-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JnXMkhHtSQdjjL6ZksqY9yJSVfoJ6jZAhgKyz7REHa9brnbegkbKkNU9QOEsytKb eOg9lLL3iHTxzQoQHEENUw== 0000927356-98-001199.txt : 19980803 0000927356-98-001199.hdr.sgml : 19980803 ACCESSION NUMBER: 0000927356-98-001199 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980731 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MARKWEST HYDROCARBON INC CENTRAL INDEX KEY: 0001019756 STANDARD INDUSTRIAL CLASSIFICATION: NATURAL GAS DISTRIBUTION [4924] IRS NUMBER: 841352233 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-21353 FILM NUMBER: 98675084 BUSINESS ADDRESS: STREET 1: 155 INVERNESS DRIVE WEST STREET 2: SUITE 200 CITY: ENGLEWOOD STATE: CO ZIP: 80112-5004 BUSINESS PHONE: 3032908700 MAIL ADDRESS: STREET 1: 155 INVERNESS DRIVE WEST STREET 2: SUITE 200 CITY: ENGLEWOOD STATE: CO ZIP: 80112-5004 10-Q 1 2ND QUARTER 10-Q - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM________TO________ COMMISSION FILE NUMBER 1-11566 MARKWEST HYDROCARBON, INC. (Exact name of registrant as specified in its charter) Delaware 84-1352233 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 155 Inverness Drive West, Suite 200, Englewood, CO 80112-5004 (Address of principal executive offices) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 303-290-8700 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- The registrant had 8,495,890 shares of common stock, $.01 per share par value, outstanding as of July 24, 1998. ________________________________________________________________________________
PART I - FINANCIAL INFORMATION Page --------------------- Item 1. Consolidated Financial Statements Consolidated Balance Sheet at June 30, 1998 and December 31, 1997......... 1 Consolidated Statement of Operations for the Three and Six Months Ended June 30, 1998 and 1997............................................ 2 Consolidated Statement of Cash Flows for the Three and Six Months Ended June 30, 1998 and 1997.................................................. 3 Notes to the Consolidated Financial Statements............................ 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..................................................... 5 PART II - OTHER INFORMATION Item 1. Legal Proceedings............................................................ 10 Item 4. Submission of Matters to a Vote of Security Holders.......................... 10 Item 6. Exhibits and Reports on Form 8-K............................................. 11 SIGNATURES 12
PART I - FINANCIAL INFORMATION Item 1. Consolidated Financial Statements MARKWEST HYDROCARBON, INC. CONSOLIDATED BALANCE SHEET (000S, EXCEPT SHARE DATA)
June 30, 1998 December 31, (Unaudited) 1997 ASSETS ---------------- -------------- Current assets: Cash and cash equivalents......................................................... $ 669 $ 1,493 Receivables, net of allowance for doubtful accounts of $120 and $120, respectively................................................................. 5,771 10,150 Receivable from income taxes paid................................................. 1,122 -- Inventories....................................................................... 4,588 5,141 Prepaid feedstock................................................................. -- 2,690 Other assets...................................................................... 2,885 2,698 ---------- ---------- Total current assets.......................................................... 15,035 22,172 Property and equipment: Gas processing, gathering, storage and marketing equipment........................ 71,255 58,794 Oil and gas properties and equipment.............................................. 10,434 7,854 Land, buildings and other equipment............................................... 10,036 9,363 Construction in progress.......................................................... 8,507 5,258 ---------- ---------- 100,232 81,269 Less: accumulated depreciation, depletion and amortization........................ (17,499) (15,439) ---------- ---------- Total property and equipment, net............................................. 82,733 65,830 Intangible assets, net of accumulated amortization of $352 and $287 respectively...... 935 555 Note receivable and other assets...................................................... -- 10,100 ---------- ---------- Total assets.......................................................................... $ 98,703 $ 98,657 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Trade accounts payable............................................................ $ 1,697 $ 3,074 Accrued liabilities............................................................... 5,260 4,339 Current portion of long-term debt................................................. 153 156 ---------- ---------- Total current liabilities..................................................... 7,110 7,569 Deferred income taxes................................................................. 6,596 5,609 Long-term debt........................................................................ 33,626 33,931 Stockholders' equity: Preferred stock, par value $0.01, 5,000,000 shares authorized, 0 shares issued and outstanding.................................................................. -- -- Common stock, par value $0.01, 20,000,000 shares authorized, 8,527,401 and 8,519,724 shares issued, respectively............................................ 85 85 Additional paid-in capital........................................................ 42,739 42,729 Retained earnings................................................................. 8,963 9,189 Treasury stock, 28,211 and 27,511 shares, respectively............................ (416) (455) Total stockholders' equity.................................................... 51,371 51,548 ---------- ---------- Total liabilities and stockholders' equity............................................ $ 98,703 $ 98,657 ========== ========== The accompanying notes are an integral part of these financial statements
1 MARKWEST HYDROCARBON, INC. CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) (000S, EXCEPT PER SHARE DATA)
For the three months ended For the six months ended June 30, June 30, 1998 1997 1998 1997 ----------- ----------- ----------- --------- Revenues: Gathering, processing and marketing revenue......... $10,762 $11,650 $30,617 $40,006 Oil and gas revenue................................. 248 128 606 300 Interest income..................................... 44 170 115 341 Other income........................................ -- -- 21 74 ----------- ----------- ----------- ---------- Total revenue............................... 11,054 11,948 31,359 40,721 ----------- ----------- ----------- ---------- Costs and expenses: Cost of sales....................................... 7,587 6,076 20,871 23,047 Operating expenses.................................. 2,340 2,770 5,008 5,049 General and administrative expenses................. 1,314 1,615 2,838 3,548 Depreciation, depletion and amortization............ 1,136 812 2,107 1,584 Interest expense.................................... 445 222 893 325 ----------- ---------- ----------- ---------- Total costs and expenses.................... 12,822 11,495 31,717 33,553 ----------- ---------- ----------- ---------- Income (loss) before minority interest and income taxes. (1,768) 453 (358) 7,168 Minority interest in net loss of subsidiary............. -- 20 -- 223 ----------- ----------- ----------- ---------- Income (loss) before income taxes....................... (1,768) 473 (358) 7,391 Provision for income taxes: Current............................................. (1,156) 173 (1,122) 2,546 Deferred............................................ 528 -- 987 263 ----------- ----------- ----------- ---------- (628) 173 (135) 2,809 ----------- ----------- ----------- ---------- Net income (loss)....................................... $(1,140) $ 300 $ (223) $ 4,582 =========== =========== =========== ========== Basic earnings (loss) per share of common stock......... $ (0.13) $ 0.04 $ (0.03) $ 0.54 =========== =========== =========== ========== Earnings (loss) per share assuming dilution............. $ (0.13) $ 0.03 $ (0.03) $ 0.53 =========== =========== =========== ========== Weighted average number of outstanding shares of common stock.................................................. 8,500 8,484 8,498 8,484 =========== =========== =========== ========== The accompanying notes are an integral part of these financial statements
2 MARKWEST HYDROCARBON, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) (000S)
For the three months For the six months ended June 30, ended June 30, 1998 1997 1998 1997 --------- -------- -------- --------- Reconciliation of net income (loss) to net cash provided by (used in) operating activities: Net income.................................................... $(1,140) $ 300 $ (223) $ 4,582 Add income items that do not affect working capital: Depreciation, depletion and amortization................... 1,136 812 2,107 1,584 Deferred income taxes...................................... 528 -- 987 263 Gain on sale of assets..................................... -- -- -- (75) ---------- --------- ---------- --------- 524 1,112 2,871 6,354 Adjustments to working capital to arrive at net cash provided by (used in) operating activities: (Increase) decrease in accounts receivable................ 48 (2,121) 4,379 1,193 (Increase) decrease in inventories........................ (2,022) (546) 553 2,712 (Increase) decrease in prepaid feedstock and other assets................................................ (1,022) (1,749) 1,381 140 Decrease in accounts payable and accrued liabilities...... (171) (1,940) (456) (3,565) --------- --------- --------- ---------- (3,167) (6,356) 5,857 480 Net cash provided by (used in) operating activities.. (2,643) (5,244) 8,728 6,834 Cash flows from investing activities: Capital expenditures...................................... (4,985) (7,125) (8,865) (7,720) Increase in note receivable and intangible assets......... (398) (259) (428) (1,888) Other..................................................... -- (82) -- (144) ---------- --------- --------- ---------- Net cash used in investing activities................ (5,383) (7,466) (9,293) (9,752) Cash flows from financing activities: Proceeds from long-term debt.............................. 11,500 9,920 20,200 9,920 Repayment of long-term debt............................... (5,052) (37) (20,508) (11,150) Other..................................................... (2) (67) 49 (67) ---------- --------- --------- ---------- Net cash provided by (used in) financing activities.. 6,446 9,816 (259) (1,297) ---------- --------- --------- ---------- Net decrease in cash and cash equivalents.......................... (1,580) (2,894) (824) (4,215) Cash and cash equivalents at beginning of period................... 2,249 3,080 1,493 4,401 ---------- --------- --------- ---------- Cash and cash equivalents at end of period......................... $ 669 $ 186 $ 669 $ 186 ========== ========= ========= ========== the accompamying notes are an integral part of these financial statements.
3 MARKWEST HYDROCARBON, INC. NOTES TO THE FINANCIAL STATEMENTS NOTE 1. GENERAL The consolidated financial statements include the accounts of MarkWest Hydrocarbon, Inc. ("MarkWest" or the "Company") and its wholly-owned subsidiaries, MarkWest Resources, Inc. ("Resources"), MarkWest Michigan, Inc. ("Michigan") and 155 Inverness, Inc. ("155 Inverness"). All significant intercompany accounts and transactions have been eliminated in consolidation. The unaudited financial statements presented herein have been prepared in accordance with the instructions to Form 10-Q and do not include all the information and note disclosures required by generally accepted accounting principles for complete financial statements. The interim consolidated financial statements should be read in conjunction with the Consolidated Financial Statements and Notes thereto for the year ended December 31, 1997 included in the Company's Annual Report on Form 10-K, as filed with the Securities and Exchange Commission. In the opinion of management, all adjustments necessary for a fair statement of the results for the unaudited interim periods have been made. These adjustments consist only of normal recurring adjustments. The effective corporate tax rate for interim periods is based on the estimated annual effective corporate tax rate, excluding certain nonrecurring or unusual events. The effective tax rate varies from statutory rates due primarily to tax credits and intangible development costs. Certain prior year amounts have been reclassified to conform to the 1998 presentation. NOTE 2. SUPPLEMENTARY CASH FLOW INFORMATION During the three months ended June 30, 1998, non-cash investing activities included the forgiveness of a note receivable (the "Note") valued at $10.1 million from Michigan Production Company, LLC in exchange for the title to the 31 mile extension to the Basin pipeline. The Note was originally for the costs incurred by the Company for the construction of the pipeline extension. NOTE 3. LONG TERM DEBT Effective May 6, 1998, the Company amended its existing credit agreement. The amended credit agreement provides for a maximum borrowing amount of $85 million, $50 million of which is available pursuant to a term loan commitment and the remaining $35 million pursuant to a revolving loan commitment. Actual borrowing limits may be a lesser amount, depending on trailing cash flow, as defined in the agreement. The term loan commitment period will terminate on October 20, 1999. Any outstanding balance thereunder will be payable in eight equal quarterly installments, beginning June 30, 2002. The revolving loan commitment converts to a reducing loan commitment on May 6, 2000. The reducing loan commitment reduces ratably on a quarterly basis to zero by May 6, 2004. Interest rates are based on either the agent bank's base rate or the London Interbank Offered Rate (LIBOR), plus an applicable margin of between 0% and 0.75% or 0.625% and 2.25%, respectively, based upon a certain Company debt to earnings ratio. The debt is secured by a first mortgage on the Company's major assets. The loan agreement restricts certain activities and requires the maintenance of certain financial ratios and other conditions. NOTE 4. RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board issued Statement No. 133 ("SFAS 133"), Accounting for Derivative Instruments and Hedging Activities. This Statement is effective for fiscal years beginning after June 15, 1999. Earlier application is encouraged; however, the Company does not anticipate adopting SFAS 133 until the fiscal year beginning January 1, 2000. SFAS 133 requires that an entity recognize all derivatives as assets or liabilities in the statement of financial position and measure those instruments at fair value. Although the Company is currently evaluating SFAS 133, it is not expected to have a material impact on the financial condition or results of operations of the Company. 4 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's Discussion and Analysis of Financial Condition and Results of Operations contains statements which, to the extent that they are not recitations of historical fact, constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 ("Section 27A") and Section 21E of the Securities and Exchange Act of 1934 ("Section 21E"). All forward-looking statements involve risks and uncertainties. The forward-looking statements in this document are intended to be subject to the safe harbor protection provided by Sections 27A and 21E. Factors that most typically impact the Company's operating results and financial condition include (i) changes in general economic conditions in regions in which the Company's products are located, (ii) the availability and prices of natural gas liquids ("NGLs") and competing commodities, (iii) the availability and prices of raw natural gas supply, (iv) the ability of the Company to negotiate favorable marketing agreements, (v) the risks that natural gas exploration and production activities will not be successful, (vi) the Company's dependence on certain significant customers, gatherers and transporters of natural gas, (vii) competition from other NGL processors, including major energy companies, and (viii) the Company's ability to identify and consummate acquisitions complementary to its business. For discussions identifying other important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, see the Company's Securities and Exchange Commission filings. Forward-looking statements involve many uncertainties which are beyond the Company's ability to control and in many cases the Company cannot predict what factors would cause actual results to differ materially from those indicated by the forward-looking statements. SECOND QUARTER 1998 SUMMARY MarkWest incurred a net loss of $1.1 million, or $0.13 per share, on revenues of $11.1 million for the quarter ended June 30, 1998. This compares to net income of $300,000, or $0.04 per share, on revenues of $11.9 million for the same period in 1997. The net loss primarily resulted from lower gross margins on NGL sales at MarkWest's Appalachian plants, based on a combination of weak NGL prices and strong natural gas costs affecting the entire gas processing industry. For the quarter, NGL prices moved down sharply in response to lower crude oil prices. The average West Texas Intermediate crude oil spot price for the second quarter of 1998 is down over 20 percent from the same quarter last year. MarkWest's average NGL sales price is down by a similar percentage. Strong natural gas prices, which represent MarkWest's cost of sales, played a secondary role in the gross margin squeeze. This quarter's gross margin on a per-unit basis was approximately 70 percent below MarkWest's ten-year average in Appalachia, reducing second quarter results by about $1.4 million or $0.16 per share. In contrast, 1997's second quarter gross margin was in line with MarkWest's ten-year average. SIX MONTHS ENDED JUNE 30, 1998 SUMMARY For the six months ended June 30, 1998, the Company's net loss was $223,000, or ($0.03) per share on revenues of $31.4 million. This compares to net income of $4.6 million or $0.54 per share on revenues of $40.7 million for the six months ended June 30, 1997. The primary cause of the net loss was lower gross margins on NGL sales at the Company's Appalachian plants, due to weak NGL prices in the first quarter and a combination of weak NGL prices and strong gas prices in the second quarter.
OPERATING STATISTICS Three Months Ended June 30, Six Months Ended June 30, 1998 1997 % Change 1998 1997 % Change ----------- ----------- ---------- ----------- ----------- ---------- Appalachia: NGL production--Siloam plant (gallons) 24,253,161 22,055,068 10% 51,152,340 49,877,687 3% NGLs marketed--Siloam plant (gallons) 18,510,284 19,388,827 (5%) 47,175,614 49,869,744 (5%) Fee gas processed (mmbtu) (a) 8,185,641 14,489,924 (44%) 20,360,835 27,372,327 (26%) Terminal throughput (gallons) 3,054,883 2,926,617 4% 13,458,438 13,284,866 1% Michigan: Pipeline throughput (mcf) 860,087 511,266 68% 1,945,627 857,890 127% NGLs marketed (gallons) 1,372,137 -- -- 3,230,518 -- -- Appalachia plant and Michigan: Average sales price per gallon $0.30 $0.39 (23%) $0.33 $0.56 (41%) Gas production (mcfe) 242,232 95,784 153% 415,478 176,634 135%
5 (a) Due to the ongoing arbitration with Columbia, fee gas processed in 1998 only includes volumes processed at the Company's Kenova plant beginning March 1, 1998. In 1997 and early 1998, fee gas processed included volumes at the Boldman and Cobb plants, in addition to the Kenova plant. The loss of fee revenue is partly offset by cost savings from not operating Boldman and Cobb. APPALACHIAN CORE AREA Second quarter NGL production volumes remained strong at 24.3 million gallons, up 10 percent from the same period last year. NGL marketing volumes of 18.5 million gallons in the second quarter of 1998 were down 5 percent from the second quarter of 1997. The decline was primarily due to an earlier inventory build for the upcoming winter months than was done in 1997. MarkWest recently completed a ten-year NGL purchase contract to purchase 2 million to 3 million gallons per year of mixed liquids from a third party's new processing plant beginning September 1998. MICHIGAN CORE AREA MarkWest completed the first third of its 27-mile southern pipeline extension in July. This portion of the extension provided for the connection of a well that started flowing at 5 million cubic feet per day (mmcfd) and is expected to increase to more than 8 mmcfd in August. The second third of the extension will be completed in late August or early September allowing for the connection of another 5-10 mmcfd well. An additional 7 mmcfd from shut-in wells will be connected upon completion of the final third of the extension early in the fourth quarter. Michigan volumes are currently flowing at 17 mmcfd, up from the second quarter average of 9.5 mmcfd. Average throughput volumes are projected to be about 18 mmcfd for the third quarter and 30 mmcfd for the fourth quarter providing significantly higher cash flow and earnings in the second half of 1998. At 35 mmcfd, the Michigan NGL extraction plant will be at full capacity. MarkWest expects to expand plant and pipeline capacity to 50 mmcfd, at a cost of $3 million, when drilling success adds volumes, perhaps in 1999. Drilling activities continue along the MarkWest pipeline. MarkWest is participating in exploration activities in the region, holding a 17.5 percent working interest in a recently completed seismic program. Drilling of the first two of three to four wells in the 1998 program will begin in October. Two other companies each plan to drill two wells by the end of the year. Drilling successes in any of these three programs could add significantly to pipeline and NGL throughput for MarkWest. EXPLORATION AND PRODUCTION Natural gas sold in the second quarter of 1998 totaled 242,000 mcf equivalent (mcfe), a 153 percent increase over the same period last year. This increase largely resulted from the Company's March 1998 acquisition of 40 producing wells in Colorado's San Juan Basin, building on MarkWest's existing assets in the region. Production performance is being further improved due to work-over activities on the purchased wells. MarkWest continues to pursue viable gas projects in the Rocky Mountain region that would lead to gathering and transportation investment opportunities. OUTLOOK NGL prices in the second quarter of 1998 were below historical levels and are expected to remain so in the third quarter of 1998. These prices are often correlated with and driven by the price of crude oil, which has not fully recovered from its decline over the fourth quarter of 1997 and the first quarter of 1998. A substantial portion of the Company's revenues, and as a result, its gross margins, remain dependent upon the sales price of NGLs, particularly propane, which fluctuates with the winter weather conditions and other supply and demand determinants. The strongest demand for propane and the highest propane sales margins generally occur during the winter heating season. As a result, the Company recognizes a substantial portion of its annual income during the first and fourth quarters of the year. The Company anticipates that until a crude oil price recovery is underway and/or gas prices soften, the Company will continue to experience earnings pressures, like others in the industry. However, MarkWest's NGL commodity exposure is partially offset by selling liquids in a premium market, utilizing storage capability and its ability to pre-buy natural gas. In addition, an increase of fee-based income, primarily a result of connecting new wells increasing 6 system throughput in Michigan, helps to offset the fluctuation of NGL and natural gas prices. The Company anticipates fee based activity will generate nearly fifty percent of total gross margins in 1999. THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THE THREE MONTHS ENDED JUNE 30, 1997
Three months ended June 30, 1998 1997 $ Change ------------------- ----------------- -------------------- Revenues $ 11,054 $11,948 ($ 894) Gross profit (loss) (a) (53) 2,120 (2,173) Income (loss) before income taxes (1,768) 473 (2,241) Provision for income taxes (628) 173 801 ------------------- ----------------- -------------------- Net income (loss) ($ 1,140) $ 300 ($ 1,440) =================== ================= ====================
(a) Excludes interest income, general and administrative expense and interest expense. REVENUES Gathering, processing and marketing revenue. Gathering, processing and marketing revenue decreased $888,000 or 8% for the three months ended June 30, 1998, compared to the same period in 1997, due to a variety of reasons. The Company's Appalachian operations accounted for the majority of the overall revenue decrease, primarily as a result of weak NGL prices in the second quarter of 1998 compared to the same period in 1997. The above factor was partially offset by a 68% increase in the volume of gas processed in the Company's Michigan operations and an increase in gas marketing activity during the three months ended June 30, 1998 compared to the three months ended June 30, 1997. Gas processed in the Company's Michigan operations contributed both fee-based processing income and revenues from the sale of propane and other liquids extracted at the Company's new NGL extraction plant, which began operations in December 1997. Oil and gas revenue. Oil and gas revenue increased by $120,000 or 94% for the three months ended June 30, 1998 compared to the same period in 1997. This increase was directly attributable to a significant increase in gas production from the prior year. COSTS AND EXPENSES Cost of sales. Cost of sales increased $1.5 million or 25% for the three months ended June 30, 1998 compared to the same period in 1997. The Company's Appalachian operations accounted for the majority of the increase, primarily as a result of an increase in unit costs of natural gas at the Company's Siloam plant. Cost of sales during the second quarter of 1998 also included costs associated with the Company's new NGL extraction plant in Michigan. The overall increase in cost of sales was partially offset by a decrease in unit costs of propane at the Company's terminals. Operating expenses. Operational expenses decreased $430,000 or 16% for the three months ended June 30, 1998 compared to the three months ended June 30, 1997. The majority of the decrease was driven by lower operating expenses in the Company's Appalachia operations in the second quarter of 1998 compared to the second quarter of 1997. This decrease was partially offset by increased Michigan operational expenses caused by the Company's new NGL extraction plant. General and administrative expenses. General and administrative expenses decreased $301,000 or 19% for the three months ended June 30, 1998 compared to the same period in 1997. General and administrative expenses incurred during the three months ended June 30, 1997 included a continuation of many initial costs, including significant professional service fees, incurred in connection with its reorganization into a public company following the initial public offering in October 1996. Depreciation, depletion and amortization. Depreciation, depletion and amortization increased $324,000 or 40% for the second quarter of 1998 compared to the second quarter of 1997. This increase was principally due to increased depreciation attributable to the Company's new NGL extraction plant and pipeline extension in Michigan. 7 Interest expense. Interest expense increased $223,000 or 100% for the second quarter of 1998 compared to the second quarter of 1997. This increase was principally due to an increase in average outstanding long-term debt in the second quarter of 1998 compared to the second quarter of 1997. SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1997
Six months ended June 30, 1998 1997 $ Change ------------------- ----------------- -------------------- Revenues $31,359 $40,721 ($ 9,362) Gross profit (loss) (a) 3,258 10,700 (7,442) Income (loss) before income taxes (358) 7,391 (7,749) Provision for income taxes (135) 2,809 2,944 ------------------- ----------------- -------------------- Net income (loss) ($ 223) $ 4,582 ($ 4,805) =================== ================= ====================
(a) Excludes interest income, general and administrative expense and interest expense. REVENUES Gathering, processing and marketing revenue. Gathering, processing and marketing revenue decreased $9.4 million or 23% for the six months ended June 30, 1998, compared to the same period in 1997, due to a variety of reasons. The Company's Appalachian operations accounted for the majority of the overall revenue decrease, primarily as a result of weak NGL prices in the six months ended June 30, 1998 compared to the same period in 1997. The above factor was partially offset by a 127% increase in the volume of gas processed in the Company's Michigan operations and an increase in gas marketing activity during the six months ended June 30, 1998 compared to the six months ended June 30, 1997. Gas processed in the Company's Michigan operations contributed both fee-based processing income and revenues from the sale of propane and other liquids extracted at the Company's new NGL extraction plant, which began operations in December 1997. Oil and gas revenue. Oil and gas revenue increased by $306,000 or 102% for the six months ended June 30, 1998 compared to the same period in 1997. This increase was directly attributable to a significant increase in gas production from the prior year. COSTS AND EXPENSES Cost of sales. Cost of sales decreased $2.2 million or 9% for the six months ended June 30, 1998 compared to the same period in 1997. The Company's Appalachian operations accounted for the majority of the decrease, primarily as a result of a decrease in unit costs of propane at the Company's terminals. This decrease was partially offset by an increase in cost of sales at the Company's Michigan operations, where the Company's new NGL extraction plant commenced operations in December 1997. Operating expenses. Operational expenses remained relatively constant with only a slight decrease of $41,000 for the six months ended June 30, 1998 compared to the six months ended June 30, 1997. For the first six months in 1998, the Company experienced lower operating costs in its Appalachian operations compared to the same time period in 1997. This decrease was offset by the introduction of operational costs from the Company's new NGL extraction plant in Michigan during the first half of 1998. General and administrative expenses. General and administrative expenses decreased $710,000 or 20% for the six months ended June 30, 1998 compared to the same period in 1997. General and administrative expenses incurred during the six months ended June 30, 1997 included a continuation of many initial costs, including significant professional service fees, incurred in connection with its reorganization into a public company following the initial public offering in October 1996. Depreciation, depletion and amortization. Depreciation, depletion and amortization increased $523,000 or 33% for the first six months of 1998 compared to the first six months of 1997. This increase was principally due to increased depreciation attributable to the Company's new NGL extraction plant and pipeline extension in Michigan. 8 Interest expense. Interest expense increased $568,000 for the six months ended June 30, 1998 compared to the six months ended June 30, 1997. This increase was principally due to an increase in average outstanding long-term debt in the first half of 1998 compared to the first half of 1997. LIQUIDITY AND CAPITAL RESOURCES The Company's sources of liquidity and capital resources historically have been net cash provided by operating activities; proceeds from issuance of long-term debt; and in 1996, an initial public offering of equity. In the past, these sources have been sufficient to meet its needs and finance the growth of its business. The following summary table reflects comparative cash flows for the Company for the six months ended June 30, 1998 and 1997 (in thousands):
For the six months ended June 30, 1998 1997 ---------------------- ----------------------- Net cash provided by operating activities before change in working capital $ 2,871 $ 6,354 Net cash provided by operating activities from change in working capital 5,857 480 Net cash used in investing activities (9,293) (9,752) Net cash used in financing activities (259) (1,297)
For the six months ended June 30, 1998, net cash provided by operating activities before adjustments for working capital decreased $3.5 million from the same period in 1997, primarily as a result of a decrease in gross profit since 1997. As shown above, this was partially offset by a $5.9 million decrease in the Company's working capital accounts, excluding cash, for the six months ended June 30, 1998, compared to a $480,000 decrease in working capital accounts, excluding cash, for the six months ended June 30, 1997. The change in working capital was principally driven by greater decreases in accounts receivable, prepaid feedstock and other assets in the first six months of 1998, compared to the first six months of 1997. These changes were partially offset by a smaller decrease in inventories and accounts payable in first half of 1998 compared to the first half of 1997. Cash used in investing activities decreased $459,000 for the six months ended June 30, 1998 compared to the six months ended June 30, 1997, primarily related to a smaller increase in notes receivable and other assets in the first six months of 1998 compared to the same period in 1997. This was partially offset by greater capital expenditures in the first six months of 1998 compared to the first six months of 1997 (see further discussion under "Capital Investment Program"). For the six months ended June 30, 1998, cash used in financing activities was $259,000, a decrease of approximately $1 million compared to the same period in 1997. The decrease was primarily related to the timing and frequency of debt repayments in 1998. Financing Facilities At June 30, 1998, the Company had approximately $27 million of available credit and working capital of $7.9 million. The Company believes that cash provided by operating activities, together with amounts available to be borrowed under its financing facilities, will provide sufficient funds to maintain its existing facilities and fund its capital expenditure program. Depending on the timing and amount of the Company's future projects, it may be required to seek additional sources of capital. While the Company believes that it would be able to secure additional financing, if required, no assurance can be given that it will be able to do so. Capital Investment Program The Company's capital investment program for 1998 is estimated at $17 million, down from the $24 million originally estimated at the beginning of 1998 and the subsequent revised estimate of $18 million. The new estimate includes $10 million in Michigan to fund a further extension of the pipeline and expansion of the current system capacity. The remaining capital programs include $2 million for various projects in Appalachia, $4 million for exploration and production activities, including $2.4 million in an acquisition of 40 producing wells located in the northern San Juan Basin of southwest Colorado, and $1 million for other various capital projects. For the six months ended June 30, 1998, the Company made capital expenditures totaling approximately $8.9 million. RISK MANAGEMENT ACTIVITIES 9 During the three months ended June 30, 1998 and 1997, a $0 and $14,000 gain, respectively, were recognized in operating income on the settlement of propane and natural gas futures. During the six months ended June 30, 1998 and 1997, a $0 and $1.0 million gain, respectively, were recognized in operating income on the settlement of propane and natural gas futures. Financial instrument gains and losses on hedging activities were generally offset by amounts realized from the sale of the underlying products in the physical market. At June 30, 1998, the Company had a total of 295 long open propane futures and forward contracts representing a notional quantity of 295,000 barrels. The Company also had a total of 110 short open natural gas futures contracts representing a notional quantity of 1,100,000 mmbtus. The Company had no material notional quantities of crude oil futures or NGL, natural gas, or crude oil swaps or options. At June 30, 1997, the Company had no material notional quantities of NGL, natural gas, or crude oil futures, swaps or options. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS As previously reported, MarkWest filed arbitration proceedings in February 1998 to resolve issues with Columbia Gas Transmission Corporation regarding three Appalachia natural gas processing plants. These plants are governed by several contracts, the most important of which extends through the year 2010. In this arbitration, MarkWest requests a declaration of rights and status to clarify agreements between the companies and certain monetary relief. Issues arose during ongoing negotiations between MarkWest and Columbia to finalize terms of a 1997 preliminary agreement in which, among other things, Columbia agreed to sell its Cobb plant to MarkWest and to transfer from Columbia to MarkWest the operation of the Boldman plant. These issues also include matters regarding operations at the Kenova plant. MarkWest owns the Boldman and Kenova plants. As previously reported, in April 1998, Columbia filed a Complaint against MarkWest in the United States District Court for the Southern District of West Virginia. The details of the complaint were reported in the first quarter 1998 Form 10-Q. MarkWest believes that the contract issues underlying Columbia's Complaint are already subject to the binding arbitration noted above. In both the arbitration and court actions, each of the parties has filed initial and response pleadings. The parties await decisions from both the arbitrators and the court on the scope of arbitration and the establishment of the remaining schedule. Management believes that it will prevail in its position and, accordingly, the outcome of this dispute is not likely to have a material effect on the financial condition, results of operations or prospects of MarkWest. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At the Annual Meeting of Stockholders held on May 21, 1998, the following proposals were adopted by the margins indicated: 1. To elect two Class II directors to hold office for a three-year term expiring at the Annual Meeting of Stockholders occurring in the year 2001 or until the election and qualification of their respective successors.
Number of Shares For Withheld ---------------------- --------------------- Brian T. O'Neill 8,132,362 600 Barry W. Spector 8,132,362 600
2. To ratify the selection of Price Waterhouse LLP as the Company's independent accountants for the fiscal year ending December 31, 1998.
Number of Shares ----------------------
10
For 8,132,962 Withheld 0
Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 10.1 - Second Amendment dated as of May 6, 1998 to the Amended and Restated Credit Agreement dated as of June 20, 1997 between MarkWest Hydrocarbon, Inc., as the Borrower, and Certain Commercial Lending Institutions, as the Lenders, and Bank of Montreal, acting through certain U.S. branches or agencies, as the Agent for the Lenders. 11 - Statement regarding computation of earnings per share. 27 - Financial Data Schedule. (b) Reports on Form 8-K (i) No reports on Form 8-K were filed during the quarter ended June 30, 1998. 11 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MarkWest Hydrocarbon, Inc. (Registrant) Date: July 29, 1998 By: /s/ Gerald A. Tywoniuk ---------------------------- Gerald A. Tywoniuk Chief Financial Officer and Vice President of Finance (On Behalf of the Registrant and as Principal Financial and Accounting Officer) 12 EX-10.1 2 2ND AMEND. TO AMENDED & RESTATED CREDIT AGREEMENT EXHIBIT 10.1 ================================================================================ SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT dated as of May 6, 1998 among MARKWEST HYDROCARBON, INC., as the Borrower, and VARIOUS COMMERCIAL LENDING INSTITUTIONS, as the Lenders, and NATIONSBANK, N.A. as the Syndication Agent for the Lenders BANK OF MONTREAL, acting through certain U.S. branches or agencies, as the Administrative Agent for the Lenders ================================================================================ SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT THIS SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT, dated as of May 6, 1998 (the "Second Amendment"), is among MARKWEST HYDROCARBON, INC., a ---------------- Delaware corporation ("Borrower"), the various commercial lending institutions -------- as are or may become parties hereto ("Lenders"), NATIONSBANK, N.A., as ------- syndication agent (the "Syndication Agent"), and BANK OF MONTREAL, acting ----------------- through certain U.S. branches or agencies, as Administrative Agent for the Lenders (in such capacity, the "Agent" or the "Administrative Agent") and shall ----- -------------------- be effective as provided in II below. W I T N E S S E T H: ------------------- 1. Borrower, Lenders and Administrative Agent have heretofore entered into that certain Amended and Restated Credit Agreement, dated as of June 20, 1997, as amended by that certain First Amendment to Credit Agreement, dated as of December 24, 1997 (as so amended, the "Credit Agreement"). ---------------- 2. Lenders and Administrative Agent have heretofore consented and agreed to that certain Consent and Waiver, dated as of January 6, 1998, and hereby agree that such Consent and Waiver will remain in effect after the effectiveness of this Second Amendment. Upon the effectiveness of this Second Amendment, any reference to the Credit Agreement in such Consent and Waiver shall be deemed to be a reference to the Credit Agreement as amended by this Second Amendment. 3. Lenders and Administrative Agent have also heretofore consented and agreed to that certain Consent and Waiver, dated as of April 13, 1998, and hereby agree that such Consent and Waiver will remain in effect after the effectiveness of this Second Amendment. Upon the effectiveness of this Second Amendment, any reference to the Credit Agreement in such Consent and Waiver shall be deemed to be a reference to the Credit Agreement as amended by this Second Amendment. 4. Borrower, Lenders, Syndication Agent and Administrative Agent now intend to amend the Credit Agreement as follows: I. AMENDMENTS TO CREDIT AGREEMENT. ------------------------------ A. Effective upon the effectiveness of this Second Amendment pursuant to II hereof, all references to the Agent in the Credit Agreement shall be deemed to be references to the Administrative Agent. B. The Preamble of the Credit Agreement is hereby amended by adding -------- "NATIONSBANK, N.A., as syndication agent (the "Syndication Agent")" in the fourth line of the Preamble, immediately after the parenthetical "(collectively, -------- the "Lenders")," and before the word "and". ------- C. Section 1.1 of the Credit Agreement is hereby amended by adding the ----------- following definitions of "Administrative Agent," "Base Rate Margin," "Letter of Credit Sublimit," "Revolving Loan Note," "Second Amendment," "Term Loan," "Term Loan Commitment," "Term Loan Commitment Amount," "Term Commitment Termination Date" and "Term Loan Note" in appropriate alphabetical order: "Administrative Agent" is defined in the preamble of the Second -------------------- Amendment. "Base Rate Margin" means, on any date, a per annum fee equal to the ---------------- Applicable Margin on such date. "Letter of Credit Sublimit" is defined in Section 2.1.5. ------------------------- ------------- "Revolving Loan Note" means a promissory note of the Borrower payable ------------------- to any Lender, in substantially the form of Exhibit A-1 hereto (as such ----------- promissory note may be amended, endorsed or otherwise modified from time to time), evidencing the aggregate Obligations of the Borrower to such Lender resulting from outstanding Revolving Loans or Reducing Loans or Reimbursement Obligations, and also means all other promissory notes accepted from time to time in substitution therefor or renewal thereof. "Second Amendment" means that certain Second Amendment to Amended and ---------------- Restated Credit Agreement dated as of May 6, 1998 among Markwest Hydrocarbon, Inc., the various commercial lending institutions as are or may become parties thereto, NationsBank, N.A., as Syndication Agent and Bank of Montreal, as Administrative Agent. "Term Loan"is defined in Section 2.1.4. --------- ------------- "Term Loan Commitment" means, relative to any Lender, such Lender's -------------------- obligation to make Term Loans pursuant to Section 2.1.4. ------------- "Term Loan Commitment Amount" means, on any date, $50,000,000, as such --------------------------- amount may be reduced from time to time pursuant to Section 2.2. ----------- 2 "Term Loan Commitment Termination Date" means the earliest of (a) ------------------------------------- October 20, 1999; (b) the date on which the Term Loan Commitment Amount is terminated in full or reduced to zero pursuant to Section 2.2; and (c) the ----------- date on which any Commitment Termination Event occurs. Upon the occurrence of any event described in clause (b) or (c), the Term Loan Commitments ---------- --- shall terminate automatically and without any further action. "Term Loan Note" means a promissory note of the Borrower payable to -------------- any Lender, in substantially the form of Exhibit A-2 hereto (as such ----------- promissory note may be amended, endorsed or otherwise modified from time to time), evidencing the aggregate Obligations of the Borrower to such Lender resulting from outstanding Term Loans, and also means all other promissory notes accepted from time to time in substitution therefor or renewal thereof. D. The definitions of "Applicable Margin," "Alternate Base Rate," "Commitment," "Commitment Amount," "Commitment Fee," "Commitment Termination Date," "Conversion Date," "Current Ratio," "Interest Period," "Loan," "Note," "Percentage," "Reducing Loan Commitment Amount," "Loan Commitment Termination Date," "Revolving Loan Commitment Amount," "Revolving Loan Commitment Termination Date," and "Stated Maturity Date" appearing in Section 1.1 of the ----------- Credit Agreement are hereby amended in their entirety to the followings: "Alternate Base Rate" means, on any date and with respect to all Base ------------------- Rate Loans, a fluctuating rate of interest per annum equal to the higher of (a) the rate of interest most recently established by BMO at its Domestic Office as its base rate plus the Base Rate Margin; and (b) the Federal Funds Rate most recently determined by the Administrative Agent (in accordance with the definition of Federal Funds Rate) plus 1%. The Alternate Base Rate is not necessarily intended to be the lowest rate of interest determined by the BMO in connection with extensions of credit. Changes in the rate of interest on that portion of any Loans maintained as Base Rate Loans will take effect simultaneously with each change in the Alternate Base Rate. The Administrative Agent will give notice promptly to the Borrower and the Lenders of changes in the Alternate Base Rate. "Applicable Margin" means, with respect to any Loan of any type or any ----------------- Letter of Credit, and at such time as the ratio of Total Funded Debt to Trailing Twelve Month EBITDA is in one of the following ranges, the number of basis points ("b.p.") per annum for the relevant type of Loan, --------- Commitment Fee or Letter of Credit and the relevant range set forth below: 3
============================================================================================ Range Applicable Margin - -------------------------------------------------------------------------------------------- Ratio of Total Funded LIBOR Letter of Base Debt to Trailing Rate Credit Rate Commitment Twelve Month Margin Margin Fee EBITDA - -------------------------------------------------------------------------------------------- Range 1 Less than or equal to 62.5 b.p. 62.5 b.p. 0.0 b.p. 25.0 b.p. 2.5X - -------------------------------------------------------------------------------------------- Range 2 Greater than 2.5X but 75.0 b.p. 75.0 b.p. 0.0 b.p. 25.0 b.p. less than or equal to 3.0X - -------------------------------------------------------------------------------------------- Range 3 Greater than 3.0X, but 100.0 b.p. 100.0 b.p. 0.0 b.p. 30.0 b.p. less than or equal to 3.5X - -------------------------------------------------------------------------------------------- Range 4 Greater than 3.5X, but 125.0 b.p. 125.0 b.p. 0.0.b.p. 30.0 b.p. less than or equal to 4.0X - -------------------------------------------------------------------------------------------- Range 5 Greater than 4.0X, but 162.5 b.p. 162.5 b.p. 25.0 b.p. 37.5 b.p. less than or equal to 4.5X - -------------------------------------------------------------------------------------------- Range 6 Greater than 4.5X, but 187.5 b.p. 187.5 b.p. 50.0 b.p. 50.0 b.p. less than or equal to 5.0X - -------------------------------------------------------------------------------------------- Range 7 Greater than 5.0X, but 212.5 b.p. 212.5 b.p. 75.0 b.p. 75.0 b.p. less than or equal to 5.5X - -------------------------------------------------------------------------------------------- Range 8 Greater than 5.5X 225.0 b.p. 225.0 b.p. 87.5 b.p. 75.0 b.p. ============================================================================================s
The ratio of Total Funded Debt to Trailing Twelve Month EBITDA shall be determined from the then most recent monthly, annual or quarterly financial statements delivered by the Borrower pursuant to Section 7.1.1 and any changes in Applicable Margin shall become effective the first day of the month following the date such financial statements are delivered pursuant to such Section. In the event that the Borrower shall at any time fail to furnish the Lenders such financial statements required to be delivered under Section 7.1.1, the maximum 4 Applicable Margin as set forth above shall apply until such time as such financial statements are so delivered. Changes in the Applicable Margin as a result of a change in the ratio of Total Funded Debt to Trailing Twelve Month EBITDA will occur automatically as aforesaid without notice. "Commitment" means, as the context may require, a Lender's Reducing ---------- Loan Commitment, Revolving Loan Commitment or Term Loan Commitment. "Commitment Amount" means, as the context may require, the sum of (i) ----------------- either the Reducing Loan Commitment Amount or the Revolving Loan Commitment Amount plus (ii) the Term Loan Commitment Amount. "Commitment Fee" means, on any date, a per annum fee equal to the -------------- Applicable Margin on such date. "Commitment Termination Date" means, as the context may require, --------------------------- either the Reducing Loan Commitment Termination Date, the Revolving Loan Commitment Termination Date or the Term Loan Commitment Termination Date. "Conversion Date" means the date the initial Reducing Loan is made --------------- pursuant to the terms hereof which shall be May 6, 2000 if a Commitment Termination Event has not previously occurred. "Current Ratio" means the ratio of (a) consolidated current assets of ------------- the Borrower and its Subsidiaries to (b) consolidated current liabilities -- of the Borrower and its Subsidiaries, both as determined in accordance with GAAP (it being understood that only the funded portion, if any, of any reduction pursuant to Section 2.2.2 of the Reducing Loan Commitment Amount ------------- or Section 2.2.3 of the Term Loan Commitment Amount will be deemed to be a ------------- current liability for purposes of this definition). "Interest Period" means, relative to any LIBO Rate Loans, the period --------------- beginning on (and including) the date on which such LIBO Rate Loan is made or continued as, or converted into, a LIBO Rate Loan pursuant to Section ------- 2.3 or 2.4 and shall end on (but exclude) the day which numerically --- --- corresponds to such date one, two, three or six months thereafter (or, if such month has no numerically corresponding day, on the last Business Day of such month), in either case as the Borrower may select in its relevant notice pursuant to Section 2.3 or 2.4; provided, however, that (a) the ----------- --- -------- ------- Borrower shall not be permitted to select Interest Periods to be in effect at any one time which have expiration dates occurring on more than five different dates; (b) Interest Periods commencing on the same date for Loans comprising part of the same Borrowing shall be of the 5 same duration; (c) if such Interest Period would otherwise end on a day which is not a Business Day, such Interest Period shall end on the next following Business Day (unless, if such Interest Period applies to LIBO Rate Loans, such next following Business Day is the first Business Day of a calendar month, in which case such Interest Period shall end on the Business Day next preceding such numerically corresponding day); and (d) no Interest Period may end later than the date set forth in clause (a) of the ---------- definition of "Reducing Loan Commitment Termination Date" in the case of ----------------------------------------- Reducing Loans or the Stated Maturity Date in the case of Term Loans, and the Borrower shall not select Interest Periods for Loans in amounts such that the Borrower would be obligated to prepay Loans on any date other than the last day of an Interest Period as a result of the operation of Section ------- 2.2.2 or Section 2.2.3. ----- ------------- "Loan" means, as the context may require, a Reducing Loan, a Revolving ---- Loan or a Term Loan of any type. "Note" means a Revolving Loan Note or a Term Loan Note, as the case ---- may be. "Percentage" means, relative to any Lender, the percentage set forth ---------- opposite its signature to the Second Amendment or set forth in a Lender Assignment Agreement, as such percentage may be adjusted from time to time pursuant to Lender Assignment Agreement(s) executed by such Lender and its Assignee Lender(s) and delivered pursuant to Section 10.11; provided, the ------------- sum of all Percentages for all Lenders shall never be less than 100%. "Reducing Loan Commitment Amount" means, on any date, $35,000,000, as ------------------------------- such amount may be reduced from time to time pursuant to Section 2.2. ----------- "Reducing Loan Commitment Termination Date" means the earliest of (a) ----------------------------------------- May 6, 2004; (b) the date on which the Reducing Loan Commitment Amount is terminated in full or reduced to zero pursuant to Section 2.2; and (c) the ----------- date on which any Commitment Termination Event occurs. Upon the occurrence of any event described in clause (b) or (c), the Revolving Loan Commitments ---------- --- shall terminate automatically and without any further action. "Revolving Loan Commitment Amount" means, on any date, $35,000,000, as -------------------------------- such amount may be reduced from time to time pursuant to Section 2.2. ----------- 6 "Revolving Loan Commitment Termination Date" means the earliest of (a) ------------------------------------------ May 6, 2000; (b) the date on which the Revolving Loan Commitment Amount is terminated in full or reduced to zero pursuant to Section 2.2; and (c) the ----------- date on which any Commitment Termination Event occurs. Upon the occurrence of any event described in clause (b) or (c), the Revolving Loan Commitments ---------- --- shall terminate automatically and without any further action. "Stated Maturity Date" means (a) in the case of any Reducing Loan, May -------------------- 6, 2004; (b) in the case of any Revolving Loan, May 6, 2000, (c) in the case of any Letter of Credit, May 6, 2004 and (d) in the case of any Term Loan, May 6, 2004. E. Section 2.1.1 of the Credit Agreement is hereby amended by inserting ------------- the word "Revolving" in the sixth line after the word "of" and before the term "Loans". F. Section 2.1.4 of the Credit Agreement is hereby amended in its ------------- entirety to the following: SECTION 2.1.4 Term Loan Commitment From time to time on any -------------------- Business Day occurring prior to the Term Loan Commitment Termination Date, each Lender agrees to make loans (relative to such Lender, its "Term ---- Loans") to the Borrower equal to such Lender's Percentage of the aggregate amount of the Borrowing of Term Loans requested by the Borrower to be made on such day. The Commitment of each Lender described in this Section 2.1.4 ------------- is herein referred to as its "Term Loan Commitment". No amounts paid or -------------------- prepaid with respect to the Term Loans may be reborrowed. G. Section 2.1 of the Credit Agreement is hereby amended by inserting ----------- after Section 2.1.4 thereof the following Section 2.1.5: ------------- ------------- SECTION 2.1.5 Lenders Not Permitted or Required To Make Loans or -------------------------------------------------- Issue or Participate in Letters of Credit Under Certain Circumstances. --------------------------------------------------------------------- No Lender shall be permitted or required to (a) continue any Original Loan as a Loan hereunder or to make any Revolving Loan if, after giving effect thereto (i) the aggregate outstanding principal amount of all Revolving Loans of all Lenders, together with all Letter of Credit Outstandings, would exceed the Revolving Loan Commitment Amount, or (ii) the aggregate outstanding principal amount of all Revolving Loans of such Lender, together with its Percentage of all Letter of Credit Outstandings, would exceed such Lender's Percentage of the Revolving Commitment Amount, or (b) make any Reducing Loan if, after giving effect thereto, the aggregate outstanding principal amount of all Reducing Loans, together with all Letter of Credit Outstandings, (i) of all 7 Lenders would exceed the Reducing Loan Commitment Amount, or (ii) of such Lender would exceed such Lender's Percentage of the Reducing Loan Commitment Amount, or (c) issue (in the case of any Issuer) or participate in (in the case of each Lender) any Letter of Credit if, after giving effect thereto (i) all Letter of Credit Outstandings together with the aggregate outstanding principal amount of all Loans of all Lenders would exceed the Commitment Amount, or (ii) such Lender's Percentage of all Letter of Credit Outstandings together with the aggregate outstanding principal amount of all Loans of such Lender would exceed such Lender's Percentage of the Commitment Amount, or (iii) all Letter of Credit Outstandings would exceed $20,000,000 (the "Letter of Credit Sublimit") or ------------------------- (d) make any Term Loan if, after giving effect thereto, the aggregate outstanding principal amount of all Term Loans (i) of all Lenders would exceed the Term Loan Commitment Amount, or (ii) of such Lender would exceed such Lender's Percentage of the Term Loan Commitment Amount. H. Section 2.2.1 of the Credit Agreement is hereby amended by deleting ------------- the word "either" appearing in the second line thereof and inserting the word "any" in lieu thereof. I. Section 2.2.2 of the Credit Agreement is hereby amended by inserting ------------- the phrase "as to Reducing Loans" after the word "Mandatory" in the Section title. J. Section 2.2 of the Credit Agreement is hereby amended by inserting ----------- after Section 2.2.2 thereof the following Section 2.2.3: ------------- ------------- SECTION 2.2.3 Mandatory as to Term Loans. The Term Loan Commitment -------------------------- Amount shall, without any further action, automatically and permanently be reduced on the last day of each fiscal quarter following April 30, 2002 by an amount equal to one-eighth of the aggregate Term Loan Commitment Amount in effect immediately prior to the Term Loan Commitment Termination Date. Voluntary reductions of the Term Loan Commitment Amount made pursuant to Section 2.2.1 shall be applied to diminish the amount of scheduled ------------- reductions to such Commitment Amount thereafter becoming effective pursuant to this Section pro rata. K. Section 2.6 of the Credit Agreement is hereby amended in its entirety ----------- to the following: SECTION 2.6 Notes. Each Lender's Revolving Loans under a Revolving ----- Loan Commitment and Reducing Loans under a Reducing Loan Commitment shall be evidenced by a Revolving Loan Note payable to the order of such Lender in a maximum principal amount equal to such Lender's 8 Percentage of the original applicable Revolving Loan Commitment Amount. Each Lender's Term Loans under a Term Loan Commitment shall be evidenced by a Term Loan Note payable to the order of such Lender in a maximum principal amount equal to such Lender's Percentage of the original applicable Term Loan Commitment Amount. The Borrower hereby irrevocably authorizes each Lender to make (or cause to be made) appropriate notations on the grids attached to such Lender's Notes (or on any continuation of such grid), which notations, if made, shall evidence, among other things, the date of, the outstanding principal of, and the interest rate and Interest Period applicable to the Loans evidenced thereby. Such notations shall be rebuttable presumptive evidence of such amounts; provided however, that the -------- ------- failure of any Lender to make any such notations shall not limit, enlarge or otherwise affect any Obligations of the Borrower or any other Obligor. L. Section 2.7.1(a) of the Credit Agreement is hereby amended in its ---------------- entirety to the following: (a) be issued in a Stated Amount which (i) together with all Letter of Credit Outstandings does not exceed the Letter of Credit Sublimit, or (ii) together with all Letter of Credit Outstandings and all outstanding Revolving Loans does not exceed (or would not exceed) the then Revolving Loan Commitment Amount (as such amount is reduced and is scheduled to reduce pursuant to Section 2.2). M. Section 2.7.4 of the Credit Agreement is hereby amended by deleting ------------- the section reference "Section 3.3.4" in the tenth line thereof and inserting ------------- the section reference "Section 3.3.3" in lieu thereof. ------------- N. Section 3.1(b) and (c) of the Credit Agreement are hereby amended in ---------------------- their entirety to the following: (b) shall, (i) on each date when any reduction in the Reducing Loan Commitment Amount shall become effective, including pursuant to Section ------- 2.2, make a mandatory prepayment of all Reducing Loans, equal to the --- excess, if any, of the aggregate, outstanding principal amount of all Reducing Loans together with Letter of Credit Outstandings over the Reducing Loan Commitment Amount as so reduced and (ii) on each date when any reduction in the Term Loan Commitment Amount shall become effective, including pursuant to Section 2.2, make a mandatory prepayment of all Term ----------- Loans, equal to the excess, if any, of the aggregate, outstanding principal amount of all Term Loans over the Term Loan Commitment Amount as so reduced; and (c) shall, 9 immediately upon any acceleration of the Stated Maturity Date of any Loans pursuant to Section 8.2 or Section 8.3, repay all Loans, unless, pursuant ----------- ----------- to Section 8.3, only a portion of all Loans is so accelerated. ----------- O. Section 3.3.1 of the Credit Agreement is hereby amended in its ------------- entirety to the following: SECTION 3.3.1 Commitment Fee. The Borrower agrees to pay to the -------------- Administrative Agent for the account of each Lender, for the period (including any portion thereof when any of its Commitments are suspended by reason of the Borrower's inability to satisfy any condition of Article V) --------- commencing on the Effective Date and continuing through the final Commitment Termination Date, a Commitment Fee on such Lender's Percentage of the sum of the average daily unused portion of the Commitment Amount (outstanding Loans and Letters of Credit being deemed to be usage hereunder). Such Commitment Fee shall be payable by the Borrower in arrears, on each Quarterly Payment Date, commencing with the first such day following the Effective Date, and on each Commitment Termination Date. P. Section 3 of the Credit Agreement is hereby amended by inserting after --------- Section 3.3.3 thereof the following Section 3.3.4: - ------------- SECTION 3.3.4 Amendment Fee. The Borrower agrees to pay to the ------------- Administrative Agent for the account of each Lender the fees provided in the letter dated May 6, 1998 between the Borrower and the Administrative Agent. Q. Section 7.1.1(a) of the Credit Agreement is hereby amended by deleting ---------------- the section reference "Section 5.1.14" in the twelfth line thereof and inserting -------------- the section reference "Section 5.1.12" in lieu thereof. -------------- R. Section 7.1.1(h) of the Credit Agreement is hereby amended by deleting ---------------- the section reference "Section 5.1.14" in the sixth line thereof and inserting -------------- the section reference "Section 5.1.12" in lieu thereof. -------------- S. Section 7.2.1 of the Credit Agreement is hereby amended in its ------------- entirety to the following: SECTION 7.2.1 Business Activities. The Borrower will not, and will ------------------- not permit any of its Subsidiaries to, engage in any business activity, except those described in the first recital and such activities as may be ----- ------- incidental or related thereto; provided that any material change after the date hereof in the Borrower's natural gas, natural gas liquids and crude oil marketing business or 10 Hedging Policy (including any net open position) will be subject to prior review by the Lenders. T. Section 7.2.4 of the Credit Agreement is amended in its entirety to ------------- the following: SECTION 7.2.4 Financial Covenants. The Borrower will not permit: ------------------- (a) Its Tangible Net Worth to be less than $38,000,000 plus 50% of ---- consolidated net income of the Borrower and its Subsidiaries, if positive, for any calendar quarter, beginning with the calendar quarter beginning on January 1, 1997, and calculated quarterly thereafter based upon positive consolidated net income of the Borrower and its Subsidiaries for each subsequent Fiscal Quarter plus 85% of the proceeds received after January 1, 1997 of the ---- issuance of any Securities (other than securities representing Indebtedness), net of reasonable and customary expenses of issuance thereof, by the Borrower or any of its Subsidiaries (other than by a Subsidiary to the Borrower or another wholly- owned Subsidiary of the Borrower); (b) The ratio of its Total Funded Debt to Capitalization expressed as a percentage to be greater than 65% at the end of any Fiscal Quarter ending on or before September 30, 1999 and greater than 60% at the end of any Fiscal Quarter ending after September 30, 1999. (c) The ratio of its Total Funded Debt to Trailing Twelve Month EBITDA to exceed any of the following: (1) 6.0:1.0 from June 30, 1998 to September 30, 1999, (2) 4.0:1.0 from December 31,1999 to March 31, 2002, (3) 3.5:1.0 from June 30, 2002 to March 31, 2003 and (4) 3.0:1.0 from June 30, 2003 to May 6, 2004 (d) Its Current Ratio to be less than 1:1 at any time. U. Section 7.2.5 of the Credit Agreement is hereby amended in its ------------- entirety to the following: 11 SECTION 7.2.5 Investments. The Borrower will not, and will not ----------- permit any of its Subsidiaries to, make, incur, assume or suffer to exist any Investment in any other Person, except: (a) Investments existing on the Effective Date and identified in Item 7.2.5(a) ("Ongoing Investments") of ------------- the Disclosure Schedule; (b) Cash Equivalent Investments; (c) without duplication, Investments permitted as Indebtedness pursuant to Section ------- 7.2.2 investments permitted by Section 4.10, by Section 7.2.8 or Section ----- 7.2.14; or (d) in the ordinary course of business, Investments by the Borrower in any of its Subsidiaries which have delivered a Guaranty, or by any such Subsidiary in any of its other Subsidiaries which have delivered a Guaranty, by way of contributions to capital or loans or advances; provided, however, that (i) any Investment which when made complies with -------- ------- the requirements of the definition of the term "Cash Equivalent Investment" -------------------------- may continue to be held notwithstanding that such Investment if made thereafter would not comply with such requirements (ii) no Investment otherwise permitted by clause (b) shall be permitted to be made if, ---------- immediately before or after giving effect thereto, any Default shall have occurred and be continuing and (iii) any Investment otherwise permitted by clause (d) in an entity engaged in or to be engaged in the natural gas, natural gas liquids or crude oil or other energy marketing business shall be structured in a manner acceptable to the Lenders. Upon completion of any such investment, the definitions of EBITDA and Capitalization shall be revised, in a manner acceptable to all of the Lenders in their sole discretion. V. Section 7.2.6 of the Credit Agreement is amended in its entirety to ------------- the following: SECTION 7.2.6 Restricted Payments, etc. On and at all times after ------------------------ the Effective Date: (a) the Borrower will not declare, pay or make any dividend or distribution (in cash, property or obligations) on any shares of any class of capital stock (now or hereafter outstanding) of the Borrower or on any warrants, options or other rights with respect to any shares of any class of capital stock (now or hereafter outstanding) of the Borrower (other than dividends or distributions payable in its common stock or warrants to purchase its common stock or splitups or reclassifications of its stock into additional or other shares of its common stock) or apply, or permit any of its Subsidiaries to apply, any of its funds, property or assets to the purchase, redemption, sinking fund or other retirement of, or agree or permit any of its Subsidiaries to purchase or redeem, any shares of any class of capital stock (now or hereafter outstanding) of the Borrower, or warrants, options or other rights with respect to any shares of any class of capital stock (now or hereafter outstanding) of the Borrower (i) if a Default or an Event of Default has occurred and is continuing, in excess of $0 or (ii) if a Default or Event of Default is not continuing, and (x) 12 if the ratio of the Borrower's Total Funded Debt to Trailing Twelve Month EBITDA is greater than or equal to 4.5:1.0 and Borrower's net income on a consolidated basis for the preceding four Fiscal Quarters is less than $1,000,000, in excess of $0, (y) if the ratio of the Borrower's Total Funded Debt to Trailing Twelve Month EBITDA is greater than or equal to 4.5:1.0 and Borrower's net income on a consolidated basis for the preceding four Fiscal Quarters is greater than or equal to $1,000,000, in excess in the aggregate of $500,000 for all such actions in the preceding four Fiscal Quarters and (z) if the ratio of the Borrower's Total Funded Debt to Trailing Twelve Month EBITDA is less than 4.5:1.0, in excess in the aggregate of (i) 10% of the Borrower's net income on a consolidated basis for the preceding four Fiscal Quarters for all such actions in the preceding four Fiscal Quarters, or (ii) if Borrower's net income on a consolidated basis for the preceding four Fiscal Quarters is greater than or equal to $1,000,000, in excess in the aggregate of $500,000 for all such actions in the preceding four Fiscal Quarters, and (b) the Borrower will not, and will not permit any Subsidiary to, make any deposit for any of the foregoing purposes. W. ARTICLE IX of the Credit Agreement is hereby amended by inserting ---------- after Section 9.7 thereof the following Section 9.8: - ----------- ----------- SECTION 9.8 Syndication Agent. The Syndication Agent shall not have ----------------- any right, power, obligations, liability, responsibility or duty under this Agreement other than those applicable to Lenders, provided, however, that -------- ------- the term "Agent" when used in Section 10.4 shall include the Syndication Agent and the Administrative Agent. X. Item 6.7 Litigation of the Disclosure Schedule of the Credit Agreement ------------------- is hereby amended by inserting the following entry after the final entry therein: 5. Arbitration proceedings (AAA# 77 181 00035 98) initiated by MarkWest against Columbia Gas Transmission Corporation ("Columbia") regarding three natural gas processing plants in Appalachia. In this arbitration, MarkWest requests a declaration of rights and status to clarify agreements between the companies. Issues arose during ongoing negotiations between MarkWest and Columbia to finalize terms of a 1997 preliminary agreement in which, among other things, Columbia agreed to sell its Cobb plant to MarkWest and to transfer from Columbia to MarkWest the operation of the Boldman plant. These issues also include matters regarding operations at the Kenova plant. MarkWest owns the Boldman and Kenova plants. Columbia and MarkWest continue to have several ongoing contracts, the most important of which extends through the year 2010. 13 On April 28, 1998, MarkWest was advised by Columbia that Columbia filed a complaint against MarkWest in the U.S. District Court for the Southern District of West Virginia, Charleston Division, on that date. The complaint states that Columbia "seeks this court's assistance in clarifying Columbia's obligations, or the absence thereof, under the [agreements that govern these three plants]". Columbia is seeking termination of those agreements, termination of their obligation to guarantee gas delivery and rights to natural gas liquids, confirmation of their obligation to divest its products extraction business, alleges MarkWest is in breach of the Federal Energy Commission-approved settlement agreement under which MarkWest was to acquire the Cobb plant and operate the Boldman plant, alleges Columbia owes no duties or business obligations to MarkWest and is seeking injunctive relief to enjoin MarkWest from allegedly interfering with arrangements Columbia undertakes with natural gas producers and suppliers and with Columbia's negotiations with third parties to terminate its interests in the products extraction business. Columbia has requested the Court grant declaratory judgment in these matters. MarkWest believes that the contract issues underlying Columbia's complaint are already subject to the binding arbitration noted above, and should be resolved in that forum only. Y. The Credit Agreement is hereby amended by replacing Exhibit A to the --------- Credit Agreement with Exhibit A-1 to this Second Amendment. ----------- Z. The Credit Agreement is hereby amended by inserting Exhibit A-2 to ----------- this Second Amendment as Exhibit A-2 to the Credit Agreement following Exhibit ----------- ------- A-1 to the Credit Agreement. - --- AA. The Credit Agreement is hereby amended by replacing Exhibit B to the --------- Credit Agreement with Exhibit B to this Second Amendment. --------- BB. The Credit Agreement is hereby amended by replacing Exhibit C to the --------- Credit Agreement with Exhibit C to this Second Amendment. --------- CC. The Credit Agreement is hereby amended by replacing Exhibit D to the --------- Credit Agreement with Exhibit D to this Second Amendment. --------- DD. The Credit Agreement is hereby amended by replacing Exhibit F to the --------- Credit Agreement with Exhibit F to this Second Amendment. --------- II. EFFECTIVENESS. ------------- 14 This Second Amendment shall become effective as of the date hereof when Administrative Agent shall have received (i) counterparts hereof duly executed by Borrower, Required Lenders and Administrative Agents (or, in the case of any party as to which an executed counterpart shall not have been received, telegraphic, telex, or other written confirmation from such party of execution of a counterpart hereof by such party), (ii) from each Obligor a certificate of its Secretary or Assistant Secretary as to resolutions of its Board of Directors then in full force and effect authorizing the execution, delivery and performance of this Second Amendment, the Notes and each other Loan Document to be executed by it pursuant to this Second Amendment, (iii) for the account of each Lender, its Notes, duly executed and delivered by the Borrower, and (iv) (a) an opinion from Barry Spector, counsel to the Borrower and its Subsidiaries, substantially in the form of Exhibit E-1 attached hereto (b) an opinion, ----------- satisfactory to the Administrative Agent, from McBrayer, McGinnis, Leslie & Kirkland, Kentucky counsel to the Borrower and its Subsidiaries, substantially in the form of Exhibit E-2 attached hereto; (c) an opinion, satisfactory to the ----------- Administrative Agent, from Ault & Maier, Michigan counsel to the Borrower and its Subsidiaries, substantially in the form of Exhibit E-3 attached hereto; (d) ----------- an opinion, satisfactory to the Administrative Agent, from Hardin, Dawson & Terry, Arkansas counsel to the Borrower and its Subsidiaries, substantially in the form of Exhibit E-4 attached hereto; and (e) an opinion, satisfactory to the ----------- Administrative Agent, from Bowles Rice McDavid Graff & Love, P.L.L.C., West Virginia counsel to the Borrower and its Subsidiaries, substantially in the form of Exhibit E-5 attached hereto. ----------- III. REAFFIRMATION OF REPRESENTATIONS AND WARRANTIES. To induce Lenders ----------------------------------------------- and Administrative Agent to enter into this Second Amendment, Borrower hereby reaffirms, as of the date hereof, its representations and warranties in their entirety contained in Article VI of the Credit Agreement and in all other ---------- documents executed pursuant thereto (except to the extent such representations and warranties relate solely to an earlier date) and additionally represents and warrants as follows: (i) Borrower is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation and has all requisite authority, permits and approvals, and is in good standing to conduct its business in each jurisdiction in which its business is conducted. (ii) Borrower has the corporate power and authority and legal right to execute and deliver this Second Amendment and to perform its obligations hereunder. The execution and delivery by Borrower of this Second Amendment and the performance of its obligations hereunder have been duly authorized by proper corporate proceedings, and this Second Amendment and the Credit Agreement, as amended hereby, constitute the legal, valid and binding obligations of Borrower, enforceable against Borrower in accordance with their terms, except as enforceability may be 15 limited by bankruptcy, insolvency or similar laws affecting the enforcement of creditors' rights generally. (iii) No Default or Event of Default has occurred and is continuing as of the date hereof. (iv) There has been no material adverse change (a) in the financial condition, operations, assets, businesses, properties or prospects of Borrower and its Subsidiaries from June 20, 1997, except as otherwise disclosed in compliance with Section 7.1.1, (b) affecting the rights and remedies of Lenders under and in connection with this Second Amendment and the Credit Agreement, as amended by this Second Amendment, or (c) in the ability of Borrower to perform its obligations under this Second Amendment or the Credit Agreement, as amended by this Second Amendment. (v) There is no pending or, to the knowledge of Borrower, threatened litigation, action, proceeding, or labor controversy affecting Borrower or any of its Subsidiaries, or any of their respective properties, businesses, assets or revenues, which may materially adversely affect the financial condition, operations, assets, business, properties or prospects of Borrower or any Subsidiary or which purports to affect the legality, validity or enforceability of this Amendment, Credit Agreement, the Notes or any other Loan Document, except as disclosed in Item 6.7 ("Litigation") -------- of the Disclosure Schedule to the Credit Agreement and as supplemented in the Borrower's monthly financial report delivered pursuant to Section 7.1.1(a) of the Credit Agreement. (vi) Borrower has not amended its Hedging Policy delivered pursuant to 5.1.13 of the Credit Agreement. IV. DEFINED TERMS. Except as amended hereby, terms used herein when ------------- defined in the Credit Agreement shall have the same meanings herein unless the context otherwise requires. V. REAFFIRMATION OF CREDIT AGREEMENT. This Second Amendment shall be --------------------------------- deemed to be an amendment to the Credit Agreement, and the Credit Agreement, as amended hereby, is hereby ratified, approved and confirmed in each and every respect. All references to the Credit Agreement herein and in any other document, instrument, agreement or writing shall hereafter be deemed to refer to the Credit Agreement as amended hereby. VI. GOVERNING LAW. THIS AMENDMENT, THE CREDIT AGREEMENT, THE NOTES AND ------------- EACH OTHER LOAN DOCUMENT SHALL EACH BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK. All obligations of the Borrower and rights of Lenders 16 and Administrative Agent and any other holders of the Notes expressed herein shall be in addition to and not in limitation of those provided by applicable law. VII. SEVERABILITY OF PROVISIONS. Any provision in this Second Amendment -------------------------- that is held to be inoperative, unenforceable, or invalid in any jurisdiction shall, as to that jurisdiction, be inoperative, unenforceable, or invalid without affecting the remaining provisions in that jurisdiction or the operation, enforceability, or validity of that provision in any other jurisdiction, and to this end the provisions of this Second Amendment are declared to be severable. VIII. COUNTERPARTS. This Second Amendment may be executed in any number ------------ of counterparts, all of which taken together shall constitute one agreement, and any of the parties hereto may execute this Second Amendment by signing any such counterpart. IX. HEADINGS. Article and section headings in this Second Amendment are -------- for convenience of reference only, and shall not govern the interpretation of any of the provisions of this Second Amendment. X. SUCCESSORS AND ASSIGNS. This Second Amendment shall be binding upon ---------------------- and inure to the benefit of the parties hereto and their respective successors and assigns. XI. NOTICE. THIS WRITTEN SECOND AMENDMENT TOGETHER WITH THE CREDIT ------ AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. 17 IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment to be executed by their respective officers thereunto duly authorized as of the day and year first above written. MARKWEST HYDROCARBON, INC. By: /s/ Gerry Tywoniuk ------------------------------ Name: Gerry Tywoniuk Title: Vice President of Finance S-1 Percentage - ---------- 41.17647059% BANK OF MONTREAL, acting through its U.S. branches and agencies, as Administrative Agent and Lender By: /s/ Natasha Glossop ------------------------------- Name: Natasha Glossop Title: Director S-2 Percentage - ---------- 29.41176471% NATIONSBANK OF TEXAS, N.A., as Syndication Agent and Lender By: /s/ David C. Rubenking ------------------------------- Name: David C. Rubenking Title: Senior Vice President S-3 Percentage - ---------- 29.41176471% U.S. BANK N.A., as Lender By: /s/ Mark E. Thompson ____________________ Name: Mark E. Thompson Title: Vice President S-4 EXHIBIT A-1 REVOLVING LOAN NOTE $___________ May 6, 1998 FOR VALUE RECEIVED, the undersigned, MARKWEST HYDROCARBON, INC., an Delaware corporation (the "Borrower"), promises to pay to the order of -------- ______________________ (the "Lender") on May 6, 2004 the principal sum of ------ __________________ DOLLARS ($___________) or, if less, the aggregate unpaid principal amount of all Reducing Loans shown on the schedule attached hereto (and any continuation thereof) made by the Lender pursuant to that certain Amended and Restated Credit Agreement, dated as of June 20, 1997 (together with all amendments and other modifications, if any, from time to time thereafter made thereto, the "Credit Agreement"), among the Borrower, BANK OF MONTREAL, as ---------------- Administrative Agent, and the various financial institutions (including the Lender) as are, or may from time to time become, parties thereto. The Borrower also promises to pay interest on the unpaid principal amount hereof from time to time outstanding from the date hereof until maturity (whether by acceleration or otherwise) and, after maturity, until paid, at the rates per annum and on the dates specified in the Credit Agreement. Payments of both principal and interest are to be made in lawful money of the United States of America in same day or immediately available funds to the account designated by the Administrative Agent pursuant to the Credit Agreement. This Revolving Loan Note is one of the Notes referred to in, and evidences Indebtedness incurred under, the Credit Agreement, to which reference is made for a description of the security for this Note and for a statement of the terms and conditions on which the Borrower is permitted and required to make prepayments and repayments of principal of the Indebtedness evidenced by this Note and on which such Indebtedness may be declared to be immediately due and payable. Unless otherwise defined, terms used herein have the meanings provided in the Credit Agreement. This Note is given in extension and renewal and not in novation of each of the Notes, dated June 20, 1997, executed by the Borrower in connection with the Credit Agreement. All parties hereto, whether as makers, endorsers, or otherwise, severally waive presentment for payment, demand, protest and notice of dishonor. THIS NOTE SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK. MARKWEST HYDROCARBON, INC. By_________________________________________ Name: Title: REVOLVING LOANS AND REDUCING LOANS AND PRINCIPAL PAYMENTS - --------------------------------------------------------------------------------
Amount of Revolving Amount of Unpaid Loan Made Principal Principal or Reducing Loan Repaid Balance __________________Interest________________________________ Base LIBO Period (if Base LIBO Base LIBO Notation Date Rate Rate applicable) Rate Rate Rate Rate Total Made By - ------------ ---- ----------- ---- ---- ---- ------------------------ - ------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------
EXHIBIT A-2 TERM LOAN NOTE $___________ May 6, 1998 FOR VALUE RECEIVED, the undersigned, MARKWEST HYDROCARBON, INC., an Delaware corporation (the "Borrower"), promises to pay to the order of -------- ______________________ (the "Lender") on May 6, 2004 the principal sum of ------ __________________ DOLLARS ($___________) or, if less, the aggregate unpaid principal amount of all Term Loans shown on the schedule attached hereto (and any continuation thereof) made by the Lender pursuant to that certain Amended and Restated Credit Agreement, dated as of June 20, 1997 (together with all amendments and other modifications, if any, from time to time thereafter made thereto, the "Credit Agreement"), among the Borrower, BANK OF MONTREAL, as ---------------- Administrative Agent, and the various financial institutions (including the Lender) as are, or may from time to time become, parties thereto. The Borrower also promises to pay interest on the unpaid principal amount hereof from time to time outstanding from the date hereof until maturity (whether by acceleration or otherwise) and, after maturity, until paid, at the rates per annum and on the dates specified in the Credit Agreement. Payments of both principal and interest are to be made in lawful money of the United States of America in same day or immediately available funds to the account designated by the Administrative Agent pursuant to the Credit Agreement. This Term Loan Note is one of the Notes referred to in, and evidences Indebtedness incurred under, the Credit Agreement, to which reference is made for a description of the security for this Note and for a statement of the terms and conditions on which the Borrower is permitted and required to make prepayments and repayments of principal of the Indebtedness evidenced by this Note and on which such Indebtedness may be declared to be immediately due and payable. Unless otherwise defined, terms used herein have the meanings provided in the Credit Agreement. This Note is given in extension and renewal and not in novation of each of the Notes, dated June 20, 1997, executed by the Borrower in connection with the Credit Agreement. All parties hereto, whether as makers, endorsers, or otherwise, severally waive presentment for payment, demand, protest and notice of dishonor. THIS NOTE SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK. MARKWEST HYDROCARBON, INC. By______________________________________ Name: Title: TERM LOANS AND PRINCIPAL PAYMENTS
- ------------------------------------------------------------------------------------- Amount of Amount of Unpaid Term Principal Principal Loan Made Repaid Balance ---------------- Interest ---------------------------- Base LIBO Period (if Base LIBO Base LIBO Notation Date Rate Rate applicable) Rate Rate Rate Rate Total Made By - ------------ ---- ----------- ---- ---- ---- ---------------------- _____________________________________________________________________________________ _____________________________________________________________________________________ _____________________________________________________________________________________ _____________________________________________________________________________________ _____________________________________________________________________________________ _____________________________________________________________________________________ _____________________________________________________________________________________ _____________________________________________________________________________________ _____________________________________________________________________________________ _____________________________________________________________________________________ _____________________________________________________________________________________ _____________________________________________________________________________________ _____________________________________________________________________________________ _____________________________________________________________________________________ _____________________________________________________________________________________
EXHIBIT B BORROWING REQUEST Bank of Montreal [Address] Attention: [Name] [Title] MARKWEST HYDROCARBON, INC. -------------------------- Gentlemen and Ladies: This Borrowing Request is delivered to you pursuant to Section 2.3 of the ----------- Amended and Restated Credit Agreement, dated as of June 20, 1997 together with all amendments, if any, from time to time made thereto, the "Credit Agreement"), ---------------- among MarkWest Hydrocarbon, Inc., a Delaware corporation (the "Borrower"), -------- certain financial institutions and Bank of Montreal (the "Administrative -------------- Agent"). Unless otherwise defined herein or the context otherwise requires, - ----- terms used herein have the meanings provided in the Credit Agreement. The Borrower hereby requests that a [Reducing Loan] [Revolving Loan] [Term Loan] be made in the aggregate principal amount of $__________ on __________, 19___ as a [LIBO Rate Loan having an Interest Period of _______ months] [Base Rate Loan]. The Borrower hereby acknowledges that, pursuant to Section 5.3.2 of the ------------- Credit Agreement, each of the delivery of this Borrowing Request and the acceptance by the Borrower of the proceeds of the Loans requested hereby constitute a representation and warranty by the Borrower that, on the date of such Loans, and before and after giving effect thereto and to the application of the proceeds therefrom, all statements set forth in Section 5.3.1 are true and ------------- correct in all material respects. The Borrower agrees that if prior to the time of the Borrowing requested hereby any matter certified to herein by it will not be true and correct at such time as if then made, it will immediately so notify the Administrative Agent. Except to the extent, if any, that prior to the time of the Borrowing requested hereby the Administrative Agent shall receive written notice to the contrary from the Borrower, each matter certified to herein shall be deemed once again to be certified as true and correct at the date of such Borrowing as if then made. Please wire transfer the proceeds of the Borrowing to the accounts of the following persons at the financial institutions indicated respectively: Amount to be Person to be Paid Name, Address, ----------------- Transferred Name Account No. etc. of Lender - ----------- ---- ----------- -------------- $___________ ____________ ___________ ______________________ ______________________ Attention:____________ $___________ ____________ ___________ ______________________ ______________________ Attention:____________ Balance of The Borrower ___________ ______________________ such proceeds ______________________ Attention:____________ The Borrower has caused this Borrowing Request to be executed and delivered, and the certification and warranties contained herein to be made, by its duly Authorized Officer this ___ day of ___________, 19___. MARKWEST HYDROCARBON, INC. By___________________________________________ Name: Title: EXHIBIT C CONTINUATION/CONVERSION NOTICE Bank of Montreal [Address] Attention: [Name] [Title] MARKWEST HYDROCARBON, INC. -------------------------- Gentlemen and Ladies: This Continuation/Conversion Notice is delivered to you pursuant to Section 2.4 of the Amended and Restated Credit Agreement, dated as of June 20, 1997 (together with all amendments, if any, from time to time made thereto, the "Credit Agreement"), among MarkWest Hydrocarbon, Inc., a Delaware corporation ---------------- (the "Borrower"), certain financial institutions and Bank of Montreal, (the -------- "Administrative Agent"). Unless otherwise defined herein or the context - --------------------- otherwise requires, terms used herein have the meanings provided in the Credit Agreement. The Borrower hereby requests that on ____________, 19___, 1 $___________ of the presently outstanding principal amount of the [Revolving Loans] [Reducing Loans] [Term Loans] originally made on __________, 19___ [and $__________ of the presently outstanding principal amount of the [Revolving Loans] [Reducing Loans] [Term Loans] originally made on __________, 19___], 2 and all presently being maintained as /1/[Base Rate Loans][LIBO Rate Loans], 3 be [converted into] [continued as], 4 [LIBO Rate Loans having an Interest Period of ______ months] [Base Rate Loans]. ___________________________ /1/ Select appropriate interest rate option. Exhibit C - Page 1 The Borrower hereby: 4.1 certifies and warrants that no Default has occurred and is continuing; and 4.2 agrees that if prior to the time of such continuation or conversion any matter certified to herein by it will not be true and correct at such time as if then made, it will immediately so notify the Agent. Except to the extent, if any, that prior to the time of the continuation or conversion requested hereby the Agent shall receive written notice to the contrary from the Borrower, each matter certified to herein shall be deemed to be certified at the date of such continuation or conversion as if then made. The Borrower has caused this Continuation/Conversion Notice to be executed and delivered, and the certification and warranties contained herein to be made, by its Authorized Officer this ___ day of _________, 19___. MARKWEST HYDROCARBON, INC. By _______________________ Name: Title: Exhibit C - Page 2 EXHIBIT D LENDER ASSIGNMENT AGREEMENT To: MarkWest Hydrocarbon, Inc. To: Bank of Montreal as the Agent MARKWEST HYDROCARBON, INC. -------------------------- Gentlemen and Ladies: We refer to clause (d) of Section 10.11.1 of the Amended and Restated ---------- --------------- Credit Agreement, dated as of June 20, 1997 (together with all amendments and other modifications, if any, from time to time thereafter made thereto, the "Credit Agreement"), among MarkWest Hydrocarbon, Inc., a Delaware (the ---------------- "Borrower"), the various financial institutions (the "Lenders") as are, or shall -------- ------- from time to time become, parties thereto, and Bank of Montreal, as administrative agent (the "Administrative Agent") for the Lenders. Unless -------------------- otherwise defined herein or the context otherwise requires, terms used herein have the meanings provided in the Credit Agreement. This agreement is delivered to you pursuant to clause (d) of Section ---------- ------- 10.11.1 of the Credit Agreement and also constitutes notice to each of you, - ------- pursuant to clause (c) of Section 10.11.1 of the Credit Agreement, of the ---------- --------------- assignment and delegation to _______________ (the "Assignee") of ___% of the -------- Loans and Commitments of _____________ (the "Assignor") outstanding under the -------- Credit Agreement on the date hereof. After giving effect to the foregoing assignment and delegation, the Assignor's and the Assignee's Percentages for the purposes of the Credit Agreement are set forth opposite such Person's name on the signature pages hereof. [Add paragraph dealing with accrued interest and fees with respect to Loans assigned.] The Assignee hereby acknowledges and confirms that it has received a copy of the Credit Agreement and the exhibits related thereto, together with copies of the documents which were required to be delivered under the Credit Agreement as a condition to the making of the Loans thereunder. The Assignee further confirms and agrees that in becoming a Lender and in making its Commitments and Loans under the Credit Agreement, such actions have and will be made without recourse to, or representation or warranty by the Administrative Agent. Exhibit D - Page 1 Except as otherwise provided in the Credit Agreement, effective as of the date of acceptance hereof by the Administrative Agent I the Assignee A. shall be deemed automatically to have become a party to the Credit Agreement, have all the rights and obligations of a "Lender" under the Credit Agreement and the other Loan Documents as if it were an original signatory thereto to the extent specified in the second paragraph hereof; and B. agrees to be bound by the terms and conditions set forth in the Credit Agreement and the other Loan Documents as if it were an original signatory thereto; and II the Assignor shall be released from its obligations under the Credit Agreement and the other Loan Documents to the extent specified in the second paragraph hereof. The Assignor and the Assignee hereby agree that the [Assignor] [Assignee] will pay to the Administrative Agent the processing fee referred to in Section ------- 10.11.1 of the Credit Agreement upon the delivery hereof. - ------- The Assignee hereby advises each of you of the following administrative details with respect to the assigned Loans and Commitments and requests the Administrative Agent to acknowledge receipt of this document: (i) Address for Notices: Institution Name: Attention: Domestic Office: Telephone: Facsimile: LIBOR Office: Telephone: Facsimile: (ii) Payment Instructions: The Assignee agrees to furnish the tax form required by the last sentence of Section 4.6 (if so required) of the Credit Agreement no later than the date ----------- of acceptance hereof by the Administrative Agent. Exhibit D - Page 2 This Agreement may be executed by the Assignor and Assignee in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Adjusted Percentage [ASSIGNOR] - ------------------- Revolving Loan Commitment and Revolving Loans: __% Reducing Loan Commitment and Reducing Loans: __% Term Loan Commitment and Term Loans __% By:________________________ Name: Title: Percentage [ASSIGNEE] - ---------- Revolving Loan Commitment and Revolving Loans: __% Reducing Loan Commitment and Reducing Loans: __% Term Loan Commitment and Term Loans __% By:________________________ Name: Title: Accepted and Acknowledged this __ day of _______, 19__ Bank of Montreal, as Administrative Agent By:________________________ Name: Title: Exhibit D - Page 3 EXHIBIT E-1 FORM OF LEGAL OPINION OF BARRY SPECTOR -------------------------------------- May 6, 1998 Bank of Montreal, as Agent for the Lenders 115 S. LaSalle Street Chicago, Illinois 60603 The Lenders named in the Credit Agreement RE: MarkWest Hydrocarbon, Inc. Ladies and Gentlemen: The undersigned has acted as special Colorado counsel to MarkWest Hydrocarbon, Inc., a Delaware corporation, MarkWest Michigan, Inc., a Colorado corporation, ("MarkWest Michigan"), MarkWest Resources, Inc., a Colorado Corporation, ("MarkWest Resources"), West Shore Processing Company, LLC, a Michigan limited liability company, ("West Shore"), and Basin Pipeline L.L.C., a Michigan limited liability company, ("Basin"), in connection with the preparation of that certain Second Amendment to Credit Agreement, dated as of May 6, 1998 ("Credit Agreement Amendment"), which amended that certain Amended and Restated Credit Agreement dated as of June 20, 1997 (the "Amended and Restated Credit Agreement"), as amended by the First Amendment to Amended and Restated Credit Agreement dated as of December 24, 1997 (the "First Amendment") among MarkWest Hydrocarbon, Inc., a Delaware corporation (the "Borrower" and "Mortgagor"), Bank of Montreal, acting through certain U.S. branches or agencies, as "Agent", NationsBank, N.A., as "Syndication Agent" and certain commercial lending institutions, as "Lenders" (the Amended and Restated Credit Agreement as amended by the First Amendment herein the "Credit Agreement"); and in connection with the Loan Documents, as defined in the Credit Agreement. Except as otherwise defined herein, all terms used herein and defined in the Credit Agreement or the Credit Agreement Amendment shall have the meanings ascribed thereto. This opinion is submitted pursuant to the Credit Agreement Amendment. I have examined executed copies of the Credit Agreement Amendment, and the notes delivered pursuant to the Credit Agreement Amendment (all of the foregoing documents are Exhibit E-1 - Page 1 collectively called the "Principal Documents") and have examined such other corporate documents and records of the Borrower and other documents and other instruments as I have deemed necessary or appropriate. Based on the foregoing, and having regard for the legal considerations deemed relevant, I am of the opinion that: 1 Borrower (i) is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, (ii) has all requisite power and authority to own or lease and operate the properties owned or leased and operated by it, to carry on its business as now conducted and as proposed to be conducted, to execute, deliver and perform the Principal Documents, and to borrow and incur Obligations under the Credit Agreement and the Credit Agreement Amendment and (iii) is duly qualified and authorized to do business and is in good standing as a foreign corporation in all jurisdictions wherein the properties owned, leased or operated by it or the business transacted by it makes its qualifications necessary. 2 All corporate action on the part of Borrower requisite for the due creation, issuance, execution, delivery and performance of the Principal Documents and to authorize Borrower to borrow and incur Obligations under the Credit Agreement as amended by the Credit Agreement Amendment has been duly and effectively taken. 3 Borrower's creation, issuance, execution, delivery and performance of the Principal Documents do not require the consent or approval of any other person. 4 Neither the execution and delivery of the Principal Documents, nor the compliance with the provisions thereof by Borrower will conflict with, or result in a breach of, or cause a default under, the certificate of incorporation or by-laws of Borrower. 5 To the best of my knowledge, neither the execution and delivery of the Principal Documents, nor the consummation of the transactions contemplated therein, nor the compliance with the provisions thereof, conflict with, result in a breach of, or constitute a default under, any of the terms, conditions or provisions of any law or any regulation, order, writ, injunction or decree of any court, governmental instrumentality, domestic or foreign, to which Borrower is subject, or of any indenture, mortgage, deed of trust, promissory note, loan agreement or note agreement, or any other agreement or undertaking to which Borrower is a party or by which any of its properties may be bound or subject. 6 No other filings or refilings are necessary or appropriate to obtain or maintain perfection of the security interest granted by the financing statements filed as shown on the attached Attachment I (the "Financing Statements") except that in order to maintain perfection of the security interest created under financing statements previously filed a continuation statement must be filed in the office of the Secretary of State during the six (6) month period Exhibit E-1 - Page 2 May 6, 1998 Page 3 immediately preceding five (5) years from the date of initial filing of the financing statement, and, again, in a like time, from the date of filing of each continuation statement. 7 After giving effect to the Credit Agreement Amendment, the Financing Statements are sufficient in form such a that the Lenders have a perfected security interest in that portion of the Collateral described which consists of accounts, general, intangibles and goods of a type which are normally used in more than one jurisdiction (as defined in the Uniform Commercial Code), assuming the chief executive office of Debtor ("Borrower") is located in the State of Colorado. 8 The Principal Documents constitute legal, valid, and binding obligations of the Borrower, and, subject to the qualifications set forth below, are enforceable in accordance with their terms. 9 After giving effect to the Credit Agreement Amendment and the Notes, the documents described on the attached Attachment II constitute the legal, valid and binding obligations of each of MarkWest Michigan, MarkWest Resources, West Shore and Basin which are parties thereto and, subject to the qualifications set forth below, enforceable in accordance with their terms. 10 There exists no requirement for any authorization or approval by any public regulatory body or authority with regard to the valid execution and delivery of, and the validity, legality, and effectiveness of the Principal Documents. 11 The Principal Documents, together with the documents described in the attached Attachment II (collectively the "Credit Documents") contain all terms and provisions necessary to enable Lenders, following an Event of Default thereunder, to exercise all of the rights and remedies which are customarily available to secured parties under the laws of the State of Colorado. 12 Under the laws of the State of Colorado, there is no requirement for Lenders or Agent to qualify to do business in the State of Colorado in order to enforce the provisions of the Credit Documents. 13 A Colorado court would recognize and give effect to the choice of law provisions in the Credit Documents. Exhibit E-1 - Page 3 May 6, 1998 Page 4 In addition to any reservations noted above, this opinion is subject to the following general reservations and comments: (1) The enforceability of the Credit Documents is limited by bankruptcy, moratorium, insolvency or similar laws affecting enforcement and creditors rights generally. (2) The enforcement of specific provisions of the Credit Documents is subject to general principles of equity and standards of good faith. (3) Statutes and decisions affecting the interpretation of agreements generally, none of which in my opinion deprive Lenders of the practical realization of the security afforded by the Credit Documents. (4) Default, acceleration, termination and repossession are all subject to equitable supervision and, accordingly, accelerations, terminations and repossessions may be based only upon material breaches. (5) I express no opinion herein as to the status of title to the Mortgaged Property or Collateral. Except as specifically noted in the body of this opinion, the opinions expressed herein are expressly limited to the laws of the State of Colorado, the corporate laws of the State of Delaware, and the federal laws of the United States of America. The opinions herein are directed solely to the addressee described above. This opinion is not to be otherwise used, circulated, quoted or referred to in connection with any other transactions. This opinion is only with respect to the present status of law and I undertake no obligation or responsibility to update or supplement this opinion in response to subsequent changes in the law or future events affecting the transactions contemplated by the Credit Agreement and Credit Agreement Amendment. Very truly yours, Barry W. Spector Exhibit E-1 - Page 4 EXHIBIT E-2 FORM OF LEGAL OPINION OF MCBRAYER, MCGINNIS, -------------------------------------------- LESLIE & KIRKLAND ----------------- May 6, 1998 Bank of Montreal, as Agent for the Lenders 115 S. LaSalle Street Chicago, Illinois 60603 The Lenders named in the Credit Agreement RE: MarkWest Hydrocarbon, Inc. Ladies and Gentlemen: The undersigned has acted as [name of State] counsel to MarkWest ------------- Hydrocarbon, Inc., a Delaware corporation, ("Borrower"), in connection with the preparation of that certain Second Amendment to Credit Agreement, dated as of May 6, 1998 ("Credit Agreement Amendment"), which amended that certain Amended and Restated Credit Agreement dated as of June 20, 1997 (the "Amended and Restated Credit Agreement"), as amended by the First Amendment to Amended and Restated Credit Agreement dated as of December 24, 1997 (the "First Amendment") among MarkWest Hydrocarbon, Inc., a Delaware corporation (the "Borrower" and "Mortgagor"), Bank of Montreal, acting through certain U.S. branches or agencies, as "Agent", NationsBank, N.A., as "Syndication Agent" and certain commercial lending institutions, as "Lenders" (the Amended and Restated Credit Agreement as amended by the First Amendment herein the "Credit Agreement"); and in connection with the Loan Documents, as defined in the Credit Agreement. Except as otherwise defined herein or in Attachment I hereto, all terms used herein and defined in the Credit Agreement or the Credit Agreement Amendment shall have the meanings ascribed thereto. This opinion is submitted pursuant to the Credit Agreement Amendment. We have examined executed copies of: 1. The Credit Agreement Amendment 2. The Notes Exhibit E-2 - Page 1 3. The documents described in the attached Attachment I (the foregoing documents are collectively called the "Principal Documents") and have examined such other corporate documents and records of the Borrower and other documents and other instruments as I have deemed necessary or appropriate. Based on the foregoing, and having regard for the legal considerations deemed relevant, we are of the opinion that: 1 The Mortgage constitutes as security for the loans to be made and letters of credit to be issued pursuant to the Credit Agreement as amended by the Credit Agreement Amendment and to be evidenced by the Notes, (a) a legally valid and first mortgage lien on all real property and interests in real property specifically described in the Mortgage as being mortgaged thereby, and (b) a perfected security interest in (i) all tangible property specifically described in the Mortgage as being mortgaged thereby, and (ii) all accounts, contract rights, general intangibles and proceeds described in the Mortgage as being mortgaged or assigned thereby. 2 After giving effect to the Credit Agreement Amendment, the Security Agreement constitutes as security for the loans to be made and letters of credit to be issued pursuant to the Credit Agreement as amended by the Credit Agreement Amendment and to be evidenced by the Notes, a first perfected security interest in all the Security Agreement Collateral. No further subsequent filing, refiling, or recording, re-recording, registration, or re-registration will be necessary in [state] in order to continue, or to continue to perfect the security interest in the property described above created by the Security Agreement, except that, under the UCC, continuation statements must be filed in each applicable filing office within six (6) months prior to the expiration of each five (5) year period (measured from the date financing statements were originally filed) in order to continue the perfected status of such security interest. Assumptions: - ----------- The opinions stated herein are expressly subject to the following assumptions and qualifications: [INCLUDE APPROPRIATE ASSUMPTIONS] This opinion my be relied upon by Agent, Lenders and their legal counsel, and their respective successors, assignees and other transferees and their respective legal counsel. Very truly yours, Exhibit E-2 - Page 2 Bank of Montreal May 6, 1998 Page 3 Exhibit E-2 - Page 3 EXHIBIT E-3 FORM OF LEGAL OPINION OF AULT & MAIER ------------------------------------- May 6, 1998 Bank of Montreal, as Agent for the Lenders 115 S. LaSalle Street Chicago, Illinois 60603 The Lenders named in the Credit Agreement RE: MarkWest Hydrocarbon, Inc. Ladies and Gentlemen: The undersigned has acted as [name of State] counsel to MarkWest ------------- Hydrocarbon, Inc., a Delaware corporation, ("Borrower"), in connection with the preparation of that certain Second Amendment to Credit Agreement, dated as of May 6, 1998 ("Credit Agreement Amendment"), which amended that certain Amended and Restated Credit Agreement dated as of June 20, 1997 (the "Amended and Restated Credit Agreement"), as amended by the First Amendment to Amended and Restated Credit Agreement dated as of December 24, 1997 (the "First Amendment") among MarkWest Hydrocarbon, Inc., a Delaware corporation (the "Borrower" and "Mortgagor"), Bank of Montreal, acting through certain U.S. branches or agencies, as "Agent", NationsBank, N.A., as "Syndication Agent" and certain commercial lending institutions, as "Lenders" (the Amended and Restated Credit Agreement as amended by the First Amendment herein the "Credit Agreement"); and in connection with the Loan Documents, as defined in the Credit Agreement. Except as otherwise defined herein or in Attachment I hereto, all terms used herein and defined in the Credit Agreement or the Credit Agreement Amendment shall have the meanings ascribed thereto. This opinion is submitted pursuant to the Credit Agreement Amendment. We have examined executed copies of: 1. The Credit Agreement Amendment 2. The Notes 3. The documents described in the attached Attachment I Exhibit E-3 - Page 1 (the foregoing documents are collectively called the "Principal Documents") and have examined such other corporate documents and records of the Borrower and other documents and other instruments as I have deemed necessary or appropriate. Based on the foregoing, and having regard for the legal considerations deemed relevant, we are of the opinion that: 1 The Mortgage constitutes as security for the loans to be made and letters of credit to be issued pursuant to the Credit Agreement as amended by the Credit Agreement Amendment and to be evidenced by the Notes, (a) a legally valid and first mortgage lien on all real property and interests in real property specifically described in the Mortgage as being mortgaged thereby, and (b) a perfected security interest in (i) all tangible property specifically described in the Mortgage as being mortgaged thereby, and (ii) all accounts, contract rights, general intangibles and proceeds described in the Mortgage as being mortgaged or assigned thereby. 2 After giving effect to the Credit Agreement Amendment, the Security Agreement constitutes as security for the loans to be made and letters of credit to be issued pursuant to the Credit Agreement as amended by the Credit Agreement Amendment and to be evidenced by the Notes, a first perfected security interest in all the Security Agreement Collateral. No further subsequent filing, refiling, or recording, re-recording, registration, or re-registration will be necessary in [state] in order to continue, or to continue to perfect the security interest in the property described above created by the Security Agreement, except that, under the UCC, continuation statements must be filed in each applicable filing office within six (6) months prior to the expiration of each five (5) year period (measured from the date financing statements were originally filed) in order to continue the perfected status of such security interest. Assumptions: - ----------- The opinions stated herein are expressly subject to the following assumptions and qualifications: [INCLUDE APPROPRIATE ASSUMPTIONS] This opinion my be relied upon by Agent, Lenders and their legal counsel, and their respective successors, assignees and other transferees and their respective legal counsel. Very truly yours, Exhibit E-3 - Page 2 EXHIBIT E-4 FORM OF LEGAL OPINION OF HARDIN, DAWSON & TERRY ----------------------------------------------- May 6, 1998 Bank of Montreal, as Agent for the Lenders 115 S. LaSalle Street Chicago, Illinois 60603 The Lenders named in the Credit Agreement RE: MarkWest Hydrocarbon, Inc. Ladies and Gentlemen: The undersigned has acted as [name of State] counsel to MarkWest ------------- Hydrocarbon, Inc., a Delaware corporation, ("Borrower"), in connection with the preparation of that certain Second Amendment to Credit Agreement, dated as of May 6, 1998 ("Credit Agreement Amendment"), which amended that certain Amended and Restated Credit Agreement dated as of June 20, 1997 (the "Amended and Restated Credit Agreement"), as amended by the First Amendment to Amended and Restated Credit Agreement dated as of December 24, 1997 (the "First Amendment") among MarkWest Hydrocarbon, Inc., a Delaware corporation (the "Borrower" and "Mortgagor"), Bank of Montreal, acting through certain U.S. branches or agencies, as "Agent", NationsBank, N.A., as "Syndication Agent" and certain commercial lending institutions, as "Lenders" (the Amended and Restated Credit Agreement as amended by the First Amendment herein the "Credit Agreement"); and in connection with the Loan Documents, as defined in the Credit Agreement. Except as otherwise defined herein or in Attachment I hereto, all terms used herein and defined in the Credit Agreement or the Credit Agreement Amendment shall have the meanings ascribed thereto. This opinion is submitted pursuant to the Credit Agreement Amendment. We have examined executed copies of: 1. The Credit Agreement Amendment 2. The Notes 3. The documents described in the attached Attachment I Exhibit E-4 - Page 1 (the foregoing documents are collectively called the "Principal Documents") and have examined such other corporate documents and records of the Borrower and other documents and other instruments as I have deemed necessary or appropriate. Based on the foregoing, and having regard for the legal considerations deemed relevant, we are of the opinion that: 1 The Mortgage constitutes as security for the loans to be made and letters of credit to be issued pursuant to the Credit Agreement as amended by the Credit Agreement Amendment and to be evidenced by the Notes, (a) a legally valid and first mortgage lien on all real property and interests in real property specifically described in the Mortgage as being mortgaged thereby, and (b) a perfected security interest in (i) all tangible property specifically described in the Mortgage as being mortgaged thereby, and (ii) all accounts, contract rights, general intangibles and proceeds described in the Mortgage as being mortgaged or assigned thereby. 2 After giving effect to the Credit Agreement Amendment, the Security Agreement constitutes as security for the loans to be made and letters of credit to be issued pursuant to the Credit Agreement as amended by the Credit Agreement Amendment and to be evidenced by the Notes, a first perfected security interest in all the Security Agreement Collateral. No further subsequent filing, refiling, or recording, re-recording, registration, or re-registration will be necessary in [state] in order to continue, or to continue to perfect the security interest in the property described above created by the Security Agreement, except that, under the UCC, continuation statements must be filed in each applicable filing office within six (6) months prior to the expiration of each five (5) year period (measured from the date financing statements were originally filed) in order to continue the perfected status of such security interest. Assumptions: - ----------- The opinions stated herein are expressly subject to the following assumptions and qualifications: [INCLUDE APPROPRIATE ASSUMPTIONS] This opinion my be relied upon by Agent, Lenders and their legal counsel, and their respective successors, assignees and other transferees and their respective legal counsel. Very truly yours, Exhibit E-4 - Page 2 EXHIBIT E-5 FORM OF LEGAL OPINION OF BOWLES RICE MCDAVID -------------------------------------------- GRAFF & LOVE, P.L.L.C. ---------------------- May 6, 1998 Bank of Montreal, as Agent for the Lenders 115 S. LaSalle Street Chicago, Illinois 60603 The Lenders named in the Credit Agreement RE: MarkWest Hydrocarbon, Inc. Ladies and Gentlemen: The undersigned has acted as [name of State] counsel to MarkWest ------------- Hydrocarbon, Inc., a Delaware corporation, ("Borrower"), in connection with the preparation of that certain Second Amendment to Credit Agreement, dated as of May 6, 1998 ("Credit Agreement Amendment"), which amended that certain Amended and Restated Credit Agreement dated as of June 20, 1997 (the "Amended and Restated Credit Agreement"), as amended by the First Amendment to Amended and Restated Credit Agreement dated as of December 24, 1997 (the "First Amendment") among MarkWest Hydrocarbon, Inc., a Delaware corporation (the "Borrower" and "Mortgagor"), Bank of Montreal, acting through certain U.S. branches or agencies, as "Agent", NationsBank, N.A., as "Syndication Agent" and certain commercial lending institutions, as "Lenders" (the Amended and Restated Credit Agreement as amended by the First Amendment herein the "Credit Agreement"); and in connection with the Loan Documents, as defined in the Credit Agreement. Except as otherwise defined herein or in Attachment I hereto, all terms used herein and defined in the Credit Agreement or the Credit Agreement Amendment shall have the meanings ascribed thereto. This opinion is submitted pursuant to the Credit Agreement Amendment. We have examined executed copies of: 1. The Credit Agreement Amendment 2. The Notes Exhibit E-5 - Page 1 3. The documents described in the attached Attachment I (the foregoing documents are collectively called the "Principal Documents") and have examined such other corporate documents and records of the Borrower and other documents and other instruments as I have deemed necessary or appropriate. Based on the foregoing, and having regard for the legal considerations deemed relevant, we are of the opinion that: 1 The Mortgage constitutes as security for the loans to be made and letters of credit to be issued pursuant to the Credit Agreement as amended by the Credit Agreement Amendment and to be evidenced by the Notes, (a) a legally valid and first mortgage lien on all real property and interests in real property specifically described in the Mortgage as being mortgaged thereby, and (b) a perfected security interest in (i) all tangible property specifically described in the Mortgage as being mortgaged thereby, and (ii) all accounts, contract rights, general intangibles and proceeds described in the Mortgage as being mortgaged or assigned thereby. 2 After giving effect to the Credit Agreement Amendment, the Security Agreement constitutes as security for the loans to be made and letters of credit to be issued pursuant to the Credit Agreement as amended by the Credit Agreement Amendment and to be evidenced by the Notes, a first perfected security interest in all the Security Agreement Collateral. No further subsequent filing, refiling, or recording, re-recording, registration, or re-registration will be necessary in [state] in order to continue, or to continue to perfect the security interest in the property described above created by the Security Agreement, except that, under the UCC, continuation statements must be filed in each applicable filing office within six (6) months prior to the expiration of each five (5) year period (measured from the date financing statements were originally filed) in order to continue the perfected status of such security interest. Assumptions: - ----------- The opinions stated herein are expressly subject to the following assumptions and qualifications: [INCLUDE APPROPRIATE ASSUMPTIONS] This opinion my be relied upon by Agent, Lenders and their legal counsel, and their respective successors, assignees and other transferees and their respective legal counsel. Very truly yours, Exhibit E-5 - Page 2 Bank of Montreal May 6, 1998 Page 1 EXHIBIT F FORM OF COMPLIANCE CERTIFICATE ------------------------------ The undersigned hereby certifies that he is the chief financial Authorized Officer of MARKWEST HYDROCARBON, INC., a Delaware corporation (the "Borrower"), -------- that he has knowledge of the facts stated herein, and that as such he is authorized to execute this certificate. With reference to the Credit Agreement, dated as of June 20, 1997 (together with all amendments or supplements thereto being the "Credit Agreement") among the Borrower, the Lenders which are or ---------------- become party thereto, and BANK OF MONTREAL, as Administrative Agent for the Lenders (the "Administrative Agent"), the undersigned represents and warrants as -------------------- follows (each capitalized term used herein having the same meaning given to it in the Credit Agreement unless otherwise specified): (a) The representations and warranties on the part of the Borrower contained in the Credit Agreement or any other Loan Document were true and correct when made, and are repeated at and as of the time of delivery hereof and are true and correct at and as of the time of delivery hereof, except to the extent such representations and warranties are expressly limited to an earlier date. (b) No Default or any Event of Default has occurred and is continuing. (c) Since June 20, 1997, there has been no Material Adverse Effect with respect to the Borrower or any of its Subsidiaries. (d) Borrower is in compliance with Section 7.2.4 of the Credit Agreement as of the end of the fiscal quarter ending ________________, _______. Attached hereto are the detailed computations necessary to determine such compliance. (e) Borrower and its Subsidiaries (i) are in compliance with Section 7.1.6 of the Credit Agreement and (ii) have not received any claims, complaints, notices, inquiries, or requests for information regarding potential liability under any Environmental Law or under any common law theories relating to operations or the condition of any facilities or property (including underlying groundwater) owned, leased or operated by the Borrower and its Subsidiaries. Exhibit F - Page 1 Bank of Montreal May 6, 1998 Page 2 (f) Borrower is in compliance with, and has performed any and all obligations and actions set forth in, the terms and provisions of the Hedging Policy. (g) As of the date hereof, Borrower has (1) Hedging Obligations equal to $__________________, (2) Hedging Obligations pursuant to Lender Hedging Agreements equal to $__________________, and (3) such Hedging Obligations arise in connection with the following Hedging Agreements:_____ ___________________________________________________________________________ ___________________________________________________________________________ _________________________________________________. EXECUTED AND DELIVERED this _______ day of ____________________. By:______________________________ Name: Title: Chief Financial Officer Exhibit F - Page 2 Bank of Montreal May 6, 1998 Page 3 COMPLIANCE WITH FINANCIAL COVENANTS AS OF _____________. ($ in 000's) ================================================================================ A. TANGIBLE NET WORTH $ =============== Minimum requirement $ ================== B. TOTAL FUNDED DEBT TO CAPITALIZATION ==============% Maximum ratio allowed [65% or 60%]* ============= * See Section 7.2.4(b) of the Credit Agreement. C. TOTAL FUNDED DEBT TO TRAILING TWELVE MONTH EBITDA =============== Maximum ratio allowed [6 : 1 / 4 : 1 / 3.5 : 1 or 3 : 1]** ==================================== D. CURRENT RATIO =============== Minimum ratio allowed 1 : 1 ==================== ================================================================================ COMPUTATION OF FINANCIAL REQUIREMENTS AND RATIOS AS OF ______________. ================================================================================ A. TANGIBLE NET WORTH (Section 7.2.4(a)) ($ in 000's) (i) Tangible Net Worth (as defined in Section 1.1) _________________________ * See Section 7.2.4 (b) of the Credit Agreement. ** See Section 7.2.4 (c) of the Credit Agreement. Exhibit F - Page 3 Bank of Montreal May 6, 1998 Page 4 (a) Consolidated net worth of the Borrower and its Subsidiaries $__________ (b) Less amount of any intangible assets of the Borrower ---- and its Subsidiaries $__________ TANGIBLE NET WORTH $ ========== (ii) MINIMUM REQUIRED (a) $38,000,000 $38,000,000 (b) Plus 50% of positive consolidated net ---- income for previous quarters beginning January 1, 1997 $________ (c) Plus 50% of positive consolidated net ---- income for quarter ended ___________ $________ (d) Plus 85% of the proceeds from the issuance ---- of any Securities (other than Securities representing Indebtedness) for previous quarters beginning January 1, 1997 $________ (e) Plus 85% of the proceeds from the issuance ---- of any Securities (other than Securities representing Indebtedness) for quarter ended _____________ $________ TANGIBLE NET WORTH REQUIREMENT $ ========== ================================================================================ B.. TOTAL FUNDED DEBT TO CAPITALIZATION (Section 7.2.4(b)) ($ in 000's) (i) TOTAL FUNDED DEBT (as defined in Section 1.1) (a) All obligations of Borrower and its Subsidiaries for borrowed money and all obligations evidenced by bonds, debentures, notes or other similar instruments $__________ Exhibit F - Page 4 Bank of Montreal May 6, 1998 Page 5 (b) Plus all obligations, contingent or otherwise, ---- relative to the face amount of all letters of credit, whether or not drawn, and banker's acceptances issued for the account of Borrower and its Subsidiaries $_______ (c) Plus all obligations of Borrower and its ---- Subsidiaries as lessee under leases which have been or should be, in accordance with GAAP, recorded as Capitalized Lease Liabilities $_______ (d) Plus all obligations of Borrower and its ---- Subsidiaries to pay the deferred purchase price of property or services which have been or should be in accordance with GAAP $_______ (e) Less cash on hand free and clear of all Liens $_______ ---- (f) Less Cash Equivalent Investments free ---- and clear of all Liens $_______ TOTAL FUNDED DEBT $ ======= (ii) CAPITALIZATION (as defined in Section 1.1) (a) Total Funded Debt of the Borrower and its Subsidiaries on a consolidated basis (See B(i) above) $_______ (b) Plus total shareholders' equity of the Borrower ---- and its Subsidiaries on a consolidated basis determined in accordance with GAAP $_______ [exclude mark-to-market adjustments, including those relating to commodity hedges required to be included in determining shareholders' equity under GAAP] $_______ $_______ Exhibit F - Page 5 Bank of Montreal May 6, 1998 Page 6 CAPITALIZATION $ ======== TOTAL FUNDED DEBT TO CAPITALIZATION ((i)/(ii)) % ======== Maximum ratio [65 or 60]%* ======== ================================================================================ C. TOTAL FUNDED DEBT TO TRAILING TWELVE MONTH EBITDA (Section 7.2.4(c)) ($ in 000's) (i) TOTAL FUNDED DEBT (as defined in Section 1.1) (as calculated in B(i) above) $ ======== (ii) TRAILING TWELVE MONTH EBITDA (as defined in Section 1.1) For the Twelve Months Ended _____________ - Net earnings (excluding extraordinary items, gains and losses on sales and retirement of assets, non-cash write downs and charges resulting from accounting convention changes) before deduction for federal and state income taxes, Interest Expense, operating lease rentals and depreciation, depletion and amortization expense of the Borrower and its Subsidiaries on a consolidated basis, all determined in accordance with GAAP for the 12 months ending on the last day of such month. TRAILING TWELVE MONTH EBITDA $ ======== TOTAL FUNDED DEBT TO TRAILING TWELVE MONTH EBITDA((i)/(ii)) ======== Maximum ratio [6 : 1 / 4 : 1 / 3.5 : 1 or 3 : 1]* ================================ _____________________ * See Section 7.2.4(b) of the Credit Agreement. * See Section 7.2.4(c) of the Credit Agreement. Exhibit F - Page 6 Bank of Montreal May 6,1998 Page 7 ================================================================================ D. CURRENT RATIO (Section 7.2.4(d)) (i) Consolidated current assets of the Borrower and its Subsidiaries, as determined in accordance with GAAP $_______ (ii) Consolidated current liabilities of the Borrower and its Subsidiaries, as determined in accordance with GAAP $_______ CURRENT RATIO ((i)/(ii)) ======= Minimum ratio 1 : 1 ======= ________________________________________________________________________________ * See Section 7.2.4(c) of the Credit Agreement. Exhibit F - Page 7 EX-11 3 COMPUTATION OF EARNINGS PER COMMON SHARE
EXHIBIT 11
MARKWEST HYDROCARBON, INC. COMPUTATION OF EARNINGS PER COMMON SHARE (000s, except per share data)
For the quarter ended For the six months ended June 30, 1998 June 30, 1998 ------------------------------ ---------------------------- Net income $ (1,140) $ (223) Weighted average number of outstanding shares of common stock 8,500 8,498 Basic earnings per share $ (0.13) $ (0.03) ============================== ============================ Net income (1,140) (223) Weighted average number of outstanding shares of common stock 8,500 8,498 Dilutive stock options 122 133 ------------------------------ ---------------------------- 8,622 8,631 Earnings per share assuming dilution $ (0.13) $ (0.03) ============================== ============================
EX-27 4 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the consolidated balance sheet and consolidated statement of operations of the Company's Form 10-Q for the quarter ended June 30, 1998 and is qualified in its entirety by reference to such financial statements. 1,000 6-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 669 0 5,891 120 4,558 15,035 100,232 (17,499) 98,703 7,110 33,626 0 0 85 51,286 98,703 30,617 31,359 20,871 20,871 10,846 0 893 (358) (135) (223) 0 0 0 (223) (0.03) (0.03)
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