ITEM
5.02. Departure of Directors or Certain
Officers; Election of Directors; Appointment of Certain Officers; Compensatory
Arrangements of Certain Officers
On January 25,
2008, the Compensation Committee and the Board of Directors of MarkWest
Hydrocarbon, Inc. (“MarkWest Hydrocarbon”) and the Compensation Committee
and the Board of Directors of MarkWest Energy GP, L.L.C. (the “General Partner”),
in its capacity as general partner of MarkWest Energy Partners, L.P. (the “Partnership”),
approved the payout and grants of executive incentive awards in recognition of
MarkWest Hydrocarbon and the Partnership achieving and exceeding the financial
and non-financial targets and goals for fiscal year 2007. The Committees and
Boards also established executive compensation levels and performance targets
to be applied for determining incentive awards for 2008.
Both MarkWest
Hydrocarbon and the General Partner have commonly appointed executive officers;
however, these executives are solely employed by MarkWest Hydrocarbon, Inc.
While the Partnership and General Partner have no employees, the executives
perform management services for the Partnership and are reimbursed under the
Services Agreement between MarkWest Hydrocarbon and the General
Partner. Under the Services Agreement, the General Partner causes
the Partnership to reimburse MarkWest Hydrocarbon for an allocated portion of
the executives’ base and incentive compensation. Additionally, the
Partnership awards long-term equity incentive compensation to the common
executives under its Long Term Incentive Plan.
Accordingly, both the MarkWest Hydrocarbon and the General Partner’s
Compensation Committees and Boards are involved in the determination of the
executive compensation awards.
Base salary is
designed to compensate individuals for their respective level of responsibility
and sustained individual performance. Base salary adjustments will be
made each year based on a merit matrix which considers the individual’s salary
relative to market and the individual’s performance. Short- and long-term
incentive compensation is intended to align compensation with business
objectives and performance and enable the company to attract, retain and reward
high quality executive officers whose contributions are critical to short and
long-term success of the Partnership and MarkWest Hydrocarbon.
For 2007, the
MarkWest executives’ incentive awards were based upon four key performance
metrics: 1) the Partnership’s distributable cash flow; 2) MarkWest Hydrocarbon’s
operating cash flow; 3) achievement of agreed-upon strategic and corporate
performance goals; and 4) each executive’s departmental and individual goals
and performance. The threshold for funding of incentive awards is based
upon distributable cash flow for the Partnership or operating cash flow of
Hydrocarbon, which is funded at a minimum of 75% of each respective
target. Stretch performance is recognized for exceeding budgeted
financial plans up to 125% of such plans and for achieving or exceeding certain
strategic and corporate goals and objectives. Short-term incentive awards
are paid out in cash. Long-term incentive equity awards for 2007 will be
granted in the form of phantom units issued under the Partnership’s Long-Term
Incentive Plan. These phantom units vest one-third annually over a
three-year period.
The Compensation
Committees and the Boards of Directors of MarkWest Hydrocarbon and the General
Partner approved the named executive officers’ (other than the CEO) target
short-term cash incentive awards for 2007 at 50% of base salary, and the
long-term equity incentive awards in the range from 45% to 85% of base
salary. For achieving stretch performance in 2007, incremental stretch
short term cash incentive awards for the named executives were granted at an
additional 40% of base salary, and incremental stretch long-term equity
incentive awards were granted in the range of approximately 10% to 20% of base
salary, which were paid out ranging from 56% to 106%. The Compensation
Committees separately derive the CEO’s base, short-term, and long-term
incentive, and these are granted at the Board’s discretion. The CEO’s
short-term cash incentive award for 2007, including the incremental stretch
component, was granted at 100% of base salary. The CEO’s long-term
incentive awards for 2007 will be reserved for review in a subsequent Board
meeting later in the first quarter of 2008.
The Compensation
Committees and the Boards of Directors of MarkWest Hydrocarbon and the General
Partner also approved the executive compensation and the performance targets to
be applied for determining incentive awards for 2008. The CEO’s base
annual salary has been established at $450,000, while the named executive
officers’ base annual salaries have been established at $300,000. The
named executive officers’ 2008
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short-term cash
incentive targets will be 60% of base salary. If stretch performance is
achieved in 2008, incremental stretch short-term cash incentive targets could
be increased up to an additional 40% of base salary.
The CEO’s 2008
short-term cash incentive target is established at 75% of base salary, and the
incremental stretch short-term cash incentive target is an additional 50% of
base salary. A long-term equity incentive program covering the period of
2008 through 2010 for the named executives officers, including the CEO, but
contingent upon the consummation and closing of the Redemption and Merger transaction
by and among the MarkWest Hydrocarbon, the Partnership, and MWEP, L.L.C. as
announced September 5, 2007, was previously approved by the Boards of
Directors of MarkWest Hydrocarbon and the General Partner on September 5,
2007. This long-term equity incentive
arrangement provides for grants in the range of 90,000 to 180,000 of MarkWest
Energy Partners, L.P. phantom units to the named executives officers, including
the CEO. The phantom units would vest on a time-based and
performance-based schedule over the three-year period. Forty percent (40%) of the total individual
grant would be based on continuing employment over the three-year vesting
period, and sixty percent (60%) of the total individual grant would be performance-based.
Vesting of the performance-based awards would be conditional upon the
achievement of designated annual financial performance goals established by the
Board of Directors, with 10% of the performance-based awards reserved for
vesting at the discretion of the Compensation Committee of the Board of
Directors. The annual financial performance goals will be based upon
established targets of distributable cash flow per common unit. This
long-term equity incentive arrangement also contains a recapture provision. If
the annual performance targets are not achieved in year one and/or year two of
the vesting schedule, but the cumulative three-year overall performance goal is
achieved, the recapture provision allows for the vesting of a reduced
percentage of the year one and/or year two performance equity awards.
ITEM 8.01 OTHER
EVENTS.
The information filed in Item 5.02 above is incorporated by reference
herein.
Cautionary Statements
This filing includes “forward-looking statements” within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended.
All statements other than statements of historical facts included or
incorporated herein may constitute forward-looking statements. Actual results could vary significantly from
those expressed or implied in such statements and are subject to a number of
risks and uncertainties. Although we
believe that the expectations reflected in the forward-looking statements are
reasonable, we can give no assurance that such expectations will prove to be
correct. The forward-looking statements
involve risks and uncertainties that affect our operations, financial
performance and other factors as discussed in our filings with the Securities
and Exchange Commission. Among the
factors that could cause results to differ materially are those risks discussed
in our Form 10-K/A for the year ended December 31, 2006, as filed with the
SEC. You are urged to carefully review
and consider the cautionary statements and other disclosures made in those
filings, specifically those under the heading “Risk Factors.” We do not undertake any duty to update any
forward-looking statement.
Although we believe that the expectations reflected in the
forward-looking statements, specifically those including those referring to
future performance, growth, cash flow, operating income, distributable cash
flow (DCF), distributions, or other factors, are reasonable, these
forward-looking statements are not guarantees of future performance and we can
give no assurance that such expectations will prove to be correct and that
projected performance or distributions may not be achieved. Among the factors that could cause results to
differ materially are those risks discussed in our Form S-1, as amended, our
Annual Report on Form 10-K/A for the year ended December 31, 2006, and our
Quarterly Reports on Form 10-Q, as amended, each as filed with the SEC. You are also urged to carefully review and
consider the cautionary statements and other disclosures, including those under
the heading “Risk Factors,” made in those filings, which identify and discuss
significant risks, uncertainties and various other factors that could cause
actual results to vary significantly from those expressed or implied in the
forward-looking statements. We do not
undertake any duty to update any forward-looking statement.
MarkWest Energy Partners and MarkWest Hydrocarbon filed a definitive
joint proxy statement/prospectus and other documents with the Securities and
Exchange Commission (the “SEC”) in relation to the merger transaction announced
on September 5, 2007. Investors and
security holders are urged to read these documents carefully because they
contain important information regarding MarkWest Energy Partners, MarkWest
Hydrocarbon, and the transaction. A definitive joint proxy statement/prospectus
has been sent to security holders of MarkWest Energy Partners and MarkWest
Hydrocarbon seeking their approval of the transactions contemplated by the
redemption and merger agreement. Investors and security holders may obtain a
free copy of the joint proxy statement/prospectus and other documents
containing information about MarkWest Energy Partners and MarkWest Hydrocarbon,
without charge, at the SEC’s website at www.sec.gov. Copies of the joint proxy
statement/prospectus and the SEC filings that will be incorporated by reference
in the joint proxy statement/prospectus may also be obtained free of charge by
directing a request to the entities’ investor relations department at
866-858-0482, or by accessing the companies’ website at www.markwest.com.
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MarkWest Energy Partners, MarkWest Hydrocarbon, the officers and
directors of the general partner of MarkWest Energy Partners, and the officers
and directors of MarkWest Hydrocarbon may be deemed to be participants in the
solicitation of proxies from their security holders. Information about these
persons can be found in the Annual Report on Form 10-K/A for the year ended
December 31, 2006, for each of MarkWest Energy Partners and MarkWest
Hydrocarbon, as filed with the SEC, and additional information about such
persons may be obtained from the joint proxy statement/prospectus.
This filing shall not constitute an offer to sell or the solicitation
of an offer to buy any securities, nor shall there be any sale of securities in
any jurisdiction in which such offer, solicitation, or sale would be unlawful
prior to registration or qualification under the securities laws of any such
jurisdiction. No offering of securities shall be made except by means of a
prospectus meeting the requirements of the Securities Act of 1933, as amended.
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