Initial Public Offering (IPO): Registration Statement (General Form) — Form S-1
Filing Table of Contents
Document/Exhibit Description Pages Size
1: S-1 Registration Statement (General Form) 99 560K
2: EX-3.1 Certificate of Incorporation 8 30K
3: EX-3.2 Bylaws 14 55K
4: EX-10.1 Reorganization Agreement 21 93K
13: EX-10.10 Gas Treating and Processing Agreement 48 131K
14: EX-10.11 Gas Gathering, Treating and Processing Agreement 36 99K
15: EX-10.12 Gas Gathering, Treating and Processing Agreement 32 104K
16: EX-10.13 Products Exchange Agreements 3 20K
17: EX-10.14 Gas Processing and Treating Agreement 11 44K
18: EX-10.15 Processing Agreement 30 66K
19: EX-10.16 Natural Gas Liquids Purchase Agreement 7 31K
20: EX-10.17 Purchase and Demolition Agreement 25 52K
21: EX-10.18 Purchase and Demolition Agreement 25 53K
22: EX-10.19 Agreement to Design and Construct New Facilities 21 43K
5: EX-10.2 Modification Agreement 6 34K
23: EX-10.20 Sales Acknowledgement 3 18K
24: EX-10.21 Loan Agreement Dated November 20, 1992 202 752K
25: EX-10.23 Natural Gas Liquids Purchase Agree. (Boldman) 14 46K
26: EX-10.25 1996 Incentive Compensation Plan 5 23K
27: EX-10.26 1996 Stock Incentive Plan of Registrant 13 52K
28: EX-10.27 1996 Nonemployee Director Stock Option Plan 9 40K
29: EX-10.28 Form of Non-Compete With J.M. Fox & Markwest 1 10K
6: EX-10.3 Amended and Restated Mortgage 41 166K
7: EX-10.4 Secured Guaranty, Dated May 2, 1996 23 62K
8: EX-10.5 Security Agreement, Dated May 2, 1996 23 78K
9: EX-10.6 Pledge Agreement, Dated May 2, 1996 21 70K
10: EX-10.7 Participation, Ownership and Operating Agreement 83 290K
11: EX-10.8 Second Amended and Restated Agreement 10 45K
12: EX-10.9 Subordination Agreement 13 47K
30: EX-11 Computation of Per Share Earnings 1 9K
31: EX-23.1 Consent of Price Waterhouse LLP 1 9K
32: EX-23.2 Consent of Bdo Seidman, LLP 1 10K
EX-10.7 — Participation, Ownership and Operating Agreement
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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
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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
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of the Parties and neither the Company nor Basin shall acquire any ownership
interest in any oil, gas and mineral estates, whether leasehold or fee.
1.2 Effective Date. This Agreement shall be effective as of 12:01 a.m.,
--------------
Eastern Time, on the date hereof, 1996, (the "Effective Date").
1.3 Term. This Agreement shall be in force as of the date hereof and,
----
unless sooner terminated by the provisions herein, shall, after the creation of
the Company, continue for so long as the Company continues in existence, or
until otherwise terminated by the Parties.
1.4 Relationship of the Parties. Until the Final Closing Date, the
---------------------------
Parties and Basin shall be deemed to be individual owners of the Assets as owned
on the date hereof, and with respect to work to be performed by MarkWest and
operations to be conducted by MarkWest, MarkWest shall be deemed an independent
contractor of MEC. Upon the Final Closing Date, the Parties hereto shall be
Members of the Company. Nothing contained herein is intended to nor shall be
construed to create a partnership (except to the extent considered a partnership
solely for tax purposes as set forth in Exhibit E), joint venture or other
relationship with attributes of joint and several liability.
1.5 Formation of Company. At or before Final Closing, the Parties shall
--------------------
create and establish the Company in conformance with the terms hereof, and upon
the Effective Date, this Agreement shall be considered to be the Operating
Agreement of the Company to govern its management and affairs.
ARTICLE II
CAPITAL REQUIREMENTS AND CONTRIBUTIONS
--------------------------------------
2.1 MarkWest's Initial Contributions. (a) Commencing upon the
--------------------------------
Effective Date, MarkWest will undertake the following activities, which until
Final Closing shall be paid for from the Working Capital Fund established by MEC
under Section 6.8, and which, after Final Closing shall be paid for by
contributions of MarkWest of money to the Company towards the ownership,
construction, and development (which contributions will include, without
limitation, all expenditures by MarkWest of amounts which would otherwise be
considered direct charges under the terms of the Accounting Procedures attached
as Exhibit F) of the following:
(i) a nominal 10-inch diameter pipeline extension of the current Basin
pipeline (to be owned by Basin) along the right of way of Consumers Power
to the delivery point at the gathering lateral of the existing Slocum No.
1-21 well, located in Section 21, Township 15 North, Range 16 West,
Elbridge Township, Oceana County, Michigan, (as approximately depicted on
the map attached hereto as Exhibit N), including all matters related to the
acquisition of requisite permits (for which permits MarkWest shall
diligently apply for and use its reasonable efforts to acquire),
installation, construction, and acquisition of necessary easements and
rights of way ("Basin Extension"). The installation and construction of the
Basin Extension shall be conducted in a good and workmanlike manner
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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
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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
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economic or other justification for those changes or additional expenditures. It
is understood and agreed that the approval of an AFE means, in the absence of
material scope changes, that the Operator shall have the right to complete the
project which is the subject of the AFE and that the Parties shall be
responsible for their proportionate share (as determined under this Agreement)
of all costs and expenses incurred in completing that project, even if the
aggregate amount incurred reasonably exceeds the estimate stated on the AFE.
2.2 MEC's Initial Contributions and Obligations.
-------------------------------------------
(a) On the Final Closing Date, MEC shall contribute all of the
Assets to the Company. Upon those contributions and performance of obligations
under this Section 2.2, MEC shall be deemed to have made a capital contribution
to the Company equal to $11,200,000.
(b) To the extent any lease, contract, right or commitment included
in the Assets is not capable of being assigned or transferred without the
consent or waiver of the issuer thereof or the other party thereto or any third
party (including a government or governmental unit), or if such assignment or
transfer or attempted assignment or transfer would constitute a breach thereof
or a violation of any law, decree, order, regulation or other governmental
edict, this Agreement shall not constitute an assignment or transfer thereof, or
an attempted assignment, transfer or sublease of any such lease, contract, right
or commitment. Anything in this Agreement to the contrary notwithstanding, MEC
is not obligated to transfer to the Company any of its rights and obligations in
and to any such contract without first having obtained all necessary consents
and waivers. For a reasonable period of time after the Final Closing Date, MEC
shall use all reasonable efforts, and the Company shall cooperate with MEC to
obtain all necessary consents and waivers. To the extent that such consents and
waivers are not obtained by MEC, MEC shall use all reasonable efforts to
establish arrangements that are reasonable and lawful as to both MEC and the
Company and which provide the benefits, risks and burdens of the relevant
contract to the Company for the remaining term of such contract. If such
arrangements cannot be established providing to the Company the benefits, risks
and burdens of the relevant contract contemplated hereunder without a material
adverse effect to the Company, then the parties shall determine the economic
value of excluding those from the Company, and such value shall be deducted from
MEC's deemed capital contribution under Section 2.2(a), above.
(c) MEC agrees that it shall provide the Company with reasonable
prior written notice of its intention to exercise its rights set forth in the
Option Agreement, attached as Exhibit V, between MEC and Manistee Gas Limited
Liability Company, which notice shall include a listing of the Brown 19 Gas
Plant assets that MEC intends to acquire from Manistee. In the event that MEC
has not determined to exercise its option thereunder, the Company may, upon
written notice to MEC, cause MEC to exercise that option as to the assets
identified by the Company. Prior to MEC's exercise, the Company shall provide
MEC with a list of those assets which at such time constitute part of the Brown
19 Gas Plant and which the Company desires to take title to, which list may
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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
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capital accounts of the Parties.
(b) If MarkWest has not achieved a 60% Ownership Interest by July
1, 1997, based upon its contributions under Section 2.1, then within 60 days
following July 1, 1997, and upon written notice to MEC, MarkWest shall have the
right, but not the obligation to pay MEC an amount, that if (i) that amount was
added to the contributions then made by MarkWest, and (ii) that amount was at
the same time subtracted from the deemed initial capital contribution of MEC,
would result, based upon the calculation in (a), above, in up to 60% Ownership
Interest for MarkWest. Upon making that payment, the amount paid shall be
deducted from MEC's capital contribution in the Company. If MarkWest does not
elect to acquire those interests, or if after electing to acquire those
interests, MarkWest does not timely pay the amounts required, then as of
September 1, 1997, the Ownership Interests of the Members in the Company shall
be as otherwise determined under Section 3.1(a), above.
3.2 Certain Additional Obligations of MEC.
-------------------------------------
(a) MEC shall be liable for all ad valorem, real and other property
taxes affecting the Assets applicable to taxable periods or portions thereof
ending on or before the Final Closing Date. Ad valorem, real and other property
taxes with respect to the Assets for the taxable year that begins before and
ends after the Final Closing Date shall be apportioned between MEC and the
Company on a pro rata daily basis over the relevant tax period. The Company
assumes the obligation to pay all such taxes for the taxable year beginning
before and ending after the Final Closing Date to the appropriate governmental
entity on or before the applicable due date. MEC will reimburse the Company for
its pro rata share of such taxes. MEC shall be entitled to any refunds of ad
valorem, real and other property taxes relating to the Assets for periods prior
to the Final Closing Date, regardless of when received. Should the Company
receive any refunds of such taxes after Final Closing relating to the Assets and
relating to periods prior to the Final Closing Date, the Operator shall promptly
remit such refunds to MEC.
(b) MEC shall timely pay when due and payable all expenses and
liabilities relating to the Assets and arising or accruing during periods prior
to the Final Closing Date, regardless of when invoiced or asserted. MEC shall be
entitled to all revenues relating to the Assets for periods prior to the Final
Closing Date, regardless of when received. Should MEC receive any revenues after
Final Closing relating to the Assets and relating to periods from and after the
Final Closing Date, MEC shall promptly remit those to the Operator for the
benefit of the Company. Should the Company receive any revenues after Final
Closing relating to the Assets and relating to periods before the Final Closing
Date, the Operator shall promptly remit those to MEC.
3.3 Conveyance of Ownership Interests. (a) As MarkWest makes the
---------------------------------
contributions, from time to time under Section 2.1, or the acquisition under
3.1(b), it shall be deemed to have been conveyed the corresponding Ownership
Interest in the Company without any further action being required upon the part
of MEC or the Company; provided, however, upon request from any Party, MEC and
-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,
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partnership, limited liability company, trust (inter vivos or testamentary),
estate of a deceased, insane or incompetent individual, business trust, joint
stock company, joint venture or other organization, entity or business, whether
acting in an individual, fiduciary of other capacity.
9.3 Sale of Individual Interests. Should any Party receive a bona fide
----------------------------
offer to purchase that Party's individual Ownership Interest in the Company, and
if that Party is willing to accept that offer, then that Party shall submit
notice of that offer to the other Parties. That notice shall include all details
of the offer, and shall include a copy of the offer. The Parties receiving that
offer shall have thirty (30) days in which to elect whether or not they will
match the terms of that offer to purchase the interest of the Party submitting
the offer. Should more than one Party elect to purchase the notifying Party's
interest, they will purchase that interest proportionately based on their
relative Ownership Interests at that time in the Company.
ARTICLE X
FORCE MAJEURE AND EMERGENCIES
-----------------------------
10.1 Conditions of Force Majeure.
---------------------------
a. In the event that any Party hereto is rendered unable, wholly or in
part, by force majeure to carry out its obligations under this Agreement,
other than the obligation to make payment of amounts due hereunder, then
effective upon that Party's giving notice and reasonable full particulars
of the force majeure to the other Party hereto, the obligations of the
Party giving the notice, so far as they are affected by the force majeure,
shall be suspended during the continuance of the inability, and the cause
of the force majeure, as far as possible, shall be remedied with all
reasonable dispatch. The Party affected by force majeure conditions shall
nevertheless perform its obligations to the full extent it is otherwise
able.
b. The term "force majeure" means any cause, or condition not
reasonably within the control of the Party claiming suspension.
c. The settlement of strikes, lockouts and other labor difficulty shall
be entirely within the discretion of the Party having the difficulty. The
above requirement that any force majeure shall be remedied with all
reasonable dispatch shall not require the settlement of strikes, lockouts
or other labor difficulty by acceding to the demands of opponents therein
when that is inadvisable in the discretion of the Party having the
difficulty.
10.2 Emergency Actions. In case of blow-out, explosion, fire, flood or
-----------------
other sudden emergency, the Operator shall take steps and incur expenses,
for the Company, as, in its opinion, are required to deal with the
emergency and to safeguard life and property; provided, that the Operator
shall, as promptly as possible, report the emergency to other Parties.
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ARTICLE XI
PARTIES OTHER ACTIVITIES
------------------------
11.1 Other Business Activities. Outside of the Company Area, any Party,
-------------------------
and its Affiliates, may engage in business activities of every nature and
description, including those similar in nature to those of the Company, and
neither the Company nor any Party shall have any rights by virtue of this
Agreement in and to the independent activities of that Party, or the income or
profits derived therefrom. Inside of the Company Area, any Party and its
Affiliates may engage in business activities of every nature and description
other than those which are set out in Section 1.1 as activities reserved
exclusively to the Company.
ARTICLE XII
REPRESENTATIONS OF MEC
----------------------
As used herein, "to MEC's knowledge" means the actual knowledge of MEC, or its
Members, following due inquiry. MEC represents and warrants to MarkWest, as of
the date hereof, and except as disclosed on the Disclosure Schedule attached
hereto as Exhibit P, that:
12.1 Warranty of Title. MEC warrants by, through and under MEC, that, as
-----------------
of the date hereof it has, and at Final Closing, it will have good and
defensible title to all portions of the Assets, free and clear of any and all
adverse claims, encumbrances and liens, except Permitted Encumbrances, as
defined herein. As used herein, "Permitted Encumbrances" shall mean: (a) the
terms and conditions of the agreements, instruments or other documents creating
or reserving to MEC its interest in the Assets, to the extent of record as of
the date hereof; (b) all matters in the public records of the counties where the
Assets are located, to the extent the same are otherwise valid and enforceable,
excluding all deeds of trust and mortgages except for those granted to or
assigned to or in favor of Bank of America Illinois, (c) encumbrances securing
payments to mechanics and materialmen and encumbrances securing payments of
taxes or assessments that are, in either case, not yet delinquent, or, if
delinquent, that are being contested in good faith in the normal course of
business and for which adequate reserve has been made, (d) all matters visible
and apparent on the ground or that would be revealed by a true and correct
survey, (e) easements, rights-of-way, servitudes, permits, surface leases,
surface use restrictions, and other surface uses and impediments on, over, or in
respect of any of the Assets, (f) any matters set forth in Section 12.1 of the
Disclosure Schedule, (g) any of the obligations, terms, covenants or conditions
of any of the contracts and agreements described on Exhibit C, attached, arising
and accruing after the Final Closing Date , (h) all rights to consent by,
required notices to, filings with, or other actions of governmental entities in
connection with the sale or conveyance of any of the Assets which are to be
contributed by MEC to the extent they are customarily obtained subsequent to
sale or conveyance, (i) all rights reserved to or vested in any governmental,
statutory or public authority to control or regulate in any manner any of the
Assets to be contributed by MEC, and all applicable laws,
-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
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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
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accrual method of accounting.
2.9 Take-in-Kind. Where any Party has retained the right to take his
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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.
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2.10.1 Tax Matters Partner. The parties hereto agree that MarkWest shall
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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
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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
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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
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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.
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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
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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
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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
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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.
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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
Dates Referenced Herein and Documents Incorporated by Reference
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