the Agent or either Lender; or (vii) The shut-down of any natural gas liquids processing facility owned or leased by Borrower for a period of 48 consecutive hours or more or of any planned shut-down of any such facility that is -24- expected to be in effect for a period of 48 consecutive hours or more (notice of any actual shut-down shall be given to Agent within 24 hours after the occurrence thereof and notice of any such planned shut-down shall be given to Agent in advance). (i) Compliance with Laws. Each Related Person shall comply in -------------------- all material respects with all applicable laws, statutes, rules and regulations of the United States and of any state or municipality, and of any official, arbitrator or governmental authority, in respect of the conduct of business and ownership of property by such Person. (j) Further Assurances. Borrower shall promptly and, insofar as ------------------ not contrary to applicable law, at Borrower's own expense, (i) file and refile in such offices, at such times and as often as may be reasonably necessary, every instrument and every amendment thereto, and take such other action, as may be reasonably necessary or desirable to create, perfect, maintain and preserve all liens and security interests intended to be created by Borrower under the Security Documents in favor of the Agent for the benefit of the Lenders or in favor of the Lenders and to protect and preserve the rights and remedies of the Agent and the Lenders thereunder, (ii) furnish to the Agent evidence reasonably satisfactory to the Agent of all such filings and refilings, (iii) otherwise do all things necessary or expedient to be done to effectively create, perfect, maintain and preserve the liens and security interests intended to be created by the Security Documents as a lien on real property and fixtures and a security interest in personal property and fixtures, and (iv) pay all fees and expenses (including counsel fees) incident to this Agreement and in compliance with this Section. In addition, Borrower covenants and agrees that if all or any part of the Working Capital Loan becomes subject to the provisions of the Financial Institutions Reform, Recovery and Enforcement Act of 1989, as it may be amended from time to time, or other governmental regulation requiring appraisals, surveys or similar requirements as to all or any part of the Collateral, Borrower shall promptly provide the Agent and the Lenders with any appraisals, surveys or other items required to have the Working Capital Loan be in compliance with all applicable state and federal laws, at its sole cost and expense. (k) Current Ratio. Borrower shall maintain a Current Ratio of ------------- not less than 1.1 to 1.0. (l) Funded Debt to Total Capitalization. Borrower's Funded Debt ----------------------------------- shall not exceed 65% of its Total Capitalization. (m) Tangible Net Worth. Borrower shall maintain a Tangible Net ------------------ Worth equal to or greater than the sum of $15,000,000 plus 25 percent of consolidated net income determined in accordance with GAAP and earned by Borrower after December 31, 1991 (but excluding any net losses). (n) Fixed Charge Coverage Ratio. Borrower shall maintain a Fixed --------------------------- Charge Coverage Ratio, determined as of the end of any Fiscal Quarter, commencing with the Fiscal Quarter ending December 31, 1992, calculated on a rolling four quarter basis, of not less than 1.5. (o) Environmental Matters. No Related Person shall cause or --------------------- permit the use or storage of Hazardous Substances or Solid Waste (as such terms are defined in the Mortgages) on, in or in connection with such Persons's properties or disposal of Hazardous Substances or Solid Waste from such Person's properties, except in full compliance with all Environmental Laws (as such term is defined in the Mortgages), or make any use of such Person's properties that results in any requirement that such Person apply for or obtain a permit under RCRA (as such term is defined in the Mortgages) or other Environmental Law for the treatment, storage or disposal of Hazardous Substances or Solid Waste. Borrower covenants and agrees to keep or cause each Related Person's properties to be kept free of any Hazardous Substances or Solid Waste except in full compliance with all Environmental Laws, and, promptly upon the discovery that the presence of any such substance on any of their respective properties is not in full compliance, to remove the same (or if removal is prohibited by law, to take whatever action is required by law) at Borrower's sole expense. SECTION #. NEGATIVE COVENANTS. Until payment in full of the Working ------------------ Capital Loan and termination of all Commitments by the Lenders to make advances hereunder, neither Borrower nor any of the other Related Persons shall, without the prior written consent of the Required Lenders: (a) Debt. Create, incur, assume or permit to exist any Debt, ---- except: (i) The Working Capital Loan and the Revolver/Term Facility; (ii) Debt incurred to finance the acquisition or construction by Borrower of one or more projects consistent with Borrower's covenant contained in Section 10(e) hereof and for which recourse is -25- limited to the property included in the project and is non- recourse to Borrower and the Collateral; (iii) Obligations under leases, whether capital or operating leases, provided that the obligations payable in any one -------- ---- year do not, in the aggregate, exceed $2,000,000; (iv) Debt incurred pursuant to Borrower's or any Related Person's hedging activities related to such Person's line of business in the futures or commodities market such that (A) the liability under open lines of credit to finance futures contracts, commodities and/or options contracts does not exceed $1,000,000 in the aggregate at any one time outstanding, and (B) recourse is limited to Borrower's or any Related Person's position in futures contracts; (v) Current accounts and charges, payable or accrued, incurred in the ordinary course of Borrower's or any Related Person's business; and (vi) Debt under the RIMCO Loan in a maximum principal amount not to exceed at any one time outstanding (A) $11,500,000 from the date hereof through and including December 1, 1992, and (B) $500,000 thereafter. (b) Liens. Create, assume or permit to exist any mortgage, ----- pledge, security interest, lien or other encumbrance upon any Related Person's properties or assets, whether now owned or hereafter acquired, real or personal, except: (i) The Security Documents; (ii) Liens for taxes not delinquent or being contested in good faith and by appropriate proceedings and for which adequate reserves have been set aside on such Person's books; (iii) Operator's, mechanic's, workmen's, materialmen's and other like liens arising in the Ordinary Course of Business in respect of obligations not overdue or which are being contested in good faith and by appropriate proceedings and for which adequate reserves have been set aside on such Person's books and for which there is no risk of loss of any of the Collateral; (iv) Liens or encumbrances, if any, permitted by the Security Documents; and (v) Liens securing Debt permitted by Section 10(a) above. (c) Guaranty Obligations. Assume, guarantee, endorse or -------------------- otherwise become or be contingently liable (by direct or indirect agreement, contingent or otherwise, or by operation of law, to provide funds for payment, to supply funds to, or otherwise invest in, a debtor, or otherwise assure a creditor against loss) for the Debt, obligation, undertaking or other liability of any other Person, or otherwise become or be responsible in any manner (whether by agreement to purchase any obligations, stock, assets, goods or services, or to supply or advance any funds, assets, goods or services, or otherwise) with respect to any undertaking of any other Person, except (i) guarantees by Borrower of Debt incurred by MarkWest Energy Partners, Ltd. in connection with the Florida Mesa Project so long as such guarantees do not exceed $1,000,000 in the aggregate at any one time, and (ii) endorsements of negotiable instruments for deposit or collection and similar transactions in the ordinary course of its business. (d) Loans and Advances. Make any loans or advances to any ------------------ Person, except for (i) accounts receivable or notes receivable arising from the sale or lease of goods or services in the Ordinary Course of Business; (ii) as part payment in the Ordinary Course of Business on its ordinary equipment rental, repair, replacement and operating needs, or (iii) loans and advances to officers and employees of Borrower to the extent and in the amount reflected in Exhibit L. (e) Limitation on Investments and New Businesses. (i) Make any -------------------------------------------- expenditure or commitment or incur any obligation or enter into or engage in any transaction except in the Ordinary Course of Business, (ii) engage directly or indirectly in any business or conduct any operations except in connection with gas processing and gathering, gas liquids fractionation, gas and gas liquids marketing, MTBE manufacturing, refining and marketing and gasoline blending and oil and gas exploration and production, (iii) make any acquisitions of or capital contributions to or other investments in any Person unless the following conditions are satisfied: (A) the investment is in a Person engaged in any of the businesses described in (e)(ii) above, and (B) Agent has received -26- 10 days' advance notice of such investment. Notwithstanding the foregoing, the Related Persons may make (1) investments in open market commercial paper, maturing within 365 days after acquisition thereof, which has a credit rating of at least A-2 or P-2 by either Standard & Poor's Corporation or Moody's Investors Service, Inc., (2) marketable obligations issued or unconditionally guaranteed by the United States of America or an instrumentality or agency thereof and entitled to the full faith and credit of the United States of America, and (3) demand deposits, time deposits (including certificates of deposit), repurchase agreements, Eurodollar time deposits or bankers' acceptances, maturing in each case within 12 months from the date of deposit thereof, with a domestic office of either Lender. (f) Mergers and Consolidations. Merge or consolidate into or -------------------------- with any Person, or sell, lease, convey, transfer or otherwise dispose of all or a substantial part of its assets to or with any Person, except: (i) a merger or consolidation in connection with the acquisition by Borrower of property or facilities as a result of a stock or equity transaction in the ordinary course of its business and after the consummation of which Borrower is the surviving entity; (ii) a merger or consolidation of any Consolidated Subsidiary of the Borrower with or into the Borrower, provided that the Borrower shall be the -------- continuing or surviving corporation; in both cases, so long as no Event of Default or Unmatured Event of Default has occurred or is continuing or would be caused by the consummation of such merger or consolidation and Agent receives within 10 days after such merger or consolidation a certificate from the chief financial officer or any Vice President of the General Partner that Borrower is in compliance with the provisions of this Agreement. (g) Location of Inventory. Borrower shall not store any of its --------------------- Products or inventory except at the locations described in Exhibit J hereto without giving the Agent notice of a change within 30 days thereof and the execution of any and all Security Documents the Agent and its counsel deem necessary or desirable to grant a perfected first priority lien in favor of Agent for the benefit of the Lenders in such Products or inventory; notwithstanding the foregoing, Borrower shall not, under any circumstances, store any of its Products or inventory in a location outside of the United States. (h) Burdensome Undertakings. Undertake, or become contractually ----------------------- bound to undertake, any action not in the Ordinary Course of Business that could materially adversely affect Borrower or its business, properties, prospects, assets, operations or condition (financial or otherwise). (i) Change in Location of Business. Move its place of business ------------------------------ or chief executive office or the place where Borrower keeps its books and records concerning the Collateral (including, without limitation, the records with respect to its accounts and contract rights), from one state to another without giving the Agent 45 days' prior written notice of the proposed new location thereof. (j) Restricted Distributions. Make any dividends or ------------------------ distributions of assets or declare or pay any cash or liquidating distribution or dividends or make any other distribution to any of its partners or shareholders, other than the following: (i) Whether or not an Event of Default or Unmatured Event of Default has occurred or is continuing, Borrower may make distributions to each of its partners in an amount equal to such partner's estimated federal and state income tax liabilities (assuming each partner is taxable at the maximum marginal income tax rates) resulting from such partner's interest in Borrower. Such distribution shall not occur earlier than 30 days prior to the date such payments are due; (ii) So long as a Borrowing Base Deficiency does not exist and no Event of Default or Unmatured Event of Default has occurred, Borrower may make distributions in an aggregate cumulative amount not to exceed 75 percent of Borrower's net income, determined in accordance with GAAP and computed on a cumulative basis for all periods since December 31, 1991, taking into account allowable distributions previously declared or made since December 31, 1991; provided, however, that such distributions are allowable so long as -------- ------- they would not cause Borrower to be in contravention of the financial covenants contained in Sections 9(k), (l), (m) and (n); and (iii) As to any Subsidiary of Borrower, the foregoing restrictions of this Section 10(j) shall not apply. (k) Disposition of Assets. Sell, transfer, lease, exchange or --------------------- otherwise dispose of any of its assets, real or personal, except as follows: -27- (i) sales, transfers, leases, exchanges or other dispositions of assets by Borrower or any other Related Person in the Ordinary Course of Business; and (ii) sales, transfers, leases, exchanges or other dispositions of assets by Borrower and the other Related Persons not in the Ordinary Course of Business, so long as such transaction is on fair and reasonable terms and the proceeds from all such transactions do not exceed $250,000 in the aggregate in any calendar year. (l) ERISA. Establish, maintain or contribute to any ERISA Plans ----- or incur any obligation to contribute to any "multiemployer plan" as defined in Section 4001 of ERISA or represent, promise, or contract (in oral or written form) to any current or former employee (individually or as a group) that such current or former employee(s) would be provided, at any cost to any member of the Controlled Group, with any employee welfare benefits (as defined in Section 3(1) of ERISA) following retirement or termination of employment. (m) Use of Proceeds. Use any funds from the Working Capital Loan --------------- directly or indirectly for the purpose, whether immediate, incidental or ultimate, of purchasing, acquiring or carrying any "margin stock" or any "margin securities" (as such terms are defined respectively in Regulation U and Regulation G promulgated by the Board of Governors of the Federal Reserve System) or to extend credit to others directly or indirectly for the purpose of purchasing or carrying any such margin stock or margin securities. (n) Transactions with Affiliates. Enter into any transaction ---------------------------- with any Affiliate, except any transaction that is in the ordinary course of such Related Person's business and that is upon fair and reasonable terms no less favorable to such Related Person than would obtain in a comparable arm's- length transaction with a Person not an Affiliate of such Related Person. (o) Contracts; Take-or-Pay Agreements. Amend or modify the --------------------------------- Columbia Contracts in any manner or permit any of them to be amended or modified or any term waived by any party thereto or assign any of its rights thereunder. Enter into any "take-or-pay" contract or other contract which requires it to pay for oil, gas, other hydrocarbons or other minerals prior to taking delivery thereof, provided that Borrower may enter into such contracts so long as the -------- term thereof does not exceed one year, and provided further that Borrower may -------- ------- enter into such contracts if the products purchased thereunder are needed by the associated facility at the time of delivery thereof. Examples of permitted contracts include (i) futures contracts to hedge (but not speculate) against future changes in prices and (ii) reciprocal exchange agreements or back to back contracts in which Borrower avoids the cost of all or a portion of the cost of transportation of natural gas or natural gas liquids (in this subsection called "gas and liquids") processed by it by exchanging such gas and liquids for gas and liquids processed by others which are closer in location to Borrower's ultimate purchaser. Examples of prohibited contracts include: (1) essentially speculative contracts entered into primarily in hopes of benefitting from price changes and (i) providing for the purchase of gas and liquids not covered by a back to back contract permitting an exchange or sale thereof within 180 days after the date of purchase or (ii) providing for the purchase of gas and liquids that will not be consumed in Borrower's operations within 180 days after the purchase thereof; and (2) contracts for the future sale or purchase of gas or liquids that are not for the purpose of facilitating the ultimate sale of gas or liquids owned, distributed or processed by Borrower. Notwithstanding the foregoing provisions of this section, Borrower may enter into speculative contracts not related to Borrower's operations primarily in hopes of benefitting from price changes so long as the aggregate liability (including contingent or potential liability) and costs of Borrower thereunder do not exceed $1,250,000 at any time. (p) Amendments to Organizational Documents. Amend the -------------------------------------- partnership agreement of Borrower or any other organizational documents of any Related Person. (q) Amendments to RIMCO Loan Documents. Amend, modify or waive, ---------------------------------- or consent or acquiesce in the amendment, modification, or waiver of any term or provision of any document evidencing or securing the RIMCO Loan, or any other document executed in connection with the RIMCO Loan. SECTION #. EVENTS OF DEFAULT. The occurrence of any of the following ----------------- shall constitute an event of default ("Event of Default") hereunder: ---------------- (a) Non-Payment. Failure by Borrower to (i) pay any installment ----------- of principal of, or interest on, the Working Capital Notes, any fees or other amounts payable hereunder or under the Working Capital Notes or any of the Security -28- Documents within three Business Days after its due date, or (ii) comply with the provisions of Section 6 within the 3-day period set forth therein. (b) Certain Defaults. Failure by Borrower to perform or observe ---------------- any term, covenant, agreement, condition or provision contained in any of Sections 9(b), (c)(ii), (g), (h), (k), (l), (m) or (n), or Sections 10(a) through (q), inclusive. (c) Other Defaults. Failure by Borrower to perform or observe -------------- any other covenant, agreement, condition or provision contained in this Agreement or in the Working Capital Notes (which covenant, agreement, condition or provision is not included in Subsection 11(a) or (b)) and such failure continues unremedied for a period of 30 days. (d) Representation or Warranty. Any representation or warranty -------------------------- of the Borrower, whether contained in this Agreement or in any certificate or other writing required or contemplated by this Agreement or in the Security Agreement, or any representation or warranty of any party to a Covenant Agreement shall be false or misleading in any material respect as of the date made or deemed made. (e) Security Documents and Covenant Agreements. ------------------------------------------- (i) Occurrence of any of the events of default defined in any of the Security Documents or Covenant Agreements. (ii) Any of the Security Documents shall for any reason (other than pursuant to the terms thereof or as a direct result of any act or omission of Lenders or Agent) cease to create a valid security interest in the collateral purported to be covered thereby or such security interest shall for any reason cease to be a perfected and first priority lien and security interest, subject only to those matters expressly permitted by Section 10(b) hereof or by the applicable Security Document. (iii) Any of the Covenant Agreements shall cease to be in full force and effect. (iv) Failure of the General Partners or John Fox, as applicable, to perform or observe any covenant, agreement, condition or provision contained in its or his respective Covenant Agreement. (v) Failure by Borrower to perform or observe any term, covenant, agreement, condition or provision contained in the Security Agreement. (f) Judgments. Any money judgment, writ or warrant of --------- attachment, or similar process in an amount of $250,000 (in the aggregate) or more shall be entered or filed against any Related Person or any of its assets and shall remain unvacated, unbonded or unstayed for a period of 30 calendar days, or in any event later than five calendar days prior to the date of any proposed sale thereunder. (g) Insolvency. Any Related Person or the General Partner shall ---------- become insolvent, admit in writing its inability to pay its debts as they mature, or make an assignment for the benefit of creditors; or apply for or consent to the appointment of a receiver or trustee for it or for a substantial part of its property or business; or such a receiver or trustee otherwise shall be appointed and shall not be discharged within 30 calendar days after such appointment. (h) Bankruptcy, Etc.. Bankruptcy, insolvency, reorganization or ---------------- liquidation proceedings or other proceedings for relief under any bankruptcy law or any other law for the relief of debtors shall be instituted by or against any Related Person or the General Partner (except for an involuntary petition against any Related Person or the General Partner, which shall not constitute an Event of Default if such petition is vacated or dismissed within 15 Business Days after the filing thereof), or any order, judgment or decree shall be entered against any Related Person or the General Partner decreeing its dissolution or division. (i) Cross-Default. Any event of default shall occur as to any ------------- other agreement now or hereafter existing relating to extensions of credit to any Related Person or the General Partner by the Lenders or either of them, including without limitation the Revolver/Term Facility, or by any third party, including without limitation, the RIMCO Loan, or any event which with the passage of time or giving of notice, or both, would permit the holder or holders of such indebtedness to cause such indebtedness to be declared to be due and payable prior to its stated maturity. -29- (j) ERISA. An employee benefit plan that is intended to be ----- qualified under the Code shall lose its qualification, and the loss can reasonably be expected to impose on the Controlled Group liability (for additional taxes to Plan participants, or otherwise) in the aggregate amount of $250,000 or more; any member of the Controlled Group engages in or becomes liable for a non-exempt prohibited transaction and the initial tax or additional tax under Section 4975 of the Code might reasonably be expected to exceed $100,000; a violation of Section 404 or 405 of ERISA or Section 401(a)(2) of the Code that can be reasonably expected to expose the Controlled Group to liability in excess of $250,000; any member of the Controlled Group is assessed a tax under Section 4980B of the Code or is liable for failure to comply with the Section 4980B notice and continuation coverage requirements that can be reasonably expected to result in liability to the Controlled Group in excess of $250,000; any member of the Controlled Group is assessed a penalty under Section 502(c)(2) of ERISA or Section 6652(e) of the Code that can be reasonably expected to expose the Controlled Group to liability in excess of $250,000; or any combination of the foregoing events that involves potential liability in excess of $250,000. (k) Loan Documents. This Agreement, the Working Capital Notes, -------------- any of the other Loan Documents or any of the Covenant Agreements shall for any reason be revoked or invalidated, or otherwise cease to be in full force and effect, except as a direct result of the acts or omissions of the Agent or the Lenders. (l) Material Adverse Change. Any material adverse change occurs ----------------------- in Borrower's financial condition or business or operations (including, without limitation, any material adverse change caused by Borrower becoming subject to any statute, regulation or order of any governmental authority after the date hereof). (m) Partners of Borrower. The General Partner ceases to be the -------------------- sole general partner of Borrower. Any change occurs in the identity or ownership interests of any limited partner of Borrower owning at least a 10% interest at such time, other than pursuant to the Employee Option Agreement or pursuant to the RIMCO Loan documents. (n) Ownership of the General Partner. John Fox and the members -------------------------------- of his immediate family cease to own collectively at least seventy-five percent (75%) of the issued and outstanding voting stock of General Partner. (o) Failure to be a Partnership. Borrower is not treated as a --------------------------- partnership for federal income tax purposes. (p) Columbia Contracts. Any of the Columbia Contracts shall ------------------ cease to be in full force and effect for any reason, including, without limitation, as the result of being rejected or disaffirmed by Columbia Gas Transmission Corporation, a debtor in possession under federal bankruptcy laws. (q) Regulatory Change. There shall be any legislative action by ----------------- any local, state or federal agency or other governmental entity resulting in any regulatory control of Borrower's operations, the result of which has or could have, in Lenders' reasonable opinion, a significant financial impact on, or control of, its financial condition. SECTION #. REMEDIES. (a) Automatic Acceleration of Loan. Upon the -------- ------------------------------ occurrence of any Event of Default specified in Section 11(g) or (h), the obligation of the Lenders to make Advances under the Working Capital Loan shall automatically terminate and the unpaid principal amount of the Working Capital Loan and all interest and other amounts payable hereunder, under the Working Capital Notes or any of the Security Documents, shall automatically become due and payable without further act of the Agent or the Lenders. (b) Optional Acceleration of Loan. Upon the occurrence of any ----------------------------- Event of Default (other than those specified in Section 12(a) above), the Agent may, from time to time, do any or all of the following: (i) Declare all or any part of the Working Capital Loan to be forthwith due and payable, together with all accrued and unpaid interest thereon and all other amounts payable hereunder or under any of the other Loan Documents, without presentment, demand, protest or other notice of any kind, all of which are expressly waived by Borrower; (ii) Declare the Commitments terminated; -30- (iii) With respect to any and all contingent, unmatured or unliquidated obligations of Borrower hereunder, including without limitation any and all outstanding Letters of Credit, declare and require that cash in an amount equal to the aggregate outstanding amount of all such obligations be immediately paid over, pledged and delivered to the Agent on behalf of the Lenders to be held as Cash Collateral for such obligations; and (iv) Proceed with every remedy provided for herein or in the Working Capital Notes, the Security Documents or any contract, agreement or undertaking supplemental hereto and the Lenders shall have, without limitation, all of the rights of a secured party under the Uniform Commercial Codes as then in effect with respect to any security then held for the Loans. The enforcement of any rights of the Agent and the Lenders as to the security for the Loans shall not affect the rights of the Agent or the Lenders to enforce payment of the Working Capital Loan against Borrower and to recover judgment against Borrower for any portion thereof remaining unpaid. (c) Setoff. Upon the occurrence of any Event of Default, each ------ Lender shall have the right at any time and from time to time, without prior notice to Borrower (which notice is hereby waived by Borrower to the fullest extent permitted by law), to setoff and apply any debt owing to Borrower by such Lender, including without limitation, any deposits (general or special, time or demand, provisional or final) now or hereafter maintained by Borrower with such Lender, against any and all obligations of Borrower now or hereafter existing under this Agreement or any of the other Loan Documents, although such obligations may be contingent or unmatured, and for such purpose Borrower hereby grants a security interest in and assigns to each Lender all such deposit accounts. SECTION #. THE AGENT. --------- (a) Appointment. Each Lender hereby irrevocably designates and ----------- appoints Norwest as the Agent of such Lender under this Agreement and the other Loan Documents, and each such Lender irrevocably authorizes Norwest as the Agent for such Lender, to take such action on its behalf under the provisions of this Agreement and the other Loan Documents and to exercise such powers and perform such duties as are expressly delegated to the Agent by the terms of this Agreement and the other Loan Documents, together with such other powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary contained elsewhere in this Agreement, the Agent shall not have any duties or responsibilities, except those expressly set forth herein, or any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against the Agent. (b) Delegation of Duties. The Agent may execute any of its -------------------- duties under this Agreement and the other Loan Documents by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Agent shall not be responsible to the Lenders for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care. (c) Exculpatory Provisions. Neither the Agent nor any of its ---------------------- officers, directors, employees, agents, attorneys-in-fact or affiliates shall be (i) liable for any action lawfully taken or omitted to be taken by it or such Person or entity under or in connection with this Agreement or any other Loan Document (except for its or such Person's or entity's own gross negligence or willful misconduct), or (ii) responsible in any manner to any of the Lenders for any recitals, statements, representations or warranties made by the Borrower or any representative thereof contained in this Agreement or any other Loan Document or in any certificate, report, statement or other document referred to or provided for in, or received by the Agent under or in connection with, this Agreement or any other Loan Document or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or the Working Capital Notes or any other Loan Document or for any failure of the Borrower to perform its obligations hereunder or thereunder. The Agent shall not be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Loan Document, or to inspect the properties, books or records of the Borrower. (d) Reliance by Agent. The Agent shall be entitled to rely, and ----------------- shall be fully protected in relying, upon any Working Capital Note, writing, resolution, notice, consent, certificate, affidavit, letter, telecopy or telex message, statement, order or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper person or persons and upon advice and statements of legal counsel (including, without limitation, counsel to the Borrower), independent accountants and other experts selected by the Agent. The Agent may deem and treat the payee of any Working Capital Note as the -31- owner thereof for all purposes unless a written notice of assignment, negotiation or transfer thereof shall have been filed with the Agent. The Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Loan Document unless it shall first receive such advice or concurrence of the Required Lenders as it deems appropriate or it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement and the Working Capital Notes and the other Loan Documents in accordance with a request of the Required Lenders, and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Lenders and all future holders of the Working Capital Notes. (e) Notice of Default. The Agent shall not be deemed to have ----------------- knowledge or notice of the occurrence of any Unmatured Event of Default or Event of Default hereunder unless the Agent has received notice from a Lender or the Borrower referring to this Agreement, describing such Unmatured Event of Default or Event of Default and stating that such notice is a "notice of default." In the event that the Agent receives such a notice, the Agent shall give notice thereof to the Lenders. (f) Non-Reliance on Agent and Other Lenders. Each Lender --------------------------------------- expressly acknowledges that neither the Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or affiliates has made any representations or warranties to it and that no act by the Agent hereinafter taken, including any review of the affairs of the Borrower, shall be deemed to constitute any representation or warranty by the Agent to any Lender. Each Lender represents to the Agent that it has, independently and without reliance upon the Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, financial and other condition and creditworthiness of the Borrower and made its own decision to make its Working Capital Loan hereunder and enter into this Agreement. Each Lender also represents that it will, independently and without reliance upon the Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigation as it deems necessary to inform itself as to the business, operations, property, financial and other condition and creditworthiness of the Borrower. Except for notices, reports and other documents expressly required to be furnished to the Lenders by the Agent hereunder, the Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, operations, property, condition (financial or otherwise), prospects or creditworthiness of the Borrower which may come into the possession of the Agent or any of its officers, directors, employees, agents, attorneys-in-fact or affiliates. (g) Indemnification. Lenders agree to indemnify the Agent in its --------------- capacity as such (to the extent not reimbursed by the Borrower and without limiting the obligation of the Borrower to do so), ratably according to the respective amounts of their original Commitments, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever which may at any time (including, without limitation, at any time following the payment of the Working Capital Notes) be imposed on, incurred by or asserted against the Agent in any way relating to or arising out of this Agreement, any of the other Loan Documents or the transactions contemplated hereby or thereby or any action taken or omitted by the Agent under or in connection with any of the foregoing; provided that no Lender shall be liable for the payment of any portion of such - -------- liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting solely from the Agent's gross negligence or willful misconduct. The agreements in this subsection shall survive the payment of the Working Capital Notes and all other amounts payable hereunder. (h) Agent and Lenders in Their Individual Capacity. Each of the ---------------------------------------------- Agent, the Lenders and their respective affiliates may make loans to, accept deposits from and generally engage in any kind of business with the Borrower as though such Person was not the Agent and/or Lender, as the case may be, hereunder and under the other Loan Documents. With respect to Advances made by it and any Working Capital Note issued to it, the Agent shall have the same rights and powers under this Agreement and the other Loan Documents as any Lender and may exercise the same as though it were not the Agent, and the terms "Lender" and "Lenders" shall include the Agent in its individual capacity. (i) Successor Agent. The Agent may resign as Agent upon 10 days' --------------- notice to the Lenders. If the Agent shall resign as Agent under this Agreement and the other Loan Documents, then the Required Lenders shall appoint from among the Lenders a successor agent for the Lenders, which successor agent shall be approved by the Borrower, whereupon such successor agent shall succeed to the rights, powers and duties of the Agent, and the term "Agent" shall mean such successor agent effective upon its appointment, and the former Agent's rights, powers and duties as Agent shall be terminated, without any other or further act or deed on the part of such former Agent or any of the parties to this Agreement or any holders of the Working Capital Notes, other than to give notice of the appointment of such successor agent to Borrower. Borrower is entitled to rely upon the existing Agent until Borrower has received notice of the appointment of a successor agent. After any retiring Agent's resignation as Agent, the provisions of this -32- subsection shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement and the other Loan Documents. (j) Borrower Entitled to Rely on Agent. Borrower shall be ---------------------------------- entitled to rely upon the Agent's written actions and representations. SECTION #. MISCELLANEOUS. ------------- (a) No Waiver; Cumulative Remedies. No delay on the part of the ------------------------------ Agent or any Lender in exercising any right, power, privilege or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise or waiver of any right, power, privilege, or remedy hereunder preclude any other or further exercise of such right, power, privilege, or remedy hereunder or the exercise of any other right, power or privilege or remedy. The rights and remedies of the Agent and the Lenders contained herein are cumulative and not exclusive of any right or remedy which the Agent and the Lenders shall otherwise have pursuant to the Security Documents, the Working Capital Notes or applicable law. The obligations of Borrower contained herein are cumulative, and compliance by Borrower with any covenant shall not excuse compliance by Borrower with any other covenant. (b) Notices. All notices given hereunder shall be in writing, ------- shall be given by certified mail, return receipt requested, overnight courier service, telecopy, facsimile or copy delivered by hand, and, (i) if mailed, shall be deemed received three Business Days after having been deposited in a receptacle for United States mail, postage prepaid, (ii) if delivered by overnight air courier service, shall be deemed received one Business Day after having been deposited with such overnight air courier service, postage prepaid, and (iii) if delivered by telex, telecopy or hand delivery, shall be deemed received on the day the notice is sent, in each case addressed as follows: If to Borrower, to: MarkWest Hydrocarbon Partners, Ltd. 5613 DTC Parkway, Suite 400 Englewood, Colorado 80111 Attention: Finance Department Fax. No.: (303) 290-8769 If to the Lenders, to: Norwest Bank Denver, National Association 1700 Broadway Denver, Colorado 80274-0099 Attention: Energy and Minerals Group Fax. No.: (303) 863-5196 First American National Bank 4894 Poplar Avenue Memphis, TN 38117 Attention: National Accounts Fax. No.: (901) 762-5665 If to the Agent, to: -33- Norwest Bank Denver, National Association 1700 Broadway Denver, Colorado 80274-0099 Attention: Energy and Minerals Group Fax. No.: (303) 863-5196 Any party may, by written notice so delivered to the others, change the address or facsimile number to which delivery shall thereafter be made. (c) Counterpart Execution. This Agreement may be executed in any --------------------- number of counterparts which together will be but one and the same instrument. This Agreement shall become effective whenever each party shall have signed at least one counterpart. (d) Governing Law; Entire Agreement. THIS AGREEMENT AND THE ------------------------------- WORKING CAPITAL NOTES SHALL BE DEEMED TO BE CONTRACTS UNDER THE LAWS OF COLORADO AND FOR ALL PURPOSES SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF SUCH STATE. Such documents and any other Loan Documents, together with the Security Documents, constitute and incorporate the entire agreement between the Agent, the Lenders and Borrower concerning the subject matter hereof and thereof, and supersede and cancel any prior or contemporaneous agreements, verbal or written, between the Agent, the Lenders and Borrower concerning the subject matter hereof and thereof. (e) Amendments and Waivers. No waiver of any provision of this ---------------------- Agreement, the Working Capital Notes, the Covenant Agreements or any of the Security Documents, and no consent with respect to any departure by Borrower therefrom or by the respective parties to the Covenant Agreements, shall be effective unless the same shall be in writing and signed by the Agent, at the direction of the Required Lenders. No amendment of any provision of this Agreement shall be effective unless the same shall be in writing and signed by the Agent and the Required Lenders. All consents, waivers and other action to be taken by the Lenders hereunder shall only be taken upon approval of the Required Lenders. Any waiver shall be effective only in the specific instance and for the specific purpose for which given. Any consent or approval contemplated herein by the Required Lenders or the Lenders may be granted or withheld in the sole discretion of such Persons. (f) Costs, Expenses and Indemnity. Borrower shall reimburse and ----------------------------- pay the Agent, the Issuer and the Lenders for all fees, costs and expenses (including, without limitation, attorneys' fees, court costs and legal expenses and consultants' and experts' fees and expenses, the costs of the Agent's inspection of the Collateral and the costs and expenses of title or lien searches and filing and recording fees and expenses), reasonably incurred or expended in connection with (i) the preparation, execution and delivery of this Agreement, the Working Capital Notes and the other Loan Documents, subject ------- however to the terms of the letter agreement between Borrower and the Agent - ------- regarding the maximum legal fees to be charged by the Agent's counsel for the preparation and execution of the Loan Documents to be delivered at closing, (ii) the enforcement of this Agreement, the Working Capital Notes and the other Loan Documents and any amendments, waivers or modifications of such documents, (iii) the breach by Borrower of any representation or warranty contained in this Agreement, the Security Documents or any other Loan Document, (iv) the failure by Borrower to perform any agreement, covenant, condition, indemnity or obligation contained in this Agreement, the Security Documents or any other Loan Document, (v) the Agent's or the Lenders' exercise of any of their rights and remedies under this Agreement, the Security Documents and the other Loan Documents, or (vi) the protection of the Collateral and the liens thereon and security interests therein. Borrower shall indemnify, defend and hold harmless the Agent, the Issuer and each Lender and persons or entities owned or controlled by or affiliated with such Persons and their respective directors, officers, shareholders, partners, employees, consultants and agents (herein individually called an "Indemnified Party," and collectively called "Indemnified ----------------- ----------- Parties") from and against, and reimburse and pay Indemnified Parties with - ------- respect to, any and all claims, demands, liabilities, losses, damages (including, without limitation, actual, consequential, exemplary and punitive damages), causes of action, judgments, penalties, fees, costs and expenses (including, without limitation, attorneys' fees, court costs and legal expenses and consultants' and experts' fees and expenses), of any and every kind or character, known or unknown, fixed or contingent, that may be imposed upon, asserted against or incurred or paid by or on behalf of any Indemnified Party on account of, in connection with, or arising out of (a) any bodily injury or death or property damage occurring in or upon or in the vicinity of the Collateral through any cause whatsoever, (b) any act performed or omitted to be performed hereunder or the breach of or failure to perform any warranty, representation, indemnity, covenant, agreement or condition contained in this Agreement, the Security Documents or any other Loan Documents, (c) any transaction, act, omission, event or circumstance arising out of or in any way connected with the Collateral or with this Agreement, the Security Documents or any other Loan Documents, and (d) subject to the exceptions and limitations contained in the Security Agreements, the violation of or failure to comply with any statute, -34- law, rule, regulation or order now existing or hereafter occurring, including without limitation, "Environmental Laws" (as defined in the Security Agreements) and statutes, laws, rules, regulations and orders relating to "Hazardous Substances" (as defined in the Security Agreements). The foregoing indemnities shall not apply to any Indemnified Party to the extent the subject of the indemnification is caused by or arises out of the gross negligence or willful misconduct of that or another Indemnified Party or a successful suit by Borrower against such Indemnified Party. If Borrower and the Indemnified Party are jointly named in any action covered by this Section 14, the Indemnified Party shall cooperate in the defense of such action to the extent its own rights or defenses are not compromised thereby. Subject to the exceptions and limitations contained in the Security Agreements, the foregoing indemnities shall not terminate upon release, foreclosure or other termination of this Agreement or the Security Documents, but shall survive such release, foreclosure or termination and the repayment of the Loans. Any amount to be paid hereunder by Borrower to the Agent, the Issuer or any Lender or for which Borrower has indemnified an Indemnified Party shall be a demand obligation owing by Borrower to the Agent, the Issuer or such Lender and shall bear interest at the Late Payment Rate until paid, and shall constitute a part of the Working Capital Loan and be indebtedness secured by the Security Documents. (g) Inconsistent Provisions; Severability. In case of any ------------------------------------- irreconcilable conflict between the provisions of this Agreement and those of the Security Documents and the Working Capital Notes, the provisions of this Agreement shall govern. The invalidity, illegality or unenforceability of any provision of any of the Loan Documents shall not in any way affect or impair the legality or enforceability of the remaining provisions of each of the Loan Documents. (h) Incorporation of Exhibits and Schedules. All Exhibits and --------------------------------------- Schedules attached to this Agreement are a part hereof and are incorporated herein for all purposes. (i) Amendment of Defined Instruments. Unless the context -------------------------------- otherwise requires or unless otherwise provided herein the terms defined in this Agreement which refer to a particular agreement, instrument or document also refer to and include all renewals, extensions and modifications of such agreement, instrument or document, provided that nothing contained in this section shall be construed to authorize any such renewal, extension or modification. (j) References and Titles. All references in this Agreement to --------------------- Exhibits, Schedules, Sections and Subsections and other subdivisions refer to the Exhibits, Schedules, Sections and Subsections and other subdivisions of this Agreement unless expressly provided otherwise. Headings are for convenience only and do not constitute any part of such subdivisions and shall be disregarded in construing the language contained in such subdivisions. The words "this Agreement", "this instrument", "herein", "hereof", "hereby", "hereunder" and words of similar import refer to this Agreement as a whole and not to any particular subdivision unless expressly so limited. Pronouns in masculine, feminine and neuter genders shall be construed to include any other gender, and words in the singular form shall be construed to include the plural and vice versa, unless the context otherwise requires. (k) Calculations and Determinations. Unless otherwise expressly ------------------------------- provided herein or unless the Lenders otherwise consent, all financial statements and reports furnished to the Agent or the Lenders hereunder shall be prepared and all financial computations and determinations pursuant hereto shall be made in accordance with GAAP. (l) Usury. It is not intended hereby to charge interest at a ----- rate in excess of the maximum rate of interest that the Agent and the Lenders may charge to Borrower under applicable usury and other laws, but if, notwithstanding, interest in excess of such rate shall be paid hereunder, the interest rates provided for herein shall be adjusted to the maximum permitted under applicable law during the period or periods that any of the interest rates otherwise provided herein would exceed such rate and any excess amount applied at the Lenders' option to reduce the outstanding principal balance of the Working Capital Loans or to be returned to Borrower. (m) Waiver of Right to Trial by Jury. EACH PARTY TO THIS -------------------------------- AGREEMENT HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (a) ARISING UNDER THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR (b) IN ANY WAY CONNECTED WITH OR RELATED TO INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR THE TRANSACTIONS RELATED HERETO OR THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING; AND EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. -35- (n) Successors and Assigns. This Agreement shall be binding upon ---------------------- and shall inure to the benefit of the parties hereto and their respective successors and assigns, except that Borrower may not transfer or assign any of its rights or obligations hereunder without the Agent's, the Issuer's and each of the Lenders' prior written consent. The Working Capital Note, this Agreement and any other Loan Document may be endorsed, assigned, or transferred in whole or in part by any Lender, and any subsequent holder and assignee of same shall succeed to and be possessed of the rights of such Lender under such documents to the extent transferred and assigned; provided however, that such endorsement, -------- ------- assignment or transfer shall not be binding upon Borrower until Borrower has received written notice of such endorsement, assignment or transfer. (o) Term of Agreement. Except as set forth in Section 14(f), ----------------- this Agreement shall continue in full force and effect so long as any indebtedness or other obligation of Borrower to the Lenders remains unpaid or outstanding or Borrower has any right to Advances hereunder. (p) Jurisdiction. At the option of the Agent or the Lenders, an ------------ action may be brought to enforce this Agreement in the District Court in and for the City and County of Denver, State of Colorado, in the United States District Court for the District of Colorado or in any other court in which venue and jurisdiction are proper. Borrower and all guarantors hereof consent to venue and jurisdiction in the District Court in and for the City and County of Denver, State of Colorado and in the United States District Court for the District of Colorado and to jurisdiction and service of process under Sections 13-1- 124(1)(a) and 13-1-125, Colorado Revised Statutes (1973), as amended, in any action commenced to enforce this Agreement. EXECUTED to be effective as of the day and year first above written. MARKWEST HYDROCARBON PARTNERS, LTD. By: MarkWest Hydrocarbon, Inc. General Partner By: Patrick W. Murray, Vice President NORWEST BANK DENVER, NATIONAL ASSOCIATION, individually and as Agent By: ____________________________ Mark Williamson, Vice President FIRST AMERICAN NATIONAL BANK By: ____________________________ David C. May, -36- Vice President -37- EX-10.23 25 NATURAL GAS LIQUIDS PURCHASE AGREE. (BOLDMAN) NATURAL GAS LIQUIDS PURCHASE AGREEMENT (Boldman Plant) THIS AGREEMENT made and entered into this 24th day of December, 1990, by and between COLUMBIA GAS TRANSMISSION CORPORATION, herein called "Columbia", and MARKWEST HYDROCARBON PARTNERS, LTD. (herein called "MarkWest"). RECITALS: A. Columbia desires to deliver all liquid hydrocarbons extracted from natural gas at the Boldman Extraction Plant, operated by Columbia (the "Boldman Plant" or "Plant"). B. MarkWest desires to receive all of those liquid hydrocarbons in accordance with the terms of this Agreement. NOW THEREFORE, in consideration of the mutual covenants and agreements contained herein, the parties agree as follows: 1. Commitment. (a) MarkWest agrees to receive and purchase One Hundred ---------- Percent (100%) of the natural gas liquids produced by Columbia from the Boldman Plant. In conjunction therewith, MarkWest agrees that it shall receive and remove the liquids recovered by Columbia at the Plant on a daily basis, to the extent that the recovery of those natural gas liquids requires daily removal. In the event that a failure of MarkWest to timely remove natural gas liquids from the Boldman Plant causes Columbia to exceed the storage capacities for those liquid products at the Boldman Plant, then Columbia shall have the right to sell those liquids to the extent required to alleviate storage capacity problems, and shall remit to MarkWest any proceeds received in those sales less all necessary and reasonable costs and expenses incurred by Columbia in selling those products. All liquids sold by Columbia under the provisions of this Paragraph 1., shall be deemed received and accepted by MarkWest from Columbia for the purposes of determining the reimbursements by MarkWest under Paragraph 4., below. (b) Columbia agrees that it shall utilize its best efforts to maximize the liquid recovery (propane and heavier hydrocarbons) from the Plant utilizing the Plant equipment as ultimately constructed and installed. (c) Subject to the limitations hereinafter set forth, Columbia agrees to use its best efforts to avoid taking any action not compelled by law or regulation which will reduce the volume of natural gas being supplied to the Boldman Plant, or reduce the recovery of natural gas liquids at the Boldman Plant, or divert elsewhere the streams of natural gas that would otherwise flow through and be processed by the Boldman Plant. MarkWest and Columbia agree that the streams of natural gas are primarily part of Columbia's current natural gas supply for service to the public and Columbia's use of said natural gas streams to meet its public service obligation at the lowest reasonable cost shall be paramount. Columbia shall have the right to manage its gas supply, including the subject natural gas streams, in the manner in which Columbia, in its sole discretion, deems most appropriate to meet its public service obligation at the lowest reasonable cost, without any liability to MarkWest on account thereof. That right shall specifically include, but not be limited to, the right to curtail, interrupt, or divert the natural gas streams for such periods as Columbia, in its sole judgment, deems necessary. It is provided, however, that should Columbia divert the natural gas streams, otherwise deliverable to the Boldman Plant, to other extraction plants, the liquids extracted from those streams shall remain committed to MarkWest under the terms of this Agreement. 2. Delivery Point of Natural Gas Liquids. (a) MarkWest shall receive ------------------------------------- delivery of natural gas liquids under this Agreement where the liquid passes from the loading facilities into MarkWest's transportation vehicles at the Boldman Plant site. Columbia agrees to provide MarkWest the use of adequate space at the Plant site for MarkWest to conduct loading of the natural gas liquids produced at the Plant. MarkWest shall be solely responsible for any expenses incurred in loading natural gas liquids at Boldman, and removing and transporting the natural gas liquids from the truck loading facilities. (b) Title to the natural gas liquids and all components thereof shall pass from Columbia to MarkWest at the Delivery Point. As between the parties, Columbia shall be solely responsible for the natural gas liquids and all damages arising out of their extraction and handling up to the Delivery Point, and MarkWest shall be solely responsible for those liquids, and the handling thereof, from and after the Delivery Point. (c) Composition of the natural gas liquids delivered to MarkWest shall be determined by chromatographic analysis conducted by, and at the expense of Columbia. The mass of natural gas liquids delivered to MarkWest, shall be determined by the truck scales located at MarkWest's Siloam Fractionation Plant. 3. Term. This Agreement shall be effective upon the date hereof, and ---- shall continue in force through April 30, 2003. Thereafter, this Agreement shall continue for successive periods of two (2) years each, until either party gives notice of termination to the other party at least one (1) year prior to April 30, 2003, or one (1) year prior to the end of each succeeding 2-year period. 2 4. Reimbursement by MarkWest. (a) (Interim Period) During the period from ------------------------- Acceptance of the Plant as described in 2.4(a) of the Contract for Construction and Lease of Boldman Plant through and including thirty (30) days following written notice from Columbia, MarkWest shall compensate Columbia in cash for all natural gas liquids received from Columbia. The price shall be the actual spot gas pricing for the Columbia Gulf Transmission Company (Columbia Gulf), interconnection at the Texaco Henry Plant, Louisiana delivery point as published weekly in Natural Gas Week, Spot Prices on Natural Gas Pipeline Systems, ---------------- Delivered-to-Pipeline ($/MMBtu), in the "This Week" column, plus one-half (1/2) of the maximum rate specified in Columbia Gulf's ITS-1 Tariff, as such rate may be revised from time to time, excluding retainage. This pricing will be applied to the actual liquid deliveries in Dekatherms received and accepted by MarkWest during the preceding week to arrive at the compensation amount. (b) (Interim period Billing and Payment) During the interim period, on or before the 10th day of each month, Columbia shall receive from MarkWest a statement stating the number of gallons received from Columbia on a daily basis during the preceding month, by product from Ethane through Hexanes plus. Thereafter, on or before the 15th day of the same month, Columbia will submit a statement and invoice to MarkWest indicating all amounts due under this Agreement for the preceding month. MarkWest shall remit payment based on that invoice by the later of (i) the 25th day of the month in which the invoice is received by MarkWest or (ii) ten (10) days following receipt of the invoice. (c) (Subsequent Period) Beginning at the end of the thirty-day period specified in 4(a), above, and throughout the remainder of the term of this Agreement, MarkWest shall reimburse Columbia for all natural gas liquids received from Columbia by delivering to Columbia a quantity of Dekatherms contained in the natural gas liquids received and accepted by MarkWest. The Dekatherms in the form of natural gas shall conform to Columbia's or Columbia Gulf's tariff gas quality specifications then in effect at the actual Delivery Point. (d) With respect to ethane, MarkWest shall only be obligated to receive liquids from Columbia hereunder, representing ethane, up to a maximum of Two and One-Half Percent (2 1/2%) of the natural gas liquids delivered by Columbia. Should the natural gas liquids delivered hereunder contain in excess of 2 1/2% by liquid volume ethane, then MarkWest, at its option, shall have the right to refuse to receive deliveries of those natural gas liquids; provided, should MarkWest accept those excess ethane liquids, it will reimburse Columbia as provided in 4(a) or 4(c) above, as appropriate. 3 (e) MarkWest shall have no obligation to reimburse Columbia for any fuel incurred in operating the Boldman Plant. (f) For purposes of calculating Btu's received by MarkWest hereunder, the liquid chromatographic analysis as determined by Columbia using the chromatograph at Boldman will be used to determine liquid product composition by weight percent. The amount of liquid product received by MarkWest will be determined at MarkWest's transport scales at its Siloam Fractionation Plant and the conversion factors listed below will be used to convert weight to liquid volume:
Product Pounds Mass per Gallon ------- --------------------- Ethane 2.9696 Propane 4.2268 Iso-butane 4.6927 Normal Butane 4.8690 Iso-Pentane 5.2082 Normal-Pentane 5.261 Hexanes+ 5.5344
The natural gas liquid products shall be deemed to contain the following amounts of Btu's per gallon:
Product Btu per Gallon ------- -------------- Ethane 69,586 Propane 90,830 Iso-butane 98917 Normal butane 102,911 Iso-Pentane 108,805 Normal pentane 110,091 Hexanes + 115,021
The factors given above will be used to convert the liquid product by component by volume to BTU's for determining reimbursement volumes and/or compensation as provided elsewhere in this Agreement. 5. Delivery of Natural Gas. (a) The terms and the provisions of this ----------------------- paragraph, shall apply solely to reimbursement through deliveries of natural gas, as set forth in Paragraph 4(c), above, for the subsequent period. (b) The reimbursement in the form of natural gas conforming to Columbia's (or Columbia Gulf's, as appropriate) tariff gas quality specifications in effect at the time of such reimbursement and, as otherwise required under this Agreement, shall be made by MarkWest to Columbia at any or all of the receipt points specified in Exhibit "A", attached hereto and made 4 a part hereof, subject to physical capability, or any other receipt points upon which the parties agree, which agreement will not be unreasonably withheld. (c) MarkWest shall have the right, but not the obligation, during the term of this Agreement, to effectuate reimbursement by delivery of natural gas required by this Agreement into the Columbia Gulf System at Rayne, Louisiana, or at other points, subject to the physical capability of Columbia Gulf. (d) Measurement of the gas delivered at the receipt points as specified in Exhibit "A" shall be computed based upon existing meters and calorimeters located at those points. For determining the amounts of natural gas delivered at those receipt points, all volumes shall be converted to Btu's based upon the heating value contained in the natural gas at the receipt points measured at standard conditions (60 degrees Fahrenheit, 14.73 psia, 14.40 psia barometric, gross heating value dry basis). (e) MarkWest shall be responsible for obtaining all transportation arrangements required to deliver the natural gas to the receipt points, and shall be responsible for all transportation costs incurred in delivering the gas to the receipt points. (f) Columbia shall be responsible for all costs incurred in connection with the transportation of the natural gas from and after the receipt points; provided, however, MarkWest shall reimburse Columbia for transportation costs associated with the transportation of this natural gas on the Columbia Gulf System; such reimbursement will be at the equivalent maximum rates specified in Columbia Gulf's ITS-1 Tariff (and Columbia Gulf's ITS-2 Tariff for deliveries upstream of Rayne, Louisiana), as such rates may be revised from time to time. In the event Columbia Gulf is generally discounting its ITS-1 and/or ITS-2 rates, the reimbursement rate hereunder will be reduced accordingly during the period in which the generally available discounts are in effect. At the time deliveries are made to Columbia Gulf by MarkWest, MarkWest shall also deliver volumes for Colllmhia Gulf's transportation retainage, at the equivalent percentages specified in Columbia Gulf's ITS-1 and/or ITS-2 Tariffs, as applicable, as such percentages may be revised from time to time. (g) It is recognized that due to operating conditions, the Btu's of liquids received by MarkWest and the Btu's of natural gas to be delivered to Columbia may not be in balance in any one particular month. MarkWest shall adjust deliveries of gas within a mutually agreeable time-frame in order to balance any excess or deficiency. 5 (h) Should MarkWest fail to deliver gas consistent with the provisions of (g), above, then Columbia, in the event of deficiency, shall have the right to either (i) reduce deliveries of natural gas liquids to MarkWest to the extent necessary to balance the natural gas due Columbia with the natural gas delivered by MarkWest, or (ii) demand payment of an amount equal to the product of the volume of gas which was required and the effective price at the time deliveries were to have been made for Columbia Gulf Transmission Co., Rayne, La. delivery point, spot prices Delivered-to-Pipeline, as published weekly in Natural Gas Week, or other mutually agreeable sources, plus the cost ---------------- of transportation which would otherwise be incurred by MarkWest in delivering that gas to a Columbia Gas Transmission receipt point specified in this Agreement, plus the equivalent maximum transportation rates of Columbia Gulf specified in its ITS-1 Tariff, as such rates may be revised from time to time, if the receipt point is on Columbia Gulf's System. If a demand for payment is made and payment is not received within thirty (30) days of that demand, Columbia may apply the amount owed by MarkWest against any moneys owed by Columbia to MarkWest. (i) For natural gas tendered by MarkWest to the Columbia Gulf System, and which, for whatever reason, was not received by Columbia Gulf and/or redelivered to Columbia, MarkWest shall have the right to deliver these volumes with reasonable dispatch, over the succeeding months following Columbia Gulf's failure to receive volumes tendered, at any or all of the receipt points specified hereunder, subject to physical capability. 6. Unprofitability. (a) As used herein, the term "unprofitable" shall --------------- mean that the revenues derived from the operation of the MarkWest Siloam Fractionation Plant are less than the direct and overhead expenses incurred in operating that Plant. (b) During the term hereof, should the continued operation of MarkWest's Siloam Fractionation Plant prove unprofitable, then MarkWest shall notify Columbia in writing. Thereafter, the parties shall meet and attempt to renegotiate the terms of this Agreement, as may be required to return the Plant to a profitable status. In the event that the parties are unable to agree upon renegotiated terms, within forty-five (45) days following receipt of the notice, then MarkWest, or its successor or assignee, shall continue to honor all terms of this Agreement from that date for a period not to exceed twelve (12) calendar months. 7. Billing and Payment. Should any payments be required under 5(h), ------------------- above, then on or before the 15th day of the month following the applicable month, Columbia will submit a statement and invoice to MarkWest indicating all amounts due under this 6 Contract for the preceding month. MarkWest shall remit payment based on that invoice by the 25th day of the month in which the invoice is received, unless the invoice is received by MarkWest after the 15th day of that month; in which case, MarkWest will have an equal amount of days following the 25th day of that month in which to remit payment. 8. Insurance and Indemnity. (a) During the terms of this Agreement, ----------------------- MarkWest agrees that it shall carry and maintain, at its own expense, the kinds of insurance including self-insured retentions and deductibles, and the minimum amounts of coverage set forth in the Insurance Schedule attached as Exhibit B. (b) Columbia shall indemnify and hold harmless MarkWest from and against any and all loss, damage, and liability, and from any and all claims for damages on account of or by reason of bodily injury, including death, which may be sustained, or claimed to be sustained by any person, including the employees of Columbia, MarkWest's General Contractor, Contractors and of any Subcontractor or Columbia, and from and against any and all damages to property, and including property of MarkWest, caused by or arising out of, or claimed to have been caused by or to have arisen out of, an act or omission of Columbia or its agents, or employees in connection with Columbia's operation of the plant or other conduct with respect to the plant, whether or not insured against; provided, however, that the foregoing indemnification will not cover loss, damage or liability arising from the sole negligence or willful misconduct of MarkWest, its agents and employees; and Columbia shall, at its own cost and expense, defend any claim, suit, action, or proceeding, whether groundless or not, which may be commenced against MarkWest by reason thereof or in connection therewith, and Columbia shall pay any and all judgments which may be recovered in any such action, claim, proceeding, or suit, following all appeals as may be pursued by Columbia, and defray any and all expenses, including costs and attorneys' fees, which may be incurred in or by reason of such actions, claims, proceedings, or suits. (c) MarkWest shall indemnify and hold harmless Columbia from and against any and all loss, damage, and liability and from any and all claims for damages on account of or by reason of bodily injury, including death, which may be sustained or claimed to be sustained by any person, including the employees of MarkWest, its General Contractor, Contractors and of any Subcontractor or MarkWest, and from and against any and all damages to property, and including property of Columbia, caused by or arising out of, or claimed to have been caused by or to have arisen out of an act or omission of MarkWest or its agents, employees, General Contractor, Contractors or Subcontractors in connection with MarkWest's loading of plant products at the Boldman Plant or other conduct with respect to the Boldman Plant, whether or not insured against; provided, however, that the 7 foregoing indemnification will not cover loss, damage or liability arising from the sole negligence or willful misconduct of Columbia, its agents and employees; and MarkWest shall, at its own cost and expense, defend any claim, suit, action, or proceeding whether groundless or not, which may be commenced against Columbia by reason thereof or in connection therewith, and MarkWest shall pay any and all judgments which may be recovered in any such action, claim, proceeding, or suit, following all appeals as may be pursued by MarkWest, and defray any and all expenses, including costs and attorneys' fees, which may be incurred in or by reason of such actions, claims, proceedings, or suits. 9. Miscellaneous. (a) This Agreement may be assigned by either party ------------- hereto with the consent of the other party, such consent should not be unreasonably withheld, and shall be binding upon and shall inure to the benefit of each party's successors and assigns. Any assignment by MarkWest of the Boldman Plant shall be made expressly subject to the terms of this Agreement. Further, no mortgage, pledge, encumbrance or assignment for security of this Agreement by MarkWest shall be considered an assignment, and may, therefore, be made without consent. (b) Any notices required or permitted under this Agreement shall be made through the U.S. Postal Service, to the following addresses: MarkWest Hydrocarbon Partners, Ltd. 5613 DTC Parkway, Suite 400 Englewood, CO 80111 Columbia Gas Transmission Corporation Box 1273 Charleston, WV 25325 Attention of Assistant General Counsel, Corporate Matters (c) This Agreement shall be construed in accordance with the laws of the State of West Virginia. (d) Any and all disputes, claims or controversies arising from the interpretation of this Agreement, or a party's obligations hereunder, shall be resolved by binding arbitration conducted in accordance with the rules of the American Arbitration Association. 8 IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day and year last above written. ATTEST: COLUMBIA GAS TRANSMISSION CORPORTION By: /s/ R. Larry Robinson Title: President ATTEST: MARKWEST HYDROCARBON PARTNERS, LTD. By: MarkWest Hydrocarbon, Inc., its general partner By: /s/ John M. Fox Title: President 9 EXHIBIT "A" To That Certain Natural Gas Liquids Purchase Agreement (Boldman Plant) by and Between Columbia Gas Transmission Corporation and MarkWest Energy Partners, Ltd.
RECEIPT POINTS FROM AT COUNTY AND STATE - ---- -- ---------------- (COMMON NAME) ------------- Panhandle Eastern Maumee Lucas Co., Ohio Pipeline Co. Tennessee Gas Broad Run Kanawha Co., WV Pipeline Co. Unionville Beaver Co., PA Texas Eastern Lebanon Warren Co., Ohio Transmission Corp. Hooker Fairfield Co., OH Eagle Chester Co., PA Pennsburg, Exc. Bucks Co., PA Texas Gas Lebanon Warren Co., Ohio Transmission Corp. Transcontinental Dranesville Fairfax Co., VA Gas Pipeline Corp. Rockville Montgomery Co., MD Downington Chester Co., PA Columbia Gulf Leach Boyd Co. KY
Additionally, Columbia Gulf Transmission Company's Rayne,Louisiana, facilities and any other points, subject to physical capability, on the Columbia Gulf System shall be receipt points under this Agreement. 10 EXHIBIT B As required and for the purposes specified in Paragraph 8 of the Contract to which this Exhibit is attached, MarkWest shall carry and maintain, at its own expense, the kinds of insurance, including self-insured retentions and deductibles, and the minimum amounts of coverage set forth in the insurance schedule below: Insurance Endorsements or Certifications. MarkWest shall obtain ---------------------------------------- endorsements (or assurances on the Certificate of Insurance) on every insurance contract (except for Workers' Compensation insurance contract, as required by law) carried to comply with this article as follows: (1) An endorsement or certification of contractual liability coverage insuring performance of the indemnification of Columbia by MarkWest. (2) All insurance policies carried by MarkWest to comply with the requirements herein shall contain an endorsement or certification naming Columbia as an additional insured under the insurance contract. (3) All insurance policies shall contain a waiver of subrogation as to Columbia, its agents, officials, parents, directors, officers and employees. Coverage - -------- Coverage in Markwest's insurance policies shall be as specified in this clause unless modified in writing by Columbia. (1) Worker's Compensation --------------------- Statutory coverage, including occupational disease if and as required in a separate act. Coverage should also include: (a) An all-states endorsement. (b) Employer's Liability Coverage B $500,000. 11
(2) Comprehensive General Combined Single Limit --------------------- --------------------- Liability Insurance ------------------- Bodily injury and Including Pollution Liability Property Damage: (limited to Sudden & $1,000,000 Accidental Occurrences Each occurrence only) Premises & (Excluding automobile) Operations Owners and Annual Aggregate: MarkWest's Protective for $1,000,000 Columbia, Blanket Contractual, Completed Operations, Broadform Property Damage, Stop Gap Coverage for Workers' Compensation Monopolistic states and, if applicable, Product Liability. (The Contractual Section of the coverage must cover the specific and contractual agreement being entered into.)
The policy shall contain a severability of interest clause or a cross-liability endorsement. Coverage shall expressly include damage resulting from fire, explosion, injury or destruction of property below the surface or any injury or loss resulting therefrom, excavating, pile driving, moving shoring, or underpinning of any structures, or use of equipment for the purpose of excavating or drilling in streets or elsewhere. Coverage shall be provided by MarkWest for any and all necessary or required blasting and explosion hazards, including coverage for underground and collapse. Personal Injury - --------------- Personal injury coverage shall be provided for the above coverages with limits of liability as stated. The fellow employees and contractual liability exclusions are to be deleted. Automobile Liability Insurance Combined Single Limit - ------------------------------ --------------------- Including owned, non-owned, Bodily Injury: $1,000,000 and hired vehicles. Property Damage: $1,000,000 MarkWest shall also comply with all applicable No-Fault Laws. 12 (4) Umbrella Liability Insurance ---------------------------- Umbrella liability coverage in the amount of $5,000,000 combined single limit, bodily injury and property damage. This coverage shall be in excess of the primary coverage required in all other sections of this article. (5) Cancellation or Non-Renewal Agreement ------------------------------------- Company will be furnished at least 30 days prior notice of any non- renewal and/or cancellation and/or reduction in limits of material change in any of the required coverages. Proof of Coverage - ----------------- MarkWest must furnish not later than the time of signing of this contract, properly executed certificates of insurance and, if requested, shall furnish Columbia with copies of the policies with all endorsements prior to the commencement of any work hereunder. 13 AMENDMENT TO NATURAL GAS LIQUIDS PURCHASE AGREEMENT (BOLDMAN PLANT) THIS AMENDMENT made and entered into this 28th day of January, 1991, by and between COLUMBIA GAS TRANSMISSION CORPORATION, herein called "Columbia" and MARKWEST HYDROCARBON PARTNES, LTD., herein called "MarkWest." RECITALS: A. MarkWest and Columbia entered into a Natural Gas Liquids Purchase Agreement, dated December 24, 1990 ("Agreement"). B. In accordance with the intentions and understandings of the parties, MarkWest and Columbia desire to enter into this Amendment. NOW THEREFORE, in consideration of the mutual covenants and agreements contained herein, the parties agree to amend the Agreement as follows: 1. Section 4, Paragraph (a) shall be amended by deleting the phrase "one- half (1/2) of the maximum rate specified in Columbia Gulf's ITS-1 Tariff, as such rate may be revised from time to time, excluding retainage" and replacing it with "additional compensation of $0.04 per MMBtu." 2. Except for the foregoing, all other terms and provisions of the Natural Gas Liquids Purchase Agreement, dated December 24, 1990 shall remain in full force and effect. IN WITNESS WHEREOF, the parties have executed this Amendment the day and year first above written. COLUMBIA GAS TRANSMISSION CORPORATION By: /s/ Michael W. Its Senior Vice President MARKWEST HYDROCARBON PARTNERS, LTD. By: MarkWest Hydrocarbon, Inc. Its General Partner By: /s/ John M. Fox Its President 14 EX-10.25 26 1996 INCENTIVE COMPENSATION PLAN MARKWEST HYDROCARBON, INC. 1996 INCENTIVE COMPENSATION PLAN Section 1. Purpose. ------- MarkWest Hydrocarbon, Inc. has adopted this 1996 Incentive Compensation Plan (the "Plan") for the purpose of providing a financial incentive for certain employees of MarkWest Hydrocarbon, Inc. and its subsidiaries (collectively the "Company") and to enable the Company to retain such employees and to attract other well-qualified candidates. Section 2. Effective Date. -------------- The Plan shall be effective as of the Effective Date, and shall first apply with respect to Plan Year ending December 31, 1996. The Plan was adopted by the Board of Directors on July 31, 1996. Section 3. Definitions. ----------- As used in the Plan, the following terms shall have the meanings set forth below: (a) "Board of Directors" shall mean the Board of Directors of the Company. (b) "Bonus" or "Bonus Award" shall mean the cash bonus which may be paid to a Participant pursuant to the Plan for any Plan Year. (c) "Bonus Committee" shall mean the Committee appointed by the Board of Directors to administer the Plan. (d) "Bonus Pool" shall mean the total amount from which Bonus Awards may be paid for any Plan Year. (e) "Company" shall mean MarkWest Hydrocarbon, Inc., a Delaware corporation, and all of its subsidiaries. For this purpose, a subsidiary shall mean any corporation in an unbroken chain of corporations beginning with MarkWest Hydrocarbon, Inc. if each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50 percent or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. (f) "Designated Beneficiary" shall mean any person designated by a Participant in accordance with the terms of the Plan to receive payment of all or a portion of the remaining balance owed to such Participant in the event of the death of the Participant prior to receiving the entire amount owed to such Participant. (g) "Disability" shall mean the termination of employment due to mental or physical disability, such disability being determined by a competent medical authority acceptable to the Company. (h) "Effective Date" shall mean the date of the closing of the reorganization transactions contemplated by the Reorganization Agreement made as of August 1, 1996, by and among MarkWest Hydrocarbon, Inc., MarkWest Hydrocarbon Partners, Ltd., MWHC Holding, Inc. and RIMCO Associates, Inc.. (i) "Eligible Employee" shall mean any full-time, non-union employee of the Company. (j) "Participant" shall mean an Eligible Employee who is selected by the Bonus Committee to participate in the Plan in any given Plan Year. (k) "Plan" shall mean the MarkWest Hydrocarbon, Inc. 1996 Incentive Compensation Plan as set forth herein. (l) "Plan Year" shall mean the calendar year. The first Plan Year shall commence on the Effective Date and shall end on December 31, 1996. (m) "Retirement" shall mean termination of employment with the Company after attainment of age 65. (n) "Salary" shall mean the amount of compensation paid by the Company to a Participant during the Plan Year for services rendered, as reflected on Form W-2 issued to such Participant with respect to such Plan Year. 4. Bonus Awards. ------------ (a) Participation. No later than each December l, the Bonus Committee shall determine the Eligible Employees who will be Participants in the Plan for the Plan Year ending on the next following December 31. The Eligible Employees who are selected shall be notified in writing of their selection by the Bonus Committee as soon as practicable. The selection of a Eligible Employee as a Participant for one Plan Year does not mean that such Eligible Employee will necessarily be selected as a Participant for any following Plan Year. (b) Bonus Pool. The Bonus Pool represents the total amount of Bonuses to be granted for a Plan Year. The amount of the Company's contribution or allocation to the Bonus Pool for a Plan Year is within the discretion of the Bonus -2- Committee. As soon as practicable after the end of each Plan Year, the Bonus Committee shall compute the amount of the Bonus Pool for such Plan Year. The Bonus Committee, after consulting with the Board of Directors, may increase or decrease the Bonus Pool on the basis of the overall profitability of the Company or such other factors or considerations as it deems appropriate. (c) Bonus Awards. The Bonus Committee, in its absolute discretion, determines the amount of the Bonus for each Participant. The allocation of the Bonus Pool among the Participants will be made based upon a combination of individual performance, the overall profitability of the Company, and the profitability of that portion of the Company in which the Participant is directly involved. Notwithstanding the foregoing, a Bonus may not be paid to any Participant for a Plan Year that exceeds 25 percent of the Participant's Salary for such Plan Year. Generally, Bonuses shall be paid only to Participants who are employed by the Company on the December 31 ending the Plan Year; however, the Bonus Committee shall have the right to pay Bonuses to Participants who retired or were disabled subsequent to December l of the Plan Year, or to the Designated Beneficiary or the estate of a Participant whose death occurred subsequent to December l of a Plan Year. The Bonus Committee is not obligated to award the entire Bonus Pool to Participants for any Plan Year. (d) Timing of Payment of Bonus. The Bonus Committee, in its absolute discretion, shall determine whether the Bonus awarded to a Participant is to be (a) paid in a lump sum, (b) paid partly in a lump sum and partly on a deferred basis, or (c) paid totally on a deferred basis. All payments shall be paid in cash. Lump sum payments shall be paid before March 31 following the end of the Plan Year. In the event that a Participant's employment is terminated for any reason other than Retirement or Disability, the Company shall not be obligated to pay any amount owed under the Plan to that Participant. (e) Bonus Subject to Forfeiture. A Participant's right to a Bonus and the right of such Participant or his Designated Beneficiary to unpaid amounts will be terminated, or, if payments have begun, all further payments will be discontinued and forfeited if the Bonus Committee determines that the Participant has engaged in conduct inimical to the interests of the Company, or has engaged, without the prior written consent of the Bonus Committee, as an officer, director, partner, owner, joint venturer, employee, or consultant to any business which competes with the business of the Company. -3- Section 5. Bonus Committee. --------------- The Bonus Committee shall have all powers as may be necessary to carry out its duties under the Plan, including the power to determine all questions pertaining to claims for benefits and procedures for claim review, and the power to resolve all other issues arising under the Plan. The Bonus Committee shall be responsible for construction of the Plan and the proper administration thereof. In making its determination as to whether a Participant's Bonus is to be paid in cash or to be deferred, or to be paid partly in cash and partly deferred, and the manner in which a Participant's Bonus Account shall be paid, the Bonus Committee shall exercise sole and absolute discretion and it shall not be bound by any requests of the Participant. Notwithstanding the foregoing, the Bonus Committee may consult with the Participant and may take into account the age of the Participant, the financial needs of the Participant, and/or the effect of federal and state taxes on both the Company and the Participant that would result from any particular method of payment. No one or more particular instances of a decision by the Bonus Committee in this regard shall imply a course of dealing or customary practice which is binding in any other future instances. The actions taken and the decisions made by the Bonus Committee shall be final and binding upon all interested parties. Section 6. Miscellaneous. ------------- (a) Amendment, Suspension or Termination. The Board of Directors may from time to time amend, suspend, or terminate, in whole or in part, any or all of the provisions of this Plan; provided, however, that no such action shall adversely affect the right of any Participant or Designated Beneficiary with respect to any bonus to which either of them may have become entitled hereunder prior to the effective date of such amendment, suspension, or termination. (b) Limitations. This Plan is not to be construed as constituting a contract of employment. Nothing contained herein shall affect or impair the Company's right to terminate the employment of a Eligible Employee. The Company's obligation hereunder to make payment of Bonuses hereunder merely constitute the unsecured promise of the Company to make payment from its general assets, and no Participant or Designated Beneficiary shall have any interest in, or a lien or prior claim upon, any property of the Company. (c) Indemnification. No member of the Board of Directors of the Bonus Committee shall have any liability for any decision or action if made or done in good faith, nor for any error or miscalculation unless such error or miscalculation is a result of fraud, deliberate disregard of the terms of the Plan, or gross neglect. The Company shall indemnify each director and member of the -4- Bonus Committee acting in good faith, pursuant to the terms of the Plan, against any loss or expense arising therefrom. (d) Governing law. The terms of this Plan shall be governed by and construed in accordance with the laws of the State of Colorado. -5- EX-10.26 27 1996 STOCK INCENTIVE PLAN OF REGISTRANT MARKWEST HYDROCARBON, INC. 1996 STOCK INCENTIVE PLAN Section 1. Purpose. ------- The purpose of the Plan is to promote the interests of the Company and its stockholders by aiding the Company in attracting and retaining management personnel capable of assuring the future success of the Company, to offer such personnel incentives to put forth maximum efforts for the success of the Company's business and to afford such personnel an opportunity to acquire a proprietary interest in the Company. Section 2. Definitions. ----------- As used in the Plan, the following terms shall have the meanings set forth below: (a) "Affiliate" shall mean (i) any entity that, directly or indirectly through one or more intermediaries, is controlled by the Company, and (ii) any entity in which the Company has a significant equity interest, in each case as determined by the Committee. The Partnership shall be deemed an Affiliate as of the Effective Date. (b) "Award" shall mean any Option, Stock Appreciation Right, Restricted Stock, Restricted Stock Unit, Performance Award, Dividend Equivalent or Other Stock-Based Award granted under the Plan. (c) "Award Agreement" shall mean any written agreement, contract or other instrument or document evidencing any Award granted under the Plan. (d) "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time, and any regulations promulgated thereunder. (e) "Committee" shall mean a committee of the Board of Directors of the Company designated by such Board to administer the Plan, which shall consist of members appointed from time to time by the Board of Directors. (f) "Company" shall mean MarkWest Hydrocarbon, Inc., a Delaware corporation, and any successor corporation. (g) "Dividend Equivalent" shall mean any right granted under Section 6(e) of the Plan. (h) "Effective Date" shall mean the date, if any, on which the consummation of the Reorganization Transactions occurs. (i) "Eligible Person" shall mean any employee or officer of the Company or any Affiliate who the Committee determines to be an Eligible Person. A director of the Company who is not also an employee of the Company or an Affiliate shall not be an Eligible Person. (j) "Fair Market Value" shall mean, with respect to any property (including, without limitation, any Shares or other securities), the fair market value of such property determined by such methods or procedures as shall be established from time to time by the Committee. (k) "Incentive Stock Option" shall mean an option granted under Section 6(a) of the Plan that is intended to meet the requirements of Section 422 of the Code or any successor provision. (l) "Non-Qualified Stock Option" shall mean an option granted under Section 6(a) of the Plan that is not intended to be an Incentive Stock Option. (m) "Option" shall mean an Incentive Stock Option or a Non-Qualified Stock Option. (n) "Other Stock-Based Award" shall mean any right granted under Section 6(f) of the Plan. (o) "Participant" shall mean an Eligible Person designated to be granted an Award under the Plan. (p) "Partnership" shall mean MarkWest Hydrocarbon Partners, Ltd., a Colorado limited partnership. (q) "Performance Award" shall mean any right granted under Section 6(d) of the Plan. (r) "Person" shall mean any individual, corporation, partnership, association or trust. (s) "Plan" shall mean this 1996 Stock Incentive Plan, as amended from to time. (t) "Reorganization Transactions" shall mean those transactions contemplated by the Reorganization Agreement to be entered into among the Company, the Partnership and the other parties thereto. -2- (u) "Restricted Stock" shall mean any Share granted under Section 6(c) of the Plan. (v) "Restricted Stock Unit" shall mean any unit granted under Section 6(c) of the Plan evidencing the right to receive a Share (or a cash payment equal to the Fair Market Value of a Share) at some future date. (w) "Rule 16b-3" shall mean Rule 16b-3 promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, or any successor rule or regulation. (x) "Shares" shall mean shares of Common Stock, $.01 par value, of the Company or such other securities or property as may become subject to Awards pursuant to an adjustment made under Section 4(c) of the Plan. (y) "Stock Appreciation Right" shall mean any right granted under Section 6(b) of the Plan. Section 3. Administration. -------------- (a) Power and Authority of the Committee. The Plan shall be ------------------------------------ administered by the Committee. Subject to the express provisions of the Plan and to applicable law, the Committee shall have full power and authority to: (i) designate Participants; (ii) determine the type or types of Awards to be granted to each Participant under the Plan; (iii) determine the number of Shares to be covered by (or with respect to which payments, rights or other matters are to be calculated in connection with) each Award; (iv) determine the terms and conditions of any Award or Award Agreement; (v) amend the terms and conditions of any Award or Award Agreement and accelerate the exercisability of Options or the lapse of restrictions relating to Restricted Stock, Restricted Stock Units or other Awards; (vi) determine whether, to what extent and under what circumstances Awards may be exercised in cash, Shares, other securities, other Awards or other property, or canceled, forfeited or suspended; (vii) determine whether, to what extent and under what circumstances cash, Shares, other securities, other Awards, other property and other amounts payable with respect to an Award under the Plan shall be deferred either automatically or at the election of the holder thereof or the Committee; (viii) interpret and administer the Plan and any instrument or agreement relating to, or Award made under, the Plan; (ix) establish, amend, suspend or waive such rules and regulations and appoint such agents as it shall deem appropriate for the proper administration of the Plan; and (x) make any other determination and take any other action that the Committee deems necessary or desirable for the administration of the Plan. Unless otherwise expressly provided in the Plan, all designations, determinations, interpretations and other decisions under or with -3- respect to the Plan or any Award shall be within the sole discretion of the Committee, may be made at any time and shall be final, conclusive and binding upon any Participant, any holder or beneficiary of any Award and any employee of the Company or any Affiliate. In exercising its authority pursuant to the Plan, the Committee shall adhere to all provisions of the Code as are applicable to the grant, issuance and exercise of any Award. (b) Replacement of Partnership Options. In addition to the power and ---------------------------------- authority granted to the Committee under Section 3(a) hereof, the Committee shall have full power and authority to make grants of Options to employees of the Partnership who shall become employees of the Company pursuant to the Reorganization Transactions, which grants shall be effective only on and after the Effective Date, and which Options shall serve to replace options held by such employees for equity in the Partnership by substantially equivalent rights to purchase Shares in the Company. The Committee shall determine, in its sole discretion, the terms and conditions of Award Agreements related to such Options. (c) Delegation. The Committee may delegate its powers and duties ---------- under the Plan to one or more officers of the Company or any Affiliate or a committee of such officers, subject to such terms, conditions and limitations as the Committee may establish in its sole discretion; provided, however, that the -------- ------- Committee shall not delegate its powers and duties under the Plan with regard to officers or directors of the Company or any Affiliate who are subject to Section 16 of the Securities Exchange Act of 1934, as amended. Section 4. Shares Available for Awards. --------------------------- (a) Shares Available. Subject to adjustment as provided in Section ---------------- 4(c), the number of Shares available for granting Awards under the Plan shall be 600,000. Shares to be issued under the Plan may be either Shares reacquired and held in the treasury or authorized but unissued Shares. If any Shares covered by an Award or to which an Award relates are not purchased or are forfeited, or if an Award otherwise terminates without delivery of any Shares, then the number of Shares counted against the aggregate number of Shares available under the Plan with respect to such Award, to the extent of any such forfeiture or termination, shall again be available for granting Awards under the Plan. The Company shall at all times keep available the number of Shares to satisfy Awards granted under the Plan. (b) Accounting for Awards. For purposes of this Section 4, if an --------------------- Award entitles the holder thereof to receive or purchase Shares, the number of Shares covered by such Award or to which such Award relates shall be counted on the date of grant of such Award against the aggregate number of Shares available for granting Awards under the Plan. -4- (c) Adjustments. In the event that the Committee shall determine that ----------- any dividend or other distribution (whether in the form of cash, Shares, other securities or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase or exchange of Shares or other securities of the Company, issuance of warrants or other rights to purchase Shares or other securities of the Company or other similar corporate transaction or event affects the Shares such that an adjustment is determined by the Committee to be appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan, then the Committee shall, in such manner as it may deem equitable, adjust any or all of (i) the number and type of Shares (or other securities or other property) which thereafter may be made the subject of Awards, (ii) the number and type of Shares (or other securities or other property) subject to outstanding Awards and (iii) the purchase or exercise price with respect to any Award; provided, however, that the number of Shares covered -------- ------- by any Award or to which such Award relates shall always be a whole number. Section 5. Eligibility. ----------- (a) Designation of Participants. Any Eligible Person, including any --------------------------- Eligible Person who is an officer or director of the Company or any Affiliate, shall be eligible to be designated a Participant. In determining which Eligible Persons shall receive an Award and the terms of any Award, the Committee may take into account the nature of the services rendered by the respective Eligible Persons, their present and potential contributions to the success of the Company or such other factors as the Committee, in its discretion, shall deem relevant. Notwithstanding the foregoing, an Incentive Stock Option may only be granted to full or part-time employees (which term as used herein includes, without limitation, officers and directors who are also employees) and an Incentive Stock Option shall not be granted to an employee of an Affiliate unless such Affiliate is also a "subsidiary corporation" of the Company within the meaning of Section 424(f) of the Code or any successor provision. (b) Award Limitations Under the Plan. No Eligible Person, who is any -------------------------------- employee of the Company at the time of grant, may be granted any Award or Awards, the value of which Awards are based solely on an increase in the value of the Shares after the date of grant of such Awards, for more than 10,000 Shares, in the aggregate, in any one calendar year, beginning with the period commencing on the Effective Date and ending on December 31, 2006. The foregoing annual limitation specifically includes the grant of any Awards representing "qualified performance-based compensation" within the meaning of Section 162(m) of the Code. -5- Section 6. Awards. ------ (a) Options. The Committee is hereby authorized to grant Options to ------- Participants with the following terms and conditions and with such additional terms and conditions not inconsistent with the provisions of the Plan as the Committee shall determine: (i) Exercise Price. The purchase price per Share purchasable under -------------- an Option shall be determined by the Committee; provided, however, that -------- ------- such purchase price shall not be less than 100% of the Fair Market Value of a Share on the date of grant of such Option. (ii) Option Term. The term of each Option shall be fixed by the ----------- Committee. (iii) Time and Method of Exercise. The Committee shall determine --------------------------- the time or times at which an Option may be exercised in whole or in part and the method or methods by which, and the form or forms (including, without limitation, cash, Shares, promissory notes, other securities, other Awards or other property, or any combination thereof, having a Fair Market Value on the exercise date equal to the relevant exercise price) in which, payment of the exercise price with respect thereto may be made or deemed to have been made. (iv) Incentive and Non-Qualified Stock Options. Each Option granted ----------------------------------------- pursuant to the plan shall specify whether it is an Incentive Stock Option or a Non-qualified Stock Option, provided that the Committee may in the case of the grant of an Incentive Stock Option give the Participant the right to receive in its place a Non-qualified Stock Option. (b) Stock Appreciation Rights. The Committee is hereby authorized to ------------------------- grant Stock Appreciation Rights to Participants subject to the terms of the Plan and any applicable Award Agreement. A Stock Appreciation Right granted under the Plan shall confer on the holder thereof a right to receive upon exercise thereof the excess of (i) the Fair Market Value of one Share on the date of exercise (or, if the Committee shall so determine, at any time during a specified period before or after the date of exercise) over (ii) the grant price of the Stock Appreciation Right as specified by the Committee, which price shall not be less than 100% of the Fair Market Value of one Share on the date of grant of the Stock Appreciation Right. Subject to the terms of the Plan and any applicable Award Agreement, the grant price, term, methods of exercise, dates of exercise, methods of settlement and any other terms and conditions of any Stock Appreciation Right shall be as determined by the Committee. The Committee may impose such conditions or restrictions on the exercise of any Stock Appreciation Right as it may deem appropriate. -6- (c) Restricted Stock and Restricted Stock Units. The Committee is ------------------------------------------- hereby authorized to grant Awards of Restricted Stock and Restricted Stock Units to Participants with the following terms and conditions and with such additional terms and conditions not inconsistent with the provisions of the Plan as the Committee shall determine: (i) Restrictions. Shares of Restricted Stock and Restricted Stock ------------ Units shall be subject to such restrictions as the Committee may impose (including, without limitation, any limitation on the right to vote a Share of Restricted Stock or the right to receive any dividend or other right or property with respect thereto), which restrictions may lapse separately or in combination at such time or times, in such installments or otherwise as the Committee may deem appropriate. (ii) Stock Certificates. Any Restricted Stock granted under the Plan ------------------ shall be evidenced by issuance of a stock certificate or certificates, which certificate or certificates shall be held by the Company. Such certificate or certificates shall be registered in the name of the Participant and shall bear an appropriate legend referring to the terms, conditions and restrictions applicable to such Restricted Stock. In the case of Restricted Stock Units, no Shares shall be issued at the time such Awards are granted. (iii) Forfeiture; Delivery of Shares. Except as otherwise ------------------------------ determined by the Committee, upon termination of employment (as determined under criteria established by the Committee) during the applicable restriction period, all Shares of Restricted Stock and all Restricted Stock Units at such time subject to restriction shall be forfeited and reacquired by the Company; provided, however, that the Committee may, when it finds -------- ------- that a waiver would be in the best interest of the Company, waive in whole or in part any or all remaining restrictions with respect to Shares of Restricted Stock or Restricted Stock Units. Any Share representing Restricted Stock that is no longer subject to restrictions shall be delivered to the holder thereof promptly after the applicable restrictions lapse or are waived. Upon the lapse or waiver of restrictions and the restricted period relating to Restricted Stock Units evidencing the right to receive Shares, such Shares shall be issued and delivered to the holders of the Restricted Stock Units. (d) Performance Awards. The Committee is hereby authorized to grant ------------------ Performance Awards to Participants subject to the terms of the Plan and any applicable Award Agreement. A Performance Award granted under the Plan (i) may be denominated or payable in cash, Shares (including, without limitation, Restricted Stock), other securities, other Awards or other property and (ii) shall confer on the holder thereof the right to receive payments, in whole or in part, -7- upon the achievement of such performance goals during such performance periods as the Committee shall establish. Subject to the terms of the Plan and any applicable Award Agreement, the performance goals to be achieved during any performance period, the length of any performance period, the amount of any Performance Award granted, the amount of any payment or transfer to be made pursuant to any Performance Award and any other terms and conditions of any Performance Award shall be determined by the Committee. (e) Dividend Equivalents. The Committee is hereby authorized to grant -------------------- to Participants Dividend Equivalents under which such Participants shall be entitled to receive payments (in cash, Shares, other securities, other Awards or other property as determined in the discretion of the Committee) equivalent to the amount of cash dividends paid by the Company to holders of Shares with respect to a number of Shares determined by the Committee. Subject to the terms of the Plan and any applicable Award Agreement, such Dividend Equivalents may have such terms and conditions as the Committee shall determine. (f) Other Stock-Based Awards. The Committee is hereby authorized to ------------------------ grant to Participants such other Awards that are denominated or payable in, valued in whole or in part by reference to, or otherwise based on or related to, Shares (including, without limitation, securities convertible into Shares), as are deemed by the Committee to be consistent with the purpose of the Plan; provided, however, that such grants must comply with Rule 16b-3 and applicable - -------- ------- law. Subject to the terms of the Plan and any applicable Award Agreement, the Committee shall determine the terms and conditions of such Awards. Shares or other securities delivered pursuant to a purchase right granted under this Section 6(f) shall be purchased for such consideration, which may be paid by such method or methods and in such form or forms (including without limitation, cash, Shares, promissory notes, other securities, other Awards or other property or any combination thereof), as the Committee shall determine, the value of which consideration, as established by the Committee, shall not be less than 100% of the Fair Market Value of such Shares or other securities as of the date such purchase right is granted. (g) General. ------- (i) No Cash Consideration for Awards. Awards shall be granted for no -------------------------------- cash consideration or for such minimal cash consideration as may be required by applicable law. (ii) Awards May Be Granted Separately or Together. Awards may, in -------------------------------------------- the discretion of the Committee, be granted either alone or in addition to, in tandem with or in substitution for any other Award or any award granted under any plan of the Company or any Affiliate other than the Plan. Awards granted in addition to or in tandem with other Awards or in addition to or in -8- tandem with awards granted under any such other plan of the Company or any Affiliate may be granted either at the same time as or at a different time from the grant of such other Awards or awards. (iii) Forms of Payment under Awards. Subject to the terms of the ----------------------------- Plan and of any applicable Award Agreement, payments or transfers to be made by the Company or an Affiliate upon the grant, exercise or payment of an Award may be made in such form or forms as the Committee shall determine (including, without limitation, cash, Shares, promissory notes, other securities, other Awards or other property or any combination thereof), and may be made in a single payment or transfer, in installments or on a deferred basis, in each case in accordance with rules and procedures established by the Committee. Such rules and procedures may include, without limitation, provisions for the payment or crediting of reasonable interest on installment or deferred payments or the grant or crediting of Dividend Equivalents with respect to installment or deferred payments. (iv) Limits on Transfer of Awards. No Award and no right under any ---------------------------- such Award shall be transferable by a Participant otherwise than by will or by the laws of descent and distribution; provided, however, that, if so -------- ------- determined by the Committee, a Participant may, in the manner established by the Committee, designate a beneficiary or beneficiaries to exercise the rights of the Participant and receive any property distributable with respect to any Award upon the death of the Participant. Each Award or right under any Award shall be exercisable during the Participant's lifetime only by the Participant or, if permissible under applicable law, by the Participant's guardian or legal representative. No Award or right under any such Award may be pledged, alienated, attached or otherwise encumbered, and any purported pledge, alienation, attachment or encumbrance thereof shall be void and unenforceable against the Company or any Affiliate. (v) Term of Awards. The term of each Award shall be for such period -------------- as may be determined by the Committee. (vi) Restrictions; Securities Exchange Listing. All certificates for ----------------------------------------- Shares or other securities delivered under the Plan pursuant to any Award or the exercise thereof shall be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the Plan or the rules, regulations and other requirements of the Securities and Exchange Commission and any applicable federal or state securities laws, and the Committee may cause a legend or legends to be placed on any such certificates to make appropriate reference to such restrictions. If the Shares or other securities are traded on a securities exchange, the Company shall not be required to deliver any Shares or other securities covered by an Award unless -9- and until such Shares or other securities have been admitted for trading on such securities exchange. Section 7. Amendment and Termination; Adjustments. -------------------------------------- Except to the extent prohibited by applicable law and unless otherwise expressly provided in an Award Agreement or in the Plan: (a) Amendments to the Plan. The Board of Directors of the Company may ---------------------- amend, alter, suspend, discontinue or terminate the Plan; provided, however, -------- ------- that, notwithstanding any other provision of the Plan or any Award Agreement, without the approval of the stockholders of the Company, no such amendment, alteration, suspension, discontinuation or termination shall be made that, absent such approval: (i) would cause Rule 16b-3 to become unavailable with respect to the Plan; (ii) would violate the rules or regulations of the Nasdaq National Market, any other securities exchange or the National Association of Securities Dealers, Inc. that are applicable to the Company; or (iii) would cause the Company to be unable, under the Code, to grant Incentive Stock Options under the Plan. (b) Amendments to Awards. The Committee may waive any conditions of -------------------- or rights of the Company under any outstanding Award, prospectively or retroactively. The Committee may not amend, alter, suspend, discontinue or terminate any outstanding Award, prospectively or retroactively, without the consent of the Participant or holder or beneficiary thereof, except as otherwise herein provided. (c) Correction of Defects, Omissions and Inconsistencies. The ---------------------------------------------------- Committee may correct any defect, supply any omission or reconcile any inconsistency in the Plan or any Award in the manner and to the extent it shall deem desirable to carry the Plan into effect. Section 8. Income Tax Withholding; Tax Bonuses. ----------------------------------- (a) Withholding. In order to comply with all applicable federal or ----------- state income tax laws or regulations, the Company may take such action as it deems appropriate to ensure that all applicable federal or state payroll, withholding, income or other taxes, which are the sole and absolute responsibility of a Participant, are withheld or collected from such Participant. In order to assist a Participant in -10- paying all or a portion of the federal and state taxes to be withheld or collected upon exercise or receipt of (or the lapse of restrictions relating to) an Award, the Committee, in its discretion and subject to such additional terms and conditions as it may adopt, may permit the Participant to satisfy such tax obligation by (i) electing to have the Company withhold a portion of the Shares otherwise to be delivered upon exercise or receipt of (or the lapse of restrictions relating to) such Award with a Fair Market Value equal to the amount of such taxes or (ii) delivering to the Company Shares other than Shares issuable upon exercise or receipt of (or the lapse of restrictions relating to) such Award with a Fair Market Value equal to the amount of such taxes. The election, if any, must be made on or before the date that the amount of tax to be withheld is determined. (b) Tax Bonuses. The Committee, in its discretion, shall have the ----------- authority, at the time of grant of any Award under this Plan or at any time thereafter, to approve cash bonuses to designated Participants to be paid upon their exercise or receipt of (or the lapse of restrictions relating to) Awards in order to provide funds to pay all or a portion of federal and state taxes due as a result of such exercise or receipt (or the lapse of such restrictions). The Committee shall have full authority in its discretion to determine the amount of any such tax bonus. Section 9. General Provisions. ------------------ (a) No Rights to Awards. No Eligible Person, Participant or other ------------------- Person shall have any claim to be granted any Award under the Plan, and there is no obligation for uniformity of treatment of Eligible Persons, Participants or holders or beneficiaries of Awards under the Plan. The terms and conditions of Awards need not be the same with respect to any Participant or with respect to different Participants. (b) Award Agreements. No Participant will have rights under an Award ---------------- granted to such Participant unless and until an Award Agreement shall have been duly executed on behalf of the Company. (c) No Limit on Other Compensation Arrangements. Nothing contained in ------------------------------------------- the Plan shall prevent the Company or any Affiliate from adopting or continuing in effect other or additional compensation arrangements, and such arrangements may be either generally applicable or applicable only in specific cases. (d) No Right to Employment. The grant of an Award shall not be ---------------------- construed as giving a Participant the right to be retained in the employ of the Company or any Affiliate, nor will it affect in any way the right of the Company or an Affiliate to terminate such employment at any time, with or without cause. In addition, the Company or an Affiliate may at any time dismiss a Participant from -11- employment free from any liability or any claim under the Plan, unless otherwise expressly provided in the Plan or in any Award Agreement. (e) Governing Law. The validity, construction and effect of the Plan ------------- or any Award, and any rules and regulations relating to the Plan or any Award, shall be determined in accordance with the laws of the State of Colorado. (f) Severability. If any provision of the Plan or any Award is or ------------ becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction or would disqualify the Plan or any Award under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to applicable laws, or if it cannot be so construed or deemed amended without, in the determination of the Committee, materially altering the purpose or intent of the Plan or the Award, such provision shall be stricken as to such jurisdiction or Award, and the remainder of the Plan or any such Award shall remain in full force and effect. (g) No Trust or Fund Created. Neither the Plan nor any Award shall ------------------------ create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Company or any Affiliate and a Participant or any other Person. To the extent that any Person acquires a right to receive payments from the Company or any Affiliate pursuant to an Award, such right shall be no greater than the right of any unsecured general creditor of the Company or any Affiliate. (h) No Fractional Shares. No fractional Shares shall be issued or -------------------- delivered pursuant to the Plan or any Award, and the Committee shall determine whether cash shall be paid in lieu of any fractional Shares or whether such fractional Shares or any rights thereto shall be canceled, terminated or otherwise eliminated. (i) Headings. Headings are given to the Sections and subsections of -------- the Plan solely as a convenience to facilitate reference. Such headings shall not be deemed in any way material or relevant to the construction or interpretation of the Plan or any provision thereof. Section 10. Effective Date of the Plan. -------------------------- The Plan shall be effective as of the Effective Date, subject to approval by the stockholders of the Company within one year thereafter. -12- Section 11. Term of the Plan. ---------------- Unless the Plan shall have been discontinued or terminated as provided in Section 7(a), the Plan shall terminate on the tenth anniversary of the Effective Date. No Award shall be granted after the termination of the Plan. However, unless otherwise expressly provided in the Plan or in an applicable Award Agreement, any Award theretofore granted may extend beyond the termination of the Plan, and the authority of the Committee provided for hereunder with respect to the Plan and any Awards, and the authority of the Board of Directors of the Company to amend the Plan, shall extend beyond the termination of the Plan. -13- EX-10.27 28 1996 NONEMPLOYEE DIRECTOR STOCK OPTION PLAN MARKWEST HYDROCARBON, INC. 1996 NONEMPLOYEE DIRECTOR STOCK OPTION PLAN Section 1. Purpose of the Plan. The purpose of this MarkWest Hydrocarbon, ------------------- Inc. 1996 Nonemployee Director Stock Option Plan is to promote the interests of the Company by enhancing its ability to attract and retain the services of experienced and knowledgeable independent directors and by providing additional incentive for these directors to increase their interest in the Company's long- term success and progress. None of the options granted hereunder shall be "incentive stock options" within the meaning of Section 422 of the Code (as hereinafter defined). Section 2. Definitions. As used herein, the following definitions shall ----------- apply: (a) "Board" shall mean the Board of Directors of the Company. ----- (b) "Code" shall mean the Internal Revenue Code of 1986, as ---- amended. (c) "Committee" shall mean a committee of two or more persons --------- appointed by the Board of Directors of the Company. (d) "Common Stock" shall mean the Common Stock, $.01 par value, of ------------ the Company. (e) "Company" shall mean MarkWest Hydrocarbon, Inc., a Delaware ------- corporation. (f) "Continuous Status as a Director" shall mean the absence of any ------------------------------- interruption or termination of service as a Director. (g) "Director" shall mean a member of the Board. -------- (h) "Employee" shall mean any person, including officers and -------- Directors, employed by the Company or any parent or Subsidiary of the Company. The payment of a Director's fee by the Company shall not be sufficient in and of itself to constitute "employment" by the Company. (i) "Exchange Act" shall mean the Securities Exchange Act of 1934, ------------ as amended. (j) "Fair Market Value" the Fair Market Value of a Share shall be ----------------- determined by the Committee in its discretion; provided, however, that -------- ------- where there is a public market for the Common Stock, the fair market value per Share shall be the closing price of the Common Stock in the over- the- counter market on the date of grant, as reported in The Wall Street --------------- Journal (or, if not so reported, as otherwise reported by the National ------- Association of Securities Dealers Automated Quotation ("NASDAQ") System or, in the event the Common Stock is traded on the NASDAQ National Market System or listed on a stock exchange, the fair market value per Share shall be the closing price on such system or exchange on the date of grant of the Option, as reported in The Wall Street Journal). ----------------------- (k) "Option" shall mean a stock option granted pursuant to the ------ Plan. (l) "Optioned Stock" shall mean the Common Stock subject to an -------------- Option. (m) "Optionee" shall mean an Outside Director who receives an -------- Option. (n) "Outside Director" shall mean a Director who is not an ---------------- Employee. (o) "Parent" shall mean a "parent corporation," whether now or ------ hereafter existing, as defined in Section 425(e) of the Code. (p) "Plan" shall mean this 1996 Nonemployee Director Stock Option ---- Plan. (q) "Shares" shall mean shares of the Common Stock, as adjusted in ------ accordance with Section 10 of the Plan. (r) "Subsidiary" shall mean a "subsidiary corporation," whether ---------- now or hereafter existing, as defined in Section 425(f) of the Code. Section 3. Stock Subject to the Plan. Subject to the provisions of ------------------------- Section 10 of the Plan, the maximum aggregate number of Shares which may be optioned and sold under the Plan is 20,000 Shares of Common Stock. The Shares may be authorized but unissued shares of Common Stock or shares of Common Stock which have been reacquired by the Company. If an Option should expire or become unexercisable for any reason without having been exercised in full, the unpurchased Shares which were subject thereto shall, unless the Plan shall have been terminated, become available for future grant under the Plan. If Shares which were acquired upon exercise of an Option are subsequently repurchased by the Company, such Shares shall not in any event be returned to the Plan and shall not become available for future grant under the Plan. -2- Section 4. Administration of and Grants of Options under the Plan. ------------------------------------------------------ (a) Administrator. Except as otherwise required herein, the Plan ------------- shall be administered by the Committee. (b) Procedure for Grants. The provisions set forth in this -------------------- Section 4(b) shall not be amended more than once every six months, other than to comport with changes in the Code, the Employee Retirement Income Security Act of 1974, as amended, or the rules thereunder. All grants of Options hereunder shall be automatic and nondiscretionary and shall be made strictly in accordance with the following provisions: (i) No person shall have any discretion to select which Outside Directors shall be granted Options or to determine the number of Shares to be covered by Options granted to Outside Directors; provided, however, that any individual Outside Director may decline to -------- ------- accept any Option, in whole or in part, that would otherwise be granted to such Outside Director under this Plan. (ii) Norman H. Foster, Barry W. Spector and David R. Whitney shall each receive an Option to purchase 500 Shares on the date the Plan is approved by the Board of Directors, and such Options granted pursuant to this section 4(b)(ii) shall become exercisable in three equal annual installments with the first one-third installment vesting on the first anniversary of the date of grant and the two remaining one-third installments vesting on the second and third anniversary of the date of grant, respectively. (iii) Each new Outside Director shall be automatically granted an Option (an "Initial Grant") to purchase 500 Shares upon the date on which such person first becomes a Director, whether through election by the shareholders of the Company or appointment by the Board of Directors to fill a vacancy. Options granted under this section 4(b)(iii) shall become exercisable in three equal annual installments with the first one-third installment vesting on the first anniversary of the date of the Initial Grant and the two remaining one-third installments vesting on the second and third anniversary of the Initial Grant, respectively. (iv) Each Outside Director shall automatically receive, on the date of each Annual Meeting of Stockholders, beginning with the Annual Meeting of Stockholders held in 1997, an Option to purchase 500 Shares of the Company's Common Stock, such Option to become exercisable one year subsequent to the date of grant; provided, -------- -3- however, that such Option shall only be granted to Outside Directors ------- who have served since the date of the last Annual Meeting of Stockholders and will continue to serve after the date of grant of such Option. (v) The terms of an Option granted hereunder shall be as follows: (A) the term of the Option shall be three years. (B) the exercise price per Share shall be 100% of the Fair Market Value per Share on the date of grant of the Option. (C) to the extent necessary to comply with the applicable provisions of Rule 16b-3 promulgated under the Exchange Act ("Rule 16b-3"), no Option will be exercisable until a date more than six months subsequent to the date of the grant of that Option. (c) Powers of the Committee. Subject to the provisions and ----------------------- restrictions of the Plan, the Committee shall have the authority, in its discretion: (i) to determine, upon review of relevant information and in accordance with the Plan, the Fair Market Value of the Common Stock; (ii) to determine the exercise price per share of Options to be granted, which exercise price shall be determined in accordance with Section 7(a) of the Plan; (iii) to interpret the Plan; (iv) to prescribe, amend and rescind rules and regulations relating to the Plan; (v) to authorize any person to execute on behalf of the Company any instrument required to effectuate the grant of an Option previously granted hereunder; and (vi) to make all other determinations deemed necessary or advisable for the administration of the Plan. (d) Effect of Committee's Decision. All decisions, determinations ------------------------------ and interpretations of the Committee shall be final and binding on all Optionees and any other holders of any Options granted under the Plan. Section 5. Eligibility. Options may be granted only to Outside Directors. ----------- All Options shall be automatically granted in accordance with the terms set forth in Section 4(b) hereof. The Plan shall not confer upon any Optionee any right with respect to continuation of service as a Director or nomination to serve as a Director, nor shall it interfere in any way with any rights which the Director or the Company may have to terminate his or her directorship at any time. Section 6. Term of Plan. The Plan shall become effective upon the earlier ------------ of (i) its adoption by the Board or (ii) its approval by the stockholders of the -4- Company as described in Section 16 of the Plan. The Plan shall continue in effect for a term of five years unless sooner terminated under Section 12 of the Plan. Section 7. Exercise Price and Consideration. -------------------------------- (a) Exercise Price. The per Share exercise price for the Shares -------------- to be issued pursuant to exercise of an Option shall be 100% of the Fair Market Value per Share on the date of grant of the Option. (b) Form of Consideration. Subject to compliance with applicable --------------------- provisions of Section 16(b) of the Exchange Act, (or other applicable law), the consideration to be paid for the Shares to be issued upon exercise of an Option, including the method of payment, shall be determined by the Committee and may consist entirely of (i) cash, (ii) check, (iii) other Shares which (X) in the case of Shares acquired upon exercise of an Option, have been owned by the Optionee for more than six months on the date of surrender, and (Y) have a Fair Market Value on the date of exercise equal to the aggregate exercise price of the Shares as to which said Option shall be exercised, (iv) authorization for the Company to retain from the total number of Shares as to which the Option is exercised that number of Shares having a Fair Market Value on the date of exercise equal to the exercise price for the total number of Shares as to which the Option is exercised, (v) delivery (including by facsimile) to the Company or its designated agent of a properly executed irrevocable option exercise notice together with irrevocable instructions to a broker-dealer to sell a sufficient portion of the shares and deliver the sale proceeds directly to the Company to pay for the exercise price, (vi) by delivering an irrevocable subscription agreement for the Shares which irrevocably obligates the option holder to take and pay for the Shares not more than twelve months after the date of delivery of the subscription agreement, (vii) any combination of the foregoing methods of payment or (viii) such other consideration and method of payment for the issuance of Shares as may be permitted under applicable laws. In making any determination as to the type of consideration to accept, the Committee shall consider whether acceptance of such consideration may be reasonably expected to benefit the Company. Section 8. Exercise of Option. ------------------ (a) Procedure for Exercise; Rights as a Stockholder. Any Option ----------------------------------------------- granted hereunder shall be exercisable at such times as are set forth in Section 4(b) hereof; provided, however, that no Options shall be -------- ------- exercisable until stockholder approval of the Plan in accordance with Section 16 hereof has been obtained. An Option may not be exercised for a fraction of a Share. An Option shall be deemed to be exercised when written notice of such exercise -5- has been given to the Company in accordance with the terms of the Option by the person entitled to exercise the Option and full payment for the Shares with respect to which the Option is exercised has been received by the Company. Full payment may consist of any consideration and method of payment allowable under Section 7(c) of the Plan. Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the stock certificate evidencing such Shares, no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. A share certificate for the number of Shares so acquired shall be issued to the Optionee as soon as practicable after exercise of the Option. No adjustment will be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in Section 10 of the Plan. Exercise of an Option in any manner shall result in a decrease in the number of Shares which thereafter may be available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised. (b) Termination of Status as a Director. If an Outside Director ----------------------------------- ceases to serve as a Director, such Outside Director may exercise his/her Option to the extent that he/she was entitled to exercise such Option at the date of such termination. To the extent that such Outside Director was not entitled to exercise an Option at the date of such termination, or if such Outside Director does not exercise such Option (which he/she was entitled to exercise) within the time specified herein, the Option shall terminate. (c) Disability of Optionee. Notwithstanding the provisions of ---------------------- Section 8(b) above, in the event an Optionee is unable to continue service as a Director with the Company as a result of such Optionee's total and permanent disability (as defined in Section 22(e)(3) of the Code), such Optionee may exercise his/her Option to the extent entitled to exercise such Option at the date of such termination. To the extent that such Optionee was not entitled to exercise the Option at the date of such termination, or if such Optionee does not exercise such Option (which he/she was entitled to exercise) within the time specified herein, the Option shall terminate. (d) Death of Optionee. Notwithstanding the provisions of Section ----------------- 8(b) above, in the event of the death of an Optionee: (i) during the term of the Option who is at the time of death a Director of the Company and who has been in Continuous Status as a Director since the date of grant of the Option, the Option may be exercised by the Optionee's estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only to the extent -6- of the right to exercise that would have accrued had the Optionee continued living and remained in Continuous Status as a Director for six months after the date of death; or (ii) within 30 days after the termination of Continuous Status as a Director, the Option may be exercised by the Optionee's estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only to the extent of the right to exercise that had accrued at the date of termination. Section 9. Non-Transferability of Options. The Option may not be sold, ------------------------------ pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution or pursuant to a qualified domestic relations order as defined by the Code or Title I of the Employee Retirement Income Security Act of 1974, as amended, or the rules thereunder. The Option may be exercised, during the lifetime of the Optionee, only by the Optionee. Section 10. Adjustments Upon Changes in Capitalization, Dissolution or ---------------------------------------------------------- Merger. - ------ (a) In the event that the number of outstanding shares of Common Stock of the Company is changed by a stock dividend, stock split, reverse stock split, combination, reclassification or similar change in the capital structure of the Company without consideration, the number of Shares available under this Plan and the number of Shares subject to outstanding Options and the exercise price per share of such Options shall be proportionately adjusted, subject to any required action by the Board or stockholders of the Company and compliance with applicable securities laws; provided, however, that no certificate or scrip representing fractional -------- ------- shares shall be issued upon exercise of any Option and any resulting fractions of a Share shall be ignored. Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. (b) In the event of a dissolution or liquidation of the Company, a merger in which the Company is not the surviving corporation, a transaction or series of related transactions in which 51% of the then outstanding voting stock is sold or otherwise transferred (including (i) a public announcement that any person has acquired or has the right to acquire beneficial ownership of 51% or more of the then outstanding shares of Common Stock (for this purpose, the terms "person" and "beneficial ownership" shall have the meanings provided in Section 13(d) of the Exchange Act or related rules promulgated by the Securities Exchange Commission) and (ii) the commencement of or public announcement of an intention to make a tender or exchange offer for 51% or more of the then outstanding shares of the -7- Common Stock) or the sale of substantially all of the assets of the Company, any or all outstanding Options shall, notwithstanding any contrary terms of the written agreement governing such Option, accelerate and become exercisable in full at least ten days prior to (and shall expire on) the consummation of such dissolution, liquidation, merger or sale of stock or sale of assets on such conditions as the Board shall determine unless the successor corporation assumes the outstanding Options or substitutes substantially equivalent options as determined by the Board. The acceleration of the outstanding Options shall be conditioned on the actual occurrence of such a dissolution, liquidation, merger or sale of stock or assets. Section 11. Time of Granting Options. The date of grant of an Option ------------------------ shall, for all purposes, be the date determined in accordance with Section 4(b) hereof. Notice of the determination shall be given to each Outside Director to whom an Option is so granted within a reasonable time after the date of such grant. Section 12. Amendment and Termination of the Plan. ------------------------------------- (a) Amendment and Termination. The Board may at any time amend, ------------------------- alter, suspend, or discontinue the Plan, but no amendment, alteration, suspension, or discontinuance shall be made which would impair the rights of any Optionee under any grant theretofore made, without his or her consent. In addition, to the extent necessary and desirable to comply with Rule 16b-3 (or any other applicable law or regulation), the Company shall obtain stockholder approval of any Plan amendment in such a manner and to such a degree as required. (b) Effect of Amendment or Termination. Any such amendment or ---------------------------------- termination of the Plan shall not affect Options already granted and such Options shall remain in full force and effect as if this Plan had not been amended or terminated, unless mutually agreed otherwise between the Optionee and the Board, which agreement must be in writing and signed by the Optionee and the Company. Section 13. Conditions Upon Issuance of Shares. Shares shall not be ---------------------------------- issued pursuant to the exercise of an Option unless the exercise of such Option and the issuance and delivery of such Shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated thereunder, state securities laws, and the requirements of any stock exchange upon which the Shares may then be listed or quoted, and shall be further subject to the approval of counsel for the Company with respect to such compliance. As a condition to the exercise of an Option, the Company may require the person exercising such Option to represent and warrant at the time of any such exercise that the Shares are being -8- purchased only for investment and without any present intention to sell or distribute such Shares, if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned relevant provisions of law. Inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained. Section 14. Reservation of Shares. The Company, during the term of this --------------------- Plan, will at all times reserve and keep available such number of the Shares available for issuance pursuant to this Plan as shall be sufficient to satisfy the requirements of the Plan. Section 15. Option Agreement. Options shall be evidenced by written ---------------- option agreements in such form as the Board shall approve. Section 16. Stockholder Approval. -------------------- (a) The Plan shall be subject to approval by the stockholders of the Company within 12 months of its adoption by the Board. If such stockholder approval is obtained at a duly held stockholders' meeting, it may be obtained by the affirmative vote of the holders of a majority of the outstanding shares of the Company present or represented and entitled to vote thereon. If such stockholder approval is obtained by written consent, it may be obtained by the written consent of the holders of a majority of the outstanding shares of the Company. (b) Any required approval of the stockholders of the Company shall be solicited substantially in accordance with Section 14(a) of the Exchange Act and the rules and regulations promulgated thereunder. Section 17. Information to Optionees. The Company shall provide to each ------------------------ Optionee, during the period for which such Optionee has one or more Options outstanding, copies of all annual reports to stockholders, proxy statements and other information provided to all stockholders of the Company. -9- EX-10.28 29 FORM OF NON-COMPETE WITH J.M. FOX & MARKWEST NON-COMPETE AGREEMENT This Non-compete Agreement is made and entered into this ____ day of _________________, 1996, by and between John M. Fox (Fox) and MarkWest Hydrocarbon, Inc. (MarkWest). In consideration of the mutual covenants and agreements contained herein, and in recognition of other consideration had and received by Fox, the sufficiency, adequacy and receipt of which is hereby acknowledged, the parties agree as follows: 1. Fox agrees that for as long as he is an officer or director of MarkWest and for two years thereafter, he will not, either directly or indirectly (including through other firms or entities controlled by Fox), participate in any future oil and gas exploration or production activities within geographic areas in which MarkWest is then conducting oil and gas exploration and production activities, or within geographic areas in which MarkWest intends to or has expressed an interest to participate in oil and gas exploration or production activities, except and to the extent that Fox has first offered MarkWest the opportunity to participate in that activity, and then only to the extent that MarkWest, through its independent and disinterested directors, has deemed it advisable and in the best interests of MarkWest not to participate in that activity. In witness whereof, the parties have executed this Agreement the date first above written. ____________________________ John M. Fox MARKWEST HYDROCARBON, INC. By:_________________________ EX-11 30 COMPUTATION OF PER SHARE EARNINGS Computation of Earnings per Common Share Six Months Ended, Years Ended December 31, June 30, ------------------------ --------- 1991 1992 1993 1994 1995 1995 1996 ---- ---- ---- ---- ---- ---- ---- Proforma net income $5,486 $3,389 $312 $3,696 $4,887 $2,601 $2,818 Proforma weighted average common shares outstanding 4,878 4,878 4,878 4,964 4,990 4,990 5,041 Proforma net income per common share $1.12 $0.69 $0.06 $0.74 $0.98 $0.52 $0.56 Page 1 of 1 EX-23.1 31 CONSENT OF PRICE WATERHOUSE LLP CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the use in the Prospectus constituting part of this Registration Statement on Form S-1 of our reports dated August 2, 1996, relating to the financial statements of MarkWest Hydrocarbon, Inc. and MarkWest Hydrocarbon Partners, Ltd., which appear in such Prospectus. We also consent to the references to us under the heading "Experts" in such Prospectus. PRICE WATERHOUSE LLP Denver, Colorado August 2, 1996 EX-23.2 32 CONSENT OF BDO SEIDMAN, LLP CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Markwest Hydrocarbon, Inc. Englewood, Colorado We hereby consent to the use in the Prospectus constituting a part of this Registration Statement of our report dated April 5, 1996 relating to the financial statements of Basin Pipeline L.L.C. which is contained in that Prospectus. We also consent to the reference to us under the caption "Experts" in the Prospectus. BDO Seidman, LLP Denver, Colorado August 1, 1996 -----END PRIVACY-ENHANCED MESSAGE-----